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, 20182019
Commission File Number 001-32924
Green Plains Inc.
(Exact name of registrant as specified in its charter)
Iowa | 84-1652107 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1811 Aksarben Drive, Omaha, NE 68106 | (402) 884-8700 |
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | GPRE | The Nasdaq Stock Market LLC |
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer | |
Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐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 November 5, 2018,4, 2019, was 41,414,39635,955,233 shares.
Page | ||
Commonly Used Defined Terms |
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PART I – FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | |
Consolidated Balance Sheets | 3 | |
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4 | ||
5 | ||
6 | ||
8 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II – OTHER INFORMATION | ||
Item 1. | 58 | |
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Item 1A. | 58 | |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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The abbreviations, acronyms and industry terminology used in this quarterly report are defined as follows:
Green Plains Inc., Subsidiaries, and Partners:
Green Plains; the company | Green Plains Inc. and its subsidiaries |
BioProcess Algae | BioProcess Algae LLC |
|
|
| Fleischmann’s Vinegar Company, Inc. |
Green Plains | Green Plains Cattle Company LLC |
Green Plains Grain | Green Plains Grain Company LLC |
Green Plains Partners; the partnership | Green Plains Partners LP |
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Green Plains Trade | Green Plains Trade Group LLC |
Accounting Defined Terms:
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Accounting Defined Terms:
Accounting Standards Codification | |
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| Earnings before interest, income taxes, depreciation and amortization |
EPS | Earnings per share |
Exchange Act | Securities Exchange Act of 1934, as amended |
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| U.S. Generally Accepted Accounting Principles |
LIBOR | London Interbank Offered Rate |
LTIP | Long-Term Incentive Plan |
R&D Credits | Research and development tax credits |
SEC | Securities and Exchange Commission |
OtherIndustry Defined Terms:
CAFE | Corporate Average Fuel Economy |
D.C. | District of Columbia |
E10 | Gasoline blended with up to 10% ethanol by volume |
E15 | Gasoline blended with up to 15% ethanol by volume |
E85 | Gasoline blended with up to 85% ethanol by volume |
EIA | U.S. Energy Information Administration |
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| U.S. Environmental Protection Agency |
MmBtu | Million British Thermal Units |
Mmg | Million gallons |
MTBE | Methyl tertiary-butyl ether |
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| Renewable Fuels Standard II |
RIN | Renewable identification number |
RVO | Renewable volume obligation |
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| U.S. Department of Agriculture |
PART 1 – FINANCIAL INFORMATION
GREEN PLAINS INC. AND SUBSIDIARIES
(in thousands, except share amounts)
September 30, | December 31, | ||||
(unaudited) | |||||
ASSETS | |||||
Current assets | |||||
Cash and cash equivalents | $ | 235,537 | $ | 251,681 | |
Restricted cash | 18,502 | 31,603 | |||
Accounts receivable, net of allowances of $203 and $147, respectively | 64,322 | 88,501 | |||
Income taxes receivable | 12,933 | 12,418 | |||
Inventories | 250,614 | 302,600 | |||
Prepaid expenses and other | 10,578 | 14,125 | |||
Derivative financial instruments | 29,569 | 26,315 | |||
Current assets of discontinued operations | - | 479,399 | |||
Total current assets | 622,055 | 1,206,642 | |||
Property and equipment, net of accumulated depreciation | 809,041 | 815,235 | |||
Operating lease right-of-use assets | 56,437 | - | |||
Goodwill | 34,689 | 34,689 | |||
Investment in equity method investees | 93,029 | 29,714 | |||
Deferred income taxes | 22,578 | - | |||
Other assets | 54,242 | 57,092 | |||
Noncurrent assets of discontinued operations | - | 73,060 | |||
Total assets | $ | 1,692,071 | $ | 2,216,432 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities | |||||
Accounts payable | $ | 126,815 | $ | 135,829 | |
Accrued and other liabilities | 43,440 | 52,563 | |||
Derivative financial instruments | 14,564 | 7,852 | |||
Operating lease current liabilities | 16,954 | - | |||
Short-term notes payable and other borrowings | 149,143 | 163,751 | |||
Current maturities of long-term debt | 132,999 | 54,769 | |||
Current liabilities of discontinued operations | - | 418,936 | |||
Total current liabilities | 483,915 | 833,700 | |||
Long-term debt | 248,289 | 298,110 | |||
Deferred income taxes | 1,903 | 10,123 | |||
Operating lease long-term liabilities | 42,142 | - | |||
Other liabilities | 9,360 | 11,428 | |||
Noncurrent liabilities of discontinued operations | - | 82 | |||
Total liabilities | 785,609 | 1,153,443 | |||
Commitments and contingencies (Note 14) |
|
| |||
Stockholders' equity | |||||
Common stock, $0.001 par value; 75,000,000 shares authorized; | 47 | 47 | |||
Additional paid-in capital | 730,808 | 696,222 | |||
Retained earnings | 187,899 | 324,728 | |||
Accumulated other comprehensive loss | (11,754) | (16,016) | |||
Treasury stock, 10,395,458 and 5,535,574 shares, respectively | (114,046) | (58,162) | |||
Total Green Plains stockholders' equity | 792,954 | 946,819 | |||
Noncontrolling interests | 113,508 | 116,170 | |||
Total stockholders' equity | 906,462 | 1,062,989 | |||
Total liabilities and stockholders' equity | $ | 1,692,071 | $ | 2,216,432 |
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| September 30, |
| December 31, | ||
| (unaudited) |
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ASSETS | |||||
Current assets |
|
|
|
|
|
Cash and cash equivalents | $ | 171,674 |
| $ | 266,651 |
Restricted cash |
| 62,797 |
|
| 45,709 |
Accounts receivable, net of allowances of $206 and $217, respectively |
| 134,950 |
|
| 151,122 |
Income taxes receivable |
| 13,211 |
|
| 6,413 |
Inventories |
| 765,198 |
|
| 711,878 |
Prepaid expenses and other |
| 15,529 |
|
| 17,808 |
Derivative financial instruments |
| 24,254 |
|
| 6,890 |
Total current assets |
| 1,187,613 |
|
| 1,206,471 |
Property and equipment, net of accumulated depreciation |
| 1,143,551 |
|
| 1,176,707 |
Goodwill |
| 182,879 |
|
| 182,879 |
Other assets |
| 170,791 |
|
| 218,593 |
Total assets | $ | 2,684,834 |
| $ | 2,784,650 |
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|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current liabilities |
|
|
|
|
|
Accounts payable | $ | 155,663 |
| $ | 205,479 |
Accrued and other liabilities |
| 47,955 |
|
| 63,886 |
Derivative financial instruments |
| 41,725 |
|
| 12,884 |
Income taxes payable |
| - |
|
| 9,909 |
Short-term notes payable and other borrowings |
| 556,566 |
|
| 526,180 |
Current maturities of long-term debt |
| 65,614 |
|
| 67,923 |
Total current liabilities |
| 867,523 |
|
| 886,261 |
Long-term debt |
| 767,177 |
|
| 767,396 |
Deferred income taxes |
| 21,764 |
|
| 56,801 |
Other liabilities |
| 14,235 |
|
| 15,056 |
Total liabilities |
| 1,670,699 |
|
| 1,725,514 |
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Commitments and contingencies (Note 14) |
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Stockholders' equity |
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|
|
Common stock, $0.001 par value; 75,000,000 shares authorized; |
| 47 |
|
| 46 |
Additional paid-in capital |
| 695,143 |
|
| 685,019 |
Retained earnings |
| 276,082 |
|
| 325,411 |
Accumulated other comprehensive loss |
| (17,176) |
|
| (13,110) |
Treasury stock, 5,325,892 and 5,325,942 shares, respectively |
| (55,183) |
|
| (55,184) |
Total Green Plains stockholders' equity |
| 898,913 |
|
| 942,182 |
Noncontrolling interests |
| 115,222 |
|
| 116,954 |
Total stockholders' equity |
| 1,014,135 |
|
| 1,059,136 |
Total liabilities and stockholders' equity | $ | 2,684,834 |
| $ | 2,784,650 |
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|
|
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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)
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| Three Months Ended |
| Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||
Revenues |
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Product revenues | $ | 998,802 |
| $ | 899,534 |
| $ | 3,027,678 |
| $ | 2,670,458 | $ | 631,032 | $ | 787,750 | $ | 1,696,245 | $ | 2,395,877 | |||
Service revenues |
| 1,298 |
|
| 1,701 |
|
| 4,546 |
|
| 4,724 | 1,318 | 1,298 | 5,315 | 4,546 | |||||||
Total revenues |
| 1,000,100 |
|
| 901,235 |
|
| 3,032,224 |
|
| 2,675,182 | 632,350 | 789,048 | 1,701,560 | 2,400,423 | |||||||
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Costs and expenses |
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Cost of goods sold (excluding depreciation and amortization expenses reflected below) |
| 936,384 |
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| 815,787 |
|
| 2,835,344 |
|
| 2,457,702 | 632,129 | 733,080 | 1,700,481 | 2,233,914 | |||||||
Operations and maintenance expenses |
| 7,271 |
|
| 8,309 |
|
| 23,564 |
|
| 25,107 | 6,216 | 7,271 | 19,314 | 23,564 | |||||||
Selling, general and administrative expenses |
| 25,083 |
|
| 28,589 |
|
| 80,817 |
|
| 77,946 | 18,542 | 23,215 | 56,450 | 75,751 | |||||||
Depreciation and amortization expenses |
| 30,713 |
|
| 27,834 |
|
| 84,010 |
|
| 80,105 | 17,828 | 29,266 | 52,963 | 80,170 | |||||||
Total costs and expenses |
| 999,451 |
|
| 880,519 |
|
| 3,023,735 |
|
| 2,640,860 | 674,715 | 792,832 | 1,829,208 | 2,413,399 | |||||||
Operating income |
| 649 |
|
| 20,716 |
|
| 8,489 |
|
| 34,322 | |||||||||||
Operating loss from continuing operations | (42,365) | (3,784) | (127,648) | (12,976) | ||||||||||||||||||
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Other income (expense) |
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Interest income |
| 790 |
|
| 383 |
|
| 2,136 |
|
| 1,061 | 767 | 745 | 2,813 | 2,053 | |||||||
Interest expense |
| (23,399) |
|
| (31,889) |
|
| (67,548) |
|
| (69,815) | (10,548) | (19,703) | (31,528) | (58,330) | |||||||
Other, net |
| (117) |
|
| 1,444 |
|
| 2,362 |
|
| 2,811 | 88 | 133 | 630 | 260 | |||||||
Total other expense |
| (22,726) |
|
| (30,062) |
|
| (63,050) |
|
| (65,943) | (9,693) | (18,825) | (28,085) | (56,017) | |||||||
Loss before income taxes |
| (22,077) |
|
| (9,346) |
|
| (54,561) |
|
| (31,621) | |||||||||||
Loss from continuing operations before income taxes and income (loss) from equity method investees | (52,058) | (22,609) | (155,733) | (68,993) | ||||||||||||||||||
Income tax benefit |
| 14,658 |
|
| 48,775 |
|
| 31,438 |
|
| 60,905 | 12,530 | 14,973 | 40,692 | 34,524 | |||||||
Net income (loss) |
| (7,419) |
|
| 39,429 |
|
| (23,123) |
|
| 29,284 | |||||||||||
Income (loss) from equity method investees, net of income taxes | 644 | (250) | 534 | (489) | ||||||||||||||||||
Net loss from continuing operations including noncontrolling interest | (38,884) | (7,886) | (114,507) | (34,958) | ||||||||||||||||||
Net income from discontinued operations, net of income taxes | 3,393 | 467 | 966 | 11,835 | ||||||||||||||||||
Net loss | (35,491) | (7,419) | (113,541) | (23,123) | ||||||||||||||||||
Net income attributable to noncontrolling interests |
| 5,050 |
|
| 5,035 |
|
| 14,457 |
|
| 14,853 | 3,479 | 5,050 | 13,570 | 14,457 | |||||||
Net income (loss) attributable to Green Plains | $ | (12,469) |
| $ | 34,394 |
| $ | (37,580) |
| $ | 14,431 | |||||||||||
Net loss attributable to Green Plains | $ | (38,970) | $ | (12,469) | $ | (127,111) | $ | (37,580) | ||||||||||||||
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Earnings per share: |
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Net income (loss) attributable to Green Plains - basic | $ | (0.31) |
| $ | 0.83 |
| $ | (0.94) |
| $ | 0.36 | |||||||||||
Net income (loss) attributable to Green Plains - diluted | $ | (0.31) |
| $ | 0.74 |
| $ | (0.94) |
| $ | 0.48 | |||||||||||
Earnings (loss) per share - basic and diluted: | ||||||||||||||||||||||
Net loss from continuing operations | $ | (1.15) | $ | (0.32) | $ | (3.28) | $ | (1.23) | ||||||||||||||
Net income from discontinued operations | 0.09 | 0.01 | 0.03 | 0.29 | ||||||||||||||||||
Net loss attributable to Green Plains | $ | (1.06) | $ | (0.31) | $ | (3.25) | $ | (0.94) | ||||||||||||||
Weighted average shares outstanding: |
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| |||||||||||
Basic |
| 40,229 |
|
| 41,348 |
|
| 40,189 |
|
| 40,008 | 36,913 | 40,229 | 39,092 | 40,189 | |||||||
Diluted |
| 40,229 |
|
| 50,647 |
|
| 40,189 |
|
| 50,693 | 36,913 | 40,229 | 39,092 | 40,189 | |||||||
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Cash dividend declared per share | $ | 0.12 |
| $ | 0.12 |
| $ | 0.36 |
| $ | 0.36 |
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited and in thousands)
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| Three Months Ended |
| Nine Months Ended | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
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Net income (loss) | $ | (7,419) |
| $ | 39,429 |
| $ | (23,123) |
| $ | 29,284 |
Other comprehensive income (loss), net of tax: |
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|
|
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Unrealized losses on derivatives arising during the period, net of tax benefit of $4,314, $4,575, $343 and $5,633, respectively |
| (14,395) |
|
| (7,660) |
|
| (1,522) |
|
| (9,436) |
Reclassification of realized losses (gains) on derivatives, net of tax expense (benefit) of ($420), ($2,650), ($55) and $21, respectively |
| 1,427 |
|
| 4,453 |
|
| 243 |
|
| (34) |
Total other comprehensive loss, net of tax |
| (12,968) |
|
| (3,207) |
|
| (1,279) |
|
| (9,470) |
Comprehensive income (loss) |
| (20,387) |
|
| 36,222 |
|
| (24,402) |
|
| 19,814 |
Comprehensive income attributable to noncontrolling interests |
| 5,050 |
|
| 5,035 |
|
| 14,457 |
|
| 14,853 |
Comprehensive income (loss) attributable to Green Plains | $ | (25,437) |
| $ | 31,187 |
| $ | (38,859) |
| $ | 4,961 |
Three Months Ended | Nine Months Ended | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Net loss | $ | (35,491) | $ | (7,419) | $ | (113,541) | $ | (23,123) | |||
Other comprehensive income (loss), net of tax: | |||||||||||
Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of ($5,149), $4,314, ($12,953) and $343, respectively | 28,095 | (14,395) | 54,472 | (1,522) | |||||||
Reclassification of realized losses (gains) on derivatives, net of tax expense (benefit) of $13,445, ($420), $9,358 and ($55), respectively | (53,255) | 1,427 | (39,439) | 243 | |||||||
Other comprehensive income (loss), net of tax | (25,160) | (12,968) | 15,033 | (1,279) | |||||||
Share of equity method investees other comprehensive loss arising during the period, net of tax benefit of $3,555, $0, $3,555, and $0, respectively | (10,771) | - | (10,771) | - | |||||||
Total other comprehensive income (loss), net of tax | (35,931) | (12,968) | 4,262 | (1,279) | |||||||
Comprehensive loss | (71,422) | (20,387) | (109,279) | (24,402) | |||||||
Comprehensive income attributable to noncontrolling interests | 3,479 | 5,050 | 13,570 | 14,457 | |||||||
Comprehensive loss attributable to Green Plains | $ | (74,901) | $ | (25,437) | $ | (122,849) | $ | (38,859) |
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
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| Nine Months Ended | Nine Months Ended | ||||||||
| 2018 |
| 2017 | 2019 | 2018 | |||||
Cash flows from operating activities: |
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Net income (loss) | $ | (23,123) |
| $ | 29,284 | |||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Net loss from continuing operations including noncontrolling interest | $ | (114,507) | $ | (34,958) | ||||||
Net income from discontinued operations, net of income taxes | 966 | 11,835 | ||||||||
Net loss | (113,541) | (23,123) | ||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||
Depreciation and amortization |
| 84,010 |
|
| 80,105 | 52,963 | 80,170 | |||
Amortization of debt issuance costs and debt discount |
| 11,343 |
|
| 11,222 | 15,633 | 10,617 | |||
Loss on exchange of 3.25% convertible notes due 2018 |
| - |
|
| 1,291 | |||||
Gain on disposal of assets |
| (2,743) |
|
| (2,439) | |||||
Write-off of deferred financing fees related to extinguishment of debt |
| - |
|
| 9,460 | |||||
Deferred income taxes |
| (37,980) |
|
| (88,565) | (38,918) | (37,980) | |||
Other noncurrent assets and liabilities |
| - |
|
| 18,062 | |||||
Stock-based compensation |
| 8,726 |
|
| 8,761 | 7,406 | 8,726 | |||
Undistributed equity loss of affiliates |
| 489 |
|
| 120 | |||||
Changes in operating assets and liabilities before effects of business combinations: |
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| |||||
Income (loss) from equity method investees, net of income taxes | (534) | 489 | ||||||||
Other | 1,245 | (152) | ||||||||
Changes in operating assets and liabilities before effects of business combinations and dispositions: | ||||||||||
Accounts receivable |
| 18,069 |
|
| 32,267 | 21,106 | 24,684 | |||
Inventories |
| 53,363 |
|
| (168,788) | 52,400 | 52,966 | |||
Derivative financial instruments |
| 9,843 |
|
| (12,738) | 7,208 | (10,395) | |||
Prepaid expenses and other assets |
| 2,184 |
|
| 2,180 | 3,900 | 2,137 | |||
Accounts payable and accrued liabilities |
| (68,520) |
|
| (34,278) | (22,359) | (78,758) | |||
Current income taxes |
| 31,220 |
|
| (1,540) | (2,175) | 31,220 | |||
Other |
| (2,493) |
|
| 1,361 | (2,167) | (2,539) | |||
Net cash provided by (used in) operating activities - continuing operations | (17,833) | 58,062 | ||||||||
Net cash provided by operating activities - discontinued operations | 17,469 | 26,326 | ||||||||
Net cash provided by (used in) operating activities |
| 84,388 |
|
| (114,235) | (364) | 84,388 | |||
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Cash flows from investing activities: |
|
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|
|
| |||||
Purchases of property and equipment, net |
| (31,114) |
|
| (36,475) | (43,372) | (29,892) | |||
Acquisition of businesses, net of cash acquired |
| (124,407) |
|
| (61,727) | |||||
Investments in unconsolidated subsidiaries |
| (2,446) |
|
| (12,033) | |||||
Proceeds from sale of discontinued operations, net of cash divested | 77,240 | - | ||||||||
Proceeds from the sale of assets, net | 3,469 | - | ||||||||
Contribution to equity method investees | (100) | (2,446) | ||||||||
Other investing activities |
| 7,500 |
|
| - | - | 7,500 | |||
Net cash used in investing activities |
| (150,467) |
|
| (110,235) | |||||
Net cash provided by (used in) investing activities - continuing operations | 37,237 | (24,838) | ||||||||
Net cash used in investing activities - discontinued operations | (4,169) | (125,629) | ||||||||
Net cash provided (used in) investing activities | 33,068 | (150,467) | ||||||||
|
|
|
|
|
| |||||
Cash flows from financing activities: |
|
|
|
|
| |||||
Proceeds from the issuance of long-term debt |
| 58,700 |
|
| 551,500 | 180,100 | 58,700 | |||
Payments of principal on long-term debt |
| (62,537) |
|
| (487,450) | (68,235) | (62,537) | |||
Proceeds from short-term borrowings |
| 3,095,927 |
|
| 3,301,630 | 1,994,777 | 2,758,767 | |||
Payments on short-term borrowings |
| (3,065,953) |
|
| (3,135,347) | (2,070,273) | (2,834,617) | |||
Cash payment for exchange of 3.25% convertible notes due 2018 |
| - |
|
| (8,523) | |||||
Payments for repurchase of common stock |
| - |
|
| (5,733) | (55,884) | - | |||
Payments of cash dividends and distributions |
| (30,921) |
|
| (29,267) | (26,189) | (30,921) | |||
Payment penalty on early extinguishment of debt |
| - |
|
| (2,881) | |||||
Proceeds from disgorgement of shareholder short-swing profits | 6,699 | - | ||||||||
Payments of loan fees |
| (3,961) |
|
| (15,541) | (5,290) | (3,373) | |||
Payments related to tax withholdings for stock-based compensation |
| (3,215) |
|
| (4,105) | (2,101) | (3,215) | |||
Proceeds from exercise of stock options |
| 150 |
|
| 50 | - | 150 | |||
Net cash provided by (used in) financing activities |
| (11,810) |
|
| 164,333 | |||||
Net cash used in financing activities - continuing operations | (46,396) | (117,046) | ||||||||
Net cash provided by (used in) financing activities - discontinued operations | (50,464) | 105,236 | ||||||||
Net cash used in financing activities | (96,860) | (11,810) | ||||||||
|
|
|
|
|
| |||||
Net change in cash, cash equivalents and restricted cash |
| (77,889) |
|
| (60,137) | (64,156) | (77,889) | |||
Cash, cash equivalents and restricted cash, beginning of period |
| 312,360 |
|
| 406,791 | 283,284 | 289,667 | |||
Discontinued operations cash activity included above: | ||||||||||
Add: Cash balance included in current assets of discontinued operations at beginning of period | 34,911 | 22,693 | ||||||||
Less: Cash balance included in current assets of discontinued operations at end of period | - | (40,461) | ||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 234,471 |
| $ | 346,654 | $ | 254,039 | $ | 194,010 | |
|
|
|
|
|
| |||||
Continued on the following page |
|
|
|
|
|
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Continued from the previous page | |||||
Nine Months Ended | |||||
2019 | 2018 | ||||
Reconciliation of total cash, cash equivalents and restricted cash: | |||||
Cash and cash equivalents | $ | 235,537 | $ | 171,674 | |
Restricted cash | 18,502 | 62,797 | |||
Discontinued operations cash activity included above: | |||||
Less: Cash, cash equivalents and restricted cash balance included in current assets of discontinued operations at end of period | - | (40,461) | |||
Total cash, cash equivalents and restricted cash | $ | 254,039 | $ | 194,010 | |
Non-cash financing activity: | |||||
Modification of 3.25% convertible notes due 2019 | $ | - | $ | 4,660 | |
Exchange of common stock held in treasury stock for 3.25% | $ | - | $ | 1 | |
Supplemental investing and financing activities of discontinued operations: | |||||
Assets acquired in acquisitions, net of cash | $ | - | $ | 124,525 | |
Less: liabilities assumed | - | (118) | |||
Net assets acquired | $ | - | $ | 124,407 | |
Assets disposed of in sale | $ | 527,614 | $ | - | |
Less: liabilities disposed | (373,846) | - | |||
Net assets disposed | $ | 153,768 | $ | - | |
Supplemental disclosures of cash flow: | |||||
Cash paid (refunded) for income taxes | $ | 640 | $ | (23,568) | |
Cash paid for interest of continuing operations | $ | 21,777 | $ | 49,853 | |
Cash paid for interest of discontinued operations | $ | 11,556 | $ | 8,444 |
|
|
|
|
|
|
Continued from the previous page |
|
|
|
|
|
| Nine Months Ended | ||||
| 2018 |
| 2017 | ||
Reconciliation of total cash, cash equivalents and restricted cash: |
|
|
|
|
|
Cash and cash equivalents | $ | 171,674 |
| $ | 261,588 |
Restricted cash |
| 62,797 |
|
| 85,066 |
Total cash, cash equivalents and restricted cash | $ | 234,471 |
| $ | 346,654 |
|
|
|
|
|
|
Non-cash financing activity: |
|
|
|
|
|
Modification of 3.25% convertible notes due 2019 | $ | 4,660 |
| $ | - |
Exchange of 3.25% convertible notes due 2018 for shares of common stock | $ | - |
| $ | 47,743 |
Exchange of common stock held in treasury stock for 3.25% convertible notes due 2018 | $ | 1 |
| $ | 27,356 |
|
|
|
|
|
|
Supplemental investing and financing activities: |
|
|
|
|
|
Assets acquired in acquisitions, net of cash | $ | 124,525 |
| $ | 62,209 |
Less: liabilities assumed |
| (118) |
|
| (482) |
Net assets acquired | $ | 124,407 |
| $ | 61,727 |
|
|
|
|
|
|
Supplemental disclosures of cash flow: |
|
|
|
|
|
Cash paid (received) for income taxes | $ | (23,568) |
| $ | 2,062 |
Cash paid for interest | $ | 58,297 |
| $ | 39,984 |
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(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. As of September 30, 2018, theThe company owns a 62.4%49.1% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 35.6%48.9% limited partner interest in the partnership. The company determined that the limited partners in the partnership with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact partnership’s economic performance; therefore, the partnership is considered a variable interest entity. The company, through its ownership of the general partner interest in the partnership, has the power to direct the activities that most significantly affect economic performance and is obligated to absorb losses and has the right to receive benefits that could be significant to the partnership. Therefore, the company is considered the primary beneficiary and consolidates the partnership in the company’s financial statements. The assets of the partnership cannot be used by the company for general corporate purposes. The partnership’s consolidated total assets as of September 30, 2018,2019 and December 31, 2017,2018, excluding intercompany balances, were $71.5are $102.5 million and $74.9$67.3 million, respectively, and primarily consistedconsist of property and equipment, operating lease right-of-use assets and goodwill. The partnership’s consolidated total liabilities as of September 30, 2018,2019 and December 31, 2017,2018, excluding intercompany balances, were $152.7are $194.3 million and $153.0$152.9 million, respectively, which primarily consistedconsist of long-term debt as discussed in Note 9 – Debt. and operating lease liabilities. The liabilities recognized as a result of consolidating the partnership do not represent additional claims on our general assets.
On September 9, 2019, Green Plains, TGAM Agribusiness Fund Holdings-B LP (“TGAM”) and StepStone Atlantic Fund, L.P. (“StepStone”) announced the formation of a joint venture. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”) of Green Plains Cattle Company LLC (“GPCC”) on September 6, 2019, effective as of September 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. Under this method, the investment is recorded at the acquisition cost plus the company’s share of equity in undistributed earnings or losses since acquisition and the company’s share of equity method investees other comprehensive income arising during the period, reduced by distributions received and the amortization of excess net investment. The company recognizes this investment on a separate line item in the consolidated balance sheet and recognizes its proportionate share of earnings on a separate line item in the consolidated statement of operations. The company does not consolidate any part of the assets or liabilities or operating results of its equity method investees. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20 Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”) to be presented as discontinued operations. As such, GPCC results prior to its disposition are classified as discontinued operations in current and prior period consolidated financial statements. See Note 3 - Acquisitions, Dispositions and Discontinued Operations for further details.
The company also owns a 90.0% interest in BioProcess Algae, a joint venture formed in 2008, and consolidates their results in its consolidated financial statements.
The accompanying unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Because they do not include all of the information and notes required by GAAP, the consolidated financial statements should be read in conjunction with the company’s annual report on Form 10-K for the year ended December 31, 2017.2018, as filed with the SEC on February 20, 2019.
The unaudited financial information reflects adjustments, which are, in the opinion of management, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. The adjustments are normal
and recurring in nature, unless otherwise noted. Interim period results are not necessarily indicative of the results to be expected for the entire year.
Reclassifications
Certain prior year amounts were reclassified to conform to the current year presentation.presentation, including the discontinued operations of GPCC. These reclassifications did not affectaffected total revenues, costs and expenses, net income (loss) or stockholders’ equity.expenses.
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, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The company bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances and regularly evaluates the appropriateness of its estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, depreciation of property and equipment, carrying value of intangible assets, operating leases, impairment of long-lived assets and goodwill, derivative financial instruments, accounting for income taxes and assets acquired and liabilities assumed in acquisitions, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
8
Description of Business
The company operates within four4 business segments: (1) ethanol production, which includes the production of ethanol, and distillers grains and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and food-grade corn oil operations and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018 and (4) partnership, which includes fuel storage and transportation services.
Cash and Cash Equivalents
Cash and cash equivalents includes bank deposits as well as short-term, highly liquid investments with original maturities of three months or less.
Restricted Cash
The company has restricted cash, which can only be used for funding letters of credit or for payment towards a revolving credit agreement. Restricted cash also includes cash margins and securities pledged to commodity exchange clearinghouses.clearinghouses and at times, funds in escrow related to acquisition and disposition activities. To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated statements of cash flows.
Revenue Recognition
The company recognizes revenue at the point in time when the product or service is transferred to the customer.
Sales of ethanol, distillers grains, corn oil, natural gas and other commodities by the company’s marketing business are recognized when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.
Sales of ethanol, distillers grains, corn oil, natural gas and other commodities by the company’s marketing business are recognized when obligations under the terms of a contract with a customer are satisfied. Generally, this occurs with the transfer of control of products or services. Revenues related to marketing for third parties are presented on a gross basis as the company controls the product prior to the sale to the end customer, takes title of the product and has inventory risk. Unearned revenue is recorded for goods in transit when the company has received payment but control has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the product is delivered to the customer.
The company routinely enters into physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than delivering the physical commodity. Energy trading transactions are reported net as a component of revenue. All other transactions are reportedRevenues include net as either a component of revenuegains or losses
from derivatives related to products sold while cost of goods sold depending on their position as a gainincludes net gains or loss.losses from derivatives related to commodities purchased. Revenues also include realized gains and losses on related derivative financial instruments and reclassifications of realized gains and losses on cash flow hedges from accumulated other comprehensive income or loss.
Sales of products, including agricultural commodities, cattle and vinegar, are recognized when control of the product is transferred to the customer, which depends on the agreed upon shipment or delivery terms. Revenues related to grain merchandising are presented gross and include shipping and handling, which is also a component of cost of goods sold. Revenues from grain storage are recognized when services are rendered.
A substantial portion of the partnership revenues are derived from fixed-fee commercial agreements for storage, terminal or transportation services. The partnership recognizes revenue upon transfer of control of product from its storage tanks and fuel terminals, when railcar volumetric capacity is provided, and as truck transportation services are performed. To the extent shortfalls associated with minimum volume commitments in the previous four quarters continue to exist, volumes in excess of the minimum volume commitment are applied to those shortfalls. Remaining excess volumes generating operating lease revenue are recognized as incurred.
Shipping and Handling Costs
We accountThe company accounts for shipping and handling activities related to contracts with customers as costs to fulfill ourits promise to transfer the associated products. Accordingly, we recordthe company records customer payments associated with shipping and handling costs as a component of revenue, and classifyclassifies such costs as a component of cost of goods sold.
Cost of Goods Sold
Cost of goods sold includes direct labor, materials, shipping and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol production and vinegar production and cattle feeding operations.until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also
9
included in cost of goods sold. Materials include the cost of corn feedstock, denaturant, and process chemicals, cattle and veterinary supplies.chemicals. Corn feedstock costs include gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs, as well as reclassifications of gains and losses on cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant and feedlot utilities, repairs and maintenance feedlot expenses and outbound freight charges. Shipping costs incurred by the company, including railcar costs, are also reflected in cost of goods sold.
The company uses exchange-traded futures and options contracts and forward purchase and salessale contracts to attempt to minimize the effect of price changes on ethanol, grain and natural gas and cattle inventories.gas. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for differences, primarily in transportation, between the exchange-traded market and local market where the terms of the contract is based. Changes in forward purchase contracts and exchange-traded futures and options contracts are recognized as a component of cost of goods sold.
