Commonly
Used Defined Terms
The abbreviations, acronyms and industry terminology used in this quarterly report are defined as follows:
Green Plains Inc.,
Subsidiaries
, and Partners
:
|
|
Green Plains; the company
|
Green Plains Inc. and its subsidiaries
|
BioProcess Algae
|
BioProcess Algae LLC
|
DKGP
|
DKGP Energy Terminals LLC
|
Fleischmann’s Vinegar
|
Fleischmann’s Vinegar Company, Inc.
|
Green Plains Cattle
|
Green Plains Cattle Company LLC
|
Green Plains Grain
|
Green Plains Grain Company LLC
|
Green Plains Partners; the partnership
|
Green Plains Partners LP
|
Green Plains Processing
|
Green Plains Processing LLC and its subsidiaries
|
Green Plains Trade
|
Green Plains Trade Group LLC
|
Green Plains Commodity Management
|
Green Plains Commodity Management LLC
|
Accounting Defined Terms:
|
|
A
MT
|
Alternative minimum tax
|
ASC
|
Accounting Standards Codification
|
EBITDA
|
Earnings before interest, income taxes, depreciation and amortization
|
EPS
|
Earnings per share
|
Exchange Act
|
Securities Exchange Act of 1934, as amended
|
FASB
|
Financial Accounting Standards Board
|
GAAP
|
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
|
Other
Defined Terms:
|
|
CAFE
|
Corporate Average Fuel Economy
|
D.C.
|
District of Columbia
|
E10
|
Gasoline blended with up to 10
% ethanol by volume
|
E15
|
Gasoline blended with up to 15% ethanol by volume
|
E85
|
Gasoline blended with up to 8
5% ethanol by volume
|
EIA
|
U.S. Energy Information Administration
|
EISA
|
Energy Independence and Security Act of 2017, as amended
|
EPA
|
U.S. Environmental Protection Agency
|
MmBtu
|
Million British Thermal Units
|
Mmg
|
Million gallons
|
MTBE
|
Methyl tertiary-butyl ether
|
RBOB
|
Reformulated blendstock for oxygenate blending
|
RFS II
|
Renewable Fuels Standard II
|
RIN
|
Renewable identification number
|
RVO
|
Renewable volume obligation
|
U.S.
|
United States
|
USDA
|
U.S. Department of Agriculture
|
PART 1 – FINANCIAL INFORMATION
Item 1.
Financial Statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(unaudited)
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
235,133
|
|
$
|
266,651
|
Restricted cash
|
|
15,863
|
|
|
45,709
|
Accounts receivable, net of allowances of $209 and $217, respectively
|
|
137,068
|
|
|
151,122
|
Income taxes receivable
|
|
33,891
|
|
|
6,413
|
Inventories
|
|
625,302
|
|
|
711,878
|
Prepaid expenses and other
|
|
14,915
|
|
|
17,808
|
Derivative financial instruments
|
|
30,647
|
|
|
6,890
|
Total current assets
|
|
1,092,819
|
|
|
1,206,471
|
Property and equipment, net of accumulated depreciation
and amortization of
$564,395
and
$514,585
, respectively
|
|
1,139,249
|
|
|
1,176,707
|
Goodwill
|
|
182,879
|
|
|
182,879
|
Other assets
|
|
170,826
|
|
|
218,593
|
Total assets
|
$
|
2,585,773
|
|
$
|
2,784,650
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
Current liabilities
|
|
|
|
|
|
Accounts payable
|
$
|
121,573
|
|
$
|
205,479
|
Accrued and other liabilities
|
|
53,859
|
|
|
63,886
|
Derivative financial instruments
|
|
22,868
|
|
|
12,884
|
Income taxes payable
|
|
-
|
|
|
9,909
|
Short-term notes payable and other borrowings
|
|
457,472
|
|
|
526,180
|
Current maturities of long-term debt
|
|
69,752
|
|
|
67,923
|
Total current liabilities
|
|
725,524
|
|
|
886,261
|
Long-term debt
|
|
768,111
|
|
|
767,396
|
Deferred income taxes
|
|
40,591
|
|
|
56,801
|
Other liabilities
|
|
14,434
|
|
|
15,056
|
Total liabilities
|
|
1,548,660
|
|
|
1,725,514
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
Common stock,
$0.001
par value;
75,000,000
shares authorized;
46,760,696
and
46,410,405
shares issued, and
41,434,804
and
41,084,463
shares outstanding, respectively
|
|
47
|
|
|
46
|
Additional paid-in capital
|
|
687,469
|
|
|
685,019
|
Retained earnings
|
|
293,405
|
|
|
325,411
|
Accumulated other comprehensive loss
|
|
(4,208)
|
|
|
(13,110)
|
Treasury stock,
5,325,892
and 5,325,942 shares, respectively
|
|
(55,183)
|
|
|
(55,184)
|
Total Green Plains stockholders' equity
|
|
921,530
|
|
|
942,182
|
Noncontrolling interests
|
|
115,583
|
|
|
116,954
|
Total stockholders' equity
|
|
1,037,113
|
|
|
1,059,136
|
Total liabilities and stockholders' equity
|
$
|
2,585,773
|
|
$
|
2,784,650
|
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Product revenues
|
$
|
985,217
|
|
$
|
884,712
|
|
$
|
2,028,876
|
|
$
|
1,770,924
|
Service revenues
|
|
1,620
|
|
|
1,551
|
|
|
3,248
|
|
|
3,023
|
Total revenues
|
|
986,837
|
|
|
886,263
|
|
|
2,032,124
|
|
|
1,773,947
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding depreciation and amortization expenses reflected below)
|
|
910,625
|
|
|
830,019
|
|
|
1,898,960
|
|
|
1,641,915
|
Operations and maintenance expenses
|
|
7,893
|
|
|
8,267
|
|
|
16,293
|
|
|
16,798
|
Selling, general and administrative expenses
|
|
29,731
|
|
|
25,575
|
|
|
55,734
|
|
|
49,357
|
Depreciation and amortization expenses
|
|
26,823
|
|
|
26,188
|
|
|
53,297
|
|
|
52,271
|
Total costs and expenses
|
|
975,072
|
|
|
890,049
|
|
|
2,024,284
|
|
|
1,760,341
|
Operating income (loss)
|
|
11,765
|
|
|
(3,786)
|
|
|
7,840
|
|
|
13,606
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
709
|
|
|
314
|
|
|
1,346
|
|
|
678
|
Interest expense
|
|
(22,021)
|
|
|
(19,430)
|
|
|
(44,149)
|
|
|
(37,926)
|
Other, net
|
|
2,545
|
|
|
1,357
|
|
|
2,479
|
|
|
1,367
|
Total other expense
|
|
(18,767)
|
|
|
(17,759)
|
|
|
(40,324)
|
|
|
(35,881)
|
Loss before income taxes
|
|
(7,002)
|
|
|
(21,545)
|
|
|
(32,484)
|
|
|
(22,275)
|
Income tax benefit
|
|
10,753
|
|
|
9,749
|
|
|
16,780
|
|
|
12,130
|
Net income (loss)
|
|
3,751
|
|
|
(11,796)
|
|
|
(15,704)
|
|
|
(10,145)
|
Net income attributable to noncontrolling interests
|
|
4,745
|
|
|
4,570
|
|
|
9,407
|
|
|
9,818
|
Net loss attributable to Green Plains
|
$
|
(994)
|
|
$
|
(16,366)
|
|
$
|
(25,111)
|
|
$
|
(19,963)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Green Plains - basic
|
$
|
(0.02)
|
|
$
|
(0.41)
|
|
$
|
(0.63)
|
|
$
|
(0.51)
|
Net loss attributable to Green Plains - diluted
|
$
|
(0.02)
|
|
$
|
(0.41)
|
|
$
|
(0.63)
|
|
$
|
(0.51)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
40,194
|
|
|
40,220
|
|
|
40,168
|
|
|
39,326
|
Diluted
|
|
40,194
|
|
|
40,220
|
|
|
40,168
|
|
|
39,326
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per share
|
$
|
0.12
|
|
$
|
0.12
|
|
$
|
0.24
|
|
$
|
0.24
|
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE
INCOME
(unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
3,751
|
|
$
|
(11,796)
|
|
$
|
(15,704)
|
|
$
|
(10,145)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of $1,145, $2,026, ($3,971) and $1,058, respectively
|
|
(4,277)
|
|
|
(3,418)
|
|
|
12,873
|
|
|
(1,776)
|
Reclassification of realized gains (losses) on derivatives, net of tax benefit of $185, $824, $365 and $2,672, respectively
|
|
(581)
|
|
|
(1,353)
|
|
|
(1,184)
|
|
|
(4,487)
|
Total other comprehensive income (loss), net of tax
|
|
(4,858)
|
|
|
(4,771)
|
|
|
11,689
|
|
|
(6,263)
|
Comprehensive loss
|
|
(1,107)
|
|
|
(16,567)
|
|
|
(4,015)
|
|
|
(16,408)
|
Comprehensive income attributable to noncontrolling interests
|
|
4,745
|
|
|
4,570
|
|
|
9,407
|
|
|
9,818
|
Comprehensive loss attributable to Green Plains
|
$
|
(5,852)
|
|
$
|
(21,137)
|
|
$
|
(13,422)
|
|
$
|
(26,226)
|
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
Cash flows from operating activities:
|
|
|
|
|
|
Net loss
|
$
|
(15,704)
|
|
$
|
(10,145)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
53,297
|
|
|
52,271
|
Amortization of debt issuance costs and debt discount
|
|
7,515
|
|
|
7,925
|
Loss on exchange of 3.25% convertible notes due 2018
|
|
-
|
|
|
1,291
|
Gain on disposal of assets
|
|
(2,624)
|
|
|
(1,422)
|
Deferred income taxes
|
|
(23,061)
|
|
|
(12,896)
|
Stock-based compensation
|
|
5,435
|
|
|
5,497
|
Undistributed equity loss of affiliates
|
|
239
|
|
|
75
|
Other
|
|
-
|
|
|
19
|
Changes in operating assets and liabilities before effects of business combinations:
|
|
|
|
|
|
Accounts receivable
|
|
14,054
|
|
|
12,341
|
Inventories
|
|
88,450
|
|
|
(1,079)
|
Derivative financial instruments
|
|
1,513
|
|
|
(17,236)
|
Prepaid expenses and other assets
|
|
2,797
|
|
|
(9)
|
Accounts payable and accrued liabilities
|
|
(96,295)
|
|
|
(74,435)
|
Current income taxes
|
|
10,540
|
|
|
(1,262)
|
Other
|
|
(297)
|
|
|
1,322
|
Net cash provided by (used in) operating activities
|
|
45,859
|
|
|
(37,743)
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of property and equipment, net
|
|
(14,640)
|
|
|
(27,985)
|
Acquisition of a business, net of cash acquired
|
|
(1,629)
|
|
|
(61,727)
|
Investments in unconsolidated subsidiaries
|
|
(2,253)
|
|
|
(8,849)
|
Other investing activities
|
|
7,500
|
|
|
-
|
Net cash used in investing activities
|
|
(11,022)
|
|
|
(98,561)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from the issuance of long-term debt
|
|
42,300
|
|
|
33,800
|
Payments of principal on long-term debt
|
|
(43,370)
|
|
|
(66,339)
|
Proceeds from short-term borrowings
|
|
2,089,208
|
|
|
2,149,950
|
Payments on short-term borrowings
|
|
(2,158,274)
|
|
|
(2,099,929)
|
Cash payment for exchange of 3.25% convertible notes due 2018
|
|
-
|
|
|
(8,523)
|
Payments of cash dividends and distributions
|
|
(20,580)
|
|
|
(19,244)
|
Payments of loan fees
|
|
(2,622)
|
|
|
(1,675)
|
Payments related to tax withholdings for stock-based compensation
|
|
(3,013)
|
|
|
(3,801)
|
Proceeds from exercise of stock options
|
|
150
|
|
|
50
|
Net cash used in financing activities
|
|
(96,201)
|
|
|
(15,711)
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
|
(61,364)
|
|
|
(152,015)
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
312,360
|
|
|
406,791
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
250,996
|
|
$
|
254,776
|
|
|
|
|
|
|
Continued on the following page
|
|
|
|
|
|
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
|
|
|
|
|
|
Continued from the previous page
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
Reconciliation of total cash, cash equivalents and restricted cash:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
235,133
|
|
$
|
195,442
|
Restricted cash
|
|
15,863
|
|
|
59,334
|
Total cash, cash equivalents and restricted cash
|
$
|
250,996
|
|
$
|
254,776
|
|
|
|
|
|
|
Non-cash financing activity:
|
|
|
|
|
|
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 and mergers, net of cash
|
$
|
1,629
|
|
$
|
62,209
|
Less: liabilities assumed
|
|
-
|
|
|
(482)
|
Net assets acquired
|
$
|
1,629
|
|
$
|
61,727
|
|
|
|
|
|
|
Supplemental disclosures of cash flow:
|
|
|
|
|
|
Cash paid (received) for income taxes
|
$
|
(3,163)
|
|
$
|
1,976
|
Cash paid for interest
|
$
|
36,923
|
|
$
|
30,314
|
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
References to the Company
References to “Green Plains” or the “company” in the consolidated financial statements and in these notes to the consolidated financial statements refer to Green Plains Inc., an Iowa corporation, and its subsidiaries.
Consolidated Financial Statements
The consolidated financial statements include the company’s accounts and all significant intercompany balances and transactions are eliminated. Unconsolidated entities are included in the financial statements on an equity basis.
As of June 30, 2018, the
company owns a 62.5% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 35.5% limited partner interest in the partnership.
The company determined that the limited partners in the partnership with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact partnership’s economic performance; therefore, the partnership is considered a
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 a
ffect economic performance and is
obligat
ed
to absorb losses
and has
the right to receive benefits that could be
significant to the partnership. T
herefore, 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
June 30, 2018
and December 31, 2017
, excluding intercompany balances,
we
re $
73.2
million and $74.9 million, respectively, and primarily consist
ed
of property and equipment and goodwill. The partnership’s consolidated total liabilities as of
June 30, 2018
and December 31, 2017
, excluding intercompany balances,
we
re $
155.1
million and $153.0 million, respectively, which primarily consist
ed
of long-term debt as discussed in
Note 9 – Debt
. The liabilities recognized as a result of consolidating the partnership do not represent additional claims on our general assets.
The
company
also
owns a 90.0% interest in
BioProcess Algae, a joint venture formed in 2008, and consolidate
s their results
in its co
nsolidated financial statements.
The accompanying unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Because they do not include
all of the information and
notes required by GAAP, the consolidated financial statements should be read in conjunction with the company’s annual report on Form 10-K for the year ended
December 31, 2017
.
The unaudited financial information reflects adjustments which are, in the opinion of management, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. The adjustments are normal and recurring in nature, unless otherwise noted.
Interim period results are not necessarily indicative of the results to be expected for the entire year.
Reclassifications
Certain prior year amounts were reclassified to conform to the current year presentation. These reclassifications did not affect total revenues, costs and expenses, net income
(loss)
or stockholders’ equity.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities
,
disclosure of contingent assets and liabilities at the date of the consolidated financial statements
,
and the reported
amounts of
revenues and expenses during the reporting period. The company bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances and regularly evaluates the appropriateness of its estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, depreciation of property and equipment, carrying value of intangible assets, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
Description of Business
The company operates within four business segments: (1) ethanol production, which inc
ludes the production of ethanol and
distillers grains
,
and
recovery of
corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and
food-grade
corn oil operations and
(4) partnership, which includes fuel storage and transportation services.
Cash and Cash Equivalents
Cash and cash equ
ivalents includes bank deposits as well as short-term,
highly liquid investments with original maturities of three months or less.
Restricted Cash
The company has restricted cash
, which can only be used for 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
.
To the degree these segregated balances
are
cash and cash equivalents, they are considered restricted cash on the
consolidated
statement
s
of cash flows.
Revenue Recognition
The company recognizes revenue at the point in time when the product or service is transferred to the customer.
Sales of ethanol, distillers grains, corn oil, natural gas and other commodities by the company’s marketing business are recognized
when obligations under the terms of a contract with a customer are satisfied. Generally
,
this occurs with the transfer of control of products or services.
Revenues related to marketing for third parties are presented on a gross basis as the company controls the product prior to the sale to the end customer, takes title of the product and has inventory risk. Unearned revenue is recorded for goods in transit when the company has received payment but control has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the produc
t is delivered to the customer.
The company
routinely enters into
physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than del
ivering the physical commodity. Energy trading transactions are reported
net as a component of revenue.