Operations and Maintenance Expenses
In the partnership segment, transportation expenses represent the primary component of operations and maintenance expenses. Transportation expenses include railcar leases, freight and shipping of the company’s ethanol and co-products, as well as costs incurred storing ethanol at destination terminals.
Derivative Financial Instruments
The company uses various derivative financial instruments, including exchange-traded futures and exchange-traded and over-the-counter options contracts, to attempt to minimize risk and the effect of commodity price changes including but not limited to, corn, ethanol, cattle, natural gas and crude oil. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk; however, there may be situations when these hedging activities themselves result in losses.
By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the
terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.
The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, cash flow hedge accounting treatment.
Certain qualifying derivatives related to ethanol production and agribusiness and energy services and food and ingredients segments are designated as cash flow hedges. The company evaluates the derivative instrument to ascertain its effectiveness prior to entering into cash flow hedges. Unrealized gains and losses are reflected in accumulated other comprehensive income or loss until the gain or loss from the underlying hedged transaction is realized. When it becomes probable a forecasted transaction will not occur, the cash flow hedge treatment is discontinued, which affects earnings. These derivative financial instruments are recognized in current assets or other current liabilities at fair value.
At times, the company hedges its exposure to changes in inventory values and designates qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted in the current period for changes in fair value. Ineffectiveness of the hedges is recognized in the current period to the extent the change in fair value of the inventory is not offset by the change in fair value of the derivative.
Investments in Equity Method Investees
The company accounts for investments in which the company exercises significant influence using the equity method so long as the company (i) does not control the investee and (ii) is not the primary beneficiary of the entity. The company recognizes these investments as a separate line item in the consolidated balance sheets and its proportionate share of earnings on a separate line item in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the consolidated balance sheet.
The company recognizes losses in the value of equity method investments when there is evidence of an other-than-temporary decrease in value. Evidence of a loss might include, but would not necessarily be limited to, the inability to recover the carrying amount of the investment or the inability of the equity method investee to sustain an earnings capacity that justifies the carrying amount of the investment. The current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. The company evaluates equity method investments for impairment when there is evidence an investment may be impaired.
Distributions paid to the company from unconsolidated affiliates are classified as operating activities in the consolidated statements of cash flows until the cumulative distributions exceed the company’s proportionate share of income from the unconsolidated affiliate since the date of initial investment. The amount of cumulative distributions paid to the company that exceeds the cumulative proportionate share of income in each period represents a return of investment, which is classified as an investing activity in the consolidated statements of cash flows.
Discontinued Operations
In determining whether a disposal group should be presented as discontinued operations, the company makes a determination of whether such a group being disposed of comprises a component of the entity, or a group of components of the entity, that represents a strategic shift that has, or will have, a major effect on the company's operations and financial results. If these determinations are made affirmatively, the results of operations of the group being disposed of are aggregated for separate presentation apart from the continuing operations of the company for all periods presented in the consolidated financial statements. General corporate overhead is not allocated to discontinued operations.
Net income from discontinued operations, net of income taxes, relates to the operations of GPCC, which was previously a wholly owned subsidiary of Green Plains until the formation of the GPCC joint venture and partial sale during the third quarter of 2019. The assets and liabilities of GPCC have been reclassified as assets and liabilities of discontinued operations
in the prior year. All assets and liabilities of GPCC were disposed of during the three months ended September 30, 2019. See Note 3 - Acquisitions, Dispositions and Discontinued Operations for further details.
The company entered into a shared service agreement whereby they will continue to provide certain administrative services to GPCC and will receive $400 thousand on a quarterly basis through September 1, 2024, with the option for automatic renewal for successive one year periods thereafter and the quarterly fee subject to adjustments annually based on services rendered or market rates. The company will continue to sell distillers grains and corn to GPCC, and will recognize these sales and related cost of goods in continuing operations within their consolidated results, whereas previously these were eliminated as intercompany transactions.
Recent Accounting Pronouncements
Effective January 1, 2018,2019, the company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers.842, Leases. Please refer to Note 214 – RevenueCommitments and Contingencies for further details.
Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 230, Statement of Cash Flows: Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance was applied retrospectively. As a result, net cash used in operating activities for the nine months ended September 30, 2017, was adjusted to exclude the change in restricted cash and decreased the previously reported balance by $8.0 million. Net cash provided by financing activities for the nine months ended September 30, 2017, was adjusted to exclude the change in restricted cash and decreased the previously reported balance by $25.5 million.
Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 740, Income Taxes: Intra-Entity Transfers of Assets other than Inventory, which requires the recognition of current and deferred income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amended guidance is required on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The adoption of the guidance did not have an impact to the financial statements.
Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 805, Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business and provides guidance to assist companies and other reporting organizations evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amended guidance will be applied prospectively.
Effective January 1, 2018, the company early adopted the amended guidance in ASC Topic 350, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit, would be recognized. The amended guidance will be applied prospectively, and used when the annual impairment test is performed in the current year. The company does not believe the new guidance will have a material impact on the consolidated financial statements.
Effective January 1, 2018, the company early adopted the amended guidance in ASC Topic 220, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendment eliminates the stranded tax effects resulting from the Tax Cuts and Jobs Act and is intended to improve the usefulness of information reported. As a result, the company recorded a $2.8 million reclassification from accumulated other comprehensive income to retained earnings during the first quarter of 2018. It is the company’s policy to release income tax effects from accumulated other comprehensive income using the portfolio approach.
Effective January 1, 2019, the company will adopt the amended guidance in ASC Topic 842, Leases, which aims to make leasing activities more transparent and comparable, requiring substantially all leases to be recognized by lessees on the balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2018. The standard requires a modified retrospective transition approach and allows for early adoption. In July 2018, the FASB issued Accounting Standards Update, Leases (Topic 842): Targeted Improvements, which provides an option to apply the transition provisions of the new standard at adoption date instead of the earliest comparative period presented in the financial statements. The company will elect to use this optional transition method.
The company has established an implementation team which continues to review current accounting policies, internal controls, processes, and disclosures that will change as a result of adopting the new standard. The company has gathered information on existing leases to obtain a complete population of leases upon adoption, and has implemented a lease accounting system, which will assist in delivering the required accounting changes and disclosures. The new standard will significantly increase right-of-use assets and lease liabilities on the company’s consolidated balance sheet, primarily due to operating leases that are currently not recognized on the balance sheet. In addition, it will also require expanded disclosures
11
in the company’s consolidated financial statements. The company will complete its assessment of the impact of the new guidance on its consolidated financial statements during the fourth quarter of 2018.
2. REVENUE
Adoption of ASC Topic 606
On January 1, 2018, the company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers, and all related amendments (“new revenue standard”) and applied it to all contracts using the modified retrospective transition method. There were no adjustments to the consolidated January 1, 2018 balance sheet for the adoption of the new revenue standard. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In addition, there was no impact of adoption on the consolidated statements of operations or balance sheets for the nine months ended September 30, 2018.
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.
Revenue by Source
The following table disaggregatestables disaggregate revenue by major source for the three and nine months ended September 30, 2019 and 2018 (in excluding amounts related to discontinued operations (in thousands):
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| Three Months Ended September 30, 2018 | Three Months Ended September 30, 2019 (1) | |||||||||||||||||||||||||||||||||
| Ethanol Production |
| Agribusiness & Energy Services |
| Food & Ingredients |
| Partnership |
| Eliminations |
| Total | Ethanol Production | Agribusiness & Energy Services | Food & Ingredients | Partnership | Eliminations | Total | ||||||||||||||||||
Revenues: |
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Revenues from contracts with customers under ASC Topic 606: |
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Revenues from contracts with customers under ASC 606: | |||||||||||||||||||||||||||||||||||
Ethanol | $ | 291 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 291 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
Distillers grains |
| 54,687 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 54,687 | 16,455 | - | - | - | - | 16,455 | ||||||||||||
Cattle and vinegar |
| - |
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| - |
|
| 259,224 |
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| - |
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| - |
|
| 259,224 | ||||||||||||||||||
Service revenues |
| - |
|
| - |
|
| - |
|
| 983 |
|
| - |
|
| 983 | - | - | - | 1,275 | - | 1,275 | ||||||||||||
Other |
| 238 |
|
| 680 |
|
| - |
|
| - |
|
| - |
|
| 918 | 127 | 895 | - | - | - | 1,022 | ||||||||||||
Intersegment revenues |
| 721 |
|
| 23 |
|
| 38 |
|
| 2,597 |
|
| (3,379) |
|
| - | 24 | - | - | 2,046 | (2,070) | - | ||||||||||||
Total revenues from contracts with customers |
| 55,937 |
|
| 703 |
|
| 259,262 |
|
| 3,580 |
|
| (3,379) |
|
| 316,103 | 16,606 | 895 | - | 3,321 | (2,070) | 18,752 | ||||||||||||
Revenues from contracts accounted for as derivatives under ASC Topic 815 (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (2): | |||||||||||||||||||||||||||||||||||
Ethanol |
| 440,333 |
|
| 93,166 |
|
| - |
|
| - |
|
| - |
|
| 533,499 | 389,847 | 111,454 | - | - | - | 501,301 | ||||||||||||
Distillers grains |
| 56,802 |
|
| 44,142 |
|
| - |
|
| - |
|
| - |
|
| 100,944 | 62,698 | 6,077 | - | - | - | 68,775 | ||||||||||||
Corn oil |
| 17,088 |
|
| 10,275 |
|
| 4,411 |
|
| - |
|
| - |
|
| 31,774 | 14,308 | 5,509 | - | - | - | 19,817 | ||||||||||||
Grain |
| 30 |
|
| 21,972 |
|
| - |
|
| - |
|
| - |
|
| 22,002 | 2 | 19,056 | - | - | - | 19,058 | ||||||||||||
Cattle and vinegar |
| - |
|
| - |
|
| (12,522) |
|
| - |
|
| - |
|
| (12,522) | ||||||||||||||||||
Other |
| 3,930 |
|
| 4,055 |
|
| - |
|
| - |
|
| - |
|
| 7,985 | 945 | 3,659 | - | - | - | 4,604 | ||||||||||||
Intersegment revenues |
| 2,392 |
|
| 12,669 |
|
| - |
|
| - |
|
| (15,061) |
|
| - | - | 7,293 | - | - | (7,293) | - | ||||||||||||
Total revenues from contracts accounted for as derivatives |
| 520,575 |
|
| 186,279 |
|
| (8,111) |
|
| - |
|
| (15,061) |
|
| 683,682 | 467,800 | 153,048 | - | - | (7,293) | 613,555 | ||||||||||||
Leasing revenues under ASC Topic 840 (2) |
| - |
|
| - |
|
| - |
|
| 22,190 |
|
| (21,875) |
|
| 315 | ||||||||||||||||||
Leasing revenues under ASC 842 (3): | - | - | - | 16,833 | (16,790) | 43 | |||||||||||||||||||||||||||||
Total Revenues | $ | 576,512 |
| $ | 186,982 |
| $ | 251,151 |
| $ | 25,770 |
| $ | (40,315) |
| $ | 1,000,100 | $ | 484,406 | $ | 153,943 | $ | - | $ | 20,154 | $ | (26,153) | $ | 632,350 |
Nine Months Ended September 30, 2019 (1) | |||||||||||||||||
Ethanol Production | Agribusiness & Energy Services | Food & Ingredients | Partnership | Eliminations | Total | ||||||||||||
Revenues: | |||||||||||||||||
Revenues from contracts with customers under ASC 606: | |||||||||||||||||
Ethanol | $ | 620 | $ | - | $ | - | $ | - | $ | - | $ | 620 | |||||
Distillers grains | 47,860 | - | - | - | - | 47,860 | |||||||||||
Service revenues | - | - | - | 4,966 | - | 4,966 | |||||||||||
Other | 2,135 | 1,515 | - | - | - | 3,650 | |||||||||||
Intersegment revenues | 75 | - | - | 5,267 | (5,342) | - | |||||||||||
Total revenues from contracts with customers | 50,690 | 1,515 | - | 10,233 | (5,342) | 57,096 | |||||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (2): | |||||||||||||||||
Ethanol | 946,390 | 324,756 | - | - | - | 1,271,146 | |||||||||||
Distillers grains | 165,436 | 32,165 | - | - | - | 197,601 | |||||||||||
Corn oil | 35,915 | 22,943 | 1,451 | - | - | 60,309 | |||||||||||
Grain | 138 | 59,140 | - | - | - | 59,278 | |||||||||||
Other | 7,613 | 48,168 | - | - | - | 55,781 | |||||||||||
Intersegment revenues | - | 19,432 | - | - | (19,432) | - | |||||||||||
Total revenues from contracts accounted for as derivatives | 1,155,492 | 506,604 | 1,451 | - | (19,432) | 1,644,115 | |||||||||||
Leasing revenues under ASC 842 (3): | - | - | - | 51,833 | (51,484) | 349 | |||||||||||
Total Revenues | $ | 1,206,182 | $ | 508,119 | $ | 1,451 | $ | 62,066 | $ | (76,258) | $ | 1,701,560 |
Three Months Ended September 30, 2018 (1) | |||||||||||||||||
Ethanol Production | Agribusiness & Energy Services | Food & Ingredients | Partnership | Eliminations | Total | ||||||||||||
Revenues: | |||||||||||||||||
Revenues from contracts with customers under ASC 606: | |||||||||||||||||
Ethanol | $ | 291 | $ | - | $ | - | $ | - | $ | - | $ | 291 | |||||
Distillers grains | 55,370 | - | - | - | - | 55,370 | |||||||||||
Vinegar | - | - | 29,032 | - | - | 29,032 | |||||||||||
Service revenues | - | - | - | 983 | - | 983 | |||||||||||
Other | 238 | 680 | - | - | - | 918 | |||||||||||
Intersegment revenues | 37 | 23 | - | 2,597 | (2,657) | - | |||||||||||
Total revenues from contracts with customers | 55,936 | 703 | 29,032 | 3,580 | (2,657) | 86,594 | |||||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (2): | |||||||||||||||||
Ethanol | 440,333 | 93,166 | - | - | - | 533,499 | |||||||||||
Distillers grains | 59,195 | 45,645 | - | - | - | 104,840 | |||||||||||
Corn oil | 17,088 | 10,275 | 4,411 | - | - | 31,774 | |||||||||||
Grain | 30 | 23,921 | - | - | - | 23,951 | |||||||||||
Other | 3,930 | 4,145 | - | - | - | 8,075 | |||||||||||
Intersegment revenues | - | 9,127 | - | - | (9,127) | - | |||||||||||
Total revenues from contracts accounted for as derivatives | 520,576 | 186,279 | 4,411 | - | (9,127) | 702,139 | |||||||||||
Leasing revenues under ASC 840 (3): | - | - | - | 22,190 | (21,875) | 315 | |||||||||||
Total Revenues | $ | 576,512 | $ | 186,982 | $ | 33,443 | $ | 25,770 | $ | (33,659) | $ | 789,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| Nine Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 (1) | |||||||||||||||||||||||||||||||||
| Ethanol Production |
| Agribusiness & Energy Services |
| Food & Ingredients |
| Partnership |
| Eliminations |
| Total | Ethanol Production | Agribusiness & Energy Services | Food & Ingredients | Partnership | Eliminations | Total | ||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Revenues from contracts with customers under ASC 606: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Ethanol | $ | 3,391 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 3,391 | $ | 3,391 | $ | - | $ | - | $ | - | $ | - | $ | 3,391 | ||||||
Distillers grains |
| 174,589 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 174,589 | 176,690 | - | - | - | - | 176,690 | ||||||||||||
Cattle and vinegar |
| - |
|
| - |
|
| 748,699 |
|
| - |
|
| - |
|
| 748,699 | ||||||||||||||||||
Vinegar | - | - | 90,229 | - | - | 90,229 | |||||||||||||||||||||||||||||
Service revenues |
| - |
|
| - |
|
| - |
|
| 3,430 |
|
| - |
|
| 3,430 | - | - | - | 3,430 | - | 3,430 | ||||||||||||
Other |
| 1,570 |
|
| 2,012 |
|
| - |
|
| - |
|
| - |
|
| 3,582 | 1,570 | 2,012 | - | - | - | 3,582 | ||||||||||||
Intersegment revenues |
| 2,258 |
|
| 23 |
|
| 118 |
|
| 7,286 |
|
| (9,685) |
|
| - | 157 | 23 | - | 7,286 | (7,466) | - | ||||||||||||
Total revenues from contracts with customers |
| 181,808 |
|
| 2,035 |
|
| 748,817 |
|
| 10,716 |
|
| (9,685) |
|
| 933,691 | 181,808 | 2,035 | 90,229 | 10,716 | (7,466) | 277,322 | ||||||||||||
Revenues from contracts accounted for as derivatives under ASC Topic 815 (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (2): | |||||||||||||||||||||||||||||||||||
Ethanol |
| 1,333,989 |
|
| 321,824 |
|
| - |
|
| - |
|
| - |
|
| 1,655,813 | 1,333,989 | 321,824 | - | - | - | 1,655,813 | ||||||||||||
Distillers grains |
| 147,203 |
|
| 98,060 |
|
| - |
|
| - |
|
| - |
|
| 245,263 | 154,230 | 101,678 | - | - | - | 255,908 | ||||||||||||
Corn oil |
| 52,690 |
|
| 22,433 |
|
| 12,048 |
|
| - |
|
| - |
|
| 87,171 | 52,690 | 22,433 | 12,048 | - | - | 87,171 | ||||||||||||
Grain |
| 500 |
|
| 59,101 |
|
| - |
|
| - |
|
| - |
|
| 59,601 | 500 | 67,085 | - | - | - | 67,585 | ||||||||||||
Cattle and vinegar |
| - |
|
| - |
|
| (5,638) |
|
| - |
|
| - |
|
| (5,638) | ||||||||||||||||||
Other |
| 12,486 |
|
| 42,721 |
|
| - |
|
| - |
|
| - |
|
| 55,207 | 12,486 | 43,022 | - | - | - | 55,508 | ||||||||||||
Intersegment revenues |
| 7,027 |
|
| 38,226 |
|
| - |
|
| - |
|
| (45,253) |
|
| - | - | 26,323 | - | - | (26,323) | - | ||||||||||||
Total revenues from contracts accounted for as derivatives |
| 1,553,895 |
|
| 582,365 |
|
| 6,410 |
|
| - |
|
| (45,253) |
|
| 2,097,417 | 1,553,895 | 582,365 | 12,048 | - | (26,323) | 2,121,985 | ||||||||||||
Leasing revenues under ASC 840 (2) |
| - |
|
| - |
|
| - |
|
| 66,779 |
|
| (65,663) |
|
| 1,116 | ||||||||||||||||||
Leasing revenues under ASC 840 (3): | - | - | - | 66,779 | (65,663) | 1,116 | |||||||||||||||||||||||||||||
Total Revenues | $ | 1,735,703 |
| $ | 584,400 |
| $ | 755,227 |
| $ | 77,495 |
| $ | (120,601) |
| $ | 3,032,224 | $ | 1,735,703 | $ | 584,400 | $ | 102,277 | $ | 77,495 | $ | (99,452) | $ | 2,400,423 |
(1)Revenues include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue transactions are now presented on a gross basis in product revenues. These revenue transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.
(2)Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC 606, Revenue from Contracts with Customers (ASC 606), where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC 606 as required by ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets.
(3)Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases for 2019 and ASC 840, Leases for 2018.
|
|
|
|
Payment Terms
The company has standard payment terms, which vary depending upon the nature of the services provided, with the majority falling within 10 to 30 days after transfer of control or completion of services. In instances where the timing of revenue recognition differs from the timing of invoicing, the company has determined that contracts generally do not include a significant financing component.
Contract Liabilities
The company records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of service and lease agreements. Unearned revenue from service agreements, which represents a contract liability, is recorded for fees that have been charged to the customer prior to the completion of performance obligations, andobligations. Unearned revenue is generally recognized in the subsequent quarter. quarter and is not material to the company. The company expects to recognize all of the unearned revenue associated with service agreements as of September 30, 2018,2019, in the subsequent quarter when the inventory is withdrawn from the partnership’s tank storage.
Practical Expedients
Under the new revenue standard, companies may elect various practical expedients upon adoption. As a result, the company elected to recognize the cost for shipping and handling activities that occur after the customer obtains control of the promised goods as fulfillment activities and not when performance obligations are met. The company also elected to exclude sales taxes from transaction prices.
13
3. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS
ACQUISITIONS
Acquisition of Cattle Feeding Operations – Bartlett Cattle Company, L.P.
On August 1, 2018, the company acquired two2 cattle-feeding operations from Bartlett Cattle Company, L.P. for $16.2 million, plus working capital of approximately $106.6 million primarily consisting of work-in-process inventory. The transaction included the feed yards located in Sublette, Kansas and Tulia, Texas, which added combined feedlot capacity of 97,000 head of cattle to the company’s operations. The transaction was financed using cash on hand and proceeds from the
Green Plains Cattle senior secured asset-based revolving credit facility. There were no material acquisition costs recorded for the acquisition.
The following is a summary of the preliminary purchase price of assets acquired and liabilities assumed (in thousands):
| ||||
|
| |||
| ||||
| ||||
| ||||
|
|
The amounts above reflect a working capital payment by the company of $0.9 million made during the third quarter of 2018.
Acquisition of Cattle Feeding Operations – Cargill Cattle Feeders, LLC
On May 16, 2017, the company acquired two cattle-feeding operations from Cargill Cattle Feeders, LLC for $59.3 million, including certain working capital adjustments. The transaction included the feed yards located in Leoti, Kansas and Eckley, Colorado, which added combined feedlot capacity of 155,000 head of cattle to the company’s operations. The transaction was financed using cash on hand. There were no material acquisition costs recorded for the acquisition.
As part of the transaction, the company also entered into a long-term cattle supply agreement with Cargill Meat Solutions Corporation. Under the cattle supply agreement, all cattle placed in the Leoti and Eckley feedlots are sold exclusively to Cargill Meat Solutions under an agreed upon pricing arrangement.
The following is a summary of the assets acquired and liabilities assumed (in thousands):
| ||||
|
| |||
| ||||
| ||||
| ||||
|
|
Amounts of Identifiable Assets Acquired and Liabilities Assumed | ||||
Accounts receivable | $ | 1,897 | ||
Inventory | 104,809 | |||
Property and equipment, net | 16,190 | |||
Current liabilities | (118) | |||
Total identifiable net assets | $ | 122,778 |
The amounts above reflect the final purchase price allocation, which included working capital true-up payments by the company of $1.6$0.9 million made during the first halfthird quarter of 2018. After the disposition of GPCC, the assets and liabilities of the acquired feedlots were reclassified as discontinued operations. See Disposition of Green Plains Cattle Company LLC described below.
DISPOSITIONS
Disposition of Fleischmann’s Vinegar
On November 27, 2018, the company and Green Plains II LLC, an indirect wholly-owned subsidiary of the company, completed the sale of Fleischmann’s Vinegar Company, Inc. to Kerry Holding Co. (“Kerry”). The company received as net consideration from Kerry $354.0 million in cash and restricted cash, including net working capital adjustments. The divested assets were reported within the company’s food and ingredients segment. The company recorded a pre-tax gain on the sale of Fleischmann’s Vinegar of $58.2 million, including offsetting related transaction costs of $7.4 million within the corporate segment.
The assets and liabilities of Fleischmann’s Vinegar at closing on November 27, 2018 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished | ||||
Cash | $ | 2,107 | ||
Accounts receivable, net | 16,142 | |||
Inventory | 15,167 | |||
Prepaid expenses and other | 853 | |||
Property and equipment | 64,552 | |||
Other assets | 79,389 | |||
Current liabilities | (8,837) | |||
Deferred tax liabilities | (26,617) | |||
Total identifiable net assets | 142,756 | |||
Goodwill | 142,002 | |||
Net assets disposed | $ | 284,758 |
14
The amounts above reflect the preliminary working capital true-up payments made to and received from Kerry, including a working capital payment made to and received from Kerry of $0.3 million and $0.3 million during the first and third quarters of 2019, respectively.
Disposition of Bluffton, Lakota and Riga Ethanol Plants
On November 15, 2018, the company completed the sale of 3 ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan, and certain related assets from subsidiaries, to Valero Renewable Fuels Company, LLC (“Valero”) for the sale price of $323.2 million, including net working capital and other adjustments. Correspondingly, the partnership’s storage assets located adjacent to such plants were sold to Green Plains Inc. for $120.9 million. The company received as consideration from Valero approximately $323.2 million, while the partnership received as consideration from the company 8.7 million partnership units and a portion of the general partner interest equating to 0.2 million equivalent limited
partner units to maintain the general partner’s 2% interest. In addition, the partnership also received additional consideration of approximately $2.7 million from Valero for the assignment of certain railcar operating leases. The divested assets were reported within the company’s ethanol production, agribusiness and energy services and partnership segments. The company recorded a pre-tax gain on the sale of the 3 ethanol plants of $92.2 million, of which $89.5 million was recorded within the corporate segment and $2.7 million was recorded within the partnership segment, including offsetting transaction costs of $4.2 million, of which $3.7 million were recorded within the corporate segment and $0.5 million were recorded within the partnership segment.
The assets and liabilities of the Bluffton, Lakota and Riga ethanol plants at closing on November 15, 2018 are as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished | ||||
Inventory | $ | 36,812 | ||
Prepaid expenses and other | 189 | |||
Property and equipment | 184,970 | |||
Other assets | 1,717 | |||
Current liabilities | (746) | |||
Other liabilities | (4,706) | |||
Total identifiable net assets | 218,236 | |||
Goodwill | 6,188 | |||
Net assets disposed | $ | 224,424 |
The amounts above reflect the final working capital true-up payments by Valero of $3.4 million received during the first quarter of 2019.
Disposition of Green Plains Cattle Company LLC
On September 9, 2019, Green Plains, TGAM and StepStone announced the formation of a joint venture. Such parties entered into the LLC Agreement, effective as of September 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains for approximately $77.2 million in cash, plus post-closing adjustments. There was 0 gain or loss recorded as part of this transaction. The LLC Agreement contains certain earn-out or bonus provisions to be paid by or received from GPCC if certain EBITDA thresholds are met. The company does not believe these are reasonably estimable and therefore has not recorded these amounts in the consolidated financial statements.
Under the LLC Agreement, Green Plains has certain rights and obligations, including but not limited to, the right or obligation: (i) to designate two Managers to the Board of Managers of GPCC (the “Board”), or in the event the size of the Board is increased, the number of Managers equal to two-fifths of the Board, rounded up, and (ii) to fund additional capital contributions in accordance with their percentage interest upon mutual agreement by Green Plains, TGAM and StepStone. Additionally, TGAM and StepStone both have the right or obligation to designate one Manager, or in the event the size of the Board is increased, the number of Managers equal to one-fifths of the Board, rounded up. Each Manager serving on the Board shall have one vote and a majority of the Managers serving on the Board shall constitute a quorum for the transaction of business of the Board. Green Plains’ allocation under the LLC Agreement will be subject to certain adjustments.
The assets and liabilities of the GPCC at closing on September 1, 2019 are as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished | ||||
Cash | $ | 2 | ||
Accounts receivable, net | 17,920 | |||
Inventory | 387,534 | |||
Derivative financial instruments | 48,189 | |||
Property and equipment | 71,678 | |||
Other assets | 2,291 | |||
Current liabilities | (49,297) | |||
Short-term notes payable and other borrowings | (38) | |||
Current maturities of long-term debt | (324,028) | |||
Long-term debt | (80) | |||
Other liabilities | (403) | |||
Total identifiable net assets disposed | $ | 153,768 |
DISCONTINUED OPERATIONS
After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20. As such, GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Furthermore, the related assets and liabilities of GPCC have been presented as discontinued operations on the December 31, 2018 consolidated balance sheet. Financial results of GPCC were previously recorded within the food and ingredients segment.
Assets and Liabilities in the Consolidated Balance Sheet Attributable to Discontinued Operations
The following table presents assets and liabilities associated with our discontinued operations.
December 31, | ||
Assets | ||
Cash and cash equivalents | $ | 2 |
Restricted cash | 34,909 | |
Accounts receivable, net of allowances | 11,860 | |
Inventories | 432,283 | |
Prepaid expenses and other | 345 | |
Current assets of discontinued operations | $ | 479,399 |
Property and equipment, net of accumulated depreciation and amortization | $ | 71,341 |
Other assets | 1,719 | |
Noncurrent assets of discontinued operations | $ | 73,060 |
Liabilities | ||
Accounts payable | $ | 21,072 |
Accrued and other liabilities | 6,410 | |
Derivative financial instruments | 16,924 | |
Short-term notes payable and other borrowings | 374,492 | |
Current maturities of long-term debt | 38 | |
Current liabilities of discontinued operations | $ | 418,936 |
Long-term debt | $ | 80 |
Other liabilities | 2 | |
Noncurrent liabilities of discontinued operations | $ | 82 |
Summarized Results of Discontinued Operations
The following table presents the results of our discontinued operations for the periods presented. GPCC was disposed of on September 1, 2019, as such operational results through August 31, 2019 are included in the fiscal year 2019 amounts presented below.
Three Months Ended | Nine Months Ended | ||||||||||
2019 (1) | 2018 (1) | 2019 (1) | 2018 (1) | ||||||||
Product revenues | $ | 160,113 | $ | 217,708 | $ | 638,122 | $ | 652,950 | |||
Costs and expenses | |||||||||||
Cost of goods sold (excluding depreciation and amortization expenses reflected below) | 150,214 | 209,922 | 614,671 | 622,461 | |||||||
Selling, general and administrative expenses | 1,472 | 1,906 | 5,931 | 5,184 | |||||||
Depreciation and amortization expenses | 1,004 | 1,447 | 4,199 | 3,840 | |||||||
Total costs and expenses | 152,690 | 213,275 | 624,801 | 631,485 | |||||||
Operating income | 7,423 | 4,433 | 13,321 | 21,465 | |||||||
Other income (expense) | |||||||||||
Interest income | 42 | 45 | 182 | 83 | |||||||
Interest expense | (3,001) | (3,696) | (12,417) | (9,218) | |||||||
Other, net | - | - | - | 2,591 | |||||||
Total other expense | (2,959) | (3,651) | (12,235) | (6,544) | |||||||
Income before income taxes | 4,464 | 782 | 1,086 | 14,921 | |||||||
Income tax expense | (1,071) | (315) | (120) | (3,086) | |||||||
Net income | $ | 3,393 | $ | 467 | $ | 966 | $ | 11,835 |
(1)Product revenues, costs of goods sold and selling, general and administrative expenses include certain revenue and expense items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue and costs of goods sold transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.
4. FAIR VALUE DISCLOSURES
The following methods, assumptions and valuation techniques were used in estimating the fair value of the company’s financial instruments:
Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities the company can access at the measurement date.
Level 2 – directly or indirectly observable inputs such as quoted prices for similar assets or liabilities in active markets other than quoted prices included within Level 1, quoted prices for identical or similar assets in markets that are not active, and other inputs that are observable or can be substantially corroborated by observable market data through correlation or other means. Grain inventories held for sale in the agribusiness and energy services segment are valued at nearby futures values, plus or minus nearby basis.
Level 3 – unobservable inputs that are supported by little or no market activity and comprise a significant component of the fair value of the assets or liabilities. The company currently does not have any recurring Level 3 financial instruments.
Derivative contracts include exchange-traded commodity futures and options contracts and forward commodity purchase and sale contracts. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the company’s exchange-traded futures and options contracts are cash-settled on a daily basis.