All other transactions are reported net as either a component of revenue or cost of goods sold, depending on their position as a gain or loss. Revenues also include realized gains and losses on related derivative financial instruments and reclassifications of realized gains and losses on cash flow hedges from accumulated other comprehensive income or loss.
Sales of products, including agricultural commodities, cattle and vinegar, are recognized when control of the product is transferred to the customer, which depends on the agreed upon
shipment or delivery
terms
.
Revenues related to grain merchandising are presented gross and include shipping and handling, which is also a component of cost of goods sold. Revenues from grain storage are recognized when services are rendered.
A substantial portion of the partnership revenues are derived from fixed-fee commercial agreements for storage, terminal or transportation services. The partnership recognizes revenue
upon transfer of control of product from
its
storage tanks and fuel terminals, when railcar volumetric capacity is provided, and as truck transportation services are performed.
Shipping and Handling Costs
We account for shipping and handling activities related to contracts with customers as costs to fulfill our promise to transfer the associated products. Accordingly, we record customer payments
associated with
shipping and handling costs as a component of
revenue
, and classify such costs as a component of cost of
goods sold
.
Cost of Goods Sold
Cost of goods sold includes direct l
abor, materials, shipping
and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol
and
vinegar production
,
and cattle feeding operations. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also included in cost of goods sold. Materials include the cost of corn feedstock, denaturant, process chemicals, cattle and
veterinary supplies. Corn feedstock costs include gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs
,
as well as reclassifications of gains and losses on cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant and feedlot utilities, repairs and maintenance, yard expenses and outbound freight charges. Shipping costs incurred by the company, including railcar costs, are also reflected in cost of goods sold.
The company uses exchange-traded futures and options contracts
and forward purchase and sales contracts
to
attempt to
minimize the effect of price changes on grain
, natural gas
and cattle inventories
. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for differences, primarily in transportation, between the exchange-traded market and local market where the terms of the contract is based. Changes in forward purchase contracts and exchange-traded futures and options contracts are recognized as a component of cost of goods sold.
Operations and Maintenance Expenses
In the partnership segment, transportation expenses represent the primary component of operations and maintenance expenses.
Transportation expenses include
railcar leases, freight and shipping of the company’s ethanol and co-products, as well as costs incurred storing ethanol at destination terminals.
Derivative Financial Instruments
The company uses various derivative financial instruments, including exchange-traded futures and exchange-traded and over-the-counter options contracts, to
attempt to
minimize risk and the effect of
commodity
price changes including but not limited to, corn, ethanol, cattle, natural gas and crude oil. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodit
ies as one way to mitigate risk;
however, there may be situations when these hedging activities themselves result in losses.
By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.
The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects,
cash flow hedge accounting treatmen
t.
Certain qualifying derivatives
related to ethanol production, agribusiness and energy services
,
and food and ingredients segments are designated as cash flow hedges. The company evaluates the derivative instrument to ascertain its effectiveness prior to entering into cash
flow hedges. Unrealized gains and losses are reflected in accumulated other comprehensive income or loss until the gain or loss from the underlying hedged transaction is realized. When it becomes probable a forecasted transaction will not occur, the cash flow hedge treatment is discontinued, which affects earnings. These derivative financial instruments are recognized in current assets or other current liabilities at fair value.
At times, the company hedges its exposure to changes in
inventory values
and designates qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted in
the
current period for changes in fair value. Ineffectiveness of the hedges is recognized in
the
current period to the extent the change in fair value of the inventory is not offset by the change in fair value of the derivative.
Recent Accounting Pronouncements
Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 606,
Revenue from Contracts with Customers.
Please refer to
Note 2 – Revenue
for further details.
Effective January 1, 2018, the company
adopted
the amended guidance in ASC Topic 230,
Statement of Cash Flows: Restricted Cash
, which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amended guidance
was
applied retrospectively.
As a result, net cash used
in
operating activities for the
six
months ended
June 30, 2017
was adjusted to exclude the change in restricted cash
and
de
creased the previously reported balance by $
25.2
million
. N
et cash provided by financing activities for the
six
months ended
June 30, 2017
was adjusted to exclude the change in restricted cash and decreased the previously reported balance by $
18.1
million.
Effective January 1, 2018, the company
adopted
the amended guidance in ASC Topic 740,
Income Taxes: Intra-Entity Transfers of Assets other than Inventory
, which requires the recognition of current and deferred income tax consequences of an intra-entity transfer of an asset other than inven
tory when the transfer occurs. The amended guidance is required on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The adoption of the guidance did not have an impact to the financial statements.
Effective January 1, 2018, the company
adopted
the amended guidance in ASC Topic 805,
Business Combinations: Clarifying the Definition of a Business
, which clarifies the definition of a business
a
nd
provides
guidance to assist companies and oth
er reporting organizations evaluate
whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amended guidance
will be
applied prospectively.
Effective January
1, 2018, the company early adopted
the amended guidance in ASC Topic 350,
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment
, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that repor
ting unit, would be recognized. The amended guidance will be applied prospectively, and used wh
en the annual impairment test
is performed in the current year.
The company does not 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
gather
ed
informa
tion on existing
leases to obtain a complete population of leases upon adoption.
The company
is also working with a third-party vendor to implement 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 in the company’s consolidated financial statements.
The company expects to complete its assessment of the impact of the new guidance on its consolidated financial statements in the
second half 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 sheets 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
six
months ended
June 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 disaggregates revenue by major source for the three and six months ended June 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Ethanol Production
|
|
Agribusiness & Energy Services
|
|
Food & Ingredients
|
|
Partnership
|
|
Eliminations
|
|
Total
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers under ASC Topic 606:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
$
|
634
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
634
|
Distillers grains
|
|
62,657
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
62,657
|
Cattle and vinegar
|
|
-
|
|
|
-
|
|
|
222,059
|
|
|
-
|
|
|
-
|
|
|
222,059
|
Service revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,229
|
|
|
-
|
|
|
1,229
|
Other
|
|
1,201
|
|
|
806
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,007
|
Intersegment revenues
|
|
875
|
|
|
-
|
|
|
38
|
|
|
-
|
|
|
(913)
|
|
|
-
|
Total revenues from contracts with customers
|
|
65,367
|
|
|
806
|
|
|
222,097
|
|
|
1,229
|
|
|
(913)
|
|
|
288,586
|
Revenues from contracts accounted for as derivatives under ASC Topic 815 (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
451,083
|
|
|
106,117
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
557,200
|
Distillers grains
|
|
49,940
|
|
|
32,706
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
82,646
|
Corn oil
|
|
19,132
|
|
|
3,488
|
|
|
5,350
|
|
|
-
|
|
|
-
|
|
|
27,970
|
Grain
|
|
337
|
|
|
22,843
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
23,180
|
Cattle and vinegar
|
|
-
|
|
|
-
|
|
|
(1,522)
|
|
|
-
|
|
|
-
|
|
|
(1,522)
|
Other
|
|
4,272
|
|
|
4,114
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,386
|
Intersegment revenues
|
|
3,344
|
|
|
14,128
|
|
|
-
|
|
|
2,517
|
|
|
(19,989)
|
|
|
-
|
Total revenues from contracts accounted for as derivatives
|
|
528,108
|
|
|
183,396
|
|
|
3,828
|
|
|
2,517
|
|
|
(19,989)
|
|
|
697,860
|
Leasing revenues under ASC Topic 840 (2)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,094
|
|
|
(21,703)
|
|
|
391
|
Total Revenues
|
$
|
593,475
|
|
$
|
184,202
|
|
$
|
225,925
|
|
$
|
25,840
|
|
$
|
(42,605)
|
|
$
|
986,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Ethanol Production
|
|
Agribusiness & Energy Services
|
|
Food & Ingredients
|
|
Partnership
|
|
Eliminations
|
|
Total
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers under ASC 606:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
$
|
3,100
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,100
|
Distillers grains
|
|
119,902
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
119,902
|
Cattle and vinegar
|
|
-
|
|
|
-
|
|
|
489,475
|
|
|
-
|
|
|
-
|
|
|
489,475
|
Service revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,447
|
|
|
-
|
|
|
2,447
|
Other
|
|
1,332
|
|
|
1,483
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,815
|
Intersegment revenues
|
|
1,537
|
|
|
-
|
|
|
80
|
|
|
-
|
|
|
(1,617)
|
|
|
-
|
Total revenues from contracts with customers
|
|
125,871
|
|
|
1,483
|
|
|
489,555
|
|
|
2,447
|
|
|
(1,617)
|
|
|
617,739
|
Revenues from contracts accounted for as derivatives under ASC Topic 815 (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
893,656
|
|
|
228,658
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,122,314
|
Distillers grains
|
|
90,401
|
|
|
53,918
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
144,319
|
Corn oil
|
|
35,602
|
|
|
12,158
|
|
|
7,637
|
|
|
-
|
|
|
-
|
|
|
55,397
|
Grain
|
|
470
|
|
|
37,129
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
37,599
|
Cattle and vinegar
|
|
-
|
|
|
-
|
|
|
6,884
|
|
|
-
|
|
|
-
|
|
|
6,884
|
Other
|
|
8,556
|
|
|
38,515
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
47,071
|
Intersegment revenues
|
|
4,635
|
|
|
25,557
|
|
|
-
|
|
|
4,689
|
|
|
(34,881)
|
|
|
-
|
Total revenues from contracts accounted for as derivatives
|
|
1,033,320
|
|
|
395,935
|
|
|
14,521
|
|
|
4,689
|
|
|
(34,881)
|
|
|
1,413,584
|
Leasing revenues under ASC 840 (2)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
44,589
|
|
|
(43,788)
|
|
|
801
|
Total Revenues
|
$
|
1,159,191
|
|
$
|
397,418
|
|
$
|
504,076
|
|
$
|
51,725
|
|
$
|
(80,286)
|
|
$
|
2,032,124
|
|
(1)
|
|
Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC Topic 606,
Revenue from Contracts with Customers
(ASC Topic 606), where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC Topic 606 as required by ASC Topic 610-20,
Gains and Losses from the Derecognition of Nonfinancial Assets
.