There have been no changes in valuation techniques and inputs used in measuring fair value. The company’s assets and liabilities by level are as follows (in thousands):
|
|
|
|
|
|
|
|
| ||||||||
| Fair Value Measurements at September 30, 2018 | Fair Value Measurements at September 30, 2019 | ||||||||||||||
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other |
|
|
| Quoted Prices in | Significant Other | ||||||||
| (Level 1) |
| (Level 2) |
| Total | (Level 1) | (Level 2) | Total | ||||||||
Assets: |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 171,674 |
| $ | - |
| $ | 171,674 | $ | 235,537 | $ | - | $ | 235,537 | ||
Restricted cash |
| 62,797 |
|
| - |
|
| 62,797 | 18,502 | - | 18,502 | |||||
Inventories carried at market |
| - |
|
| 81,141 |
|
| 81,141 | - | 62,230 | 62,230 | |||||
Unrealized gains on derivatives |
| - |
|
| 12,878 |
|
| 12,878 | - | 13,089 | 13,089 | |||||
Other assets |
| 114 |
|
| 1 |
|
| 115 | 113 | 4 | 117 | |||||
Total assets measured at fair value | $ | 234,585 |
| $ | 94,020 |
| $ | 328,605 | $ | 254,152 | $ | 75,323 | $ | 329,475 | ||
|
|
|
|
|
|
|
|
| ||||||||
Liabilities: |
|
|
|
|
|
|
|
| ||||||||
Accounts payable (1) | $ | - |
| $ | 15,602 |
| $ | 15,602 | $ | - | $ | 27,038 | $ | 27,038 | ||
Unrealized losses on derivatives |
| - |
|
| 18,472 |
|
| 18,472 | - | 14,564 | 14,564 | |||||
Other |
| - |
|
| 25 |
|
| 25 | - | 1 | 1 | |||||
Total liabilities measured at fair value | $ | - |
| $ | 34,099 |
| $ | 34,099 | $ | - | $ | 41,603 | $ | 41,603 |
Fair Value Measurements at December 31, 2018 | ||||||||
Quoted Prices in | Significant Other | |||||||
(Level 1) | (Level 2) | Total | ||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 251,681 | $ | - | $ | 251,681 | ||
Restricted cash | 31,603 | - | 31,603 | |||||
Inventories carried at market | - | 111,960 | 111,960 | |||||
Unrealized gains on derivatives | - | 9,976 | 9,976 | |||||
Other assets | 114 | 1 | 115 | |||||
Cash, cash equivalents and restricted cash of discontinued operations (2) | 34,911 | - | 34,911 | |||||
Total assets measured at fair value | $ | 318,309 | $ | 121,937 | $ | 440,246 | ||
Liabilities: | ||||||||
Accounts payable (1) | $ | - | $ | 16,573 | $ | 16,573 | ||
Unrealized losses on derivatives | - | 7,852 | 7,852 | |||||
Other liabilities | - | 2 | 2 | |||||
Total liabilities measured at fair value | $ | - | $ | 24,427 | $ | 24,427 |
15(1)Accounts payable is generally stated at historical amounts with the exception of $27.0 million and $16.6 million at September 30, 2019 and December 31, 2018, respectively, related to certain delivered inventory for which the payable fluctuates based on changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.
(2)Includes $2 thousand of cash and cash equivalents and $34.9 million of restricted cash which is classified as current assets of discontinued operations in the December 31, 2018 consolidated balance sheet.
|
|
|
|
|
|
|
|
|
| Fair Value Measurements at December 31, 2017 | |||||||
| Quoted Prices in Active Markets for Identical Assets |
| Significant Other |
|
|
| ||
| (Level 1) |
| (Level 2) |
| Total | |||
Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 266,651 |
| $ | - |
| $ | 266,651 |
Restricted cash |
| 45,709 |
|
| - |
|
| 45,709 |
Inventories carried at market |
| - |
|
| 26,834 |
|
| 26,834 |
Unrealized gains on derivatives |
| - |
|
| 12,045 |
|
| 12,045 |
Other assets |
| 115 |
|
| - |
|
| 115 |
Total assets measured at fair value | $ | 312,475 |
| $ | 38,879 |
| $ | 351,354 |
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable (1) | $ | - |
| $ | 37,401 |
| $ | 37,401 |
Unrealized losses on derivatives |
| - |
|
| 12,884 |
|
| 12,884 |
Other liabilities |
| - |
|
| 92 |
|
| 92 |
Total liabilities measured at fair value | $ | - |
| $ | 50,377 |
| $ | 50,377 |
|
|
The company believes the fair value of its debt approximated book value, which was $1.4 billion$530.4 million at September 30, 2019 and $516.6 million at December 31, 2018. The company estimated the fair value of its outstanding debt using Level 2 inputs. The company believes the fair valuevalues of its accounts receivable approximated book value, which was $135.0$64.3 million and $151.1$88.5 million at September 30, 2018,2019 and December 31, 2017,2018, respectively.
Although the company currently does not have any recurring Level 3 financial measurements, the fair values of tangible assets and goodwill acquired and the equity component of convertible debt issued represent Level 3 measurements which were derived using a combination of the income approach, market approach and cost approach for the specific assets or liabilities being valued.
5. SEGMENT INFORMATION
The company reports the financial and operating performance for the following four4 operating segments: (1) ethanol production, which includes the production of ethanol, and distillers grains and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and food-grade corn oil operationsand vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018 and (4) partnership, which includes fuel storage and transportation services.
Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment.
During the normal course of business, the operating segments conduct business with each other. For example, the agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil for the ethanol production segment. The partnership segment provides fuel storage and transportation services for the ethanol production segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact the company’s consolidated results since the revenues and corresponding costs are eliminated.
16
The following tables set forth certain financial data for the company’s operating segments, excluding amounts related to discontinued operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Three Months Ended |
| Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 (1) | 2018 (1) | 2019 (1) | 2018 (1) | |||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Ethanol production: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Revenues from external customers | $ | 573,399 |
| $ | 620,180 |
| $ | 1,726,418 |
| $ | 1,857,356 | $ | 484,382 | $ | 576,475 | $ | 1,206,107 | $ | 1,735,546 | |||
Intersegment revenues |
| 3,113 |
|
| 3,579 |
|
| 9,285 |
|
| 6,624 | 24 | 37 | 75 | 157 | |||||||
Total segment revenues |
| 576,512 |
|
| 623,759 |
|
| 1,735,703 |
|
| 1,863,980 | 484,406 | 576,512 | 1,206,182 | 1,735,703 | |||||||
Agribusiness and energy services: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Revenues from external customers |
| 174,290 |
|
| 164,604 |
|
| 546,151 |
|
| 483,670 | 146,650 | 177,832 | 488,687 | 558,054 | |||||||
Intersegment revenues |
| 12,692 |
|
| 14,406 |
|
| 38,249 |
|
| 33,679 | 7,293 | 9,150 | 19,432 | 26,346 | |||||||
Total segment revenues |
| 186,982 |
|
| 179,010 |
|
| 584,400 |
|
| 517,349 | 153,943 | 186,982 | 508,119 | 584,400 | |||||||
Food and ingredients: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Revenues from external customers |
| 251,113 |
|
| 114,750 |
|
| 755,109 |
|
| 329,432 | - | 33,443 | 1,451 | 102,277 | |||||||
Intersegment revenues |
| 38 |
|
| 38 |
|
| 118 |
|
| 113 | - | - | - | - | |||||||
Total segment revenues |
| 251,151 |
|
| 114,788 |
|
| 755,227 |
|
| 329,545 | - | 33,443 | 1,451 | 102,277 | |||||||
Partnership: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Revenues from external customers |
| 1,298 |
|
| 1,701 |
|
| 4,546 |
|
| 4,724 | 1,318 | 1,298 | 5,315 | 4,546 | |||||||
Intersegment revenues |
| 24,472 |
|
| 24,748 |
|
| 72,949 |
|
| 74,019 | 18,836 | 24,472 | 56,751 | 72,949 | |||||||
Total segment revenues |
| 25,770 |
|
| 26,449 |
|
| 77,495 |
|
| 78,743 | 20,154 | 25,770 | 62,066 | 77,495 | |||||||
Revenues including intersegment activity |
| 1,040,415 |
|
| 944,006 |
|
| 3,152,825 |
|
| 2,789,617 | 658,503 | 822,707 | 1,777,818 | 2,499,875 | |||||||
Intersegment eliminations |
| (40,315) |
|
| (42,771) |
|
| (120,601) |
|
| (114,435) | (26,153) | (33,659) | (76,258) | (99,452) | |||||||
Revenues as reported | $ | 1,000,100 |
| $ | 901,235 |
| $ | 3,032,224 |
| $ | 2,675,182 | $ | 632,350 | $ | 789,048 | $ | 1,701,560 | $ | 2,400,423 | |||
|
|
|
|
|
|
|
|
|
|
|
|
(1)Revenues include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue transactions are now presented on a gross basis in product revenues. These revenue transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.
Refer to Note 2 - Revenue, for further disaggregation of revenue by operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
Ethanol production | $ | 560,719 |
| $ | 590,904 |
| $ | 1,706,891 |
| $ | 1,802,688 |
Agribusiness and energy services |
| 179,432 |
|
| 168,735 |
|
| 546,318 |
|
| 487,239 |
Food and ingredients |
| 236,150 |
|
| 98,854 |
|
| 702,355 |
|
| 281,898 |
Partnership |
| - |
|
| - |
|
| - |
|
| - |
Intersegment eliminations |
| (39,917) |
|
| (42,706) |
|
| (120,220) |
|
| (114,123) |
| $ | 936,384 |
| $ | 815,787 |
| $ | 2,835,344 |
| $ | 2,457,702 |
Three Months Ended | Nine Months Ended | ||||||||||
2019 (1) | 2018 (1) | 2019 (1) | 2018 (1) | ||||||||
Cost of goods sold: | |||||||||||
Ethanol production | $ | 512,527 | $ | 560,719 | $ | 1,289,366 | $ | 1,706,891 | |||
Agribusiness and energy services | 150,465 | 179,432 | 486,305 | 546,318 | |||||||
Food and ingredients | 3 | 26,228 | 1,526 | 79,894 | |||||||
Partnership | - | - | - | - | |||||||
Intersegment eliminations | (30,866) | (33,299) | (76,716) | (99,189) | |||||||
$ | 632,129 | $ | 733,080 | $ | 1,700,481 | $ | 2,233,914 |
(2)Cost of goods sold include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These cost of goods sold transactions are now presented gross in cost of goods sold. These cost of goods sold transactions total $5.5 million and $14.4 million for the three and nine months ended September 30, 2019, respectively, and $6.6 million and $21.0 million for the three and nine months ended September 30, 2018, respectively.
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
| Three Months Ended |
| Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||
EBITDA: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income (loss): | ||||||||||||||||||||||
Ethanol production | $ | 8,475 |
| $ | 25,570 |
| $ | 4,742 |
| $ | 38,521 | $ | (49,289) | $ | (15,961) | $ | (147,366) | $ | (60,704) | |||
Agribusiness and energy services |
| 3,537 |
|
| 5,150 |
|
| 24,035 |
|
| 15,910 | (461) | 2,850 | 9,184 | 22,080 | |||||||
Food and ingredients |
| 12,151 |
|
| 13,272 |
|
| 47,192 |
|
| 39,741 | (6) | 3,892 | (76) | 12,426 | |||||||
Partnership |
| 17,913 |
|
| 17,589 |
|
| 51,674 |
|
| 51,549 | 12,322 | 16,725 | 38,029 | 48,214 | |||||||
Intersegment eliminations |
| (325) |
|
| 8 |
|
| (113) |
|
| (147) | 4,738 | (325) | 533 | (113) | |||||||
Corporate activities |
| (9,716) |
|
| (11,212) |
|
| (30,533) |
|
| (27,275) | (9,669) | (10,965) | (27,952) | (34,879) | |||||||
| $ | 32,035 |
| $ | 50,377 |
| $ | 96,997 |
| $ | 118,299 | $ | (42,365) | $ | (3,784) | $ | (127,648) | $ | (12,976) |
Three Months Ended | Nine Months Ended | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Depreciation and amortization: | |||||||||||
Ethanol production | $ | 15,547 | $ | 24,289 | $ | 46,324 | $ | 65,284 | |||
Agribusiness and energy services | 541 | 675 | 1,642 | 1,923 | |||||||
Food and ingredients | - | 2,333 | - | 6,788 | |||||||
Partnership | 991 | 1,120 | 2,747 | 3,406 | |||||||
Corporate activities | 749 | 849 | 2,250 | 2,769 | |||||||
$ | 17,828 | $ | 29,266 | $ | 52,963 | $ | 80,170 |
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
Ethanol production | $ | 24,289 |
| $ | 20,959 |
| $ | 65,284 |
| $ | 61,443 |
Agribusiness and energy services |
| 675 |
|
| 1,457 |
|
| 1,923 |
|
| 2,776 |
Food and ingredients |
| 3,780 |
|
| 3,139 |
|
| 10,628 |
|
| 9,259 |
Partnership |
| 1,120 |
|
| 1,280 |
|
| 3,406 |
|
| 3,781 |
Corporate activities |
| 849 |
|
| 999 |
|
| 2,769 |
|
| 2,846 |
| $ | 30,713 |
| $ | 27,834 |
| $ | 84,010 |
| $ | 80,105 |
The following table reconciles net income (loss) to EBITDA (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Net income (loss) | $ | (7,419) |
| $ | 39,429 |
| $ | (23,123) |
| $ | 29,284 |
Interest expense |
| 23,399 |
|
| 31,889 |
|
| 67,548 |
|
| 69,815 |
Income tax benefit |
| (14,658) |
|
| (48,775) |
|
| (31,438) |
|
| (60,905) |
Depreciation and amortization |
| 30,713 |
|
| 27,834 |
|
| 84,010 |
|
| 80,105 |
EBITDA | $ | 32,035 |
| $ | 50,377 |
| $ | 96,997 |
| $ | 118,299 |
The following table sets forth total assets by operating segment (in thousands):
|
|
|
|
|
| |||||
| September 30, |
| December 31, | September 30, | December 31, | |||||
Total assets (1): |
|
|
|
|
| |||||
Ethanol production | $ | 1,075,469 |
| $ | 1,144,459 | $ | 873,793 | $ | 872,845 | |
Agribusiness and energy services |
| 404,903 |
|
| 554,981 | 368,146 | 399,633 | |||
Food and ingredients |
| 884,205 |
|
| 725,232 | |||||
Partnership |
| 71,511 |
|
| 74,935 | 102,497 | 67,297 | |||
Corporate assets |
| 252,554 |
|
| 295,217 | 354,371 | 334,236 | |||
Assets of discontinued operations | - | 552,459 | ||||||||
Intersegment eliminations |
| (3,808) |
|
| (10,174) | (6,736) | (10,038) | |||
| $ | 2,684,834 |
| $ | 2,784,650 | $ | 1,692,071 | $ | 2,216,432 |
|
|
(1)Asset balances by segment exclude intercompany balances.
6. INVENTORIES
Inventories are carried at the lower of cost or net realizable value, except grain held for sale and fair-value hedged inventories. Commodities held for sale are reported at market value.
The components of inventories are as follows (in thousands):
September 30, | December 31, | ||||
Finished goods | $ | 119,711 | $ | 99,566 | |
Commodities held for sale | 26,181 | 62,896 | |||
Raw materials | 58,699 | 98,174 | |||
Work-in-process | 13,640 | 12,680 | |||
Supplies and parts | 32,383 | 29,284 | |||
$ | 250,614 | $ | 302,600 |
|
|
|
|
|
|
| September 30, |
| December 31, | ||
Finished goods | $ | 133,116 |
| $ | 146,269 |
Commodities held for sale |
| 43,328 |
|
| 65,693 |
Raw materials |
| 126,231 |
|
| 144,520 |
Work-in-process |
| 426,321 |
|
| 320,664 |
Supplies and parts |
| 36,202 |
|
| 34,732 |
| $ | 765,198 |
| $ | 711,878 |
7. GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2018, we early adopted the amended guidance in ASC Topic 350, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amended guidance, an entity may first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).
The company did not have any changescurrently has 2 reporting units, to which goodwill is assigned. We are required to perform impairment tests related to our goodwill annually, which we perform as of October 1, or sooner if an indicator of impairment occurs. Near term industry outlook and the decline in our stock price caused a decline in the carrying amount of goodwill, which was $182.9 million atcompany’s market capitalization during the three months ended September 30, 2018,2019. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill as of September 30, 2019. Significant assumptions inherent in the valuation methodologies for goodwill are employed and December 31, 2017. Goodwillinclude, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of $30.3 million, $142.0 million and $10.6 million are attributablecapital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit exceeded its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production segment, food and ingredients segment and the partnership segment, respectively.reporting unit was not impaired, but could be at risk of future impairment. We continue to believe that our long-term financial goals will be achieved.
Intangible Assets
As of September 30, 2018, the company’s customer relationship intangible asset recognized in connection with the Fleischmann Vinegar’s acquisition is $69.3 million, net of $10.7 million of accumulated amortization, and has a remaining 13.0-year weighted-average amortization period. As of September 30, 2018, the company also has an indefinite-lived trade name intangible asset of $10.5 million. The company recognized $1.3 million and $4.0 million of amortization expense associated with the amortizing customer relationship intangible asset during the three and nine months ended September 30, 2018, respectively, and $1.1 million and $3.9 million during the three and nine months ended September 30, 2017, respectively, and expects estimated amortization expense for the next five years of $5.3 million per annum. The company’s intangible assets are recorded within other assets on the consolidated balance sheets.
19
8. DERIVATIVE FINANCIAL INSTRUMENTS
At September 30, 2018,2019, the company’s consolidated balance sheet reflected unrealized losses of $17.2$11.8 million, net of tax, in accumulated other comprehensive income. The company expects these losses willamounts to be reclassified toas 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):
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|
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|
|
|
|
| ||||||||||||
|
| Asset Derivatives' |
| Liability Derivatives' | Asset Derivatives' | Liability Derivatives' | ||||||||||||||||||
|
| Fair Value |
| Fair Value | Fair Value | Fair Value | ||||||||||||||||||
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | September 30, | December 31, | September 30, | December 31, | ||||||||||||
Derivative financial instruments |
| $ | 12,878 |
| $ | 12,045 |
| $ | 18,472 |
| $ | 12,884 | $ | 13,089 | $ | 9,976 | $ | 14,564 | $ | 7,852 | ||||
Other assets |
|
| 1 |
|
| - |
|
| - |
|
| - | 4 | 1 | - | - | ||||||||
Other liabilities |
|
| - |
|
| - |
|
| 25 |
|
| 92 | - | - | 1 | 2 | ||||||||
Total |
| $ | 12,879 |
| $ | 12,045 |
| $ | 18,497 |
| $ | 12,976 | $ | 13,093 | $ | 9,977 | $ | 14,565 | $ | 7,854 |
|
|
(1)At September 30, 2019, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $16.5 million, which include $0.2 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.
(2)At December 31, 2018, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $16.3 million.
Refer to Note 4 - Fair Value Disclosures, which contains fair value information related to derivative financial instruments.
Effect of Derivative Instruments on Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||||
Location of Gain or (Loss) |
| Three Months Ended |
| Nine Months Ended | ||||||||
Comprehensive Income into Income |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Revenues |
| $ | (3,197) |
| $ | (5,242) |
| $ | (1,749) |
| $ | 1,734 |
Cost of goods sold |
|
| 1,350 |
|
| (1,861) |
|
| 1,451 |
|
| (1,679) |
Net gain (loss) recognized in earnings before tax |
| $ | (1,847) |
| $ | (7,103) |
| $ | (298) |
| $ | 55 |
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | ||||||||||||
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income | Three Months Ended | Nine Months Ended | ||||||||||
into Income | 2019 | 2018 | 2019 | 2018 | ||||||||
Revenues | $ | - | $ | 4,766 | $ | - | $ | 3,648 | ||||
Cost of goods sold | - | 1,331 | - | 1,258 | ||||||||
Net income from discontinued operations, net of income taxes | 66,700 | (7,944) | 48,797 | (5,204) | ||||||||
Net gain (loss) recognized in loss before tax | $ | 66,700 | $ | (1,847) | $ | 48,797 | $ | (298) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss Recognized in Other Comprehensive Income on Derivatives | ||||||||||
Loss Recognized in |
| Three Months Ended |
| Nine Months Ended | ||||||||
Other Comprehensive Income on Derivatives |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Commodity contracts |
| $ | (18,709) |
| $ | (12,235) |
| $ | (1,865) |
| $ | (15,069) |
Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | ||||||||||||
Gain (Loss) Recognized in Other | Three Months Ended | Nine Months Ended | ||||||||||
Comprehensive Income on Derivatives | 2019 | 2018 | 2019 | 2018 | ||||||||
Commodity contracts | $ | 33,244 | $ | (18,709) | $ | 67,425 | $ | (1,865) |
Amount of Gain or (Loss) | ||||||||||||||
Recognized in Income on Derivatives | ||||||||||||||
Derivatives Not Designated | Location of Gain or (Loss) Recognized in | Three Months Ended | Nine Months Ended | |||||||||||
as Hedging Instruments | Income on Derivatives | 2019 | 2018 | 2019 | 2018 | |||||||||
Commodity contracts | Revenues | $ | 12,439 | $ | 2,491 | $ | (12,034) | $ | 6,135 | |||||
Commodity contracts | Costs of goods sold | 5,465 | 9,987 | (1,484) | 12,550 | |||||||||
Commodity contracts | Net income from discontinued operations, net of income taxes | (2,285) | (3,595) | (2,470) | (1,716) | |||||||||
Net gain (loss) recognized in loss before tax | $ | 15,619 | $ | 8,883 | $ | (15,988) | $ | 16,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of Gain or (Loss) | ||||||||||
|
|
|
| Recognized in Income on Derivatives | ||||||||||
Derivatives Not Designated |
| Location of Gain or |
| Three Months Ended |
| Nine Months Ended | ||||||||
as Hedging Instruments |
| Income on Derivatives |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Commodity contracts |
| Revenues |
| $ | (2,069) |
| $ | 2,863 |
| $ | 5,894 |
| $ | (7,400) |
Commodity contracts |
| Costs of goods sold |
|
| 10,952 |
|
| 2,036 |
|
| 11,075 |
|
| 17,256 |
Net gain recognized in loss before tax |
| $ | 8,883 |
| $ | 4,899 |
| $ | 16,969 |
| $ | 9,856 |
As of September 30, 2018, theThe following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):
|
|
|
|
|
|
| September 30, 2019 | December 31, 2018 | ||||||||||
Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included |
| Carrying Amount of the Hedged Assets |
| Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | ||||||||||
Inventories |
| $ | 76,099 |
| $ | 6,826 | $ | 41,356 | $ | (2,445) | $ | 89,188 | $ | 2,430 |
As of December 31, 2017, no amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items.
Effect of Cash Flow and Fair Value Hedge Accounting on the StatementStatements of Operations
The effect of cash flow and fair value hedges and the line items on the consolidated statements of operations where they are reported are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Location and Amount of Gain or (Loss) Recognized in | Location and Amount of Gain or (Loss) Recognized in | ||||||||||||||||||||||||||
| Income on Cash Flow and Fair Value Hedging Relationships | Income on Cash Flow and Fair Value Hedging Relationships | ||||||||||||||||||||||||||
| for the Three Months Ended September 30, | for the Three Months Ended September 30, | ||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 | 2019 | 2018 | |||||||||||||||||||||
|
| Revenue |
|
| Cost of |
|
| Revenue |
|
| Cost of | Revenue | Cost of | Income from Discontinued Operations, Net of Income Taxes | Revenue | Cost of | Income from Discontinued Operations, Net of Income Taxes | |||||||||||
Gain (loss) on cash flow hedging relationships: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Amount of gain (loss) reclassified from accumulated other comprehensive income into income | $ | (3,197) |
| $ | 1,350 |
| $ | (5,242) |
| $ | (1,861) | $ | - | $ | - | $ | 66,700 | $ | 4,766 | $ | 1,331 | $ | (7,944) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Gain (loss) on fair value hedging relationships: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Hedged item |
| - |
|
| (346) |
|
| 61 |
|
| (1,775) | - | 1,155 | - | - | (346) | - | |||||||||||
Derivatives designated as hedging instruments |
| - |
|
| (186) |
|
| (61) |
|
| 3,085 | - | (3,263) | - | - | (186) | - | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow or fair value hedges are recorded | $ | (3,197) |
| $ | 818 |
| $ | (5,242) |
| $ | (551) | $ | - | $ | (2,108) | $ | 66,700 | $ | 4,766 | $ | 799 | $ | (7,944) |
Location and Amount of Gain Recognized in | |||||||||||||||||
Income on Cash Flow and Fair Value Hedging Relationships | |||||||||||||||||
for the Nine Months Ended September 30, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
Revenue | Cost of | Income from Discontinued Operations, Net of Income Taxes | Revenue | Cost of | Income from Discontinued Operations, Net of Income Taxes | ||||||||||||
Gain (loss) on cash flow hedging relationships: | |||||||||||||||||
Commodity contracts: | |||||||||||||||||
Amount of gain reclassified from accumulated other comprehensive income into income | $ | - | $ | - | $ | 48,797 | $ | 3,648 | $ | 1,258 | $ | (5,204) | |||||
Gain (loss) on fair value hedging relationships: | |||||||||||||||||
Commodity contracts: | |||||||||||||||||
Hedged item | - | 324 | - | - | 10,150 | - | |||||||||||
Derivatives designated as hedging instruments | - | 1,168 | - | - | (9,064) | - | |||||||||||
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow or fair value hedges are recorded | $ | - | $ | 1,492 | $ | 48,797 | $ | 3,648 | $ | 2,344 | $ | (5,204) |
|
|
|
|
|
|
|
|
|
|
|
|
| Location and Amount of Gain or (Loss) Recognized in | ||||||||||
| Income on Cash Flow and Fair Value Hedging Relationships | ||||||||||
| for the Nine Months Ended September 30, | ||||||||||
|
| 2018 |
|
| 2017 | ||||||
|
| Revenue |
|
| Cost of |
|
| Revenue |
|
| Cost of |
Gain on cash flow hedging relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive income into income | $ | (1,749) |
| $ | 1,451 |
| $ | 1,734 |
| $ | (1,679) |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
Hedged item |
| - |
|
| 10,150 |
|
| 1,451 |
|
| (6,229) |
Derivatives designated as hedging instruments |
| - |
|
| (9,064) |
|
| (1,734) |
|
| 8,530 |
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow or fair value hedges are recorded | $ | (1,749) |
| $ | 2,537 |
| $ | 1,451 |
| $ | 622 |
There were no0 gains or losses from discontinuing cash flow or fair value hedge treatment during the three and nine months ended September 30, 2018,2019 and 2017.2018.
22
The open commodity derivative positions as of September 30, 2018,2019, are as follows (in thousands):
Exchange Traded (1) | Non-Exchange Traded (2) | |||||||||
Derivative | Net Long & | Long | (Short) | Unit of | Commodity | |||||
Futures | (12,185) | Bushels | Corn, Soybeans and Wheat | |||||||
Futures | (4,620) | (3) | Bushels | Corn | ||||||
Futures | 136,206 | Gallons | Ethanol | |||||||
Futures | (6,300) | (4) | Gallons | Ethanol | ||||||
Futures | (1,123) | MmBTU | Natural Gas | |||||||
Futures | (11,045) | (3) | MmBTU | Natural Gas | ||||||
Options | 765 | Bushels | Corn and Soybeans | |||||||
Options | (55,815) | Gallons | Ethanol | |||||||
Options | 196 | MmBTU | Natural Gas | |||||||
Forwards | 33,986 | (518) | Bushels | Corn and Soybeans | ||||||
Forwards | 23,970 | (478,004) | Gallons | Ethanol | ||||||
Forwards | 126 | (730) | Tons | DDG | ||||||
Forwards | 192 | (54,313) | Pounds | Corn Oil | ||||||
Forwards | 12,841 | (3,095) | MmBTU | Natural Gas |
(1)Exchange traded futures and options are presented on a net long and (short) position basis. Options are presented on a delta-adjusted basis.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018 | ||||||||||
|
| Exchange Traded |
| Non-Exchange Traded |
|
|
|
| ||
Derivative |
| Net Long & |
| Long (2) |
| (Short) (2) |
| Unit of |
| Commodity |
|
|
|
|
|
|
|
|
|
|
|
Futures |
| (52,335) |
|
|
|
|
| Bushels |
| Corn, Soybeans and Wheat |
Futures |
| (11,450) | (4) |
|
|
|
| Bushels |
| Corn |
Futures |
| 5,135 |
|
|
|
|
| Gallons |
| Ethanol |
Futures |
| (25,620) |
|
|
|
|
| Gallons |
| Ethanol |
Futures |
| (18,798) |
|
|
|
|
| MmBTU |
| Natural Gas |
Futures |
| (13,413) | (4) |
|
|
|
| MmBTU |
| Natural Gas |
Futures |
| (57,250) |
|
|
|
|
| Pounds |
| Cattle |
Futures |
| (413,720) | (3) |
|
|
|
| Pounds |
| Cattle |
Futures |
| 21 |
|
|
|
|
| Barrels |
| Crude Oil |
Futures |
| (600) |
|
|
|
|
| Tons |
| Soybean Meal |
Futures |
| 3,570 |
|
|
|
|
| Gallons |
| Natural Gasoline |
Options |
| 14,409 |
|
|
|
|
| Bushels |
| Corn, Soybeans and Wheat |
Options |
| 3,266 |
|
|
|
|
| Gallons |
| Ethanol |
Options |
| (74) |
|
|
|
|
| MmBTU |
| Natural Gas |
Options |
| 862 |
|
|
|
|
| Pounds |
| Livestock |
Options |
| 78 |
|
|
|
|
| Barrels |
| Crude Oil |
Forwards |
|
|
| 41,789 |
| (138) |
| Bushels |
| Corn and Soybeans |
Forwards |
|
|
| 19,132 |
| (426,529) |
| Gallons |
| Ethanol |
Forwards |
|
|
| 212 |
| (421) |
| Tons |
| DDG |
Forwards |
|
|
| 12,222 |
| (70,173) |
| Pounds |
| Corn Oil |
Forwards |
|
|
| 22,501 |
| (1,858) |
| MmBTU |
| Natural Gas |
Forwards |
|
|
| 61 |
| (31) |
| Barrels |
| Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
(2)Non-exchange traded forwards are presented on a gross long and (short) position basis including both fixed-price and basis contracts.
(3)Futures or non-exchange traded forwards used for fair value hedges. (4)Futures used for cash flow 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 $2.1 million and $11.4 million for the three and nine months ended September 30, 2019, respectively and net gains on energy trading contracts of $1.6 million and $12.4 million for the three and nine months ended September 30, 2018, respectively, and net gains of $3.1 million and $18.3 million for the three and nine months ended September 30, 2017, respectively.
23
9. DEBT
The components of long-term debt are as follows (in thousands):
September 30, | December 31, | ||||
Corporate: | |||||
3.25% convertible notes due 2019 | $ | - | $ | 53,457 | |
4.125% convertible notes due 2022 | 147,562 | 142,708 | |||
4.00% convertible notes due 2024 | 82,191 | - | |||
Green Plains Partners: | |||||
$200.0 million revolving credit facility (1) | 132,000 | 134,000 | |||
$8.1 million promissory note | 8,100 | 8,100 | |||
Other | 16,602 | 17,804 | |||
Total face value of long-term debt | 386,455 | 356,069 | |||
Unamortized debt issuance costs | (5,167) | (3,190) | |||
Less: current maturities of long-term debt | (132,999) | (54,769) | |||
Total long-term debt | $ | 248,289 | $ | 298,110 |
(1)The Green Plains Partners revolving credit facility is included in current maturities of long-term debt balance on the consolidated balance sheet as of September 30, 2019 as its maturity date is July 1, 2020.
|
|
|
|
|
|
| September 30, |
| December 31, | ||
Corporate: |
|
|
|
|
|
$500.0 million term loan | $ | 495,000 |
| $ | 498,750 |
3.25% convertible notes due 2018 |
| 6,897 |
|
| 61,442 |
3.25% convertible notes due 2019 |
| 52,157 |
|
| - |
4.125% convertible notes due 2022 |
| 141,163 |
|
| 136,739 |
Green Plains Partners: |
|
|
|
|
|
$235.0 million revolving credit facility |
| 128,000 |
|
| 126,900 |
Other |
| 26,489 |
|
| 27,744 |
Total face value of long-term debt |
| 849,706 |
|
| 851,575 |
Unamortized debt issuance costs |
| (16,915) |
|
| (16,256) |
Less: current portion of long-term debt |
| (65,614) |
|
| (67,923) |
Total long-term debt | $ | 767,177 |
| $ | 767,396 |
The components of short-term notes payable and other borrowings are as follows (in thousands):follows:
|
|
|
|
|
| |||||
| September 30, |
| December 31, | September 30, | December 31, | |||||
Green Plains Cattle: |
|
|
|
|
| |||||
$500.0 million revolver | $ | 376,684 |
| $ | 270,860 | $ | - | $ | - | |
Green Plains Grain: |
|
|
|
|
| |||||
$125.0 million revolver |
| 30,000 |
|
| 75,000 | |||||
$50.0 million inventory financing |
| 4,032 |
|
| - | |||||
Green Plains Trade: |
|
|
|
|
| |||||
$300.0 million revolver |
| 133,737 |
|
| 180,320 | 119,625 | 108,485 | |||
Green Plains Grain: | ||||||||||
$100.0 million revolver | 20,000 | 41,000 | ||||||||
$50.0 million inventory financing | 4,040 | - | ||||||||
Green Plains Commodity Management: |
|
|
|
|
| |||||
$20.0 million hedge line |
| 12,113 |
|
| - | 5,478 | 14,266 | |||
| $ | 556,566 |
| $ | 526,180 | $ | 149,143 | $ | 163,751 |
Corporate Activities
On August 29, 2017, the company entered into a $500.0 million term loan agreement, which matures on August 29, 2023, to refinance approximately $405.0 million of total debt outstanding issued by Green Plains Processing and Fleischmann’s Vinegar, pay associated fees and expenses and for general corporate purposes. The term loan is guaranteed by the company and substantially all of its subsidiaries, except for Green Plains Partners and certain other entities, and secured by substantially all(1)As part of the assetsGPCC disposition during the three months ended September 30, 2019, the December 31, 2018 outstanding balance of the company, including 17 ethanol production facilities, vinegar production facilities and a second priority lien on the assets secured under the revolving credit facilities at Green Plains Trade, Green Plains Cattle revolver of $374.5 million has been reclassified to current liabilities of discontinued operations. Refer to Note 3 – Acquisitions, Dispositions and Green Plains Grain. Discontinued Operations for further discussion on discontinued operations.
The credit agreement contains certain customary representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default. The negative covenants include restrictions on the ability to incur additional indebtedness, acquire and sell assets, create liens, make investments, pay distributions and enter into transactions with affiliates. At the end of each fiscal quarter, the covenants of the credit agreement require the company to maintain a maximum term debt to total term capitalization of 55% and a minimum interest coverage ratio of 1.25 to 1.00, as defined in the credit agreement. Beginning in 2018, the credit facility also has a provision requiring the company to make special annual payments of 50% or 75% of its available free cash flow, subject to certain limitations. Voluntary term loan prepayments are subject to prepayment fees of 1.0% if prepaid before the eighteen-month anniversary of the credit agreement. Scheduled principal payments are $1.25 million each quarter until maturity. The term loan bears interest at a floating rate of a base rate plus a margin of 4.50% or LIBOR plus a margin of 5.50%.Corporate Activities
In September 2013,On June 21, 2019, the company issued $120.0$105.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The company used approximately $57.8 million of the net proceeds to repurchase the $56.8 million outstanding principal amount of its 3.25% convertible senior notes due 2018,October 1, 2019 in cash, including accrued and unpaid interest, in privately negotiated transactions concurrently with the offering of the 4.00% notes. On July 19, 2019, the company closed on the issuance of an additional $10.0 million aggregate principal amount of the 4.00% notes (the “Option Notes”) to the initial purchasers. The Option Notes have the same terms as the 4.00% notes issued on June 21, 2019, and were issued under the same Indenture dated as of June 21, 2019. After the issuance of the Option Notes, total aggregate principal of the 4.00% notes outstanding is $115.0 million.
At issuance, the company separately accounted for the liability and equity components of the 3.25% convertible notes by bifurcating the gross proceeds between the indebtedness, or liability component, and the 3.25%embedded conversion option, or
equity component, by estimating an effective interest rate on the date of issuance for similar notes. The 3.25%embedded conversion option was recorded in stockholders’ equity. Since the company did not exercise the embedded conversion option associated with the notes, pursuant to the guidance within ASC 470, Debt, the company recorded a loss upon extinguishment of $1.6 million, measured by the difference between the fair value and carrying value of the liability portion of the notes. As a result, the company recorded a charge to interest expense in the consolidated financial statements of approximately $1.6 million during the three months ended June 30, 2019. This charge included $0.1 million of unamortized debt issuance costs related to the principal balance extinguished. The remaining settlement consideration transferred was allocated to the reacquisition of the embedded conversion option and recognized as a reduction of additional paid-in capital.
The 4.00% notes are senior, unsecured obligations of the company, with interest payable on AprilJanuary 1 and OctoberJuly 1 of each year. Prior to closeyear, beginning January 1, 2020, at a rate of 4.00% per annum. The 4.00% notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased. The 4.00% notes will be convertible, at the option of the exchange agreements on October 1, 2018,holders, into consideration consisting of, at the company could settlecompany’s election, cash, shares of the 3.25% notes in cash,
24
company’s common stock, or a combination of cash and shares of the company’s common stock. Prior to Aprilstock until the close of business on the scheduled trading day immediately preceding the maturity date. However, before January 1, 2018,2024, the 3.25%4.00% notes werewill not be convertible unless certain conditions are satisfied. The initial conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds $0.04 per share. The conversion rate was recently adjusted as of September 30, 2018, to 50.875364.1540 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $19.66$15.59 per share. For all conversionsThe conversion rate will be subject to adjustment upon the occurrence of notes which occur on or after April 1, 2018,certain events. In addition, the company has electedmay be obligated to convertincrease the conversion rate for whole shares of common stockany conversion that occurs in connection with any fractional share being settled with cash in lieu.certain corporate events, including the company’s calling the 4.00% notes for redemption.
PriorOn and after July 1, 2022, and prior to the close of the exchange agreements on October 1, 2018,maturity date, the company couldmay redeem all, but not less than all, of the 3.25%4.00% notes at any time on or after October 1, 2016,for cash if the sale price of 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 amount of the 4.00% notes to be redeemed, plus any accrued and unpaid interest. Holdersinterest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change, holders of the 3.25%4.00% notes will have the right, at their option, to require the company to repurchase the 3.25%4.00% notes in cash at a price equal to 100% of the principal amount of the 4.00% notes to be repurchased, plus accrued and unpaid interest when there is ato, but excluding, the fundamental change such as change in control. If an event of default occurs, it could result in the 3.25% notes being declared due and payable.repurchase date.
During fiscal year 2017, approximately $56.3 million in aggregate principal of the 3.25% notes were exchanged for cash and 2,783,725 shares of the company’s common stock. During the three months ended June 30, 2018, an additional 50 shares of the company’s common stock were exchanged for approximately $1 thousand in aggregate principal amount of the 3.25% notes.
During the three months ended September 30, 2018, the company entered into exchange agreements with certain beneficial owners of the company’s outstanding 3.25% convertible senior notes due 2018 (the “Old Notes”), pursuant to which such Investors exchanged (the “Exchange”) $56.8 million in aggregate principal amount of the Old Notes for $56.8 million in aggregate principal amount of notes due 2019 (the “New Notes”). The company evaluated the Exchange in accordance with ASC 470-50 and concluded that the Exchange qualified as a debt modification as the cash flows and fair value of the embedded conversion option of the New Notes were not substantially different from the Old Notes. As a result, the New Notes were recorded at fair value at the time of the exchange, and the company recorded a non-cash adjustment to additional paid-in capital of $4.7 million related to the difference in fair value of the embedded conversion option of the Old Notes and the New Notes. Following the closing of these agreements, $6.9 million aggregate principal of the Old Notes remain outstanding. On October 1, 2018, the maturity date of the Old Notes, the remaining aggregate principal of $6.9 million was paid.
The New Notes are the senior, unsecured obligations of the company and bear interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2018. Interest on the New Notes will accrue from, and including, April 1, 2018. The New Notes will mature on October 1, 2019, unless earlier converted. Holders of New Notes may convert their New Notes, at their option, in integral multiples of $1,000 principal amount, at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date of the New Notes. The conversion rate for the New Notes was initially��50.6481 shares of the company’s common stock per $1,000 principal amount of New Notes, which corresponded to an initial conversion price of approximately $19.74 per share of the company’s common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events. Upon conversion of the convertible notes, the company will settle its conversion obligation by delivering shares of its common stock at the applicable conversion rate, together with cash in lieu of any fractional share.
The company does not have the right to redeem the New Notes at its election before their maturity. The New Notes are subject to customary provisions providing for the acceleration of their principal and interest upon the occurrence of events that constitute an “event of default.” Events of default include, among other events, certain payment defaults, defaults in settling conversions, certain defaults under the company’s other indebtedness and certain insolvency-related events. Upon maturity, the company will settle the New Notes in cash.
In August 2016, the company issued $170.0 million of 4.125% convertible senior notes due in 2022, or the 4.125% notes. The 4.125% notes are senior, unsecured obligations of the company, with interest payable on March 1 and September 1 of each year. The company may settle the 4.125% notes in cash, common stock or a combination of cash and common stock.
Prior to March 1, 2022, the 4.125% notes are not convertible unless certain conditions are satisfied. The conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds $0.12 per
25
share and upon redemption of the 4.125% notes. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including upon redemption of the 4.125% notes.
The company may redeem all, but not less than all, of the 4.125% notes at any time on or after September 1, 2020, 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 4.125% notes have the option to require the company to repurchase the 4.125% 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. If an event of default occurs, it could result in the 4.125% notes being declared due and payable.
Ethanol Production Segment
We haveThe company has small equipment financing loans, capitalfinance leases on equipment or facilities, and other forms of debt financing.
Agribusiness and Energy Services Segment
Green Plains GrainTrade has a $125.0$300.0 million senior secured asset-based revolving credit facility 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 credit facility matures on July 28, 2022 and consists of a $285 million credit facility and a $15 million first-in-last-out (FILO) credit facility, and includes an accordion feature that enables the credit facility to be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal
to daily LIBOR plus 2.25% on the credit facility and daily LIBOR plus 3.25% on the FILO credit facility. The total unused portion of the revolving credit facility is also subject to a commitment fee of 0.375% per annum.
The terms impose affirmative and negative covenants for Green Plains Trade, including maintaining a minimum 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 restricts distributions related to capital stock, with an exception 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.
Green Plains Grain has a senior secured asset-based revolving credit facility, which was amended on June 28, 2019, to extend the existing maturity date from July 26, 2019 to June 28, 2022 and lower the maximum commitment from $125.0 million to $100.0 million. The credit facility finances 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. The credit facility matures on July 26, 2019. Advances are subject to an interest rate equal to LIBOR plus 3.00% or the lenders’ base rate plus 2.00%. 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$225.0 million. TheDepending on utilization, the total unused portion of the $125.0$100.0 million revolving credit facility is also subject to a commitment fee ranging from 0.375% to 0.50% per annum depending on utilization..
Lenders receive a first priority lien on certain cash, inventory, accounts receivable and other assets owned by Green Plains Grain and a second priority lien on substantially all of the assets of the company, including 17 ethanol production facilities and vinegar production facilities as security on the credit facility.Grain. The terms impose affirmative and negative covenants for Green Plains Grain, including maintaining minimum working capital to be the greater of $22.0 million (i) $18,000,000 and (ii) 18% of the sum of the then total commitment plus the aggregate seasonal line commitments. Minimum tangible net worth is required to be greater than 21% of $27.0 million.the sum of the then total commitment plus the aggregate seasonal line commitments. The credit facility also requires the company to maintain a maximum annual leverage of 6.00 to 1.00. Capital expenditures are limited to $8.0 million per year under the credit facility, plus equity contributions from the company and unused amounts of up to $8.0 million from the previous year. In addition, if the company has long-term indebtedness on the date of calculation of greater than $10.0 million, the credit facility requires the company to maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum annual leverage ratiolong term debt capitalization of 6.00 to 1.00 at the end of each quarter. The fixed charge coverage ratio and long-term capitalization ratio apply only if the company has long-term indebtedness on the date of calculation.40%. As of September 30, 2018,2019, Green Plains Grain had no0 long-term indebtedness. 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 Trade has a $300.0 million senior secured asset-based revolving credit facility 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 credit facility consists of a $285 million credit facility and a $15 million first-in-last-out (FILO) credit facility, and includes an accordion feature that enables the credit facility to be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal to daily LIBOR plus 2.25% on the credit facility and daily LIBOR plus 3.25% on the FILO credit facility. The total unused portion of the revolving credit facility is also subject to a commitment fee of 0.375% per annum.
The terms impose affirmative and negative covenants for Green Plains Trade, including maintaining a minimum 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 restricts distributions related to capital stock, with an exception 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.
Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At September 30, 2018, 1.02019, 0.9 million bushels of corn had been designated as collateral under these agreements at initial values totaling $4.2$3.8 million. The company has accounted for the agreements as short-term notes, rather than sales, and has elected the fair value option to offset fluctuations in market prices of the inventory. At September 30, 2018,2019, the short-term notes payable were valued at $4.0 million and were measured using Level 2 inputs.
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Green Plains Commodity Management has an uncommitted $20.0 million revolving credit facility which matures April 30, 2023 to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBOR plus 1.75%.
Food and Ingredients Segment
Green Plains Cattle has aOn August 28, 2019, GPCC entered into an amended and restated $500 million senior secured asset-based revolving credit facility with a group of lenders led by Bank of the West and ING Capital LLC which was amended on July 31, 2018, to increase the maximum commitment from $425.0 million to $500.0 million and can be increased by an additional $100.0 million with agent approval. The credit facility, which matures on April 30, 2020, finances working capital for the cattle feeding 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, as amended, are subject to variable interest rates equal to LIBOR plus 2.00% to 3.00%, or the base rate plus 1.00% to 2.00%, dependingconditional upon the preceding three months’ excess borrowing availability. closing and formation of the GPCC joint venture which became effective on September 1, 2019. The amended credit facility alsoand restated agreement includes an accordion feature that enables the credit facilityrevisions to be increased by up to $75.0 million with agent approval. The unused portion of the credit facility is also subject to a commitment fee of 0.20% to 0.30% per annum, depending on the preceding three months’ excess borrowing availability.
Lenders receive a first priority lien on certain cash, inventory, accounts receivable, property and equipment and other assets owned by Green Plains Cattle and a second priority lien on substantially all of the assets of the company, including 17 ethanol production facilities and vinegar production facilities as security on the credit facility. The amended terms impose affirmative and negative covenants including maintaining a minimum working capitalthe calculations of 15% of the commitment amount, minimum tangible net worth, restricted payments and excess cash reserves. The amended and restated agreement also updated the definition of 20%a change in control as Green Plains owning less than 35% of the commitment amount, plus 50%GPCC, which previously had been Green Plains owning less than 100% of net profit from the previous year, and a maximum total debt to tangible net worth ratioGPCC.
The December 31, 2018 outstanding balance of 3.50 to 1.00. Capital expenditures are limited to $10.0 million per year under theGPCC’s senior secured asset-based revolving credit facility plus $10.0 million per year if funded by a contribution from parent, plushas been reclassified to current liabilities of discontinued operations. Upon the disposition of GPCC, the food and ingredient segment no longer records any unused amounts fromforms of debt financing. Refer to Note 3 – Acquisitions, Dispositions and Discontinued Operations for further discussion on the previous year.disposition and discontinued operations classification.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a $235.0$200.0 million revolving credit facility which matures on July 1, 2020, to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. On February 20, 2018, the partnership accessed an additional $40.0 million to increase the revolving credit facility from $195.0 million to $235.0 million. The credit facility can be increased by an additional $20.0 million withoutmatures on July 1, 2020, and as a result, was reclassified to current maturities of long-term debt during the consent of the lenders.three months ended
September 30, 2019. Advances under the credit facility are subject to a floating interest rate based on the preceding fiscal quarter’s consolidated leverage ratio at a base rate plus 1.25% to 2.00% or LIBOR plus 2.25% to 3.00%. The credit facility can be increased by an additional $20.0 million without the consent of the lenders. The unused portion of the credit facility is also subject to a commitment fee of 0.35% to 0.50%, depending on the preceding fiscal quarter’s consolidated leverage ratio.
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 3.50 to 1.00,no more than 3.50x and a minimum consolidated interest coverage ratio of 2.75 to 1.00,no less than 2.75x, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures occurring during the applicable period. The consolidated leverage ratio is calculated by dividing total funded indebtedness minus the lesser of cash in excess of $5.0 million or $30.0 million by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated interest coverage ratio is calculated by dividing the sum of the four preceding fiscal quarters’ consolidated EBITDA by the sum of the four preceding fiscal quarters’ interest charges.
The partnership, through a wholly owned subsidiary, has promissory notes payable of $8.1 million, which is recorded in long-term debt and current maturities of long-term debt, and a note receivable of $8.1 million, which is recorded in other assets, to execute a New Markets Tax Credit transaction related to the Birmingham, Alabama terminal. Beginning in March 2020, the promissory notes and note receivable each require quarterly principal and interest payments of approximately $0.2 million. The partnership retains the right to call the $8.1 million note receivable in June 2020, which would be correspondingly offset by forgiveness of the note payable. The promissory notes payable and note receivable will be fully amortized upon maturity in September 2031. Income tax credits were generated for the lender, which the company has guaranteed over their statutory life of seven years in the event the credits are recaptured or reduced. At the time of the transaction, the income tax credits were valued at $5.0 million. The partnership has not established a liability in connection with the guarantee because it believes the likelihood of recapture or reduction is remote.
Covenant Compliance
The company was in compliance with its debt covenants as of September 30, 2018.2019.
Restricted Net Assets
At September 30, 2018,2019, there were approximately $171.2$63.5 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.
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10. STOCK-BASED COMPENSATION
The company has an equity incentive plan that reserves 4,110,000 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, performance shares, 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, with no adjustments 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.
Restricted Stock OptionsAwards and Deferred Stock Units
The activity related to the exercisablenon-vested stock optionsaward and deferred stock unit activity for the nine months ended September 30, 2018,2019, is as follows:
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| Shares |
| Weighted-Average |
| Weighted-Average Remaining Contractual Term (in years) |
| Aggregate Intrinsic Value | ||
Outstanding at December 31, 2017 | 143,750 |
| $ | 12.44 |
| 1.8 |
| $ | 635 |
Granted | - |
|
| - |
| - |
|
| - |
Exercised | (15,000) |
|
| 10.00 |
| - |
|
| 120 |
Forfeited | - |
|
| - |
| - |
|
| - |
Expired | - |
|
| - |
| - |
|
| - |
Outstanding at September 30, 2018 | 128,750 |
| $ | 12.72 |
| 1.2 |
| $ | 577 |
Exercisable at September 30, 2018 (1) | 128,750 |
| $ | 12.72 |
| 1.2 |
| $ | 577 |
|
Non-Vested | Weighted- | Weighted-Average | ||||
Non-Vested at December 31, 2018 | 882,288 | $ | 19.12 | |||
Granted | 497,118 | 15.40 | ||||
Forfeited | (83,811) | 17.56 | ||||
Vested | (444,054) | 18.33 | ||||
Non-Vested at September 30, 2019 | 851,541 | $ | 17.52 | 1.7 | ||
Performance Shares
On February 19, 2019 and March 19, 2018, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. Performance shares vest based on the company’s average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on the third anniversary of the grant, if the RONA and TSR criteria are achieved and the participant is then employed by the company. NaN percent of the performance shares vest based upon the company’s ability to achieve a predetermined RONA during the three year performance period. The remaining 50 percent of the performance shares vest based upon the company’s total TSR during the three year performance period relative to that of the company’s performance peer group.
The performance shares were granted at a target of 100%, but each performance share will reduce or increase depending on results for the performance period for the company's RONA, and the company’s TSR relative to that of the performance peer group. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to the 2018 and 2019 awards are 482,234 performance shares or 150% of the 321,489 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.
The company used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The weighted average assumptions used by the company in applying the Monte Carlo valuation model for performance share grants are illustrated in the following table:
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FY 2019 Performance Awards | FY 2018 Performance Awards | ||||||
Risk-free interest rate | 2.45 | % | 2.44 | % | |||
Dividend yield | 3.13 | % | 2.64 | % | |||
Expected volatility | 41.69 | % | 45.11 | % | |||
Monte Carlo valuation | 99.62 | % | 97.39 | % | |||
Closing stock price on the date of grant | $ | 15.34 | $ | 18.15 |
The non-vested performance share award activity for the nine months ended September 30, 2019, is as follows:
Performance | Weighted- | Weighted-Average | ||||
Non-Vested at December 31, 2018 | 134,022 | $ | 17.92 | |||
Granted | 216,703 | 15.43 | ||||
Forfeited | (29,236) | 16.23 | ||||
Non-Vested at September 30, 2019 | 321,489 | $ | 16.39 | 2.1 |
Stock Options
There remains 128,750 exercisable stock options outstanding at September 30, 2019, with a weighted-average exercise price of $12.72. The weighted average exercise price for options exercisable at September 30, 2019 was above the company’s stock price at September 30, 2019. The weighted-average remaining contractual term of exercisable options was 0.2 years at September 30, 2019.
Option awards allow employees to exercise options through cash payment for the shares of common stock or simultaneous broker-assisted transactions in which the employee authorizes the exercise and immediate sale of the shares in the open market. The company uses newly issued shares of common stock to satisfy its stock-based payment obligations.
Restricted Stock
The non-vested stock award and deferred stock unit activity for the nine months ended September 30, 2018, is as follows:
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|
| Non-Vested Shares and Deferred Stock Units |
| Weighted- |
| Weighted-Average Remaining Vesting Term (in years) | |
Non-Vested at December 31, 2017 | 1,068,947 |
| $ | 20.41 |
|
|
Granted | 664,642 |
|
| 18.20 |
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|
Forfeited | (14,272) |
|
| 20.64 |
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|
Vested | (541,586) |
|
| 20.58 |
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|
Non-Vested at September 30, 2018 | 1,177,731 |
| $ | 19.08 |
| 1.9 |
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Performance Shares
On March 19, 2018, the board of directors granted 153,030 performance shares to be awarded in the form of common stock to certain participants of the plan. Performance shares vest based on the company's average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on March 19, 2021, if the RONA and TSR criteria are achieved and the participant is then employed by the company. Fifty percent of the performance shares vest based upon the company’s ability to achieve a predetermined RONA during the three year performance period. The remaining fifty percent of the performance shares vest based upon the company’s total TSR during the three year performance period relative to that of the company’s performance peer group.
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The performance shares were granted at a target of 100%, but each performance share will increase or decrease depending on results for the performance period for the company's RONA, and the company’s TSR relative to that of the performance peer group. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to this award is 229,545 performance shares or 150% of the 153,030 performance shares granted on March 19, 2018. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.
The company used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The weighted average assumptions used by the company in applying the Monte Carlo valuation model for performance share grants during the nine months ended September 30, 2018, are illustrated in the following table:
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| |
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| |
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The Monte Carlo valuation also estimated the number of performance shares that would be awarded which is reflected in the fair value on the grant date. The Monte Carlo valuation assumed 97.39% of the performance shares granted on March 19, 2018, would be awarded on March 19, 2021, based upon the estimated company’s total shareholder return relative to peer performance. The company’s closing stock price was $18.15 on the date of the grant.
At September 30, 2018, unrecognized stock compensation expense of $2.3 million, excluding any potential forfeitures, will be recognized over the vesting period of these performance share awards on a straight-line basis.
Green Plains Partners
Green Plains Partners adopted the LTIP, anhas a long-term incentive plan (LTIP) intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation based on unitsawards to employees, consultants and directors to encourage superior performance. The incentive planLTIP reserves 2,500,000 common limited partner units for issuance in the form ofoptions, restricted units, phantom units, distributabledistribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profitsprofit interest units or other unit-based awards. The partnership measures unit-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The partnership records noncash compensation expense related to equitythe awards in its consolidated financial statements over the requisite service period on a straight-line basis.
The non-vested unit-based awards activity for the nine months ended September 30, 2018,2019, is as follows:
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|
|
| Non-Vested Shares and Deferred Stock Units |
| Weighted- |
| Weighted-Average Remaining Vesting Term (in years) | |
Non-Vested at December 31, 2017 | 11,549 |
| $ | 19.06 |
|
|
Granted | 18,582 |
|
| 16.96 |
|
|
Forfeited | - |
|
| - |
|
|
Vested | (11,549) |
|
| 19.06 |
|
|
Non-Vested at September 30, 2018 | 18,582 |
| $ | 16.96 |
| 0.8 |
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|
|
Non-Vested | Weighted- | Weighted-Average | ||||
Non-Vested at December 31, 2018 | 18,582 | $ | 16.96 | |||
Granted | 22,856 | 14.00 | ||||
Vested | (18,582) | 16.96 | ||||
Non-Vested at September 30, 2019 | 22,856 | $ | 14.00 | 0.8 | ||
Stock-Based and Unit-Based Compensation Expense
Compensation costs for stock-based and unit-based payment plans during the three and nine months ended September 30, 2018,2019 were approximately $3.3$2.6 million and $8.7$7.4 million, respectively, and $3.3 million and $8.8$8.7 million during the three and nine months ended September 30, 2017, respectively.2018. At September 30, 2018,2019, there was $14.2$13.6 million of unrecognized compensation costs from stock-based and unit-based compensation related to non-vested awards, excluding performance shares noted above.awards. This compensation is expected to be recognized over a weighted-average period of approximately 1.8 years. The potential tax benefit related to stock-based payment is approximately 24.5%24.8% of these expenses.
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11. EARNINGS PER SHARE
Basic earnings per share, or EPS, is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.
The company computed diluted EPS by dividing net income on an if-converted basis, adjusted to add back net interest expense related to the convertible debt instruments, by the weighted average number of common shares outstanding during the period, adjusted to include the shares that would be issued if the convertible debt instruments were converted to common shares and the effect of any outstanding dilutive securities. In addition, due to the presentation of GPCC as discontinued operations, the company has presented basic and diluted earnings per share from both continuing operations and from discontinued operations.
The basic and diluted EPS are calculated as follows (in thousands)thousands, except per share amounts):
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| Three Months Ended |
| Nine Months Ended | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
Basic EPS: |
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Net income (loss) attributable to Green Plains | $ | (12,469) |
| $ | 34,394 |
| $ | (37,580) |
| $ | 14,431 |
Weighted average shares outstanding - basic |
| 40,229 |
|
| 41,348 |
|
| 40,189 |
|
| 40,008 |
EPS - basic | $ | (0.31) |
| $ | 0.83 |
| $ | (0.94) |
| $ | 0.36 |
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Diluted EPS: |
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Net income (loss) attributable to Green Plains | $ | (12,469) |
| $ | 34,394 |
| $ | (37,580) |
| $ | 14,431 |
Interest and amortization on convertible debt, net of tax effect: |
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|
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|
|
|
|
3.25% notes due 2018 |
| - |
|
| 840 |
|
| - |
|
| 3,582 |
4.125% notes due 2022 |
| - |
|
| 2,050 |
|
| - |
|
| 6,089 |
Net income (loss) attributable to Green Plains - diluted | $ | (12,469) |
| $ | 37,284 |
| $ | (37,580) |
| $ | 24,102 |
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Weighted average shares outstanding - basic |
| 40,229 |
|
| 41,348 |
|
| 40,189 |
|
| 40,008 |
Effect of dilutive convertible debt: |
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|
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|
|
|
|
|
|
3.25% notes due 2018 |
| - |
|
| 3,178 |
|
| - |
|
| 4,551 |
4.125% notes due 2022 |
| - |
|
| 6,071 |
|
| - |
|
| 6,071 |
Effect of dilutive stock-based compensation awards |
| - |
|
| 50 |
|
| - |
|
| 63 |
Weighted average shares outstanding - diluted |
| 40,229 |
|
| 50,647 |
|
| 40,189 |
|
| 50,693 |
EPS - diluted | $ | (0.31) |
| $ | 0.74 |
| $ | (0.94) |
| $ | 0.48 |
Three Months Ended | Nine Months Ended | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Numerator: | |||||||||||
Net loss from continuing operations (1) | $ | (42,363) | $ | (12,936) | $ | (128,077) | $ | (49,415) | |||
Net income from discontinued operations | 3,393 | 467 | 966 | 11,835 | |||||||
Net loss attributable to Green Plains | $ | (38,970) | $ | (12,469) | $ | (127,111) | $ | (37,580) | |||
Denominator: | |||||||||||
Weighted-average shares outstanding - basic | 36,913 | 40,229 | 39,092 | 40,189 | |||||||
Dilutive effect of convertible debt and stock-based compensation (2) | - | - | - | - | |||||||
Weighted-average shares outstanding - diluted | 36,913 | 40,229 | 39,092 | 40,189 | |||||||
EPS - basic and diluted: (3) | |||||||||||
EPS from continuing operations | $ | (1.15) | $ | (0.32) | $ | (3.28) | $ | (1.23) | |||
EPS from discontinued operations | 0.09 | 0.01 | 0.03 | 0.29 | |||||||
EPS | $ | (1.06) | $ | (0.31) | $ | (3.25) | $ | (0.94) | |||
Anti-dilutive weighted-average convertible debt and stock-based compensation (2) | 13,983 | 10,348 | 9,397 | 10,154 |
Excluded(1)Net loss from continuing operations can be recalculated from our consolidated statements of operations by taking the computation of diluted EPS were 10.3 million and 10.2 million sharesnet loss from continuing operations including noncontrolling interest less net income attributable to noncontrolling interests.
(2)The effect related to the effect of thecompany’s convertible debt and stock-based compensation awards have been excluded from diluted EPS for the three and nine months ended September 30, 2018,periods presented as the inclusion of these shares would have been antidilutive.
(3)GAAP requires the denominator used in the diluted net EPS calculation for discontinued operations to be the same as that of continuing operations, regardless of net earnings (loss) from continuing operations.