|
|
(2)
|
|
Leasing revenues do not represent revenues recognized from contracts with customers under ASC Topic 606, and continue to be accounted for under ASC Topic 840,
Leases
.
|
Payment Terms
The company has standard payment terms, which vary depending upon the nature of the services provided, with the majority falling within
10
to
30
days after transfer of control or completion of services. In instances where the timing of revenue recognition differs from the timing of invoicing, the company has determined that contracts generally do not include a significant financing component.
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, and is generally recognized in the subsequent quarter.
The company expects to recognize all of the unearned revenue associated with service agreements as of June 30, 2018 in the subsequent quarter when the inventory is withdrawn from the partnership’s tank storage.
Practical Expedients
Under the new revenue standard, companies may elect various practical expedients upon adoption. As a result, t
he company elected to recognize the cost for
shipping and handling activities that occur after the customer obtains control of the promised goods as fulfillment activities and not when performance obligations are met. The company also elected to exclude sales taxes from transaction prices.
3
. ACQUISITIONS
Acquisition of
Cattle Feeding Operations
On
May 16, 2017
, the company acquired
two
cattle-feeding operations from Car
gill Cattle Feeders, LLC for
$
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.
Th
e following is a summary
of
the
assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Acquired
and Liabilities Assumed
|
Inventory
|
|
$
|
22,450
|
Prepaid expenses and other
|
|
|
52
|
Property and equipment, net
|
|
36,960
|
|
|
|
|
|
Current liabilities
|
|
(180)
|
|
Total identifiable net assets
|
$
|
59,282
|
The amounts above reflect the f
inal purchase price allocation, which included
working capital
true-up
payment
s
by the company of
$
1.6
million made during the
first half
of 2018.
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 ar
e cash-settled on a daily basis
.
There have been no changes in valuation techniques and inputs used in measuring fair value.
The company’s assets and liabilities by level are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2018
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
235,133
|
|
$
|
-
|
|
$
|
235,133
|
Restricted cash
|
|
15,863
|
|
|
-
|
|
|
15,863
|
Inventories carried at market
|
|
-
|
|
|
58,710
|
|
|
58,710
|
Unrealized gains on derivatives
|
|
-
|
|
|
18,969
|
|
|
18,969
|
Other assets
|
|
114
|
|
|
-
|
|
|
114
|
Total assets measured at fair value
|
$
|
251,110
|
|
$
|
77,679
|
|
$
|
328,789
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
(1)
|
$
|
-
|
|
$
|
9,961
|
|
$
|
9,961
|
Unrealized losses on derivatives
|
|
-
|
|
|
22,868
|
|
|
22,868
|
Other
|
|
-
|
|
|
84
|
|
|
84
|
Total liabilities measured at fair value
|
$
|
-
|
|
$
|
32,913
|
|
$
|
32,913
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
266,651
|
|
$
|
-
|
|
$
|
266,651
|
Restricted cash
|
|
45,709
|
|
|
-
|
|
|
45,709
|
Inventories carried at market
|
|
-
|
|
|
26,834
|
|
|
26,834
|
Unrealized gains on derivatives
|
|
-
|
|
|
12,045
|
|
|
12,045
|
Other assets
|
|
115
|
|
|
-
|
|
|
115
|
Total assets measured at fair value
|
$
|
312,475
|
|
$
|
38,879
|
|
$
|
351,354
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
(1)
|
$
|
-
|
|
$
|
37,401
|
|
$
|
37,401
|
Unrealized losses on derivatives
|
|
-
|
|
|
12,884
|
|
|
12,884
|
Other liabilities
|
|
-
|
|
|
92
|
|
|
92
|
Total liabilities measured at fair value
|
$
|
-
|
|
$
|
50,377
|
|
$
|
50,377
|
|
(1)
|
|
Accounts payable is generally stated at historical amounts with the
exception of $
10.0
million and
$
37.4
million at
June 30, 2018
and
December 31, 2017
, respectively, related to certain delivered inventory for which the payable fluctuates based on changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.
|
The company believes the fair value of its debt
approximated book value, which
was
$1.3
billion a
t
June
30, 2018 and
$1.4
billion at
December 31, 2017
.
The company estimated the fair value of its outstanding debt using Level 2 inputs. The
company believes the fair value
of its accounts receivable app
roximated book value, which
was
$
137.1
million
and
$1
51.1
million
at
June 30, 2018
and
December 31, 2017
, respectively
.
Although the company currently does not have any recurring Level 3 financial measurements, the fair values of tangible assets and goodwill acquired and
the
equity component of convertible debt
issued
represent Level 3 measurements which were derived using a combination of the income approach, market approach and cost approach for the specific assets or liabilities being valued.
5
. SEGMENT INFORMATION
The company reports the financial and operating performance for the following four operating segments:
(1) ethanol production, which inc
ludes the production of ethanol and
distillers grains
,
and
recovery of
corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production an
d food-grade corn oil operations and
(4) partnership, which includes fuel storage and transportation services.
Corporate activities include selling
, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment.
During the normal course of business, the operating segments conduct business with each other. For example, the agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil for the ethanol production segment. The partnership segment provides fuel storage and transportation services for the
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.