12. STOCKHOLDERS’ EQUITY
Components of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
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| |
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| Accum. |
| Total |
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| ||||||||
|
| Additional |
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| Other |
| Green Plains | Non- | Total | |||||||||
| Common Stock | Paid-in | Retained | Comp. | Treasury Stock | Stockholders' | Controlling | Stockholders' | ||||||||||
| Shares | Amount | Capital | Earnings | Income | Shares | Amount | Equity | Interests | Equity | ||||||||
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Balance, December 31, 2017 | 46,410 | $ | 46 | $ | 685,019 | $ | 325,411 | $ | (13,110) | 5,326 | $ | (55,184) | $ | 942,182 | $ | 116,954 | $ | 1,059,136 |
Reclassification of certain | - |
| - |
| - |
| 2,787 |
| (2,787) | - |
| - |
| - |
| - |
| - |
Balance, January 1, 2018 | 46,410 |
| 46 |
| 685,019 |
| 328,198 |
| (15,897) | 5,326 |
| (55,184) |
| 942,182 |
| 116,954 |
| 1,059,136 |
Net income (loss) | - |
| - |
| - |
| (37,580) |
| - | - |
| - |
| (37,580) |
| 14,457 |
| (23,123) |
Cash dividends and | - |
| - |
| - |
| (14,536) |
| - | - |
| - |
| (14,536) |
| (16,385) |
| (30,921) |
Other comprehensive loss | - |
| - |
| - |
| - |
| (1,522) | - |
| - |
| (1,522) |
| - |
| (1,522) |
Amounts reclassified from | - |
| - |
| - |
| - |
| 243 | - |
| - |
| 243 |
| - |
| 243 |
Other comprehensive loss, | - |
| - |
| - |
| - |
| (1,279) | - |
| - |
| (1,279) |
| - |
| (1,279) |
Modification of 3.25% convertible | - |
| - |
| 4,660 |
| - |
| - | - |
| - |
| 4,660 |
| - |
| 4,660 |
Exchange of 3.25% convertible | - |
| - |
| - |
| - |
| - | - |
| 1 |
| 1 |
| - |
| 1 |
Stock-based compensation | 321 |
| 1 |
| 5,314 |
| - |
| - | - |
| - |
| 5,315 |
| 196 |
| 5,511 |
Stock options exercised | 15 |
| - |
| 150 |
| - |
| - | - |
| - |
| 150 |
| - |
| 150 |
Balance, September 30, 2018 | 46,746 | $ | 47 | $ | 695,143 | $ | 276,082 | $ | (17,176) | 5,326 | $ | (55,183) | $ | 898,913 | $ | 115,222 | $ | 1,014,135 |
Accum. | Total | |||||||||||||||||
Additional | Other | Green Plains | Non- | Total | ||||||||||||||
Common Stock | Paid-in | Retained | Comp. | Treasury Stock | Stockholders' | Controlling | Stockholders' | |||||||||||
Shares | Amount | Capital | Earnings | Income | Shares | Amount | Equity | Interests | Equity | |||||||||
Balance, January 1, 2019 | 46,638 | $ | 47 | $ | 696,222 | $ | 324,728 | $ | (16,016) | 5,536 | $ | (58,162) | $ | 946,819 | $ | 116,170 | $ | 1,062,989 |
Net income (loss) | - | - | - | (42,799) | - | - | - | (42,799) | 4,928 | (37,871) | ||||||||
Cash dividends and | - | - | - | (4,847) | - | - | - | (4,847) | (5,487) | (10,334) | ||||||||
Other comprehensive loss | - | - | - | - | (6,883) | - | - | (6,883) | - | (6,883) | ||||||||
Amounts reclassified from | - | - | - | - | 10,376 | - | - | 10,376 | - | 10,376 | ||||||||
Other comprehensive income, | - | - | - | - | 3,493 | - | - | 3,493 | - | 3,493 | ||||||||
Proceeds from disgorgement of shareholders short-swing profits, net (1) | - | - | 5,023 | - | - | - | - | 5,023 | - | 5,023 | ||||||||
Stock-based compensation | 284 | - | 428 | - | - | - | - | 428 | 79 | 507 | ||||||||
Balance, March 31, 2019 | 46,922 | 47 | 701,673 | 277,082 | (12,523) | 5,536 | (58,162) | 908,117 | 115,690 | 1,023,807 | ||||||||
Net income (loss) | - | - | - | (45,342) | - | - | - | (45,342) | 5,163 | (40,179) | ||||||||
Cash dividends and | - | - | - | (4,871) | - | - | - | (4,871) | (5,487) | (10,358) | ||||||||
Other comprehensive loss | - | - | - | - | 33,260 | - | - | 33,260 | - | 33,260 | ||||||||
Amounts reclassified from | - | - | - | - | 3,440 | - | - | 3,440 | - | 3,440 | ||||||||
Other comprehensive income, | - | - | - | - | 36,700 | - | - | 36,700 | - | 36,700 | ||||||||
Issuance of 4.00% convertible notes due 2024, net of tax | - | - | 22,537 | - | - | - | - | 22,537 | - | 22,537 | ||||||||
Settlement of 3.25% convertible | - | - | (271) | - | - | - | - | (271) | - | (271) | ||||||||
Repurchase of common stock | - | - | - | - | - | 3,197 | (39,870) | (39,870) | - | (39,870) | ||||||||
Stock-based compensation | (3) | - | 2,129 | - | - | - | - | 2,129 | 79 | 2,208 | ||||||||
Balance, June 30, 2019 | 46,919 | 47 | 726,068 | 226,869 | 24,177 | 8,733 | (98,032) | 879,129 | 115,445 | 994,574 | ||||||||
Net income (loss) | - | - | - | (38,970) | - | - | - | (38,970) | 3,479 | (35,491) | ||||||||
Cash dividends and | - | - | - | - | - | - | - | - | (5,497) | (5,497) | ||||||||
Other comprehensive loss | - | - | - | - | 28,095 | - | - | 28,095 | - | 28,095 | ||||||||
Amounts reclassified from | - | - | - | - | (53,255) | - | - | (53,255) | - | (53,255) | ||||||||
Other comprehensive income, | - | - | - | - | (25,160) | - | - | (25,160) | - | (25,160) | ||||||||
Share of equity method investees other comprehensive loss arising during the period, net of tax | - | - | - | - | (10,771) | - | - | (10,771) | - | (10,771) | ||||||||
Issuance of 4.00% convertible notes due 2024, net of tax | - | - | 2,231 | - | - | - | - | 2,231 | - | 2,231 | ||||||||
Repurchase of common stock | - | - | - | - | - | 1,663 | (16,014) | (16,014) | (16,014) | |||||||||
Stock-based compensation | (4) | - | 2,509 | - | - | - | - | 2,509 | 81 | 2,590 | ||||||||
Balance, September 30, 2019 | 46,915 | $ | 47 | $ | 730,808 | $ | 187,899 | $ | (11,754) | 10,396 | $ | (114,046) | $ | 792,954 | $ | 113,508 | $ | 906,462 |
Accum. | Total | |||||||||||||||||
Additional | Other | Green Plains | Non- | Total | ||||||||||||||
Common Stock | Paid-in | Retained | Comp. | Treasury Stock | Stockholders' | Controlling | Stockholders' | |||||||||||
Shares | Amount | Capital | Earnings | Income | Shares | Amount | Equity | Interests | Equity | |||||||||
Balance, December 31, 2017 | 46,410 | $ | 46 | $ | 685,019 | $ | 325,411 | $ | (13,110) | 5,326 | $ | (55,184) | $ | 942,182 | $ | 116,954 | $ | 1,059,136 |
Reclassification of certain | - | - | - | 2,787 | (2,787) | - | - | - | - | - | ||||||||
Balance, January 1, 2018 | 46,410 | 46 | 685,019 | 328,198 | (15,897) | 5,326 | (55,184) | 942,182 | 116,954 | 1,059,136 | ||||||||
Net income (loss) | - | - | - | (24,117) | - | - | - | (24,117) | 4,662 | (19,455) | ||||||||
Cash dividends and | - | - | - | (4,831) | - | - | - | (4,831) | (5,420) | (10,251) | ||||||||
Other comprehensive income | - | - | - | - | 17,150 | - | - | 17,150 | - | 17,150 | ||||||||
Amounts reclassified from | - | - | - | - | (603) | - | - | (603) | - | (603) | ||||||||
Other comprehensive income | - | - | - | - | 16,547 | - | - | 16,547 | - | 16,547 | ||||||||
Stock-based compensation | 284 | 1 | (512) | - | - | - | - | (511) | 60 | (451) | ||||||||
Stock options exercised | 5 | - | 50 | - | - | - | - | 50 | - | 50 | ||||||||
Balance, March 31, 2018 | 46,699 | 47 | 684,557 | 299,250 | 650 | 5,326 | (55,184) | 929,320 | 116,256 | 1,045,576 | ||||||||
Net income (loss) | - | - | - | (994) | - | - | - | (994) | 4,745 | 3,751 | ||||||||
Cash dividends and | - | - | - | (4,851) | - | - | - | (4,851) | (5,478) | (10,329) | ||||||||
Other comprehensive income | - | - | - | - | (4,277) | - | - | (4,277) | - | (4,277) | ||||||||
Amounts reclassified from | - | - | - | - | (581) | - | - | (581) | - | (581) | ||||||||
Other comprehensive income | - | - | - | - | (4,858) | - | - | (4,858) | - | (4,858) | ||||||||
Exchange of 3.25% convertible | - | - | - | - | - | - | 1 | 1 | - | 1 | ||||||||
Stock-based compensation | 52 | - | 2,812 | - | - | - | - | 2,812 | 60 | 2,872 | ||||||||
Stock options exercised | 10 | - | 100 | - | - | - | - | 100 | - | 100 | ||||||||
Balance, June 30, 2018 | 46,761 | 47 | 687,469 | 293,405 | (4,208) | 5,326 | (55,183) | 921,530 | 115,583 | 1,037,113 | ||||||||
Net income (loss) | - | - | - | (12,469) | - | - | - | (12,469) | 5,050 | (7,419) | ||||||||
Cash dividends and | - | - | - | (4,854) | - | - | - | (4,854) | (5,487) | (10,341) | ||||||||
Other comprehensive income | - | - | - | - | (14,395) | - | - | (14,395) | - | (14,395) | ||||||||
Amounts reclassified from | - | - | - | - | 1,427 | - | - | 1,427 | - | 1,427 | ||||||||
Other comprehensive income | - | - | - | - | (12,968) | - | - | (12,968) | - | (12,968) | ||||||||
Modification of 3.25% convertible | - | - | 4,660 | - | - | - | - | 4,660 | 4,660 | |||||||||
Exchange of 3.25% convertible | - | - | - | - | - | - | - | - | - | - | ||||||||
Stock-based compensation | (15) | - | 3,014 | - | - | - | - | 3,014 | 76 | 3,090 | ||||||||
Stock options exercised | - | - | - | - | - | - | - | - | - | - | ||||||||
Balance, September 30, 2018 | 46,746 | $ | 47 | $ | 695,143 | $ | 276,082 | $ | (17,176) | 5,326 | $ | (55,183) | $ | 898,913 | $ | 115,222 | $ | 1,014,135 |
(1)During the three months ended March 31, 2019, the company received $6.7 million from a shareholder of the company for disgorgement of shareholder short-swing profits under Section 16(b) under the Exchange Act. The amount was recorded as an increase to additional paid-in capital, net of tax.
(2)Effective January 1, 2018, the company early adopted the amended guidance in ASC 220, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendment eliminates the stranded tax effects resulting from the Tax Cuts and Jobs Act and is intended to improve the usefulness of information reported. As a result, the company recorded a $2.8 million reclassification from accumulated other comprehensive income to retained earnings during the first quarter of 2018.
Amounts reclassified from accumulated other comprehensive income are as follows (in thousands):
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| Three Months Ended |
| Nine Months Ended |
| Statements of | Three Months Ended | Nine Months Ended | Statements of | ||||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| Classification | 2019 | 2018 | 2019 | 2018 | Classification | ||||||||||||
Gains (losses) on cash flow hedges: |
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| |||||||||||||
Commodity derivatives | $ | (3,197) |
| $ | (5,242) |
| $ | (1,749) |
| $ | 1,734 |
| Revenues | $ | - | $ | 4,766 | $ | - | $ | 3,648 | (1) | ||||
Commodity derivatives |
| 1,350 |
|
| (1,861) |
|
| 1,451 |
|
| (1,679) |
| Cost of goods sold | - | 1,331 | - | 1,258 | (2) | ||||||||
Total |
| (1,847) |
|
| (7,103) |
|
| (298) |
|
| 55 |
| Loss before income taxes | |||||||||||||
Income tax expense (benefit) |
| (420) |
|
| (2,650) |
|
| (55) |
|
| 21 |
| Income tax benefit | |||||||||||||
Total gains on cash flow hedges from continuing operations | - | 6,097 | - | 4,906 | (3) | |||||||||||||||||||||
Gains (losses) on cash flow hedges from discontinued operations, net of income taxes | 53,255 | (6,109) | 39,439 | (4,247) | (4) | |||||||||||||||||||||
Income tax expense | - | 1,415 | - | 902 | (5) | |||||||||||||||||||||
Amounts reclassified from accumulated | $ | (1,427) |
| $ | (4,453) |
| $ | (243) |
| $ | 34 |
|
| $ | 53,255 | $ | (1,427) | $ | 39,439 | $ | (243) |
(1)Revenues
(2)Costs of goods sold
(3)Loss from continuing operations before income taxes and income (loss) from equity method investees
(4)Net income from discontinued operations, net of income taxes
(5)Income tax benefit
13. INCOME TAXES
The company records actual income tax expense or benefit during interim periods rather than on an annual effective tax rate method. Certain items are given discrete period treatment and the tax effect of those items are reported in full in the relevant interim period. Green Plains Partners is a limited partnership, which is treated as a flow-through entity for federal income tax purposes and is not subject to federal income taxes. As a result, the consolidated financial statements do not reflect income taxes on pre-tax income or loss attributable to the noncontrolling interest in the partnership.
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and is effective January 1, 2018. The Act reduced the federal tax rate to 21%. Due to the significance of the legislation, the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides a measurement period to complete the accounting for certain elements of the tax reform. The company is still analyzing certain other provisions of the legislation and its impact to future income taxes, including interest expense limitation to 30% of adjusted taxable income, use of AMT credit carryforwards, limitation of net operating loss carryforwards to 80% of taxable income, and deducibility of officer compensation. Any subsequent adjustments, if needed, will be recorded as tax expense during the fourth quarter of 2018.
31
The company recorded income tax benefit of $14.7$12.5 million and $31.4$40.7 million for the three and nine months ended September 30, 2018, respectively,2019, compared with $48.8$15.0 million and $60.9$34.5 million for the same periods in 2017. The decrease in income tax benefit was due primarily to the company’s recognition of tax benefits of $18.4 million during the nine months ended September 30, 2018, compared to $49.5 million for the same period in 2017, for federal and state R&D Credits relating to current and prior periods.
2018.The amount of unrecognized tax benefits for uncertain tax positions was $50.4$51.6 million as of September 30, 2018,2019 and $26.0 million as of December 31, 2017. Recognition of these benefits would have a favorable impact on the company’s effective tax rate.2018.
The 20182019 effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the company’s assessment of its liability for uncertain tax positions.
14. COMMITMENTS AND CONTINGENCIES
Operating LeasesAdoption of ASC 842
On January 1, 2019, the company adopted the amended guidance in ASC 842, Leases, and all related amendments (“new lease standard”) and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The standard does not require the guidance to be applied to the earliest comparative period presented in the financial statements. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The new lease standard had a material impact on the company’s consolidated balance sheets, increasing total assets and total liabilities by $60.9 million upon adoption. It did not have an impact on the consolidated statement of operations for the nine months ended September 30, 2019.
The impact on the consolidated balance sheet as of December 31, 2018 for the adoption of the new lease standard was as follows (in thousands):
Balance at | Adjustments | Balance at | |||||||
December 31, | Due to | January 1, | |||||||
2018 | ASC 842 | 2019 | |||||||
(audited) | |||||||||
Assets | |||||||||
Operating lease right-of-use assets | $ | - | $ | 61,268 | $ | 61,268 | |||
Other assets | 365 | (365) | - | ||||||
Liabilities | |||||||||
Accounts payable | 196 | (196) | - | ||||||
Operating lease current liabilities | - | 18,315 | 18,315 | ||||||
Operating lease long-term liabilities | - | 46,024 | 46,024 | ||||||
Other liabilities | 3,240 | (3,240) | - |
The company’s leases do not specify an implicit interest rate. Therefore, the incremental borrowing rate was used based on information available at commencement date to determine the present value of future payments.
Practical Expedients
Under the new lease standard, companies may elect various practical expedients upon adoption. The company elected the package of practical expedients related to transition, which states that an entity need not reassess initial direct costs for existing leases, certain facilities, equipmentthe lease classification for any expired or existing leases, and parcelswhether any expired or existing contracts are or contain leases.
The company elected to utilize a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For railcar leases, the company elected to combine the railcars within each rider and account for each rider as an individual lease.
The company also elected the practical expedient for lessees to include both the lease and non-lease components as a single component and account for them as a lease. Certain of the company’s railcar agreements provide for maintenance costs to be the responsibility of the company as incurred or charged by the lessor. This maintenance cost is a non-lease component that the company elected to combine with the monthly rental payment and account for the total cost as operating lease expense. In addition, the company has a land under agreementslease that expire at various dates. For accounting purposes, rent expense is basedcontains a non-lease component for the handling and unloading services the landlord provides. The company elected to combine the cost of services with the land lease cost and account for the total as operating lease expense.
A lessee may elect not to apply the recognition requirements in the new lease standard for short-term leases. Instead, the lease payments may be recognized into profit or loss on a straight-line amortization of the total payments requiredbasis over the lease.lease term. The company incurredhas elected to use this short-term lease expensesexemption, and therefore will not record a lease liability or right-of-use asset for leases with a term of $9.0 million and $29.7 million duringone year or less. The company did not incur any short-term lease expense for the three and nine months ended September 30, 2018, respectively,2019.
Lease Expense
The company leases certain facilities, parcels of land, and $11.2 millionequipment, with remaining terms ranging from less than one year to 18.2 years. The land and $33.4 millionfacility leases include renewal options. The renewal options are included in the lease term only for those sites or locations in which they are reasonably certain to be renewed. Equipment renewals are not considered reasonably certain to be exercised as they typically renew with significantly different underlying terms.
The company may sublease certain of its railcars to third parties on a short-term basis. The subleases are classified as operating leases, with the associated sublease income being recognized on a straight-line basis over the lease term.
The components of lease expense are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||
September 30, 2019 | September 30, 2019 | |||||
Lease expense | ||||||
Operating lease expense | $ | 4,944 | $ | 15,899 | ||
Variable lease expense (1) | 250 | 643 | ||||
Total lease expense | $ | 5,194 | $ | 16,542 |
(1)Represents amounts incurred in excess of the minimum payments required for the handling and unloading of railcars for a certain land lease, offset by railcar lease abatements provided by the lessor when railcars are out of service during the three and nine months ended September 30, 2017, respectively.periods of maintenance or upgrade.
Supplemental cash flow information related to operating leases is as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||
September 30, 2019 | September 30, 2019 | |||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||
Operating cash flows from operating leases | $ | 4,977 | $ | 15,913 | ||
Right-of-use assets obtained in exchange for lease obligations: | 4,427 | 10,634 | ||||
Operating leases | ||||||
Right-of-use assets and lease obligations derecognized due to lease modifications: | ||||||
Operating leases | 1,405 | 1,405 |
Supplemental balance sheet information related to operating leases is as follows:
September 30, | |||
2019 | |||
Weighted average remaining lease term | 6.7 years | ||
Weighted average discount rate | 5.44% |
Aggregate minimum lease payments under thesethe operating lease agreements for the remainder of 20182019 and in future years are as follows (in thousands):
|
|
|
| |||
Year Ending December 31, |
| Amount | Amount | |||
2018 |
| $ | 9,989 | |||
2019 |
|
| 24,808 | $ | 5,272 | |
2020 |
|
| 18,052 | 18,822 | ||
2021 |
|
| 10,574 | 10,885 | ||
2022 |
|
| 8,252 | 8,924 | ||
2023 | 5,707 | |||||
Thereafter |
|
| 32,245 | 21,864 | ||
Total |
| $ | 103,920 | 71,474 | ||
Less: Present value discount | (12,378) | |||||
Lease liabilities | $ | 59,096 |
CommoditiesAggregate minimum lease payments remaining under the operating lease agreements under ASC 840, Leases as of December 31, 2018 are as follows (in thousands):
Year Ending December 31, | Amount | ||
2019 | $ | 23,552 | |
2020 | 17,473 | ||
2021 | 9,812 | ||
2022 | 7,325 | ||
2023 | 3,594 | ||
Thereafter | 28,542 | ||
Total | $ | 90,298 |
Lease Revenue
As described in Note 2 – Revenue, the majority of the partnership’s segment revenue is generated though their storage and throughput services and rail transportation services agreements with Green Plains Trade and are accounted for as lease revenue. Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases. Lease revenue associated with agreements with Green Plains Trade are eliminated upon consolidation. The remaining lease revenue is not material to the company.
Refer to Note 2 – Revenue for further discussion on lease revenue.
Commodities
As of September 30, 2018,2019, the company had contracted future purchases of grain, corn oil, natural gas, crude oil, ethanol and distillers grains, and cattle, valued at approximately $411.9$271.7 million.
Legal
In November 2013, the company acquired two ethanol plants located in Fairmont, Minnesota and Wood River, Nebraska. There is ongoing litigation related to the consideration for this acquisition. On August 19, 2016, the Delaware Superior Court granted Green Plains’ motion for summary judgment in part and held that the seller’s attempt to disclaim liability for certain shortfall amounts through the use of a disclaimer provision was ineffective. Based on the court order, the company determined that previously accrued contingent liabilities of approximately $6.3 million no longer represented probable losses. These accruals were reversed as a reduction of cost of goods sold during the year ended December 31, 2016, because the adjustment relates to a reduction in the cost of inventory purchased in the acquisitions. Per the court’s direction, the company and the seller retained an independent accounting firm to determine if a shortfall exists and the precise shortfall due to Green Plains. The accounting firm has concluded that a shortfall does exist consistent with the company’s calculations, and the matter is now back in the hands of the Court to review and enter its order. On October 30, 2018, the ongoing litigation was settled and will be recorded in the fourth quarter.
In addition to the above-described proceeding, the company is currently involved in litigation that has arisen induring the ordinary course of business, but does not believe any pending litigation will have a material adverse effect on its financial position, results of operations or cash flows.
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15. RELATED PARTY TRANSACTIONS
Commercial ContractsGreen Plains Cattle Company LLC
In March 2014, a subsidiary of theThe company entered into $1.4 million of new equipment financing agreements with Amur Equipment Finance, whom Gordon Glade, a member of the company’s board of directors, was formerly a shareholder. Amur Equipment Finance is no longer considered aengages in certain related party astransactions with GPCC. The company provides a variety of the third quarter of 2018. Balances of $0.4 millionshared services to GPCC, including general management, accounting and $0.6finance, payroll and human resources, information technology, legal, communications and treasury activities. The company reduced selling, general and administrative expenses by $0.1 million related to these financing arrangements were included in debt at September 30, 2018, and December 31, 2017, respectively. Payments, including principal and interest, totaled $69 thousand and $207 thousand during each ofshared services provided for the three and nine months ended September 30, 2018,2019. The company had $0.5 million outstanding receivables related to the shared service agreement and 2017, respectively. The weighted average interest rateexpenses paid on behalf of GPCC as of September 30, 2019.
Green Plains Trade Group, a subsidiary of the company, enters into certain sale contracts with GPCC during the normal course of business. Revenues subsequent to the disposition of GPCC were $0.7 million for both the financing agreements with Amur Equipment Finance was 6.8%.three and nine months ended September 30, 2019.
Aircraft Leases
Effective January 1, 2015, the company entered into two2 agreements with an entity controlled by Wayne Hoovestol for the lease of two2 aircrafts. Mr. Hoovestol is chairman of the company’s board of directors. The company agreed to pay $9,766 per month for the combined use of up to 125 hours per year of the aircrafts. Flight time in excess of 125 hours per year will incur additional hourly charges. Payments related to these leases totaled $39$37 thousand and $126 thousand during the three months ended September 30, 2018, respectively, and $39 thousand and $141$106 thousand during the three and nine months ended September 30, 2017,2019, and $39 thousand and $126 thousand during the three and nine months ended September 30, 2018, respectively. The company had no outstanding payables related to these agreements as of September 30, 2018,2019 and $2 thousand in outstanding payables related to these agreements as of December 31, 2017.2018.
16. SUBSEQUENT EVENTSEQUITY METHOD INVESTMENTS
Seventh Amendment to Credit Agreement – Green Plains Cattle Company LLC
On October 5, 2018, the company amended its revolving credit facility to provide the Joint Administrator, at its sole discretion, irrevocable authorization to (1) release any term loan priority collateral; (2) release any guarantor related to any release of any term loan priority collateral and/or (3) release the guaranty upon termination of the term loan agreement and repayment of all obligations owed by the company under the term loan agreement.
Asset Purchase Agreement – Valero Renewable Fuels Company, LLC andSeptember 9, 2019, Green Plains, Partners LP
On October 8, 2018,TGAM and StepStone announced the companyformation of a joint venture. Such parties entered into an Asset Purchasethe Second Amended and Restated Limited Liability Company Agreement to sell three of its ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan to Valero Renewable Fuels Company, LLC (“Valero”). The estimated sales price for the facilities is $300 million plus approximately $22 millionGPCC effective as of related working capital. Correspondingly, the companySeptember 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a separate AssetSecurities Purchase Agreement (the “Asset Purchase Agreement”) with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the partnership for $120.9 million (the “Transaction”), subject to certain other post-closing adjustments, to acquire the related storage assets to be disposedmembership interests of GPCC from Green Plains. After closing, GPCC is no longer consolidated in the salecompany’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. GPCC results prior to Valero. In addition, approximately 525its disposition are classified as discontinued operations in our current and prior period financials.
The GPCC investment is accounted for using the equity method of accounting. GPCC conducts the business of the 3,500 railcars leasedjoint venture, including (i) owning and operating the cattle feeding operations (as defined below), and (ii) any other activities approved by GPCC’s board of managers. GPCC continues to have the partnershipcapacity to support 355,000 head of cattle and has
approximately 11.7 million bushels of grain storage capacity. Historical GPCC operational results prior to its disposition are anticipated to be conveyed torecorded as discontinued operations in the consolidated balance sheet and statements of operations.
The company asdoes not consolidate any part of the Transaction. Upon closingassets or liabilities or operating results of its equity method investee. The company’s share of net income or loss in the investee increases or decreases, as applicable, the carrying value of the Transaction,investment. With respect to GPCC, the company anticipates recordingdetermined that this entity does not represent a variable interest entity and consolidation is not required. In addition, although the company has the ability to exercise significant influence over the joint venture through board representation and voting rights, all significant decisions require the consent of the other investors without regard to economic interest.
Summarized Financial Information
During the periods ended September 30, 2019 and December 31, 2018, our equity method investees were considered related parties and included:
Green Plains Cattle Company LLC, a joint venture formed on September 1, 2019, in which we have a 50% noncontrolling interest. See description of GPCC above.
JGP Energy Partners LLC, in which we have a 50% noncontrolling interest. JGP Energy Partners LLC operates an estimated pre-tax gainintermodal export and import fuels terminal in Beaumont, Texas, with storage capacity of 550 thousand barrels to support various export and domestic grades of ethanol.
Optimal Aqua LLC, in which we have a 50% noncontrolling interest. Optimal Aqua LLC produces high-quality aquaculture feeds utilizing proprietary techniques and high-protein feed ingredients.
NLR Energy Logistics LLC, in which the partnership has a 50% noncontrolling interest. NLR Energy Logistics LLC operates a unit train terminal in the Little Rock, Arkansas area with capacity to unload 110-unit cars and provide approximately $100 million. 100,000 barrels of storage.
Our equity method investments are summarized in the following table (in thousands):
Ownership as of September 30, 2019 | September 30, 2019 | December 31, 2018 | ||||||
Green Plains Cattle Company LLC | 50% | $ | 63,066 | $ | - | |||
JGP Energy Partners LLC | 50% | 25,145 | 25,362 | |||||
Optimal Aqua LLC | 50% | 640 | 704 | |||||
NLR Energy Logistics LLC | 50% | 4,178 | 3,648 | |||||
Total | $ | 93,029 | $ | 29,714 |
Earnings from equity method investments were as follows:
Three Months Ended September 30, | Nine Months Ended September 30 | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
Green Plains Cattle Company LLC | $ | 504 | $ | - | $ | 504 | $ | - | ||||
NLR Energy Logistics LLC | 173 | 48 | 530 | (82) | ||||||||
All others | (33) | (298) | (500) | (407) | ||||||||
Total income (loss) from equity method investments | $ | 644 | $ | (250) | $ | 534 | $ | (489) | ||||
Distributions from equity method investments | $ | - | $ | - | $ | - | $ | - | ||||
Earnings from equity method investments, net of distributions | $ | 644 | $ | (250) | $ | 534 | $ | (489) |
The company anticipates using proceeds fromreports its proportional share of equity method investment income (loss) in the Transaction to repay its term debt.
consolidated statements of operations. The partnership will receive approximately 8.9 million units owned by the company as payment. The Asset Purchase Agreement provides for the closingcompany’s share of the Transaction to occur immediately prior to the company’s sale to Valero.
The company and the partnership agreed, upon closing, to extend the storage and throughput services agreement with Green Plains Trade an additional three years to June 30, 2028. Upon closing, the quarterly minimum volume commitment associated with the storage and throughput services agreement will be 235.7 million gallons or, approximately 80% of the new Green Plains annual production capacity of 1.183 billion gallons.
The aforementioned transactions are anticipated to closeequity method investees other comprehensive income arising during the fourth quarterperiod is included in accumulated other comprehensive loss in the accompanying balance sheet.
The following tables present summarized financial information of 2018, subject to customary closing conditions and regulatory approvals.GPCC.
Third Amendment to Credit Agreement – Green Plains Operating Company LLC
One Month Ended September 30, | |||
2019 | |||
Total revenues | $ | 86,932 | |
Total operating expenses | 85,925 | ||
Net income | $ | 1,007 |
September 30, 2019 | |||
Balance sheet: | |||
Current assets | $ | 452,604 | |
Noncurrent assets | 75,046 | ||
Current liabilities | 401,034 | ||
Noncurrent liabilities | 484 | ||
Net assets | $ | 126,132 |
On October 12, 2018, the partnership amended its revolving credit facility to allow the sale of the ethanol storage assets associated with up to six ethanol plants owned by Green Plains with no more than 600 million gallons of production capacity. Upon close of such sale, the revolving credit facility available will be decreased from $235 million to $200 million. In
addition, the lenders permitted the exchange of units as consideration for the transaction and also permitted modifications of various key operating agreements. There were no other significant changes in other covenants.
Stock Purchase Agreement – Kerry Holding Co.
On October 23, 2018, the company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Kerry Holding Co. to sell all of the issued and outstanding capital stock of Fleischmann’s Vinegar Company, Inc. for $350 million in cash, subject to certain post-closing working capital adjustments. Upon closing of the transaction, the company anticipates recording an estimated pre-tax gain of approximately $62 million. The company anticipates using proceeds from the transaction to repay its term debt.
The closing of the transaction, which is expected to occur during the fourth quarter of 2018, is subject to customary closing conditions and regulatory approvals. The Stock Purchase Agreement contains normal and customary representations and warranties, and indemnification obligations.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion and analysis provides information we believe is relevant to understand our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this report and other quarterly reports filed with the SEC after December 31, 2017, together with our annual report on Form 10-K for the year ended December 31, 2017.2018.
Cautionary Information Regarding Forward-Looking Statements
Forward-looking statements are made in accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that involve a number of risks and uncertainties and do not relate strictly to historical or current facts, but rather to plans and objectives for future operations. These statements may be identified by words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “outlook,” “plan,” “predict,” “may,” “could,” “should,” “will” and similar expressions, as well as statements regarding future operating or financial performance or guidance, business strategy, environment, key trends and benefits of actual or planned acquisitions.
Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A – Risk Factors of our annual report on Form 10-K for the year ended December 31, 2017, in Part II – Risk Factors of this report,2018, or incorporated by reference. Specifically, we may experience significant fluctuations in future operating results due to a number of economic conditions, including: competition in the ethanol industry and other industries in which we operate; commodity market risks, including those that may result from weather conditions; financial market risks; counterparty risks; risks associated with changes to government policy or regulation, including changes to tax laws; risks related to acquisitionsacquisition and disposition activities and achieving anticipated results; risks associated with merchant trading, cattle feeding operations, vinegar production;operations; risks related to our portfolio optimization strategyequity method investees and other risk factors detailed in reports filed with the SEC. Additional risks related to Green Plains Partners LP include compliance with commercial contractual obligations, potential tax consequences related to our investment in the partnership and risks disclosed in the partnership’s SEC filings associated with the operation of the partnership as a separate, publicly traded entity.
We believe our expectations regarding future events are based on reasonable assumptions; however, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated norand do wenot intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report or documents incorporated by reference.
Overview
Green Plains is a diversified commodity-processing business with operations related to ethanol production,that include corn processing, grain handling and storage cattle feedlots, food ingredients, and commodity marketing and logistics services. The company is one of the leading corn processors in the world and, through its adjacent businesses, is focused on the production of high-protein feed ingredients and export growth opportunities. We are also focused on generating stable operating margins through our diversified business segments and risk management strategy. Green Plains Partners LP is our primary downstream logistics provider, storing and delivering the ethanol we produce. As of September 30, 2018, weWe own a 62.4%49.1% limited partner interest, a 2.0% general partner interest and all of the partnership’s incentive distribution rights. The public owns the remaining 35.6%48.9% limited partner interest. The partnership is consolidated in our financial statements. In addition, Green Plains owns a 50% interest in Green Plains Cattle Company LLC.
We are currently undergoing a number of project initiatives to improve margins. Through our Project 24 initiative, we anticipate reductions in operating expense per gallon across our non-ICM plants as a result of these investments. In addition, through our high-protein initiative, we expect to achieve increased margins per gallon as a result of the ability to produce various high protein animal feed products. The first installation is expected to be completed at our Shenandoah plant towards the end of 2019, with dried product available for distribution during the first quarter of 2020. The remaining locations will be completed over the course of the next three to four years.
Recent Developments
Stock PurchaseDisposition of Green Plains Cattle Company LLC
On September 9, 2019, the company, TGAM Agribusiness Fund Holdings-B LP (“TGAM”) and StepStone Atlantic Fund, L.P. (“StepStone”) announced the formation of a joint venture. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement – Kerry Holding Co.
On October 23, 2018, weof Green Plains Cattle Company LLC (“GPCC”) on September 6, 2019, effective as of September 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. The company also entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Kerry Holding Co. to sell all of the issued and outstanding capital stock of Fleischmann’s Vinegar Company, Inc. for $350 million in cash, subject to certain post-closing working capital adjustments. Upon closing of the transaction, we anticipate recording an estimated pre-tax gain of $62 million. We anticipate using proceeds from the transaction to repay our term debt.
The closing of the transaction, which is expected to occur during the fourth quarter of 2018, is subject to customary closing conditions and regulatory approvals. The Stock Purchase Agreement contains normal and customary representations and warranties, and indemnification obligations.
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Extension of Offer Period – JGP Energy Partners
Effective October 15, 2018, we agreed with the partnership to extend the offer period related to the potential purchase of the Green Plains interest in the JGP Energy Partners Beaumont, Texas terminal until June 30, 2019.
Third Amendment to Credit Agreement – Green Plains Operating Company LLC
On October 12, 2018, the partnership amended the revolving credit facility to allow the sale of the ethanol storage assets of up to six ethanol plants owned by Green Plains with no more than 600 million gallons of production capacity. Upon close of such sale, the revolving credit facility available will be decreased from $235 million to $200 million. In addition, the lenders permitted the exchange of units as consideration for the transaction and also permitted modifications of various key operating agreements. There were no other significant changes in other covenants.
Asset Purchase Agreement – Valero Renewable Fuels Company, LLC and Green Plains Partners LP
On October 8, 2018, we entered into an Asset Purchase Agreement to sell three of our ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan to Valero Renewable Fuels Company, LLC (“Valero”). The estimated sales price for the facilities is $300 million plus approximately $22 million of related working capital. Correspondingly, we entered into a separate Asset Purchase Agreement (the “Asset Purchase Agreement”) with the partnership for $120.9 million (the “Transaction”), subject to certain other post-closing adjustments, to aquire the related storage assets to be disposed of in the sale to Valero. In addition, approximately 525 of the 3,500 railcars leased by the partnership are anticipated to be conveyed to the company as part of the Transaction. Upon closing of the Transaction, we anticipate recording an estimated pre-tax gain of approximately $100 million. We anticipate using proceeds from the transaction to repay our term debt.
The partnership will receive approximately 8.9 million units owned by the company as payment. The Asset Purchase Agreement provides for the closing of the Transaction to occur immediately prior to the company’s sale to Valero.
We have agreed with the partnership, upon closing, to extend the storage and throughput services agreement with Green Plains Trade an additional three years to June 30, 2028. Upon closing, the quarterly minimum volume commitment associated with the storage and throughput services agreement will be 235.7 million gallons or, approximately 80% of the new Green Plains annual production capacity of 1.183 billion gallons.
The aforementioned transactions are anticipated to close during the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.
Seventh Amendment to Credit Agreement – Green Plains Cattle Company
On October 5, 2018, the company amended its revolving credit facility to provide the Joint Administrator, at its sole discretion, irrevocable authorization to (1) release any term loan priority collateral; (2) release any guarantor related to any release of any term loan priority collateral and/or (3) release the guaranty upon termination of the term loan agreement and repayment of all obligations owed by the company under the term loan agreement.
3.25% Convertible Notes due 2018
On October 1, 2018, upon maturity, the remaining aggregate principal of $6.9 million related to the 3.25% notes due in 2018 was settled in cash.
Bartlett Cattle Company, L.P. Aquisition
On July 27, 2018, we entered into an asset purchase agreement to acquire two feeding operations from Bartlett Cattle Company, L.P. for $16.2 million, plus working capital of approximately $106.6 million. The transaction includes two feed yards located in Sublette, Kansas and Tulia, Texas and will add combined feedlot capacity of 97,000 head of cattle to the company’s operations. The transaction will be financed using cash on hand and proceeds from the Green Plains Cattle senior secured asset-based revolving credit facility. The transaction closed on August 1, 2018 following receipt of regulatory approval.
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DKGP Energy Terminals LLC Membership InterestSecurities Purchase Agreement with AMID Merger LP Termination
On February 16, 2018, the partnershipTGAM and Delek Logistics Partners LP formed DKGP Energy Terminals LLC, a 50/50 joint venture, to acquireStepStone, whereby TGAM and manage light products terminal assets in Texas and Arkansas. In conjunction with the formationStepStone purchased an aggregate of the joint venture, DKGP executed a membership interest purchase agreement with AMID Merger LP, to acquire all50% of the membership interests of AMID Refined Products LLC (“AMID”)GPCC from the company. After closing, GPCC is no longer included in the consolidated financial statements and the GPCC investment is accounted for approximately $138.5 million. Due to regulatory obstacles,using the equity method of accounting. Under this method, an investment is recorded at the acquisition cost plus the company’s share of equity in undistributed earnings or losses since acquisition and the company’s share of equity method investees other comprehensive income arising during the period, reduced by distributions received and the amortization of excess net investment. The company recognizes this investment on August 1, 2018, DKGP Energy Terminals LLC notified AMID Merger LPa separate line item in the consolidated balance sheet and recognizes its proportionate share of earnings on a separate line item in the consolidated statement of operations. The company does not consolidate any part of the assets or liabilities or operating results of its terminationequity method investees. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20 Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”). As such, GPCC results prior to its disposition are classified as discontinued operations in our current and prior period consolidated financial statements. See Note 3 - Acquisitions, Dispositions and Discontinued Operations for further details.
Under the LLC Agreement, the company has certain rights and obligations, including but not limited to, the right or obligation: (i) to designate two Managers to the Board of Managers of GPCC (the “Board”), or in the event the size of the membershipBoard is increased, the number of Managers equal to two-fifths of the Board, rounded up, and (ii) to fund additional capital contributions in accordance with their percentage interest purchase agreement.upon mutual agreement by the company TGAM and StepStone. Additionally, TGAM and StepStone both have the right or obligation to designate one Manager, or in the event the size of the Board is increased, the number of Managers equal to one-fifths of the Board, rounded up. Each Manager serving on the Board shall have one vote and a majority of the Managers serving on the Board shall constitute a quorum for the transaction of business of the Board. The company’s allocation under the LLC Agreement will be subject to certain adjustments.
Disposition of JGP Energy Partners
On October 28, 2019, the company signed a definitive agreement to sell its 50% joint venture interest in Jefferson Energy Companies fuels terminal to its partner Jefferson Energy Holdings LLC, a subsidiary of Fortress Transportation and Infrastructure Investors LLC for $29 million, plus the company’s proportional share of working capital. The transaction is expected to close on or before December 15, 2019.
Increase of Share Repurchase Authorization
On October 30, 2019, the company’s board of directors authorized an additional $100 million share repurchase taking the previously authorized amount from $100 million to $200 million.
Results of Operations
During the third quarter of 2018, our2019, we continued to experience a weak ethanol margin environment. Our operating strategy, including the operating cost savings initiative, is to increase utilization rates and efficiency while reducing operating expenses to achieve improved margins in the current environment. As a result, capacity utilization increased from an average utilization rate was approximately 81.3%of 80.0% of capacity resulting in ethanolthe second quarter to 84.2% of capacity in the third quarter. Ethanol production of 304.8was 238.5 mmg for the third quarter of 2018,2019, compared with 313.6304.8 mmg or 83.7% of capacity, for the same quarter last year. We expect to continue to evaluaterun at higher average utilization rates to achieve the cost savings anticipated. Additionally, overall performance at our production run ratesethanol plants was negatively impacted by severe weather and will flex our production depending on market conditions. associated flooding in areas where we transport products during the first half of 2019. The weather also drove corn prices up, negatively impacting margins.
U.S. Ethanol Supply and Demand
According to the EIA, domestic ethanol production averaged 1.061.02 million barrels per day during the third quarter of 2018,2019, which was slightly higher4% lower than the 1.041.06 million barrels for the previous quarter, but 3.0% higher than the samethird quarter of last year. Year-to-date, production volumes are up 2.2% in 2018 compared with the same period in 2017. Refiner and blender input volume increased slightly1% to 932941 thousand barrels per day for the third quarter of 20182019, compared with 931932 thousand barrels per day for the same quarter last year. Gasoline demand was downfor the third quarter of 2019 increased slightly by 697 thousand barrels per day, inor
0.1% compared to the same quarter last year. U.S. domestic ethanol ending stocks decreased by approximately 0.2 million barrels, or 1%, to 23.2 million barrels for the third quarter of 2018 or 0.7% compared2019. At the end of May 2019, the EPA finalized regulatory changes to apply the same period1 pound per square inch Reid Vapor Pressure (RVP) waiver that currently applies to E10 during the summer months so that it applies to E15 as well. This removes a year ago.significant barrier to wider sales of E15 in the summer months, thus expanding the market for ethanol in transportation fuel. As of September 30, 2018,2019, there were 1,628approximately 1,970 retail stations selling E15 in 30 states, up from 1,2101,700 at the beginning of the year, according to Growth Energy. Ethanol futures traded at an average discount of $0.71 to RBOB during the third quarter of 2018 related to weaker ethanol demand. U.S. domestic ethanol ending stocks increased by approximately 1.9 million barrels to 23.4 million barrels on September 30, 2018, year over year.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, year-to-date domestic ethanol exports through September 30, 2018,August 31, 2019 were 1.24approximately 1.00 bg, up 25%,down 13% from 992.9 mmg1.15 bg for the comparablesame period in 2017.of 2018. Brazil remained the largest export destination for U.S. ethanol, which accounted for 30%25% of domestic ethanol export volume despite the 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter, imposed in September 2017 by Brazil’s Chamber of Foreign Trade, or CAMEX. In a resolution published August 31, 2019, Brazil raised the annual import quota to 750 million liters, or 198 million gallons per year from the expiring 600 million-liter limit. The final resolution awaits approval of the Brazilian government. In addition, Canada, India, and South Korea, and the Philippines accounted for 21%, 7%13%, 6%, and 5%, respectively, of U.S. ethanol exports.
On April 1, 2018, China announced it would add an additional 15% tariff to the existing 30% tariff it had earlier imposed on ethanol imports from the United States and Brazil. China later raised the tariff further to 70% as the trade war escalated. There continues to be negotiations between the U.S. and China with no certainty of when a trade agreement may be reached.
The cost to produce the equivalent amount of starch found in sugar from $3.50-per-bushel corn is 7 cents per pound. The average price of sugar wasremained at approximately 1213 cents per pound during the third quarter of 2018, compared with an average of 15 cents per pound for 2017.2019. We currently estimate that net ethanol exports will reach between 1.61.4 billion gallons and 1.71.5 billion gallons in 20182019 based on historical demand from a variety of countries and certain countries who seek to improve their air quality and eliminate MTBE from their own fuel supplies.
U.S. ProteinCo-Product Supply and Demand
During the third quarter of 2018,2019, the market sentiment for cattle continued to be optimisticfeeding came under pressure as beef packing capacity contracted due to anticipated lower costthe loss of feed, strong domestic beef consumptiona Kansas packing plant after a fire in August. However, as other packing plants increased hours of operations, the effects from the loss of the Kansas plant have been reduced. Feeder supplies have remained robust following a brief slowdown when cattle prices weakened following the plant fire, and robust export demandit looks like feeder supplies for beef. Corn prices remained on the lower end of their 2018 range, according to the Chicago Mercantile Exchange.fourth quarter will be sufficient. Domestic beef consumption per capita in 20182019 is projected to be steady with 2018 at 57.2 pounds, but that number is expected to increase 0.8 poundin 2020 to 57.7 pounds per person compared with 2017.according to the USDA. Export demand for beef is forecasted to increasedecrease approximately 10.6%1.1% in 20182019 compared with 20172018 according to the USDA.Total fed cattle marketings through the end of August 2019 increased 1.5% compared with the first eight months of 2018.
Cow-calf operations continue to be profitable, which has supported a period of expansion. SinceExcellent pasture conditions after a wet winter and spring will help the fourth quarterprofitability of 2017, the lackstocker operations. As of precipitation threatened to force the liquidation of breeding stock on many ranches throughout the south and southwestern United States. Year-to-date domesticSeptember 1, 2019, cattle on feed increased 5.93%numbers decreased 1.3% to 11.12510.98 million head through October 1, 2018, compared to the same period last year.
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Packer demand was driven by strong domestic and international beef demand. Total steer and heifer slaughter through the end of August of 2018 increased 2.1% compared with the first eight months 2017. Slaughter capacity constraints, primarily due to labor shortages, have limited the packers’ ability to increase slaughter rates at the same pace as cattle on feed inventories, resulting in higher packer margins. However, these higher margins should incentivize the packers to increase slaughter capacity, which will be crucial for cattle feeding margins moving forward.
The U.S. looks poised to grow its global market share for animal protein while Australia continues to struggle with drought conditions, and food safety scandals plague South America.African Swine Fever (“ASF”) issues in China should result in larger world export demand for animal protein from the U.S.
Year-to-date U.S. distillers grains exports through August 31, 2018,2019, were 7.97.3 million metric tons, or 8.6% higherlower than the same period last year, according to the USDA Foreign Agriculture Service. Shipments of distillers grains to Southeast Asia increased 90% year over year due to growing demand for protein, which helped keep export volumes in line with last year. Mexico, South Korea, Vietnam, Thailand, Indonesia, Canada, and Turkey, accounted for approximately 58%62% of total U.S. distillers export volumes.
While ASF may have a positive impact on animal protein demand from the U.S., it may have a negative impact on distillers grains exports and domestic usage. ASF may depress soybean meal demand in China which could make the animal feed more price competitive to distillers grains and allow for substitution of high-protein soybean meal worldwide.
Legislation and Regulation
We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. Congress may also consider legislation that would impact the RFS. BillsVarious bills have been introduceddiscussed in the House
and Senate which would either sunseteliminate the RFS entirely, or sunseteliminate the corn based ethanol portion of the mandate.mandate, or make it more difficult to sell fuel blends with higher levels of ethanol. However, we believe it is unlikely that any of these bills would become law in a divided Congress. In addition, the manner in which the EPA administers the RFS can have a significant impact on the actual amount of ethanol blended into the domestic fuel supply.
Federal mandates supporting the use of renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by environmental concerns for the environment, diversifying our fuel supply, and an interest in reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehicles and higher ethanol blends of ethanol in non-flex-fuel vehicles may be necessary before ethanol can achieve significantfurther growth in U.S. market share. CAFE, which wasCongress first enacted by CongressCorporate Average Fuel Economy (CAFE) in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks,trucks. It provides a 54% efficiency bonus to flexible-fuel vehicles, runningwhich can operate on ethanol blends up to E85.
Another important factor is a waiver in the Clean Air Act, known as the One-Pound Waiver, which allows E10 to be sold year-round, even though it exceeds the Reid vapor pressureVapor Pressure limitation of nine pounds per square inch. However,At the end of May 2019, the EPA finalized a rule which extended the One-Pound Waiver does not apply to E15 or higher blends, even thoughexpanding it has similar physical properties to E10, so its sale is limited tobeyond flex-fuel vehicles only during the June 1 to September 15 summer driving season.
On October 8, 2018, President Trump directed This rule is being challenged in an action filed in Federal District Court for the EPA to begin rulemaking to expandDC Circuit. However, the One-Pound Waiver is in effect, and for the first time ever E15 was legally sold to E15 so it can be soldall vehicles model year round. The EPA will follow2001 and newer during the Administrative Procedure Act in proposing a rule, accepting public comment, and then issuing a final rule. The President has stated a goal of having a final rule out before the start of2019 summer driving season on June 1, 2019. Any final rule fromseason.
When the agency is susceptible to legal challenges.
When RFS II was passed in 2007 and rulemaking finalized in October 2010, the required volume of conventional renewable fuel to be blended with gasoline was to increase each year until it reached 15.0 billion gallons in 2015. In November 2017,2018, the EPA announced it would maintain the 15.0 billion gallon mandate for conventional ethanol in 2018. In June 2018,2019. On July 5, 2019, the EPA proposed to maintainreleased their annual proposal for RFS volumes, which included 15.0 billion gallons for conventional renewable fuel in 2020. On October 15, 2019, the EPA issued a supplemental proposal for RFS volumes, seeking additional comment on projecting the volume of fuels to be exempted by small refinery exemptions and plansincluding those volumes in the annual calculation. These proposals are expected to finalizebe finalized by the rule by November 30, 2018.end of the year.
The EPA has the authority to waive the mandates in whole or in part if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or environment. According to the RFS II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. While conventional ethanol maintained 15 billion gallons, 2018 is2019 was the firstsecond year that the total proposed RVOs arewere more than 20% below statutory volumes levels. Thus, the EPA Administrator has directed his staff to initiate the required technical analysis to perform any futurea reset consistent with the reset rules. The reset will be triggered if the final 2019 RVOs continue to be more than 20% below the statutory levels, as is expected, andrulemaking, wherein the EPA will be required to modify statutory volumes through 2022, within one year of the trigger event, based on the same factors used to set the RVOs post-2022.These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development.
The EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. Obligated parties use RINs to show compliance with RFS-mandated volumes. Ethanol producers assign RINs are attached to renewable fuels by producers and the RINs are detached when the renewable fuel is blended with transportation fuel or tradeddomestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties.
38
The EPA can, in consultation with the Department of Energy, waive the obligation for individual refineries that are suffering “disproportionate economic hardship” due to compliance with the RFS. To qualify, the refineries must behave total throughput of under 75,000 barrels per day and state their case for an exemption in an application to the EPA for each compliance year.
The previous administration issued these sparingly, granting 7 of 15 petitions in 2015, in whole or in part, for a total of 292.5 million gallons.
The current administration has been granting these at a much higher rate, waivingEPA waived the obligation for 19 of 20 applicants for compliance year 2016, totaling 790 million gallons and 29 of 33renewable fuels. They also waived the obligation for 35 of 37 applicants for compliance year 2017, totaling 1.461.82 billion gallons. Thisgallons of renewable fuels. They waived the obligation for 31 of 42 applicants for compliance year 2018, totaling 1.43 billion gallons of renewable fuels. These waivers effectively reducesreduced the annual RVO by that amount, since the waivedEPA has not accounted for the lost gallons are not reallocatedby allocating them to other obligated parties at this time. parties.
The resulting surplus of RINs in the market has brought values down significantly from the mid $0.80 range early in the year to around $0.10.under $0.20. Since thehigher RIN value helpsvalues help to make higher blends of ethanol more cost effective,competitive at the pump, lower RIN values could negatively impacthinder or at least slow retailer and consumer adoption of E15 and other higher blends.blends of ethanol. It is reasonable to assume there will be 30-40 waiver applications submitted for compliance year 2019, which, if handled as in years past, could represent approximately 1.5 to 2 billion gallons of renewable fuels.
On July 28, 2017,
Biofuels groups and biofuels opposition groups each have filed lawsuits related to RFS II. In addition to the E15 litigation discussed previously, biofuels groups have filed in the U.S. Federal District Court for the D.C. Circuit, challenging the 2019 RVO rule over the EPA’s failure to address small refinery exemptions in the rulemaking. Biofuel opposition groups have filed also in the DC Circuit, with such action consolidated with similar cases, to review the EPA’s 2018 RVO rulemaking. Biofuel groups have filed an action in the DC Circuit to compel the EPA to produce information under the Freedom of Information Act related to small refinery exemptions. Certain biofuel groups have further filed suit in the Tenth Circuit Court of Appeals challenging small refinery exemptions. Numerous other suits on related RFS II matters are also pending, namely involving RVOs and small refinery exemptions.
On October 4, 2019 the White House announced that they would start accounting for gallons lost to refinery exemptions in annual RVO rulemakings, beginning with a supplemental rule to the 2020 RVO which is due to be finalized before the end of 2019. They propose to add into the formula for the RVO a rolling average of the past three years’ waived gallons, so when additional waivers are granted, the total volume of renewable fuels required remains largely intact. This directive will also eliminate barriers to adoption of E15 and higher blends, including labeling changes and allowing E15 to be sold through E10 infrastructure.
In 2017, the D.C. Circuit ruled in favor of the Americans for Clean Energy and its petitionersbiofuel groups against the EPA related to its decision to lower the 2016 volume requirements. The Court concluded the EPA erred in how it interpreted the “inadequate domestic supply” waiver provision of RFS II, which authorizes the EPA to consider supply-side factors affecting the volume of renewable fuel available to refiners, blenders and importers to meet statutory volume requirements. The waiver provision does not allow the EPA to consider the volume of renewable fuel available to consumers or the demand-side constraints that affect the consumption of renewable fuelrequirements by consumers.500 million gallons. As a result, the Court vacated the EPA’s decisionremanded to reduce the total renewable fuel volume requirements for 2016 through its waiver authority, which the EPA is expected to address. We believe this decision to confine the EPA’s waiver analysis to supply considerations benefits the industry overall and expect the primary impact will be on the RINs market. The EPA has not yet accountedmake up for the 500 million gallons. Despite this, in the proposed 2020 RVO rulemaking released in July 2019, the EPA stated it does not intend to make up the 500 million gallons thatas the court in the Americans for Clean Energy case directed.directed, citing potential burden on obligated parties. It is anticipated that additional litigation will ensue from this matter.
Valero Energy and refining trade group American Fuel and Petrochemical Manufacturers (AFPM) have challenged the EPA’s handling of the U.S. biofuel mandate in separate actions on January 26, 2018. AFPM is asking the D.C. U.S. Court of Appeals to review the EPA’s November 2017 decision to reject proposed changes to the structure of the RFS, including moving the point of obligation from refiners and importers of fuel to fuel blenders. Valero filed two petitions with the same court, one seeking review of the annual RVO rule set by the EPA for 2018 and 2019, which dictates the volumes of renewable fuels to be blended in the coming years, and a second arguing against the EPA’s December 2017 assertion that the agency has fulfilled its duty to periodically review the RFS as directed by statute.
Government actions abroad can significantly impact the demand for U.S. ethanol. In September 2017, China’s National Development and Reform Commission, the National Energy Board and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. China, the number three importer of U.S. ethanol in 2016, imported negligible volumes during thefiscal year 2018 due to a 30% tariff imposed on U.S. and Brazil fuel ethanol, which took effectincreased to 70% in January 2017.early 2018. There is no assurance the recently issuedthat China’s joint plan will lead to increased imports of U.S. ethanol and recent trade tensions have caused China to raise their tariff on ethanol to 45% and then to 70%.in the near term. Our exports also face tarifftariffs, rate quotas, countervailing duties, and other hurdles in Brazil, the European Union, India, Peru, and elsewhere, which limits our ability to compete in some markets.
In Brazil, the Secretary of Foreign Trade issued an official written resolution, imposing a 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter in September 2017. The initial ruling iswas valid for two years. years; however, it was extended at the end of August 2019 for an additional year. On an annual basis, Brazil will now allow into the country 750 million duty free liters distributed on a quarterly basis as follows: September to November 100 million liters, December to February 100 million liters, March to May 275 million liters and June to August 275 million liters.
In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which was challenged by nine lawsuits. Fourten lawsuits, of which five cases were dismissed. The five remaining cases follow one of two tracks: 1) to determine the constitutionality of the CRE regulation, or 2) to determine the benefits, or lack thereof, of introducing E10 to Mexico. Five of these cases were initially denied and are going through the appeals process. An injunction was granted in October 2017, preventing the blending and selling of E10, but was overturned by a higher court in June 2018 making it legal to blend and sell E10 by PEMEX throughout Mexico except for its three largest metropolitan areas. U.S. ethanol exports to Mexico totaled 3029.4 mmg in 2017.2018.
The Tax Cuts and Jobs Act was enacted on December 22, 2017 and is effective January 1, 2018. We continue to analyze the Act’s impact to current and future taxes. We are also following the guidance of SAB 118 which provides a measurement period to complete accounting for certain elements of the tax reform. On March 23, 2018, Congress rescinded an unintended consequence of the Act under section 199A, which provided certain tax benefits to producers selling grain to cooperative associations and enabled a potential marketplace advantage over other agribusiness companies.
39
Comparability of our Financial Results
We report the financial and operating performance for the following four operating segments: (1) ethanol production, which includes the production of ethanol, and distillers grains and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and food-grade corn oil operations and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018 and (4) partnership, which includes fuel storage and transportation services.
The three and nine months ended September 30, 2019 do not include operations of the Bluffton, Lakota, Hopewell and Riga ethanol plants which were either permanently closed or sold during the fourth quarter of 2018. Additionally, the three and nine months ended September 30, 2019 do not include Fleischmann’s Vinegar operations, which was also sold in the fourth quarter of 2018.
Additionally, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. The company concluded that the disposition of GPCC met the requirements under ASC 205-20. Therefore,GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Furthermore, in accordance with ASC 205-20, the related assets and liabilities of GPCC have been presented as discontinued operations in the December 31, 2018 consolidated balance sheet.
During the normal course of business, our operating segments do business with each other. For example, our agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil of our ethanol production segment. Our partnership segment provides fuel storage and transportation services for our agribusiness and energy services segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact our consolidated results since the revenues and corresponding costs are eliminated.
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. When we evaluate segment performance, we review the following segment information as well as earnings before interest, income taxes, depreciation and amortization, excluding amortization of operating lease right-of-use assets and amortization of debt issuance costs, or EBITDA.
The company also owns a 90.0% interest in BioProcess Algae, a joint venture formed in 2008. Beginning April 1, 2016, we consolidate the financial results of BioProcess Algae, and record a noncontrolling interest for the economic interest in the joint venture held by others.
As of September 30, 2018,2019, we, together with our subsidiaries, own a 62.4%49.1% limited partner interest and a 2.0% general partner interest in the partnership and own all of the partnership’s incentive distribution rights, with the remaining 35.6%48.9% limited partner interest owned by public common unitholders. We consolidate the financial results of the partnership, and record a noncontrolling interest for the economic interest in the partnership held by the public common unitholders.
Segment Results
The selected operating segment financial information are as follows (in thousands):
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| Three Months Ended |
| % |
| Nine Months Ended |
| % | Three Months Ended | % | Nine Months Ended | % | |||||||||||||||||||
| 2018 |
| 2017 |
| Variance |
| 2018 |
| 2017 |
| Variance | 2019 (1) | 2018 (1) | Variance | 2019 (1) | 2018 (1) | Variance | |||||||||||||
Revenues: |
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Ethanol production: |
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Revenues from external customers | $ | 573,399 |
| $ | 620,180 |
| (7.5%) |
| $ | 1,726,418 |
| $ | 1,857,356 |
| (7.0%) | $ | 484,382 | $ | 576,475 | (16.0%) | $ | 1,206,107 | $ | 1,735,546 | (30.5%) | |||||
Intersegment revenues |
| 3,113 |
|
| 3,579 |
| (13.0) |
|
| 9,285 |
|
| 6,624 |
| 40.2 | 24 | 37 | (35.1) | 75 | 157 | (52.2) | |||||||||
Total segment revenues |
| 576,512 |
|
| 623,759 |
| (7.6) |
|
| 1,735,703 |
|
| 1,863,980 |
| (6.9) | 484,406 | 576,512 | (16.0) | 1,206,182 | 1,735,703 | (30.5) | |||||||||
Agribusiness and energy services: |
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Revenues from external customers |
| 174,290 |
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| 164,604 |
| 5.9 |
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| 546,151 |
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| 483,670 |
| 12.9 | 146,650 | 177,832 | (17.5) | 488,687 | 558,054 | (12.4) | |||||||||
Intersegment revenues |
| 12,692 |
|
| 14,406 |
| (11.9) |
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| 38,249 |
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| 33,679 |
| 13.6 | 7,293 | 9,150 | (20.3) | 19,432 | 26,346 | (26.2) | |||||||||
Total segment revenues |
| 186,982 |
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| 179,010 |
| 4.5 |
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| 584,400 |
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| 517,349 |
| 13.0 | 153,943 | 186,982 | (17.7) | 508,119 | 584,400 | (13.1) | |||||||||
Food and ingredients: |
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Revenues from external customers |
| 251,113 |
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| 114,750 |
| 118.8 |
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| 755,109 |
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| 329,432 |
| 129.2 | - | 33,443 | (100.0) | 1,451 | 102,277 | (98.6) | |||||||||
Intersegment revenues |
| 38 |
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| 38 |
| - |
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| 118 |
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| 113 |
| 4.4 | - | - | - | - | - | - | |||||||||
Total segment revenues |
| 251,151 |
|
| 114,788 |
| 118.8 |
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| 755,227 |
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| 329,545 |
| 129.2 | - | 33,443 | (100.0) | 1,451 | 102,277 | (98.6) | |||||||||
Partnership: |
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Revenues from external customers |
| 1,298 |
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| 1,701 |
| (23.7) |
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| 4,546 |
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| 4,724 |
| (3.8) | 1,318 | 1,298 | 1.5 | 5,315 | 4,546 | 16.9 | |||||||||
Intersegment revenues |
| 24,472 |
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| 24,748 |
| (1.1) |
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| 72,949 |
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| 74,019 |
| (1.4) | 18,836 | 24,472 | (23.0) | 56,751 | 72,949 | (22.2) | |||||||||
Total segment revenues |
| 25,770 |
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| 26,449 |
| (2.6) |
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| 77,495 |
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| 78,743 |
| (1.6) | 20,154 | 25,770 | (21.8) | 62,066 | 77,495 | (19.9) | |||||||||
Revenues including intersegment activity |
| 1,040,415 |
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| 944,006 |
| 10.2 |
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| 3,152,825 |
|
| 2,789,617 |
| 13.0 | 658,503 | 822,707 | (20.0) | 1,777,818 | 2,499,875 | (28.9) | |||||||||
Intersegment eliminations |
| (40,315) |
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| (42,771) |
| (5.7) |
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| (120,601) |
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| (114,435) |
| 5.4 | (26,153) | (33,659) | (22.3) | (76,258) | (99,452) | (23.3) | |||||||||
Revenues as reported | $ | 1,000,100 |
| $ | 901,235 |
| 11.0% |
| $ | 3,032,224 |
| $ | 2,675,182 |
| 13.3% | $ | 632,350 | $ | 789,048 | (19.9%) | $ | 1,701,560 | $ | 2,400,423 | (29.1%) |
(1)Revenues include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue transactions are now presented gross in product revenues. These revenue transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.
Three Months Ended | % | Nine Months Ended | % | ||||||||||||
2019 (1) | 2018 (1) | Variance | 2019 (1) | 2018 (1) | Variance | ||||||||||
Cost of goods sold: | |||||||||||||||
Ethanol production | $ | 512,527 | $ | 560,719 | (8.6%) | $ | 1,289,366 | $ | 1,706,891 | (24.5%) | |||||
Agribusiness and energy services | 150,465 | 179,432 | (16.1) | 486,305 | 546,318 | (11.0) | |||||||||
Food and ingredients | 3 | 26,228 | (100.0) | 1,526 | 79,894 | (98.1) | |||||||||
Partnership | - | - | * | - | - | * | |||||||||
Intersegment eliminations | (30,866) | (33,299) | (7.3) | (76,716) | (99,189) | (22.7) | |||||||||
$ | 632,129 | $ | 733,080 | (13.8%) | $ | 1,700,481 | $ | 2,233,914 | (23.9%) |
(1)Cost of goods sold include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These cost of goods sold transactions are now presented gross in cost of goods sold. These cost of goods sold transactions total $5.5 million and $14.4 million for the three and nine months ended September 30, 2019, respectively, and $6.6 million and $21.0 million for the three and nine months ended September 30, 2018, respectively.