The following tables set forth certain financial data for the company’s operating segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
589,256
|
|
$
|
617,297
|
|
$
|
1,153,019
|
|
$
|
1,237,176
|
Intersegment revenues
|
|
4,219
|
|
|
1,549
|
|
|
6,172
|
|
|
3,045
|
Total segment revenues
|
|
593,475
|
|
|
618,846
|
|
|
1,159,191
|
|
|
1,240,221
|
Agribusiness and energy services:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
170,074
|
|
|
150,755
|
|
|
371,861
|
|
|
319,066
|
Intersegment revenues
|
|
14,128
|
|
|
9,781
|
|
|
25,557
|
|
|
19,273
|
Total segment revenues
|
|
184,202
|
|
|
160,536
|
|
|
397,418
|
|
|
338,339
|
Food and ingredients:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
225,887
|
|
|
116,660
|
|
|
503,996
|
|
|
214,682
|
Intersegment revenues
|
|
38
|
|
|
37
|
|
|
80
|
|
|
75
|
Total segment revenues
|
|
225,925
|
|
|
116,697
|
|
|
504,076
|
|
|
214,757
|
Partnership:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
1,620
|
|
|
1,551
|
|
|
3,248
|
|
|
3,023
|
Intersegment revenues
|
|
24,220
|
|
|
23,514
|
|
|
48,477
|
|
|
49,271
|
Total segment revenues
|
|
25,840
|
|
|
25,065
|
|
|
51,725
|
|
|
52,294
|
Revenues including intersegment activity
|
|
1,029,442
|
|
|
921,144
|
|
|
2,112,410
|
|
|
1,845,611
|
Intersegment eliminations
|
|
(42,605)
|
|
|
(34,881)
|
|
|
(80,286)
|
|
|
(71,664)
|
Revenues as reported
|
$
|
986,837
|
|
$
|
886,263
|
|
$
|
2,032,124
|
|
$
|
1,773,947
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to
Note 2 -
Revenue
, for further disaggregation of revenue by operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
581,613
|
|
$
|
612,646
|
|
$
|
1,146,172
|
|
$
|
1,211,784
|
Agribusiness and energy services
|
|
165,174
|
|
|
152,110
|
|
|
366,886
|
|
|
318,504
|
Food and ingredients
|
|
206,440
|
|
|
100,009
|
|
|
466,205
|
|
|
183,044
|
Partnership
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Intersegment eliminations
|
|
(42,602)
|
|
|
(34,746)
|
|
|
(80,303)
|
|
|
(71,417)
|
|
$
|
910,625
|
|
$
|
830,019
|
|
$
|
1,898,960
|
|
$
|
1,641,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
(17,214)
|
|
$
|
(22,459)
|
|
$
|
(44,743)
|
|
$
|
(29,057)
|
Agribusiness and energy services
|
|
12,166
|
|
|
3,083
|
|
|
19,230
|
|
|
9,452
|
Food and ingredients
|
|
12,981
|
|
|
10,714
|
|
|
25,566
|
|
|
20,340
|
Partnership
|
|
16,129
|
|
|
14,798
|
|
|
31,489
|
|
|
31,417
|
Intersegment eliminations
|
|
144
|
|
|
(80)
|
|
|
212
|
|
|
(155)
|
Corporate activities
|
|
(12,441)
|
|
|
(9,842)
|
|
|
(23,914)
|
|
|
(18,391)
|
|
$
|
11,765
|
|
$
|
(3,786)
|
|
$
|
7,840
|
|
$
|
13,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
3,362
|
|
$
|
(873)
|
|
$
|
(3,733)
|
|
$
|
12,951
|
Agribusiness and energy services
|
|
12,796
|
|
|
3,747
|
|
|
20,498
|
|
|
10,760
|
Food and ingredients
|
|
19,044
|
|
|
13,955
|
|
|
35,041
|
|
|
26,469
|
Partnership
|
|
17,138
|
|
|
16,066
|
|
|
33,761
|
|
|
33,960
|
Intersegment eliminations
|
|
144
|
|
|
(80)
|
|
|
212
|
|
|
(155)
|
Corporate activities
|
|
(10,642)
|
|
|
(8,742)
|
|
|
(20,817)
|
|
|
(16,063)
|
|
$
|
41,842
|
|
$
|
24,073
|
|
$
|
64,962
|
|
$
|
67,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
20,559
|
|
$
|
20,142
|
|
$
|
40,995
|
|
$
|
40,484
|
Agribusiness and energy services
|
|
618
|
|
|
659
|
|
|
1,248
|
|
|
1,319
|
Food and ingredients
|
|
3,444
|
|
|
3,240
|
|
|
6,848
|
|
|
6,120
|
Partnership
|
|
1,105
|
|
|
1,247
|
|
|
2,286
|
|
|
2,501
|
Corporate activities
|
|
1,097
|
|
|
900
|
|
|
1,920
|
|
|
1,847
|
|
$
|
26,823
|
|
$
|
26,188
|
|
$
|
53,297
|
|
$
|
52,271
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles net income (loss) to EBITDA (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income (loss)
|
$
|
3,751
|
|
$
|
(11,796)
|
|
$
|
(15,704)
|
|
$
|
(10,145)
|
Interest expense
|
|
22,021
|
|
|
19,430
|
|
|
44,149
|
|
|
37,926
|
Income tax benefit
|
|
(10,753)
|
|
|
(9,749)
|
|
|
(16,780)
|
|
|
(12,130)
|
Depreciation and amortization
|
|
26,823
|
|
|
26,188
|
|
|
53,297
|
|
|
52,271
|
EBITDA
|
$
|
41,842
|
|
$
|
24,073
|
|
$
|
64,962
|
|
$
|
67,922
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth total assets by operating segment (in thousands):
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Total assets
(1)
:
|
|
|
|
|
|
Ethanol production
|
$
|
1,090,323
|
|
$
|
1,144,459
|
Agribusiness and energy services
|
|
438,139
|
|
|
554,981
|
Food and ingredients
|
|
704,624
|
|
|
725,232
|
Partnership
|
|
73,255
|
|
|
74,935
|
Corporate assets
|
|
290,902
|
|
|
295,217
|
Intersegment eliminations
|
|
(11,470)
|
|
|
(10,174)
|
|
$
|
2,585,773
|
|
$
|
2,784,650
|
|
|
|
|
|
|
|
(1)
|
|
Asset balances by segment exclude intercompany receivable balances.
|
6
. INVENTORIES
Inventories are carried at the lower of cost or net realizable value, except grain held for sale and fair-value hedged inventories.
Commodities held for sale are reported at market value.
The components of inventories are as follows (in thousands):
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Finished goods
|
$
|
143,665
|
|
$
|
146,269
|
Commodities held for sale
|
|
42,639
|
|
|
65,693
|
Raw materials
|
|
104,119
|
|
|
144,520
|
Work-in-process
|
|
298,738
|
|
|
320,664
|
Supplies and parts
|
|
36,141
|
|
|
34,732
|
|
$
|
625,302
|
|
$
|
711,878
|
7
. GOODWILL
AND INTANGIBLE ASSETS
Goodwill
The company did
no
t have any changes in the carrying amount of goodwill
, which was
$182.9
million at
June 30, 2018
,
and
December 31, 2017
. Goodwill of $
30.3
million,
$142.0
million and $
10.6
million
are
attributable to the ethanol production segment
, food and
ingredient
s
segment and the partnership segment, respectively.
Intangible Assets
As of
June 30, 2018
, the
company’s customer relationship intangible asset recognized in co
nnection with the Fleischmann Vinegar’s
acquisition is
$70.7
million, net of
$9.3
million of accumulated amortization, and has a remaining
13.3
-year weighted-average amortization period. As of
June 30, 2018
, the company also has an indefinite-lived trade name intangible asset of
$10.5
million. The company
recognized
$1.4
million
and
$2.7
million
of
amortization expense associated with the amortizing customer relationship intangible asset during the
three
and six
months ended
June 30
, 2018
,
respectively,
and
$1.4
million and
$2.8
million during the three and six months ended June 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.
8
. DERIVATIVE FINANCIAL INSTRUMENTS
At
June 30, 2018
, the company’s consolidated balance sheet reflected unrealized
losses of $4.2 million, net
of tax, in accumulated other comprehensive
income
. The company expects these
losses
will be reclassified
to
operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount realized in operating income will differ as commodity prices change.
Fair Values of Derivative Instruments
The fair values of the company’s derivative financial instruments and the line items on the consolidated balance sheets where they are reported are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives'
|
|
Liability Derivatives'
|
|
|
Fair Value
|
|
Fair Value
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
June 30,
2018
|
|
December 31,
2017
|
Derivative financial instruments
(1)
|
|
$
|
18,969
|
|
$
|
12,045
|
|
$
|
-
|
|
$
|
12,884
|
Accrued and other liabilities
|
|
|
-
|
|
|
-
|
|
|
22,868
|
|
|
-
|
Other liabilities
|
|
|
-
|
|
|
-
|
|
|
84
|
|
|
92
|
Total
|
|
$
|
18,969
|
|
$
|
12,045
|
|
$
|
22,952
|
|
$
|
12,976
|
(1)
At June 30, 2018, derivative
financial instruments, as reflected on the balance sheet, include net unrealized gains on exchange traded futures and options contracts of
$11.7
million, which included
$1.1
million of net
unrealized gains on
derivative financial instruments designated as cash flow hedging instruments. At December 31, 2017, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of
$8.5
million, which included
$0.3
million of net
unrealized gains on
derivative financial instruments designated as cash flow hedging instruments.
Refer to
Note 4 - Fair Value Disclosures
, which contains fair value information related to derivative financial instruments.
Effect of Derivative Instruments on
Consolidated Balance Sheets,
Consolida
ted Statements of Operations and
Consolidated Statements of Comprehensive Income
The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss)
|
|
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
|
Reclassified from Accumulated Other
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Comprehensive Income into Income
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
|
$
|
(313)
|
|
$
|
2,825
|
|
$
|
1,448
|
|
$
|
6,977
|
Cost of goods sold
|
|
|
1,079
|
|
|
(648)
|
|
|
101
|
|
|
182
|
Net gain recognized in earnings before tax
|
|
$
|
766
|
|
$
|
2,177
|
|
$
|
1,549
|
|
$
|
7,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
|
Gain or (Loss) Recognized in
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Other Comprehensive Income on Derivatives
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Commodity contracts
|
|
$
|
(5,422)
|
|
$
|
(5,444)
|
|
$
|
16,844
|
|
$
|
(2,834)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
Recognized in Income on Derivatives
|
Derivatives Not Designated
|
|
Location of Gain or
(Loss) Recognized in
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
as Hedging Instruments
|
|
Income on Derivatives
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Commodity contracts
|
|
Revenues
|
|
$
|
7,027
|
|
$
|
(5,215)
|
|
$
|
7,963
|
|
$
|
(10,263)
|
Commodity contracts
|
|
Costs of goods sold
|
|
|
7,121
|
|
|
3,284
|
|
|
123
|
|
|
15,220
|
|
|
|
|
$
|
14,148
|
|
$
|
(1,931)
|
|
$
|
8,086
|
|
$
|
4,957
|
As of June 30, 2018, the following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):
|
|
|
|
|
|
|
Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included
|
|
Carrying Amount of the Hedged Assets
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
|
Inventories
|
|
$
|
46,561
|
|
$
|
3,714
|
|
|
|
|
|
|
|
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 Statement of Financial Performance
The effect of cash flow and fair value hedges and the line items on the consolidated statements of operations where they are reported are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain or (Loss) Recognized in
|
|
Income on Cash Flow and Fair Value Hedging Relationships
|
|
for the Three Months Ended June 30,
|
|
|
2018
|
|
|
2017
|
|
|
Revenue
|
|
|
Cost of
Goods Sold
|
|
|
Revenue
|
|
|
Cost of
Goods Sold
|
Gain (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
|
$
|
(313)
|
|
$
|
1,079
|
|
$
|
2,825
|
|
$
|
(648)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Hedged item
|
|
-
|
|
|
1,103
|
|
|
(31)
|
|
|
(2,526)
|
Derivatives designated as hedging instruments
|
|
-
|
|
|
(446)
|
|
|
(578)
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
(313)
|
|
$
|
1,736
|
|
$
|
2,216
|
|
$
|
(768)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain or (Loss) Recognized in
|
|
Income on Cash Flow and Fair Value Hedging Relationships
|
|
for the Six Months Ended June 30,
|
|
|
2018
|
|
|
2017
|
|
|
Revenue
|
|
|
Cost of
Goods Sold
|
|
|
Revenue
|
|
|
Cost of
Goods Sold
|
Gain on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive income into income
|
$
|
1,448
|
|
$
|
101
|
|
$
|
6,977
|
|
$
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Hedged item
|
|
-
|
|
|
10,496
|
|
|
1,390
|
|
|
(4,454)
|
Derivatives designated as hedging instruments
|
|
-
|
|
|
(8,878)
|
|
|
(1,673)
|
|
|
5,445
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
1,448
|
|
$
|
1,719
|
|
$
|
6,694
|
|
$
|
1,173
|
There were
no
gains or losses from
discontinuing cash flow or fair value hedge treatment during the
three and
six
months ended
June 30, 2018
and
2017
.
The open commodity derivative positions as of
June 30, 2018
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
Exchange Traded
|
|
Non-Exchange Traded
|
|
|
|
|
Derivative
Instruments
|
|
Net Long &
(Short)
(1)
|
|
Long
(2)
|
|
(Short)
(2)
|
|
Unit of
Measure
|
|
Commodity
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
(52,345)
|
|
|
|
|
|
Bushels
|
|
Corn, Soybeans and Wheat
|
Futures
|
|
500
|
(3)
|
|
|
|
|
Bushels
|
|
Corn
|
Futures
|
|
(4,750)
|
(4)
|
|
|
|
|
Bushels
|
|
Corn
|
Futures
|
|
(36,313)
|
|
|
|
|
|
Gallons
|
|
Ethanol
|
Futures
|
|
(18,270)
|
(3)
|
|
|
|
|
Gallons
|
|
Ethanol
|
Futures
|
|
10,050
|
|
|
|
|
|
MmBTU
|
|
Natural Gas
|
Futures
|
|
(9,765)
|
(4)
|
|
|
|
|
MmBTU
|
|
Natural Gas
|
Futures
|
|
(18,390)
|
|
|
|
|
|
Pounds
|
|
Livestock
|
Futures
|
|
(292,280)
|
(3)
|
|
|
|
|
Pounds
|
|
Cattle
|
Futures
|
|
(11)
|
|
|
|
|
|
Barrels
|
|
Crude Oil
|
Futures
|
|
(43)
|
(4)
|
|
|
|
|
Barrels
|
|
Crude Oil
|
Futures
|
|
2,814
|
(3)
|
|
|
|
|
Gallons
|
|
Natural Gasoline
|
Options
|
|
5,304
|
|
|
|
|
|
Bushels
|
|
Corn, Soybeans and Wheat
|
Options
|
|
9,467
|
|
|
|
|
|
Gallons
|
|
Ethanol
|
Options
|
|
(1,898)
|
|
|
|
|
|
MmBTU
|
|
Natural Gas
|
Options
|
|
(3,732)
|
|
|
|
|
|
Pounds
|
|
Livestock
|
Options
|
|
67
|
|
|
|
|
|
Barrels
|
|
Crude Oil
|
Forwards
|
|
|
|
50,708
|
|
(555)
|
|
Bushels
|
|
Corn and Soybeans
|
Forwards
|
|
|
|
32,986
|
|
(289,259)
|
|
Gallons
|
|
Ethanol
|
Forwards
|
|
|
|
368
|
|
(638)
|
|
Tons
|
|
DDG
|
Forwards
|
|
|
|
23,463
|
|
(122,826)
|
|
Pounds
|
|
Corn Oil
|
Forwards
|
|
|
|
17,086
|
|
(1,931)
|
|
MmBTU
|
|
Natural Gas
|
Forwards
|
|
|
|
44
|
|
(44)
|
|
Barrels
|
|
Crude Oil
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Exchange traded futures and options are presented on a net long and (short) position basis. Options are presented on a delta-adjusted basis.
|
|
(2)
|
|
Non-exchange traded forwards are presented on a gross long and (short) position basis including both fixed-price and basis contracts.
|
|
(3)
|
|
Futures used for cash flow hedges.
|
|
(4)
|
|
Futures used for fair
value
hedges.
|
Energy trading contracts that do not involve
physical delivery are presented net in revenues on the consolidated statements of operations.
Included in revenues are net gains on energy trading contracts of
$4.1
million and
$10.8
million for the three and six months ended June 30, 2018, respectively, and
net gains of
$6.8
million and
$15.1
million for the three and
six
months ended
June 30, 2017
, respectively.
9
. DEBT
The components of long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Corporate:
|
|
|
|
|
|
$500.0
million term loan
|
$
|
496,250
|
|
$
|
498,750
|
$120.0
million convertible notes due 2018
|
|
62,953
|
|
|
61,442
|
$170.0
million convertible notes due 2022
|
|
139,654
|
|
|
136,739
|
Green Plains Partners:
|
|
|
|
|
|
$235.0
million revolving credit facility
|
|
128,900
|
|
|
126,900
|
Other
|
|
27,129
|
|
|
27,744
|
Total face value of long-term debt
|
|
854,886
|
|
|
851,575
|
Unamortized debt issuance costs
|
|
(17,023)
|
|
|
(16,256)
|
Less: current portion of long-term debt
|
|
(69,752)
|
|
|
(67,923)
|
Total long-term debt
|
$
|
768,111
|
|
$
|
767,396
|
The components of short-term notes payable and other borrowings are as follows:
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Green Plains Cattle:
|
|
|
|
|
|
$425.0
million revolver
|
$
|
243,147
|
|
$
|
270,860
|
Green Plains Grain:
|
|
|
|
|
|
$125.0
million revolver
|
|
71,800
|
|
|
75,000
|
Green Plains Trade:
|
|
|
|
|
|
$300.0
million revolver
|
|
131,170
|
|
|
180,320
|
Green Plains Commodity Management:
|
|
|
|
|
|
$20.0
million hedge line
|
|
11,355
|
|
|
-
|
|
$
|
457,472
|
|
$
|
526,180
|
|
|
|
|
|
|
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 of the assets 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 and Green Plains Grain.