Three Months Ended | % | Nine Months Ended | % | ||||||||||||
2019 | 2018 | Variance | 2019 | 2018 | Variance | ||||||||||
Operating income (loss): | |||||||||||||||
Ethanol production | $ | (49,289) | $ | (15,961) | (208.8%) | $ | (147,366) | $ | (60,704) | (142.8%) | |||||
Agribusiness and energy services | (461) | 2,850 | (116.2) | 9,184 | 22,080 | (58.4) | |||||||||
Food and ingredients | (6) | 3,892 | (100.2) | (76) | 12,426 | (100.6) | |||||||||
Partnership | 12,322 | 16,725 | (26.3) | 38,029 | 48,214 | (21.1) | |||||||||
Intersegment eliminations | 4,738 | (325) | * | 533 | (113) | * | |||||||||
Corporate activities | (9,669) | (10,965) | 11.8 | (27,952) | (34,879) | 19.9 | |||||||||
$ | (42,365) | $ | (3,784) | * | $ | (127,648) | $ | (12,976) | * |
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| 2018 |
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| 2018 |
| 2017 |
| Variance | 2019 | 2018 | Variance | 2019 | 2018 | Variance | |||||||||||||
Cost of goods sold: |
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Depreciation and amortization: | ||||||||||||||||||||||||||||||
Ethanol production | $ | 560,719 |
| $ | 590,904 |
| (5.1%) |
| $ | 1,706,891 |
| $ | 1,802,688 |
| (5.3%) | 15,547 | 24,289 | (36.0%) | 46,324 | 65,284 | (29.0%) | |||||||||
Agribusiness and energy services |
| 179,432 |
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| 168,735 |
| 6.3 |
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| 546,318 |
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| 487,239 |
| 12.1 | 541 | 675 | (19.9) | 1,642 | 1,923 | (14.6) | |||||||||
Food and ingredients |
| 236,150 |
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| 98,854 |
| 138.9 |
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| 702,355 |
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| 281,898 |
| 149.2 | - | 2,333 | * | - | 6,788 | * | |||||||||
Partnership |
| - |
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| - |
| * |
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| - |
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| - |
| * | 991 | 1,120 | (11.5) | 2,747 | 3,406 | (19.3) | |||||||||
Intersegment eliminations |
| (39,917) |
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| (42,706) |
| (6.5) |
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| (120,220) |
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| (114,123) |
| 5.3 | |||||||||||||||
Corporate activities | 749 | 849 | (11.8) | 2,250 | 2,769 | (18.7) | ||||||||||||||||||||||||
| $ | 936,384 |
| $ | 815,787 |
| 14.8% |
| $ | 2,835,344 |
| $ | 2,457,702 |
| 15.4% | $ | 17,828 | $ | 29,266 | (39.1%) | $ | 52,963 | $ | 80,170 | (33.9%) |
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| Variance | ||||
Operating income (loss): |
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Ethanol production | $ | (15,961) |
| $ | 3,107 |
| * |
| $ | (60,704) |
| $ | (25,950) |
| (133.9%) |
Agribusiness and energy services |
| 2,851 |
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| 3,686 |
| (22.7) |
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| 22,081 |
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| 13,138 |
| 68.1 |
Food and ingredients |
| 8,324 |
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| 10,132 |
| (17.8) |
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| 33,890 |
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| 30,472 |
| 11.2 |
Partnership |
| 16,725 |
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| 16,290 |
| 2.7 |
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| 48,214 |
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| 47,707 |
| 1.1 |
Intersegment eliminations |
| (325) |
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| 8 |
| * |
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| (113) |
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| (147) |
| 23.1 |
Corporate activities |
| (10,965) |
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| (12,507) |
| 12.3 |
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| (34,879) |
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| (30,898) |
| (12.9) |
| $ | 649 |
| $ | 20,716 |
| (96.9%) |
| $ | 8,489 |
| $ | 34,322 |
| (75.3%) |
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EBITDA: |
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Ethanol production | $ | 8,475 |
| $ | 25,570 |
| (66.9%) |
| $ | 4,742 |
| $ | 38,521 |
| (87.7%) |
Agribusiness and energy services |
| 3,537 |
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| 5,150 |
| (31.3) |
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| 24,035 |
|
| 15,910 |
| 51.1 |
Food and ingredients |
| 12,151 |
|
| 13,272 |
| (8.4) |
|
| 47,192 |
|
| 39,741 |
| 18.7 |
Partnership |
| 17,913 |
|
| 17,589 |
| 1.8 |
|
| 51,674 |
|
| 51,549 |
| 0.2 |
Intersegment eliminations |
| (325) |
|
| 8 |
| * |
|
| (113) |
|
| (147) |
| 23.1 |
Corporate activities |
| (9,716) |
|
| (11,212) |
| 13.3 |
|
| (30,533) |
|
| (27,275) |
| (11.9) |
| $ | 32,035 |
| $ | 50,377 |
| (36.4%) |
| $ | 96,997 |
| $ | 118,299 |
| (18.0%) |
* Percentage variance not considered meaningful.
We use EBITDA and adjusted EBITDA as a segment measuremeasures of profitability to compare the financial performance of our reportable segments and manage those segments. EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization excluding the amortization of right-of-use assets and debt issuance costs. Adjusted EBITDA includes adjustments related to operational results of Green Plains Cattle prior to its disposition which are recorded as discontinued operations and our proportional share of EBITDA adjustments of our equity method investees. We believe EBITDA is aand adjusted EBITDA are useful measuremeasures to compare our performance against other companies. EBITDA and adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, which is prepared in accordance with GAAP. EBITDA and adjusted EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA and adjusted EBITDA may not be comparable with a similarly titled measure of other companies.
The following table reconciles net income (loss)loss from continuing operations including noncontrolling interest to adjusted EBITDA for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
| |||||||||||||
| Three Months Ended |
| Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net income (loss) | $ | (7,419) |
| $ | 39,429 |
| $ | (23,123) |
| $ | 29,284 | |||||||||||
Net loss from continuing operations including noncontrolling interest | $ | (38,884) | $ | (7,886) | $ | (114,507) | $ | (34,958) | ||||||||||||||
Interest expense |
| 23,399 |
|
| 31,889 |
| 67,548 |
|
| 69,815 | 10,548 | 19,703 | 31,528 | 58,330 | ||||||||
Income tax benefit |
| (14,658) |
|
| (48,775) |
| (31,438) |
|
| (60,905) | (12,530) | (14,973) | (40,692) | (34,524) | ||||||||
Depreciation and amortization |
| 30,713 |
|
| 27,834 |
|
| 84,010 |
|
| 80,105 | 17,828 | 29,266 | 52,963 | 80,170 | |||||||
EBITDA | $ | 32,035 |
| $ | 50,377 |
| $ | 96,997 |
| $ | 118,299 | (23,038) | 26,110 | (70,708) | 69,018 | |||||||
EBITDA adjustments related to discontinued operations | 8,469 | 5,925 | 17,703 | 27,979 | ||||||||||||||||||
Proportional share of EBITDA adjustments to equity method investees | 1,186 | 311 | 1,827 | 745 | ||||||||||||||||||
Adjusted EBITDA | $ | (13,383) | $ | 32,346 | $ | (51,178) | $ | 97,742 |
(1)Excludes the amortization of operating lease right-of-use assets and amortization of debt issuance costs.
Three Months Ended | % | Nine Months Ended | % | ||||||||||||
2019 | 2018 | Variance | 2019 | 2018 | Variance | ||||||||||
Adjusted EBITDA: | |||||||||||||||
Ethanol production | $ | (33,787) | $ | 8,475 | * | $ | (101,027) | $ | 4,742 | * | |||||
Agribusiness and energy services | (75) | 3,537 | * | 10,686 | 24,035 | (55.5) | |||||||||
Food and ingredients | (7) | 6,226 | * | (76) | 19,213 | * | |||||||||
Partnership | 13,594 | 17,913 | (24.1) | 41,382 | 51,674 | (19.9) | |||||||||
Intersegment eliminations | 4,738 | (325) | * | 533 | (113) | * | |||||||||
Corporate activities | (7,501) | (9,716) | 22.8 | (22,206) | (30,533) | 27.3 | |||||||||
EBITDA | (23,038) | 26,110 | * | (70,708) | 69,018 | * | |||||||||
EBITDA adjustments related to discontinued operations | 8,469 | 5,925 | 42.9 | 17,703 | 27,979 | (36.7) | |||||||||
Proportional share of EBITDA adjustments to equity method investees | 1,186 | 311 | 281.4 | 1,827 | 745 | 145.2 | |||||||||
Adjusted EBITDA | $ | (13,383) | $ | 32,346 | * | $ | (51,178) | $ | 97,742 | * |
41* Percentage variance not considered meaningful.
Three Months Ended September 30, 2018,2019 Compared with the Three Months Ended September 30, 20172018
Consolidated Results
Consolidated revenues increased $98.9decreased $156.7 million for the three months ended September 30, 2018,2019 compared with the same period in 20172018 primarily as a resultdue to the disposition of three ethanol plants and the acquisitionssale of cattle feeding operations in 2018 and 2017 and higher average realized prices for distillers grains, partially offset by a decrease in ethanol production and trading activity.Fleischmann’s Vinegar during the fourth quarter of 2018.
Operating income decreased $20.1$38.6 million and adjusted EBITDA decreased $18.3$45.7 million for the three months ended September 30, 2019 compared with the same period last year primarily due to decreased margins on ethanol production as well as the disposition of Fleischmann’s Vinegar during the fourth quarter of 2018. Interest expense decreased $9.2 million for the three months ended September 30, 2019, compared with the same period in 2018, primarily due to the repayment of the $500 million senior secured term loan during the fourth quarter of 2018. Income tax benefit was $12.5 million for the three months ended September 30, 2019 compared with $15.0 million for the same period in 2018.
The following discussion provides greater detail about our third quarter segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Three Months Ended | ||||||
2019 | 2018 | % Variance | ||||
Ethanol sold | ||||||
(thousands of gallons) | 238,473 | 304,826 | (21.8) | |||
Distillers grains sold | ||||||
(thousands of equivalent dried tons) | 617 | 811 | (23.9) | |||
Corn oil sold | ||||||
(thousands of pounds) | 60,607 | 78,304 | (22.6) | |||
Corn consumed | ||||||
(thousands of bushels) | 82,730 | 105,965 | (21.9) |
Revenues in our ethanol production segment decreased $92.1 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower average realized prices for ethanol and distillers grains.
Operating income decreased $33.3 million and EBITDA decreased $42.3 million for the three months ended September 30, 2019 compared with the same period in 2018primarily as a result of decreased margins. Depreciation and amortization expense decreased $8.7 million for the three months ended September 30, 2019 compared with the same period last year, primarily due to the compressiondisposition of three ethanol production margins. Interest expenseplants during the fourth quarter of 2018.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment decreased $8.5$33.0 million while operating income decreased by $3.3 million and EBITDA decreased by $3.6 million for the three months ended September 30, 2018,2019 compared with the same period in 2017, primarily due to higher expense associated with the termination of previous credit facilities during the three months ended September 30, 2017. Income tax benefit was $14.7 million for the three months ended September 30, 2018, compared with $48.8 million for the same period in 2017 due to additional tax benefits related to R&D Credits recognized for all open tax years during the three months ended September 30, 2017.
2018. The following discussion provides greater detail about our third quarter segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| ||
|
| 2018 |
| 2017 |
| % Variance |
|
|
|
|
|
|
|
Ethanol produced |
|
|
|
|
|
|
(thousands of gallons) |
| 304,826 |
| 313,642 |
| (2.8) |
Distillers grains produced |
|
|
|
|
|
|
(thousands of equivalent dried tons) |
| 811 |
| 817 |
| (0.7) |
Corn oil produced |
|
|
|
|
|
|
(thousands of pounds) |
| 78,304 |
| 75,440 |
| 3.8 |
Corn consumed |
|
|
|
|
|
|
(thousands of bushels) |
| 105,965 |
| 109,544 |
| (3.3) |
Revenues in our ethanol production segment decreased $47.2 million for the three months ended September 30, 2018, compared with the same period in 2017 primarily due to lower volumes of ethanol and distillers grains produced in addition to lower average ethanol prices realized, partially offset by higher average distillers grains prices realized.
Cost of goods sold for our ethanol production segment decreased $30.2 million for the three months ended September 30, 2018, compared with the same period last year due to decreased volumes sold offset by higher corn prices. As a result of the factors identified above, operating income decreased $19.1 million and EBITDA decreased $17.1 million for the three months ended September 30, 2018, compared with the same period in 2017. Depreciation and amortization expense for the segment was $24.3 million for the three months ended September 30, 2018, compared with $21.0 million for the same period last year primarily due to accelerated depreciation associated with fixed asset disposals during the three months ended September 30, 2018.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment increased $8.0 million while operating income decreased $0.8 million and EBITDA decreased by $1.6 million for the three months ended September 30, 2018, compared with the same period in 2017. The increasedecrease in revenues was primarily due to highera decrease in ethanol, distillers grain and corn oil production and trading activity, as well as lower average realized prices for distillers grains, partially offset by a decrease in ethanol production and trading activity.ethanol. Operating income and EBITDA decreased primarily as a result of decreased trading activity margins.
Food and Ingredients Segment
Revenues in our food and ingredients segment increased $136.4decreased $33.4 million for the three months ended September 30, 2018,2019 compared with the same period in 2017.2018 primarily due to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.
As a result of factors identified above, operating income decreased by $3.9 million and EBITDA decreased $6.2 million for the three months ended September 30, 2019 compared with the same period in 2018.
Partnership Segment
Revenues generated by our partnership segment decreased $5.6 million for the three months ended September 30, 2019 compared to the same period of 2018, primarily due to lower storage and throughput volumes due to disposition of three ethanol plants during the fourth quarter of 2018 as well as lower revenues generated from rail transportation services due to the assignment of various railcar operating leases as part of the disposition. Operating income decreased $4.4 million and EBITDA decreased $4.3 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily due to the factors described above.
Intersegment Eliminations
Intersegment eliminations of revenues decreased by $7.5 million for the three months ended September 30, 2019 compared with the same period in 2018 due to a decrease in storage and throughput fees paid to the partnership segment due to the disposition of the three ethanol plants during the further quarter of 2018 as well as decreased intersegment marketing fees within the agribusiness and energy services segment.
Corporate Activities
Operating income was impacted by a decrease in operating expenses of $1.3 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily as a result of a workforce reduction which occurred as part of our portfolio optimization program in the last half of 2018.
Income Taxes
We recorded income tax benefit of $12.5 million for the three months ended September 30, 2019, compared with $15.0 million for the same period in 2018. The increasechange in revenuesincome tax benefit was primarily due to an increase in cattle volumes sold as a
42
resultthe impact of the acquisitions of cattle feeding operations during 2017 and 2018. Cattle head soldR&D credits for the three months ended September 30, 2018, offset by a higher loss before income taxes for the three months ended September 30, 2019.
Net Income from Discontinued Operations
As previously discussed, we sold an aggregate 50% membership interest in GPCC to TGAM and 2017 was approximately 147,000StepStone during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and 48,000, respectively.
Operatingthe GPCC investment is accounted for using the equity method of accounting. The company concluded that the disposition of GPCC met the requirements under ASC 205-20. Therefore,GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Net income decreasedfrom discontinued operations increased by $1.8 million and EBITDA decreased $1.1$2.9 million for the three months ended September 30, 2019 primarily due to increased cattle margins.
Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018
Consolidated Results
Consolidated revenues decreased $698.9 million for the nine months ended September 30, 2019 compared with the same period in 20172018 primarily due to the disposition of three ethanol plants and the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.
Operating income decreased $114.7 million and adjusted EBITDA decreased $148.9 million for the nine months ended September 30, 2019 compared with the same period last year primarily due to lower volume and decreased margins on ethanol production as well as the disposition of Fleischmann’s Vinegar during the fourth quarter of 2018. Interest expense decreased $26.8 million for the nine months ended September 30, 2019 compared with the same period in 2018, primarily due to the repayment of the $500 million senior secured term loan during the fourth quarter of 2018. Income tax benefit was $40.7 million for the nine months ended September 30, 2019 compared with $34.5 million for the same period in 2018.
The following discussion provides greater detail about our year-to-date segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Nine Months Ended | ||||||
2019 | 2018 | % Variance | ||||
Ethanol produced | ||||||
(thousands of gallons) | 617,536 | 881,518 | (29.9) | |||
Distillers grains produced | ||||||
(thousands of equivalent dried tons) | 1,601 | 2,279 | (29.7) | |||
Corn oil produced | ||||||
(thousands of pounds) | 148,630 | 222,994 | (33.3) | |||
Corn consumed | ||||||
(thousands of bushels) | 214,734 | 306,395 | (29.9) |
Revenues in our ethanol production segment decreased $529.5 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower production volumes of ethanol, distillers grains and corn oil due to the depressed margin environment and lower average realized prices for ethanol and distillers grains.
Operating income decreased $86.7 million and EBITDA decreased $105.8 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily as a result of decreased margins. Depreciation and amortization expense decreased $19.0 million for the nine months ended September 30, 2019 compared with the same period last year, primarily due to the disposition of three ethanol plants during the fourth quarter of 2018.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment decreased $76.3 million while operating income decreased by $12.9 million and EBITDA decreased by $13.3 million for the nine months ended September 30, 2019 compared with the same period in 2018. The decrease in revenues was primarily due to a decrease in cattleethanol, distillers grain and corn oil production and trading activity, as well as lower average realized prices for ethanol. Operating income and EBITDA decreased primarily as a result of decreased margins.
Food and Ingredients Segment
Revenues in our food and ingredients segment decreased $100.8 million for the nine months ended September 30, 2019 compared with the same period in 2018 due to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.
Operating income decreased by $12.5 million and EBITDA decreased $19.3 million for the nine months ended September 30, 2019 compared with the same period in 2018 due to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.
Partnership Segment
Revenues generated by our partnership segment decreased $0.7$15.4 million for the threenine months ended September 30, 2018,2019 compared to the same period of 2017,2018, primarily due to lower storage and throughput volumes due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower production at our remaining plants and lower revenues generated from our rail transportation services and terminal services, offset by an increase in revenues generated from trucking services and storage and throughput services. due to the assignment of various railcar operating leases as part of the disposition. Operating income increased $0.4decreased $10.2 million and EBITDA increased $0.3decreased $10.3 million for the threenine months ended September 30, 2018,2019 compared with the same period in 2017 2018 primarily due to lower railcar lease expense associated with our terminal operations.the factors described above.
Intersegment Eliminations
Intersegment eliminations of revenues decreased by $2.5$23.2 million for the threenine months ended September 30, 2018,2019 compared with the same period in 20172018 due to a decrease in storage and throughput fees paid to the partnership segment as well as decreased intersegment corn purchasesmarketing fees within the agribusiness and energy services segment as well as decreased intersegment distillers grain revenues within the ethanol production segment, both primarily due to decreased sales to the food and ingredients segment for cattle feed.segment.
Corporate Activities
Operating income was impacted by a decrease in operating expenses for corporate activities of $1.5 million for the three months ended September 30, 2018, compared with the same period in 2017 primarily due to decreased selling, general and administrative expenses related to personnel costs in 2018.
Income Taxes
We recorded income tax benefit of $14.7 million for the three months ended September 30, 2018, compared with $48.8 million for the same period in 2017. The decrease in income tax benefit was due primarily to the company’s recognition of a net tax benefit of $10.1 million during the three months ended September 30, 2018, compared to a net tax benefit of $49.5 million during the same period in 2017, for federal and state R&D Credits relating to current and prior periods.
Nine Months Ended September 30, 2018, Compared with the Nine Months Ended September 30, 2017
Consolidated Results
Consolidated revenues increased $357.0$6.9 million for the nine months ended September 30, 2018,2019 compared with the same period in 2017,2018 primarily as a result of the acquisitions a workforce reduction which occurred as part of cattle feeding operations at the end of the first quarter and at the beginning of the second quarter of 2017 andour portfolio optimization program in the third quarterlast half of 2018. The increase was also driven by higher average realized prices for distillers grains and additional natural gas volumes sold, partially offset by a decrease in volumes for ethanol and distillers grains and lower average realized prices for ethanol and corn oil.
OperatingIncome Taxes
We recorded income decreased $25.8 million and EBITDA decreased $21.3tax benefit of $40.7 million for the nine months ended September 30, 2018,2019, compared with $34.5 million for the same period last year primarilyin 2018. The change in income tax benefit was due to a higher loss before income taxes for the nine months ended September 30, 2019, as well as the impact of R&D credits for the same period in 2018.
Net Income from Discontinued Operations
As previously discussed, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. The company concluded that the disposition of GPCC met the requirements under ASC 205-20. Therefore,GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Net income from discontinued operations decreased margins in our ethanol production segment. Interest expense decreased $2.3by $10.9 million for the nine months ended September 30, 2018, compared with the same period in 2017,2019 primarily due to higher expense associated with the termination of previous credit facilities during the nine months ended September 30, 2017, partially offset by higher average debt outstandingsevere winter weather and higher borrowing costs during the nine months ended September 30, 2018. Income tax benefit was $31.4 million for the nine months ended September 30, 2018, compared with $60.9 million for the same period in 2017due to additional tax benefits related to R&D Credits recognized for all open tax years during the nine months ended September 30, 2017.
43
The following discussion provides greater detail about our year to date segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
| ||
|
| 2018 |
| 2017 |
| % Variance |
|
|
|
|
|
|
|
Ethanol produced |
|
|
|
|
|
|
(thousands of gallons) |
| 881,518 |
| 915,607 |
| (3.7) |
Distillers grains produced |
|
|
|
|
|
|
(thousands of equivalent dried tons) |
| 2,279 |
| 2,421 |
| (5.9) |
Corn oil produced |
|
|
|
|
|
|
(thousands of pounds) |
| 222,994 |
| 216,482 |
| 3.0 |
Corn consumed |
|
|
|
|
|
|
(thousands of bushels) |
| 306,395 |
| 318,709 |
| (3.9) |
Revenues in our ethanol production segment decreased $128.3 million for the nine months ended September 30, 2018, compared with the same period in 2017 primarily due to lower volumes of ethanol and distillers grains sold in addition to lower average ethanol and corn oil prices realized, partially offset by higher average distillers grains prices realized.
Cost of goods sold for our ethanol production segment decreased $95.8 million for the nine months ended September 30, 2018, compared with the same period last year due to lower production volumes and lower corn prices. As a result of the factors identified above, operating income decreased $34.8 million and EBITDA decreased $33.8 million for the nine months ended September 30, 2018, compared with the same period in 2017. Depreciation and amortization expense for the segment was $65.3 million for the nine months ended September 30, 2018, compared with $61.4 million for the same period last year primarily due to accelerated depreciation associated with fixed asset disposals during the nine months ended September 30, 2018.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment increased $67.1 million while operating income increased $8.9 million and EBITDA increased by $8.1 million for the nine months ended September 30, 2018, compared with the same period in 2017. The increase in revenues was primarily due to an increase in ethanol and natural gas trading activity, partially offset by lower average realized prices for corn oil. Operating income and EBITDA increased primarily as a result of increased trading activity margins.
Food and Ingredients Segment
Revenues in our food and ingredients segment increased $425.7 million for the nine months ended September 30, 2018, compared with the same period in 2017. The increase in revenues was primarily due to an increase in cattle volumes sold as a result of the acquisitions of cattle feeding operationsabnormally negative basis during the first and second quarters of 2017 and in the third quarter of 2018. Cattle head sold for the nine months ended September 30, 2018, and 2017, was approximately 402,000 and 128,000, respectively.2019.
expense and unloading fees, partially offset by increased wages, fuel and other expenses. EBITDA increased $0.1 million for the nine months ended September 30, 2018, compared with the same period in 2017.
Intersegment Eliminations
Intersegment eliminations of revenues increased by $6.2 million for the nine months ended September 30, 2018, compared with the same period in 2017 due to increased intersegment corn purchases within the agribusiness and energy services segment as well as increased intersegment distillers grain revenues within the ethanol production segment, both primarily due to increased sales to the food and ingredients segment for cattle feed.
Corporate Activities
Operating income was impacted by an increase in operating expenses for corporate activities of $4.0 million for the nine months ended September 30, 2018, compared with the same period in 2017 primarily due to increased selling, general and administrative expenses related to personnel costs in 2018.
Income Taxes
We recorded income tax benefit of $31.4 million for the nine months ended September 30, 2018, compared with $60.9 million for the same period in 2017. The decrease in income tax benefit was due primarily to the company’s recognition of a net tax benefit of $18.4 million during the nine months ended September 30, 2018, compared to $49.5 million during the same period in 2017, for federal and state R&D Credits relating to current and prior periods.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities and bank credit facilities. We fund our operating expenses and service debt primarily with operating cash flows. Capital resources for maintenance and growth expenditures are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, or issuance of senior notes or equity. Our ability to access capital markets for debt under reasonable terms depends on our financial condition, credit ratings and market conditions. We believe that our ability to obtain financing at reasonable rates and history of consistent cash flow from operating activities provide a solid foundation to meet our future liquidity and capital resource requirements.
On September 30, 2018,2019, we had $171.7$235.5 million in cash and equivalents, excluding restricted cash, consisting of $155.6$160.5 million held at our parent company and the remainder held at our subsidiaries. Additionally, we had $62.8$18.5 million in restricted cash at September 30, 2018.2019. We also had $491.6$328.4 million available under our committed revolving credit agreements, some of which were subject to restrictions or other lending conditions. Funds at certain subsidiaries are generally required for their ongoing operational needs and restricted from distribution. At September 30, 2018,2019, our subsidiaries had approximately $171.2$63.5 million of net assets that were not available to us in the form of dividends, loans or advances due to restrictions contained in their credit facilities. As a result of the $500 million term loan agreement and related debt extinguishment at Green Plains Processing and Fleischmann’s Vinegar, we no longer consider certain subsidiaries to have restrictions on cash and asset distributions.
Net cash provided byused in operating activities for continuing operations was $84.4$17.8 million for the nine months ended September 30, 2018,2019 compared with $114.2net cash provided by operating activities for continuing operations of $58.1 million used for the same period in 2017.2018. Operating activities compared to the prior year were primarily affected by decreaseschanges in cash spent on cattle inventory offset byworking capital as well as decreases in operating income when compared to the same period of the prior year. Net cash used inprovided by investing activities for continuing operations was $150.5$37.2 million for the nine months ended September 30, 2018,2019 compared to $110.2with net cash used in investing activities for continuing operations of $24.8 million for the same period in 2017, with the increase2018, due primarily to the acquisitionreceipt of cattle feed operations during$77.2 million for the current year, partiallydisposition of GPCC offset by cash received from other investing activities.increased capital expenditures at our existing ethanol plants. Net cash used in financing activities for continuing operations was $11.8$46.4 million for the nine months ended September 30, 2018,2019 compared with net cash provided by financing activities of $164.3$117.0 million for the same period in 2017, with the2018, resulting from an increase in cash used resulting from lower net short-term borrowings.borrowings offset by payments for the repurchase of common stock.
Additionally, Green Plains Trade Green Plains Cattle and Green Plains Grain use revolving credit facilities to finance working capital requirements. We frequently draw from and repay these facilities which results in significant cash movements reflected on a gross basis within financing activities as proceeds from and payments on short-term borrowings.
We incurred capital expenditures of $31.1$43.4 million induring the first nine months ended September 30, 2019, primarily related to our high-protein and Project 24 initiatives. We incurred capital expenditures for our discontinued operations of 2018 for various maintenance and expansion projects.$4.2 million. Capital spending for the remainder of 20182019 is expected to be between approximately $4$20.0 million and $25.0 million for various
45
projects, which are expected to be financed with cash provided by operating activities and available borrowings under our credit facilities.facilities and cash provided by operating activities.
Our business is highly sensitive to the price of commodities, particularly for corn, ethanol, distillers grains, corn oil and natural gas and cattle.gas. We use derivative financial instruments to reduce the market risk associated with fluctuations in commodity prices. Sudden changes in commodity prices may require cash deposits with brokers for margin calls or significant liquidity with little advanced notice to meet margin calls, depending on our open derivative positions. We continuously monitor our exposure to margin calls and believe we will continue to maintain adequate liquidity to cover margin calls from our operating results and borrowings.
We have paid aOn June 18, 2019, the company announced that its board of directors has decided to suspend its future quarterly cash dividend since August 2013,following the June 14, 2019 dividend payment, in order to retain and anticipate declaring aredirect cash dividend in future quarters on a regular basis. Future declarationsflow to the company’s Project 24 operating expense equalization plan, the deployment of dividends, however, are subject to board approvalhigh-protein technology and may be adjusted as our liquidity, business needs or market conditions change. On August 15, 2018, our board of directors declared a quarterly cash dividend of $0.12 per share. The dividend was paid on September 14, 2018, to shareholders of record at the close of business on August 27, 2018.its stock repurchase program.
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement requires the partnership to distribute all available cash, as defined, to its partners, including us, within 45 days after the end of each calendar quarter. Available cash generally means all cash and cash equivalents on hand at the end of that quarter less cash reserves established by our general partner plus all or any portion of the cash on hand resulting from working capital borrowings made subsequent to the end of that quarter. On October 18, 2018,17, 2019, the board of directors of the general partner of the partnership declared a cash distribution of $0.475 per unit on outstanding common and subordinated units. The distribution is payable on November 9, 2018,8, 2019, to unitholders of record at the close of business on November 2, 2018.1, 2019.
In August 2014, we announced a share repurchase program of up to $100 million of our common stock. Under the program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers or by other means. The timing and amount of repurchase transactions are determined by our management based on market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. We did not repurchase anyDuring the three months ended September 30, 2019, we purchased a total of 1,662,607 shares during the third quarter of 2018 due to certain restrictions under the term loan agreement.our common stock for approximately $16.0 million. To date, we have repurchased 909,667 shares5,979,233 of common stock for approximately $16.7$75.6 million under the program. On October 30, 2019, the company’s board of directors authorized an additional $100 million share repurchase taking the previously authorized amount from $100 million to $200 million.
We believe we have sufficient working capital for our existing operations. Furthermore, our liquidity position has improved subsequent to September 30, 2018, as a result of the recently announcedpartial sale of GPCC during the third quarter of 2019, as well as the sale of three of our ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan as well as the sale of Fleischmann’s Vinegar Company. We anticipate thatduring the fourth quarter of 2018. The majority of net cash proceeds from the sales of three of our ethanol plants and Fleischmann’s Vinegar, net of fees and taxes, will be approximately $645 million, which we expect will bewere used to pay off the outstanding term loan balance. For additional information relatedNet cash proceeds from the partial sale of GPCC, net of fees and taxes, were used to repurchase the subsequent sales, see Note 16 – Subsequent Events includedcompany’s common stock as part of the notes to consolidated financial statements. our share repurchase program, continued investment into our high-protein initiative and general corporate purposes. A continued sustained period of unprofitable operations, however, may strain our liquidity making it difficult to maintain compliance with our financing arrangements. We may sell additional assets or equity or borrow capital to improve or preserve our liquidity, expand our business or build additional or acquire existing businesses. We cannot provide assurance that we will be able to secure funding necessary for additional working capital or these projects at reasonable terms, if at all.
Debt
For additional information related to our debt, see Note 9 – Debt and Note 16 – Subsequent Events included as part of the notes to consolidated financial statements and Note 1112 – Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2017.2018.
We were in compliance with our debt covenants at September 30, 2018.2019. Based on our forecasts, we believe we will maintain compliance at each of our subsidiaries for the next twelve months or have sufficient liquidity available on a consolidated basis to resolve noncompliance. We cannot provide assurance that actual results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event a subsidiary is unable to comply with its debt covenants, the subsidiary’s lenders may determine that an event of default has occurred, and following notice, the lenders may terminate the commitment and declare the unpaid balance due and payable.
As outlined in Note 9 - Debt, we use LIBOR as a reference rate for certain revolving credit facilities. LIBOR is currently set to be phased out at the end of 2021. At this time, it is not possible to predict the effect of this change or the alternative reference rate to be used. We will need to renegotiate certain credit facilities to determine the interest rate to replace LIBOR with the new standard that is established. As such, the potential effect of any such event on interest expense cannot yet be determined.
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Corporate Activities
On August 29, 2017,June 21, 2019, we issued $105.0 million of 4.00% convertible senior notes due in 2024, or the company and substantially all4.00% notes. We used approximately $57.8 million of the company’s subsidiaries, but not including Green Plains Partners and certain other entities as guarantors, entered into a $500.0net proceeds to repurchase the $56.8 million term loan agreement with BNP Paribas, as administrative agent and collateral agent and certain other financial institutions, which matures on August 29, 2023, and may be prepaid at any time without premium or penalty other than customary breakage costs with respect to Eurodollar-based loans or certain other limited circumstances in which event a 1.0% prepayment premium would be due.
The term loan agreement requiresoutstanding principal paymentsamount of $1.25 million on the last day of each quarter, beginning on December 31, 2017, with a final installment payable on August 29, 2023, equal to the unpaid principal and interest balances of the term loan agreement. Beginning in 2018, the credit facility also has a provision requiring the company to make special annual payments of 50% or 75% of its available free cash flow, subject to certain limitations. The term loan bears interest at a floating rate of a base rate plus a margin of 4.50% or LIBOR plus a margin of 5.50%.
The term loan agreement is guaranteed by the company and the term loan obligors, and secured by substantially all of the assets of the company and the term loan obligors, including 17 ethanol production facilities with annual capacity of approximately 1.5 billion gallons, as well as the vinegar production facilities.
The term loan agreement provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others, the following: nonpayment of principal or interest; breach of covenants or other agreements in the term loan agreement; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. If any event of default occurs, the remaining principal balance and accrued interest on the term loan agreement will become immediately due and payable.
In September 2013, we issued $120.0 million of 3.25% convertible senior notes due October 1, 2019 in 2018, or 3.25%cash, including accrued and unpaid interest, in privately negotiated transactions concurrently with the offering of 4.00% notes. On July 19, 2019, we closed on the issuance of an additional $10.0 million aggregate principal amount of the 4.00% notes which(the “Option Notes”) to the initial purchasers. The Option Notes provided us with net proceeds, after deducting commissions and our offering expenses, of approximately $9.5 million. The Option Notes have the same terms as the 4.00% notes issued on June 21, 2019, and were issued under the same Indenture dated as of June 21, 2019. After the issuance of the Option Notes, total aggregate principal of the 4.00% notes outstanding is $115.0 million.
The 4.00% notes are senior, unsecured obligations, with interest payable on AprilJanuary 1 and October 1 of each year. Prior to April 1, 2018, the 3.25% notes were not convertible unless certain conditions are satisfied. The conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds $0.04 per share. The conversion rate was recently adjusted as of September 30, 2018, to 50.8753 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $19.66 per share. We may settle the 3.25% notes in cash, common stock or a combination of cash and common stock. For all conversions of notes which occur on or after April 1, 2018, the company elected to convert for whole shares of common stock with any fractional share being settled with cash in lieu.
During fiscal year 2017, approximately $56.3 million in aggregate principal of the 3.25% notes were exchanged for cash and 2,783,725 shares of the company’s common stock. During the three months ended June 30, 2018, an additional 50 shares of the company’s common stock were exchanged for approximately $1 thousand in aggregate principal amount of the 3.25% notes.
During the three months ended September 30, 2018, the company entered into exchange agreements with certain beneficial owners of the company’s outstanding 3.25% convertible senior notes due 2018 (the “Old Notes”), pursuant to which such Investors exchanged (the “Exchange”) $56.8 million in aggregate principal amount of the Old Notes for $56.8 million in aggregate principal amount of notes due 2019 (the “New Notes”). The company evaluated the Exchange in accordance with ASC 470-50 and concluded that the Exchange qualified as a debt modification as the cash flows and fair value of the embedded conversion option of the New Notes were not substantially different from the Old Notes. As a result, the New Notes were recorded at fair value at the time of the exchange, and the company recorded a non-cash adjustment to additional paid-in capital of $4.7 million related to the difference in fair value of the embedded conversion option of the Old Notes and the New Notes. Following the closing of these agreements, $6.9 million aggregate principal of the Old Notes remain outstanding. On October 1, 2018, the maturity date of the Old Notes, the remaining aggregate principal of $6.9 million was paid.
The New Notes are the senior, unsecured obligations of the company and bear interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 1 and OctoberJuly 1 of each year, beginning on OctoberJanuary 1, 2018. Interest on the New Notes will accrue from, and including, April 1, 2018.2020, at a rate of 4.00% per annum. The New Notes will mature on October 1, 2019, unless earlier converted. Holders of New Notes may convert their New Notes, at their option, in integral multiples of $1,000 principal amount, at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date of the New Notes. Theinitial conversion rate for the New Notes will initially be 50.648164.1540 shares of the company’sour common stock per $1,000 principal amount of New Notes,the 4.00% notes, which correspondsis equivalent to an initial conversion price of approximately $19.74$15.59 per share of the company’sour common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events.
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Upon conversion of In addition, we may be obligated to increase the convertible notes, the company will settle its conversion obligation by delivering shares of its common stock at the applicable conversion rate togetherfor any conversion that occurs in connection with cash in lieu of any fractional share.
The company does not havecertain corporate events, including our calling the right to redeem the New Notes at its election before their maturity. The New Notes are subject to customary provisions providing4.00% notes for the acceleration of their principal and interest upon the occurrence of events that constitute an “event of default.” Events of default include, among other events, certain payment defaults, defaults in settling conversions, certain defaults under the company’s other indebtedness and certain insolvency-related events. Upon maturity, the company willredemption. We may settle the New Notes4.00% notes in cash.cash, common
stock or a combination of cash and common stock. At September 30, 2019, the outstanding principal balance was $82.2 million on the 4.00% notes.
In August 2016, we issued $170.0 million of 4.125% convertible senior notes due in 2022, or 4.125% notes, which are senior, unsecured obligations with interest payable on March 1 and September 1 of each year. Prior to March 1, 2022, the 4.125% notes are not convertible unless certain conditions are satisfied. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds $0.12 per share. We may settle the 4.125% notes in cash, common stock or a combination of cash and common stock. At September 30, 2019, the outstanding principal balance was $147.6 million on the 4.125% notes.
Ethanol Production Segment
We have small equipment financing loans, capitalfinance leases on equipment or facilities, and other forms of debt financing.
Agribusiness and Energy Services Segment
Green Plains Grain has a $125.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in July of 2019. This facility can be increased by up to $75.0 million with agent approval and up to $50.0 million for seasonal borrowings. Total commitments outstanding under the facility cannot exceed $250.0 million. At September 30, 2018, the outstanding principal balance was $30.0 million on the facility and our interest rate was 5.25%.
Green Plains Trade has a $300.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in July of 2022. This facility can be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal to a daily LIBOR rate plus 2.25% or the base rate plus 1.25%. The unused portion of the credit facility is also subject to a commitment fee of 0.375% per annum. At September 30, 2018,2019, the outstanding principal balance was $133.7$119.6 million on the facility and the interest rate was 4.26%4.17%.
Green Plains Grain has a $100.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in June of 2022. This facility can be increased by up to $75.0 million with agent approval and up to $50.0 million for seasonal borrowings. Total commitments outstanding under the facility cannot exceed $225.0 million. On June 28, 2019, the company amended the credit facility to extend the existing maturity date from July 26, 2019 to June 28, 2022 and lower the maximum commitment from $125.0 million to $100.0 million. Depending on utilization, the total unused portion of the $100.0 million revolving credit facility is also subject to a commitment fee ranging from 0.375% to 0.50% per annum. At September 30, 2019, the outstanding principal balance was $20.0 million and the interest rate was 5.06%.
Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At September 30, 2019, 0.9 million bushels of corn had been designated as collateral under these agreements at initial values totaling $3.8 million. The company has accounted for the agreements as short-term notes, rather than sales, and has elected the fair value option to offset fluctuations in market prices of the inventory. At September 30, 2019, the short-term notes payable were valued at $4.0 million and our interest rate was 4.68%.
Green Plains Commodity Management has an uncommitted $20.0 million revolving credit facility which matures April 30, 2023 to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBOR plus 1.75%. At September 30, 2018,2019, the outstanding principal balance was $12.1$5.5 million on the facility and the interest rate was 3.95%3.66%.
Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At September 30, 2018, 1.0 million bushels of corn had been designated as collateral under these agreements at initial values totaling $4.2 million. The company has accounted for the agreements as short-term notes, rather than sales, and has elected the fair value option to offset fluctuationsfacility was amended in market prices of the inventory. At September 30, 2018, the short-term notes payable were valued at $4.0 million and our interest rate was 4.68%.
Food and Ingredients Segment
Green Plains Cattle has a $500.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in April of 2020. This facility can be increased by up to $100.0 million with agent approval and includes a swing-line sublimit of $20.0 million. On July 31, 2018, the company amended the credit facility, to increaseOctober 2019, increasing the maximum commitment from $425.0$20.0 million to $500.0$30.0 million. At September 30, 2018,
Food and Ingredients Segment
Upon the outstanding principal balance was $376.7 milliondisposition of Green Plains Cattle, the food and ingredient segment no longer has any forms of debt financing. Refer to Note 3 – Acquisitions, Dispositions and Discontinued Operations for further discussion on the facilitydisposition and our interest rate was 4.28%.discontinued operations classification.
Advances under the revolving credit facility, as amended, are subject to variable interest rates equal to LIBOR plus 2.0% to 3.0% or the base rate plus 1.0% to 2.0%, depending on the preceding three months’ excess borrowing availability. The unused portion of the credit facility is also subject to a commitment fee of 0.20% to 0.30% per annum, depending on the
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preceding three months’ excess borrowing availability. Interest is payable as required, but not less than quarterly in arrears and principal is due upon maturity.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a $235.0$200.0 million revolving credit facility which matures on July 1, 2020, to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. On February 20, 2018,The credit facility matures on July 1, 2020, and as a result, was reclassified to current maturities of long-term debt during the partnership accessed a portion of its available accordionthree months ended September 30, 2019. We intend to increaserenew the revolving credit facility by $40.0 million, from $195.0 million to $235.0 million.or replace it with a new another line of credit on or before the expiration date. The credit facility can be increased by an additional $20.0 million without the consent of the lenders. At September 30, 2018,2019, the outstanding principal balance was $128.0 million onof the facility was $132.0 million and had an averagethe interest rate of 4.74%was 5.04%.
Contractual Obligations
Contractual obligations as of September 30, 2018,2019, were as follows (in thousands):
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| Payments Due By Period | Payments Due By Period | |||||||||||||||||||||||||
Contractual Obligations |
| Total |
| Less Than |
| 1-3 Years |
| 3-5 Years |
| More Than | Total | Less Than | 1-3 Years | 3-5 Years | More Than | |||||||||||||
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Long-term and short-term debt obligations (1) | $ | 1,435,128 |
| $ | 622,198 |
| $ | 140,168 |
| $ | 180,797 |
| $ | 491,965 | $ | 590,845 | $ | 282,142 | $ | 172,028 | $ | 117,021 | $ | 19,654 | ||||
Interest and fees on debt obligations (2) |
| 244,039 |
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| 75,720 |
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| 87,763 |
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| 72,262 |
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| 8,294 | 67,644 | 24,705 | 24,987 | 10,297 | 7,655 | |||||||||
Operating lease obligations (3) |
| 103,920 |
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| 26,836 |
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| 33,498 |
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| 13,510 |
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| 30,076 | 71,474 | 19,329 | 21,968 | 10,865 | 19,312 | |||||||||
Other |
| 13,673 |
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| 812 |
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| 8,548 |
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| 2,428 |
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| 1,885 | 19,952 | 2,517 | 6,871 | 2,351 | 8,213 | |||||||||
Purchase obligations: |
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Forward grain purchase contracts (4) |
| 240,753 |
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| 235,746 |
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| 2,840 |
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| 2,000 |
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| 167 | 144,099 | 140,777 | 2,155 | 1,167 | - | |||||||||
Other commodity purchase contracts (5) |
| 171,165 |
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| 163,436 |
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| 7,008 |
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| 721 |
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| - | 127,570 | 108,900 | 16,577 | 2,093 | - | |||||||||
Other |
| 273 |
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| 64 |
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| 209 |
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| - |
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| - | 41 | 41 | - | - | - | |||||||||
Total contractual obligations | $ | 2,208,951 |
| $ | 1,124,812 |
| $ | 280,034 |
| $ | 271,718 |
| $ | 532,387 | $ | 1,021,625 | $ | 578,411 | $ | 244,586 | $ | 143,794 | $ | 54,834 | ||||
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(1)Includes the current portion of long-term debt and future finance lease obligations and excludes the effect of any debt discounts and issuance costs.
(2)Interest amounts are calculated over the terms of the loans using current interest rates, assuming scheduled principal and interest amounts are paid pursuant to the debt agreements. Includes administrative and/or commitment fees on debt obligations.
(3)Operating lease costs are primarily for railcars and office space.
(4)Purchase contracts represent index-priced and fixed-price contracts. Index purchase contracts are valued at current quarter-end prices.
(5)Includes fixed-price ethanol, dried distillers grains and natural gas purchase contracts.
Critical Accounting Policies and Estimates
Key accounting policies, including those relating to revenue recognition, depreciation of property and equipment, asset retirement obligations,carrying value of intangible assets, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. Information about our critical accounting policies and estimates are included in our annual report on Form 10-K for the year ended December 31, 2017.2018.
Off-Balance Sheet Arrangements
We do not haveWith the exception of one director, none of our officers or employees holds an ownership interest in any off-balance sheet arrangements other thanof our joint ventures or entities. As of September 30, 2019, we owned a 50% interest in GPCC, a joint venture that owns and operates six cattle feeding operations. Mr. Ejnar Knudsen, a member of the operating leases,company’s board of directors, has an indirect ownership interest in GPCC of 0.0736% by reason of his ownership in TGAM Agribusiness Fund LP. Based on the purchase price, the value of that ownership interest is approximately $0.1 million. Mr. Knudsen also is the CEO and partial owner of AGR Partners LLC (AGR) which are entered into duringprovides investment advisory services to TGAM Agribusiness Fund LP pursuant to a sub-advisory agreement between AGR Partners LLC and Nuveen Alternative Advisors LLC, which is the ordinary courseinvestment manager for TGAM Agribusiness Fund LP.
At September 30, 2019, the outstanding principal balance of business and disclosed in the Contractual Obligations section above.GPCC’s senior secured asset-based revolving credit facility was $355.7 million, of which our pro rata portion was $177.9 million, none of which is reflected as a liability on our consolidated balance sheet.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We use various financial instruments to manage and reduce our exposure to various market risks, including changes in commodity prices and interest rates. We conduct all of our business in U.S. dollars and are not currently exposed to foreign currency risk.
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Interest Rate Risk
We are exposed to interest rate risk through our loans which bear interest at variable rates. Interest rates on our variable-rate debt are based on the market rate for the lender’s prime rate or LIBOR. A 10% increase in interest rates would affect our
interest cost by approximately $6.4$1.3 million per year. At September 30, 2018,2019, we had $1.4 billion$530.4 million in debt, $1.2 billion$281.1 million of which had variable interest rates.
For additional information related to our debt, see Note 9 – Debt included as part of the notes to consolidated financial statements and Note 1112 – Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2017.2018.
Commodity Price Risk
Our business is highly sensitive to commodity price risk, particularly for ethanol, corn, distillers grains, corn oil and natural gas, ethanol, distillers grainsgas. Ethanol prices are sensitive to world crude oil supply and cattle.demand, the price of crude oil, gasoline and corn, the price of substitute fuels, refining capacity and utilization, government regulation and consumer demand for alternative fuels. Corn prices are affected by weather conditions, yield, changes in domestic and global supply and demand, and government programs and policies. Distillers grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production. Natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American energy exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons. Ethanol prices are sensitive to world crude oil supply and demand, the price of crude oil, gasoline and corn, the price of substitute fuels, refining capacity and utilization, government regulation and consumer demand for alternative fuels. Distillers grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production. Cattle prices are impacted by weather conditions, overall economic conditions and government regulations.
To reduce the risk associated with fluctuations in the price of ethanol, corn, natural gas, ethanol, distillers grains, corn oil, and cattle,natural gas, at times we use forward fixed-price physical contracts and derivative financial instruments, such as futures and options executed on the Chicago Board of Trade, the New York Mercantile Exchange and the Chicago Mercantile Exchange. We focus on locking in favorable operating margins, when available, using a model that continually monitors market prices for corn, natural gas and other inputs relative to the price for ethanol and distillers grains at each of our production facilities. We create offsetting positions using a combination of forward fixed-price purchases, sales contracts and derivative financial instruments. As a result, we frequently have gains on derivative financial instruments that are offset by losses on forward fixed-price physical contracts or inventories and vice versa. Our results are impacted by a mismatch of gains or losses associated with the derivative instrument during a reporting period when the physical commodity purchases or sale has not yet occurred. During the three and nine months ended September 30, 2018,2019, revenues included net gains of $5.3$12.4 million and $4.1net losses of $12.0 million, respectively, and cost of goods sold included net gains of $12.1$2.2 million and $3.5net losses of $0.3 million, respectively, associated with derivative financial instruments.
Ethanol Production Segment
In the ethanol production segment, net gains and losses from settled derivative instruments are offset by physical commodity purchases or sales to achieve the intended operating margins. To reduce commodity price risk caused by market fluctuations, we enter into exchange-traded futures and options contracts that serve as economic hedges.
Our exposure to market risk, which includes the impact of our risk management activities resulting from our fixed-price purchase and sale contracts and derivatives, is based on the estimated net income effect resulting from a hypothetical 10% change in price for the next 12 months starting on September 30, 2018, are2019, which is as follows (in thousands):
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Commodity |
| Estimated Total Volume Requirements for the Next 12 Months (1) |
| Unit of |
| Net Income Effect of Approximate 10% Change in Price | Estimated Total Volume | Unit of | Net Income Effect of | |||||
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Ethanol |
| 1,470,000 |
| Gallons |
| $ | 165,213 | 1,123,000 | Gallons | $ | 129,089 | |||
Corn |
| 518,000 |
| Bushels |
| $ | 153,112 | 387,000 | Bushels | $ | 114,112 | |||
Distillers grains |
| 4,100 |
| Tons (2) |
| $ | 39,244 | 2,900 | Tons (2) | $ | 26,532 | |||
Corn oil |
| 359,000 |
| Pounds |
| $ | 7,053 | 292,000 | Pounds | $ | 5,368 | |||
Natural gas |
| 41,700 |
| MmBTU |
| $ | 6,154 | 31,200 | MmBTU | $ | 4,180 | |||
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(1) Estimated assumesvolumes assume production at full capacity, including the Bluffton, Lakota and Riga plants discussed in Note 16 – Subsequent Events.capacity.
(2) Distillers grains quantities are stated on an equivalent dried ton basis.
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Agribusiness and Energy Services Segment
In the agribusiness and energy services segment, our inventories, physical purchase and sale contracts and derivatives are marked to market. To reduce commodity price risk caused by market fluctuations for purchase and sale commitments of grain and grain held in inventory, we enter into exchange-traded futures and options contracts that serve as economic hedges.
The market value of exchange-traded futures and options used for hedging are highly correlated with the underlying market value of grain inventories and related purchase and sale contracts for grain. The less correlated portion of inventory and purchase and sale contract market values, known as basis, is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. Inventory values are affected by the month-to-month spread in the futures markets. These spreads are also less volatile than overall market value of our inventory and tend to follow historical patterns, but cannot be mitigated directly. Our accounting policy for futures and options, as well as the underlying inventory held for sale and purchase and sale contracts, is to reflect their current market values and include gains and losses in the consolidated statement of operations.
Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position was approximately $0.5$3.7 million for grain based on market prices at September 30, 2018.2019. Our market risk at that date, based on the estimatedestimated net income effect resulting from a hypothetical 10% change in price, was approximately $43 thousand.$0.3 million.
Food and Ingredients Segment
In the food and ingredients segment, our physical cattle purchase and sale contracts and derivatives are marked to market. To reduce commodity price risk caused by market fluctuations for purchase and sale commitments of cattle, we enter into exchange-traded futures and options contracts that serve as economic hedges.
The market value of exchange-traded futures and options used for hedging are highly correlated with the underlying market value of purchase and sale contracts for cattle. The less correlated portion of inventory and purchase and sale contract market values, known as basis, is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. Inventory values are affected by the month-to-month spread in the futures markets. These spreads are also less volatile than overall market value of our inventory and tend to follow historical patterns, but cannot be mitigated directly. Our accounting policy for futures and options, as well as the underlying inventory held for sale and purchase and sale contracts, is to reflect their current market values and include gains and losses in the consolidated statement of operations.
Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position was approximately $5.6 million for cattle at September 30, 2018. Our market risk at that date, based on the estimated net income effect resulting from a hypothetical 10% change in price, was approximately $0.4 million.
Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position was approximately $14.3 million for grain and other cattle feed at September 30, 2018. Our market risk at that date, based on the estimated net income effect resulting from a hypothetical 10% change in price, was approximately $1.1 million.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure information that must be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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Under the supervision and participation of our chief executive officer and chief financial officer, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018,2019, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. There were no material changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
We are currently involved in litigation that has arisen during the ordinary course of business. We do not believe this litigation will have a material adverse effect on our financial position, results of operations or cash flows.
Investors should carefully consider the discussion of risks and the other information in our annual report on Form 10-K for the year ended December 31, 2017,2018, in Part I, Item 1A, “Risk Factors,” and the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements,” of this report. Investors should also carefully consider the discussion of risks with the partnership under the heading “Risk Factors” and other information in their annual report on Form 10-K for the year ended December 31, 2017.2018. Although we have attempted to discuss key factors, our investors need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. The following risk factor supplementsfactors supplement and/or updates risk factors previously disclosed and should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.
Government mandates affecting ethanol usage could changeFinancial performance of our equity method investments are subject to risks beyond our control and impactcan vary substantially from period to period.
The company invests in certain limited liability companies, which are accounted for using the ethanol market.
Underequity method of accounting. This means that the provisionscompany’s share of net income or loss in the investee increases or decreases, as applicable, the carrying value of the EISA, Congress establishedinvestment. By operating a mandate settingbusiness through this arrangement, we do not have control over operating decisions as we would if we owned the minimum volume of renewable fuels that must be blended with gasoline underbusiness outright. Specifically, we cannot act on major business initiatives without the RFS II, which affects the domestic market for ethanol. The EPA has the authority to waive the requirements, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or the environment. After 2022, volumes shall be determined by the EPA in coordination with the Secretaries of Energy and Agriculture, taking into account such factors as impact on environment, energy security, future rates of production, cost to consumers, infrastructure, and other factors such as impact on commodity prices, job creation, rural economic development, or impact on food prices.
Our operations could be adversely impacted by legislation or EPA actions, as set forth below or otherwise, that may reduce the RFS II mandate. Similarly, should federal mandates regarding oxygenated gasoline be repealed, the market for domestic ethanol could be adversely impacted. Economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS II mandate, may affect future demand. A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices. Moreover, changes to RFS II could negatively impact the price of ethanol or cause imported sugarcane ethanol to become more economical than domestic ethanol.
According to RFS II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. Since 2018 is the first year the total RVOs are more than 20% below statutory levels, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future reset consistent with the reset rules. If 2019 RVOs are also more than 20% below statutory levels, the RVO reset will be triggered under RFS II and the EPA will be required to modify statutory volumes through 2022 within one yearconsent of the trigger event, basedother investors.
The company recognizes these investments as a separate line item in the consolidated balance sheets its proportionate share of earnings on a separate line item in the same factors used to set the RVOs post-2022.
The U.S. Federal District Court for the D.C. Circuit ruled on July 28, 2017, in favorconsolidated statements of the Americans for Clean Energy and its petitioners against the EPA related to its decision to lower the 2016 volume requirements. The Court concluded the EPA erred in how it interpreted the “inadequate domestic supply” waiver provision of RFS II, which authorizes the EPA to consider supply-side factors affecting the volume of renewable fuel available to refiners, blenders, and importers to meet the statutory volume requirements.operations. As a result, the Court vacatedamount of net investment income recognized from these investments can vary substantially from period to period. Any losses experienced by these entities could adversely impact our results of operations and the EPA’s decisionvalue of our investment.
Our risk management and commodity trading strategies could be ineffective and expose us to reduce the total renewable fuel volume requirements for 2016 through its waiver authority, which the EPA is expecteddecreased liquidity.
As market conditions warrant, we use forward contracts to address.
On November 22, 2017, the EPA issued a Noticesell some of Denial of Petitions for rulemaking to change the RFS point of obligation which resulted in the EPA confirming the point of obligation will not change. However, Valero Energyour ethanol, distillers grains, corn oil, and refining trade group American Fuel and Petrochemical Manufacturers (AFPM) have challenged the EPA’s handlinglive cattle or buy some of the U.S. biofuel mandatecorn, natural gas, or feeder cattle we need to partially offset commodity price volatility. We also engage in separate actionsother hedging transactions and other commodity trading involving exchange-traded futures contracts for corn, natural gas, cattle and ethanol and other agricultural commodities. The financial impact of these activities depends on January 26, 2018. AFPM is asking the D.C. U.S. Court of Appeals to review the EPA’s November 2017 decision to reject proposed changes to the structure of the RFS, including moving the point of obligation from refiners and importers of fuel to fuel blenders. Valero filed two petitions with the same court, one seeking review of the annual Renewable Volume Obligation (RVO) rule set by the EPA for 2018 and 2019, which dictates the
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volumes of renewable fuels to be blended in the coming years, and a second arguing against the EPA’s December 2017 assertion that the agency has fulfilled its duty to periodically review the RFS as directed by statute.
Future demand may be influenced by economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS II mandate. A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices. Moreover, any changes to RFS II originating from issues associated with the market price of RINs could negatively impact the demand for ethanol, discretionary blending of ethanol and/or the price of ethanol. Recent actions by the EPAcommodities involved and/or our ability to grant small refiner exemptions as well asphysically receive or deliver the Philadelphia Energy Solutions Bankruptcy Court’s decisioncommodities.
Hedging arrangements expose us to grant RIN relief have resulted in lower RIN prices.
Flexible-fuel vehicles, which are designed to runrisk of financial loss when the counterparty defaults on a mixture of fuels such as E85, receive preferential treatment to meet corporate average fuel economy standardsits contract or, in the formcase of CAFE credits. Flexible-fuel vehicle credits have been decreasing since 2014exchange-traded contracts, when the expected differential between the price of the underlying and physical commodity changes. Hedging activities can result in losses when a position is purchased in a declining market or sold in a rising market. Hedging losses may be offset by a decreased cash price for corn, natural gas and feeder cattle and an increased cash price for ethanol, distillers grains, live cattle and corn oil. We vary the amount of hedging and other risk mitigation strategies we undertake and sometimes choose not to engage in hedging transactions at all. We cannot provide assurance that our risk management and commodity trading strategies and decisions will be completely phased out by 2020. Absent CAFE preferences, auto manufacturers mayprofitable or effectively offset commodity price volatility. If they are not be willing to build flexible-fuel vehicles, reducing the growthour results of E85 marketsoperations and resulting in lower ethanol prices.
To the extent federal or state laws or regulations are modified, the demand for ethanolfinancial position may be reduced, which could negatively and materially affectadversely affected.
The use of derivative financial instruments frequently involves cash deposits with brokers, or margin calls. Sudden changes in commodity prices may require additional cash deposits immediately. Depending on our financial performance.
We may be affected by our portfolio optimization strategy.
We announced that we are evaluating the performance of our entire portfolio of assets and businesses. Based on this evaluation,open derivative positions, we may sell certain assets or businesses or exit particular markets that are no longer a strategic fit or no longer meet their growth or profitability targets. Depending onneed additional liquidity with little advance notice to cover margin calls. While we continuously monitor our exposure to margin calls, we cannot guarantee we will be able to maintain adequate liquidity to cover margin calls in the nature of the assets sold,future.
The interest rates under our profitabilityrevolving credit facility may be impacted by lost operating incomethe phase-out of LIBOR.
LIBOR is the basic rate of interest widely used as a reference for setting the interest rates on loans globally. We use LIBOR as a reference rate for our revolving credit facilities. In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or cash flows fromif new methods of calculating LIBOR will be established such businesses. In addition, divestitures we complete may not yieldthat it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the targeted improvements in their business and may divert management’s attention from our day-to-day operations. Any charges thatAlternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, however, we are requirednot able to recordpredict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the failureimpact of such a possible transition to achieve the intended financial results associated with our portfolio optimization strategy could have an adverse effectSOFR may be on our business, financial condition, orand results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Employees surrender shares when restricted stock grants are vested to satisfy statutory minimum required payroll tax withholding obligations.
The following table lists the shares that were surrendered during the third quarter of 2018:2019:
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Period |
| Total Number of Shares Withheld for Employee Awards |
| Average Price | Total Number of | Average Price | ||||
July 1 - July 31 |
| 6,895 |
| $ | 16.60 | - | $ | - | ||
August 1 - August 31 |
| 1,420 |
|
| 17.36 | 441 | 7.91 | |||
September 1 - September 30 |
| 3,637 |
|
| 17.00 | 489 | 8.67 | |||
Total |
| 11,952 |
| $ | 16.81 | 930 | $ | 8.31 |
In August 2014, we announced a share repurchase program of up to $100 million of our common stock. Under this program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated buyback programs, tender offers or by other means. The timing and amount of the transactions are determined by management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time, without prior notice. We did notOn October 30, 2019, the company’s board of directors authorized an additional $100 million share repurchase anytaking the previously authorized amount from $100 million to $200 million.
The following table lists the shares repurchased under the share repurchase program during the third quarter of 2018 due to certain restrictions2019.
Period | Number of Shares Purchased | Average Price Paid per Share | Number of Shares Repurchased as Part of Repurchase Program | Total Number of Shares Repurchased as Part of Repurchase Program | Approximate Dollar Value of Shares that may yet be Repurchased under the Program (2) | |||||||
July 1 - July 31 | - | $ | - | - | 4,316,626 | $ | 40,420 | |||||
August 1 - August 31 | 315,932 | (1) | 7.67 | 300,932 | 4,617,558 | 38,097 | ||||||
September 1 - September 30 | 1,361,675 | 10.03 | 1,361,675 | 5,979,233 | 24,406 | |||||||
Total | 1,677,607 | $ | 9.59 | 1,662,607 | 5,979,233 | $ | 24,406 |
(1)Includes 300,932 shares repurchased by the company under the term loan agreement. Approximately $83.3 millionshare repurchase program. Also includes one open market purchase by Eugene S. Edwards, Director, of 15,000 shares are remaining toat $7.15 per share on August 15, 2019, as previously disclosed in their Form 4 filing with the SEC.
(2)Shares that may be repurchased under the program.plan are not reflective of the increase in authorized share repurchases from $100 to $200 million as this increase was authorized by the board of directors subsequent to September 30, 2019.
Since inception, the company has repurchased 5,979,233 shares of common stock for approximately $75.6 million under the program.
Item 3. Defaults Upon Senior Securities.
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Item 4. Mine Safety Disclosures.
Not applicable.
None.
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Exhibit Index
Exhibit No. | Description of Exhibit |
2.1 | |
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31.2 | |
32.1 | |
32.2 | |
101 | The following information from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, |
104 | The cover page from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, formatted in iXBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| GREEN PLAINS INC. (Registrant) By: /s/ Todd A. Becker _ Todd A. Becker (Principal Executive Officer) |
| By: /s/
(Principal Financial Officer) |