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. S
cheduled 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%.
In September 2013, the company issued
$120.0
million of
3.25%
convertible senior notes due 2018, or the 3.25% notes. The 3.25% notes are senior, unsecured obligations of the company, with interest payable on April 1 and October 1 of each year. The company may settle the 3.25% notes in cash, common stock or a combin
ation of cash and common stock.
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 June 30, 2018 to
50.6481
shares of common stock per
$1,000
of principal, which is equal to a conversion price of approximately
$19.74
per share.
For all conversions of notes which occur on or after April 1, 2018, the company has 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. Following the closing of these agreements,
$63.7
million aggregate principal of the 3.25% notes remain outstanding.
The company may redeem all of the 3.25% notes at any time on or after
October 1, 2016, if the company’
s common stock equals or exceeds
140%
of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal
100%
of the principal plus any accrued and unpaid interest. Holders of the 3.25% notes have the option to require the company to repurchase the 3.25% notes in cash at a price equal to 100% of the principal plus accrued and unpaid interest when there is a fundamental change, such as change in control.
If an event of default occurs, it could result in the 3.25% notes being declared due and payable.
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 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 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 have small equipment financing loans, capital 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 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
million.
The total unused portion of the $125.0 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
. The
terms impose affirmative and negative covenants
for Green Plains Grain
, including maintaining minimum working
capital
of
$22
.
0
million
and tangible net worth
of
$
27.0
million
. 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, 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 ratio of
6.00
to 1.00 at the end of each quarter.
The fixed charge coverage ratio and long-term capitalization ratio apply o
nly if the company has
long-term indebtedness on the date of calculation. As of
June 30, 2018
, Green Plains Grain had no
long-t
erm 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 miscell
aneous 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 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 a
$425.0
million senior secured asset-based revolving credit facility, which matures on April 30, 2020, to finance
working capital for the cattle feeding operations
up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible receivabl
es, 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%
, depending upon the preceding three months’ excess borrowing availability.
The amended credit facility also includes an accordion feature that enables the credit facility 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 capital of
15%
of the commitment amount,
minimum
tangible net worth of
20%
of the commitment amount, plus
50%
of net profit from the previous year, and a
maximum
total debt to tangible net worth
ratio of
3.50
to 1.00
.
Capital expenditures are limited to
$10.0
million per year under the credit facility, plus
$10.0
million per year if funded by a contribution from parent, plus any unused amounts from the previous year.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a
$
235
.0
million revolving c
redit facility,
as amended,
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 without the consent of the lenders.
Advances under the
credit facility are subject to a floating interest rate based on the
preceding fiscal quarter’s consolidated lev
erage ratio at a base rate plus 1
.25% to 2.00%
or
LIBOR plus 2.25% to 3.00%
.
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
, and a minimum consolidated interest coverage ratio of
2.75
to 1.00
, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures
occurring during the applicable period.
Covenant Compliance
The company
was
in compliance with its debt covenants as of
June 30, 2018
.
Restricted Net Assets
At
June 30, 2018
, there were
approximately $
166.0
million of
net assets
at the company’s subsidiaries that could not be transferred to the parent company in the form of dividends, loans or advances due to restrictions contained in the credit facilities of these subsidiaries.
10
.
STOCK-BASED COMPENSATION
The company has an equity incentive plan that reserves
4,11
0,000
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 p
eriod on a straight-line basis.
Stock Options
The activity related to the exercisable stock options for the
six months ended June 30, 2018
, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining
Contractual Term
(in years)
|
|
Aggregate Intrinsic Value
(in thousands)
|
Outstanding at December 31, 2017
|
143,750
|
|
$
|
12.44
|
|
1.8
|
|
$
|
635
|
Granted
|
-
|
|
|
-
|
|
-
|
|
|
-
|
Exercised
|
(15,000)
|
|
|
10.00
|
|
-
|
|
|
120
|
Forfeited
|
-
|
|
|
-
|
|
-
|
|
|
-
|
Expired
|
-
|
|
|
-
|
|
-
|
|
|
-
|
Outstanding at June 30, 2018
|
128,750
|
|
$
|
12.72
|
|
1.5
|
|
$
|
718
|
Exercisable at June 30, 2018
(1)
|
128,750
|
|
$
|
12.72
|
|
1.5
|
|
$
|
718
|
|
|
(1)
Represents
in-the-money options
.
|
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
six months ended June 30, 2018
, is as follows:
|
|
|
|
|
|
|
|
Non-Vested
Shares and
Deferred Stock
Units
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Weighted-Average
Remaining
Vesting Term
(in years)
|
Non-Vested at December 31, 2017
|
1,068,947
|
|
$
|
20.41
|
|
|
Granted
|
660,509
|
|
|
18.20
|
|
|
Forfeited
|
(7,741)
|
|
|
20.17
|
|
|
Vested
|
(501,621)
|
|
|
20.62
|
|
|
Non-Vested at June 30, 2018
|
1,220,094
|
|
$
|
19.12
|
|
2.1
|
|
|
|
|
|
|
|
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.
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 c
ompany used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant.
The weighted a
verage assumptions used by the c
ompany in applying the Monte Carlo valuation model for
performance share
grants during the
six
months ended
June 30, 2018
are illustrated in the following table:
|
|
|
|
Six Months Ended June 30, 2018
|
|
Risk-free interest rate
|
2.44
|
%
|
Dividend yield
|
2.64
|
%
|
Expected volatility
|
45.11
|
%
|
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 c
ompany’s total shareholder return rel
ative to peer performance. The c
ompany’s
closing
stock price was
$
18.
15
on the date of the grant.
At
June 30, 2018
unrecognized
stock compensation
expense of
$2.5
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, an incentive plan intended to promote the interests of the partnership, its general partner and affiliates by providing incentive compensation based on units to employees, consultants and directors to encourage superior performance. The incentive plan reserves
2,500,000
common units for issuance in the form of options, restricted units, phantom units, distributable equivalent rights, substitute awards, unit appreciation rights, unit awards, profits interest units or other unit-based awards. The partnership measures unit-based compensation related to equity awards in its consolidated financial statements over the requisite service p
eriod on a straight-line basis.
The non-vested unit-based awards activity for the six months ended June 30, 2018, is as follows:
|
|
|
|
|
|
|
|
Non-Vested
Shares and
Deferred Stock
Units
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Weighted-Average
Remaining
Vesting Term
(in years)
|
Non-Vested at December 31, 2017
|
11,549
|
|
$
|
19.06
|
|
|
Granted
|
-
|
|
|
-
|
|
|
Forfeited
|
-
|
|
|
-
|
|
|
Vested
|
(11,549)
|
|
|
19.06
|
|
|
Non-Vested at June 30, 2018
|
-
|
|
$
|
-
|
|
0.0
|
|
|
|
|
|
|
|
Compensation costs for stock-based and unit-based payment plans
during the three and six months ended June 30, 2018,
were approximately $
3.0
million and $
5.4
million
, respectively
, and
$3.0
million and
$5.5
million during the three and six months ended June 30, 2017, respectively
.
At
June 30, 2018
, there
was
$
17.0
million of unrecognized compensation costs from stock-based and unit-based compensation related to non-vested awards
, excluding performance shares noted above
. This compensation is expected to be recognized over a weighted-average period of approximately
2.1
years.
The pote
ntial tax benefit related to stock-based payment is
approximately
24.4
%
of
these
expe
nses
.
1
1
. 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 basic and diluted EPS are calculated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Green Plains
|
$
|
(994)
|
|
$
|
(16,366)
|
|
$
|
(25,111)
|
|
$
|
(19,963)
|
Weighted average shares outstanding - basic
|
|
40,194
|
|
|
40,220
|
|
|
40,168
|
|
|
39,326
|
EPS - basic
|
$
|
(0.02)
|
|
$
|
(0.41)
|
|
$
|
(0.63)
|
|
$
|
(0.51)
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Green Plains
|
$
|
(994)
|
|
$
|
(16,366)
|
|
$
|
(25,111)
|
|
$
|
(19,963)
|
Weighted average shares outstanding - diluted
|
|
40,194
|
|
|
40,220
|
|
|
40,168
|
|
|
39,326
|
EPS - diluted
|
$
|
(0.02)
|
|
$
|
(0.41)
|
|
$
|
(0.63)
|
|
$
|
(0.51)
|
E
xcluded from the computation of diluted
EPS were
10
.
2
million
and
10.1
million
shares related to the effect of the
convertible debt and stock-based compensation awards for the three
and six
months ended
June 30,
201
8
, respectively,
and
10.
7
million shares and
11.3
million shares
for the three and
six
months ended
June 30, 2017
,
as the inclusion of these shares would have been antidilutive.
1
2
. STOCKHOLDERS’ EQUITY
Components of stockholders’ equity are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
tax effects from other
comprehensive loss (Note 1)
|
-
|
|
-
|
|
-
|
|
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)
|
-
|
|
-
|
|
-
|
|
(25,111)
|
|
-
|
-
|
|
-
|
|
(25,111)
|
|
9,407
|
|
(15,704)
|
Cash dividends and
distributions declared
|
-
|
|
-
|
|
-
|
|
(9,682)
|
|
-
|
-
|
|
-
|
|
(9,682)
|
|
(10,898)
|
|
(20,580)
|
Other comprehensive income
before reclassification
|
-
|
|
-
|
|
-
|
|
-
|
|
12,873
|
-
|
|
-
|
|
12,873
|
|
-
|
|
12,873
|
Amounts reclassified from
accumulated other
comprehensive income
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,184)
|
-
|
|
-
|
|
(1,184)
|
|
-
|
|
(1,184)
|
Other comprehensive income,
net of tax
|
-
|
|
-
|
|
-
|
|
-
|
|
11,689
|
-
|
|
-
|
|
11,689
|
|
-
|
|
11,689
|
Exchange of 3.25% convertible
notes due 2018
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
-
|
|
1
|
|
1
|
|
-
|
|
1
|
Stock-based compensation
|
336
|
|
1
|
|
2,300
|
|
-
|
|
-
|
-
|
|
-
|
|
2,301
|
|
120
|
|
2,421
|
Stock options exercised
|
15
|
|
-
|
|
150
|
|
-
|
|
-
|
-
|
|
-
|
|
150
|
|
-
|
|
150
|
Balance, June 30, 2018
|
46,761
|
$
|
47
|
$
|
687,469
|
$
|
293,405
|
$
|
(4,208)
|
5,326
|
$
|
(55,183)
|
$
|
921,530
|
$
|
115,583
|
$
|
1,037,113
|
Amounts reclassified from accumulated other comprehensive income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
Statements of
Operations
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Classification
|
Gains on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
(313)
|
|
$
|
2,825
|
|
$
|
1,448
|
|
$
|
6,977
|
|
Revenues
|
Commodity derivatives
|
|
1,079
|
|
|
(648)
|
|
|
101
|
|
|
182
|
|
Cost of goods sold
|
Total
|
|
766
|
|
|
2,177
|
|
|
1,549
|
|
|
7,159
|
|
Loss before income taxes
|
Income tax benefit
|
|
185
|
|
|
824
|
|
|
365
|
|
|
2,672
|
|
Income tax benefit
|
Amounts reclassified from accumulated
other comprehensive income
|
$
|
581
|
|
$
|
1,353
|
|
$
|
1,184
|
|
$
|
4,487
|
|
|
1
3
. INCOME TAXES
T
he 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 certa
in 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 deducib
ility of officer compensation.
Any subsequent adjustments will be recorded as tax expense during the period in which the analysis is complete.
The company recorded income tax benefit of
$10.8
million
and
$16.8
million
for the three
and six
months ended
June 30
, 2018
, respectively
, compared with
$9.7
million
and $12.1 million
for the same period
s
in 2017. The
in
crease in income
tax benefit was due
primarily to the
company’s recognition of tax benefits
of $8.3 million
during the three months ended June 30, 2018
for federal and state R&D Credits relating to current and prior periods.
The amount of unrecognized tax benefits for uncertain tax positions was
$
47.9
million as of
June 30, 2018
, 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.
The
2018
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.
1
4
. COMMITMENTS AND CONTINGENCIES
Operating Leases
The company leases certain facilities, equipment and parcels of land under agreements that expire at various dates. For accounting purposes, rent expense is based on a straight-line amortization of the total payments required over the lease. The company incurred lease
expenses of $
10.0
million
and
$20.7
million
during the three and
six
months ended
June 30, 2018
, respectively, and
$11.9
million and
$22.2
million during the three and
six
months ended
June 30, 2017
, respectively.
Aggregate minimum lease payments under these agreements for the remainder of
2018
and in future years are as follows (in thousands):
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2018
|
|
$
|
17,128
|
2019
|
|
|
24,298
|
2020
|
|
|
17,939
|
2021
|
|
|
9,985
|
2022
|
|
|
6,240
|
Thereafter
|
|
|
24,502
|
Total
|
|
$
|
100,092
|
Commodities
As of
June 30, 2018
, the company had contracted future purchases of grain, corn oil, natural gas, crude oil, ethanol, distillers grains and cattle, valu
ed at
approximately $
481.3
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. The company believes the remaining amount due to Green Plains is approximately
$5.5
million; however, the seller has the right to dispute the details of the calculation and appeal the underlying Superior Court order. Accordingly, the total amount Green Plains may receive is yet to be determined. The remaining amount due to the company represents a gain contingency which will not be recorded until all contingencies are resolved.
In addition to the above-described proceeding, the company is currently involved in litigation that has arisen in 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.
1
5
. RELATED PARTY TRANSACTIONS
Commercial Contracts
In March 2014, a subsidiary of the company entered into
$1.4
million of new equipment financing agreements with Amur
Equipment Finance.
Gordon Glade,
a
member of the company’s board of directors, is a shareholder of Amur Equipment Finance
.
Balances of $
0.5
million
and
$0.6
million
related to these financing arrangements were included in debt at
June 30, 2018
, and
December 31, 2017
, respectively. Payments, including principal and interest, totaled $
69
thousand
and
$138
thousand
during
each of t
he
three and six months ended June 30, 2018
and 2017
, respectively
.
The weighted average interest rate for the financing agreements with
Amur Equipment Finance
was
6.8
%.
Aircraft Leases
Effective January 1, 2015, the company entered into
two
agreements with an entity controlled by Wayne Hoovestol for the lease of
two
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
$30
thousand
and
$87
thousand during
the
three and six months ended June 30, 2018
, respectively
, and
$41
thousand and
$102
thousand during the three and
six
months ended
June 30, 2017
, respectively
.
The company
had
no
outstanding payables
re
lated to these agreements
as of
June 30, 2018
and
$2
thousand in outstanding payables related to these agreements as of December 31, 2017.
1
6
.
SUBSEQUENT EVENTS
On July 2
7
, 2018, the company 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
$
108.9
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-bas
ed revolving credit facility. The transaction closed on August 1, 2018 following receipt of regulatory approval.
On
July 31
, 2018
, the company
entered into an amendment of its Green Plains Cattle senior secured asset-based revolving credit facility with a group of lenders led by Bank of the West and ING Capital LLC
, increasing the maximum commitment from
$425.0
million to
$500.0
million
. The amendment was completed to fund the additional working capital requirements related to the acquisition of the
Sublette, Kansas and Tulia, Texas
cattle feeding operations. The amended credit facility also includes an accordion feature that enables the credit facility to be increased by up to
$100.0
million with agent approval.
All other terms and conditions of the credit facility remain the same.
On August 1, 2018, DKGP Energy Terminals LLC, the 50/50 joint venture between Delek Logistics Partners LP and Green Plains Partners LP, notified AMID Merger LP of its termination of the membership interest purchase agreement (MIPA), dated as of February 16, 2018, to acquire all of the membership interests of AMID Refined Products LLC. The MIPA was terminated due to regulatory obstacles. The termination was made pursuant to Section 8.1 of the MIPA, without any liability, obligation or penalty incurred by either party.
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
.
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,
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 tho
se that may result from
weather conditions;
financial market risks
;
counterparty risks
;
risks asso
ciated with changes to government
policy or regulation, risks related to
acquisitions
and achieving anticipated results
;
risks associated with merchant trading,
cattle
feeding
operations, vinegar production
; risks related to our portfolio optimization s
trategy
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 th
e 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, nor do we 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, grain handling and storage, cattle feedlots, food ingredients, and commodity marketing and logistics services. We are 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 June 30, 2018, w
e own a 62.5% limited partner interest, a 2.0% general partner interest and all of the partnership’s incentive distribution rights. The public owns the remaining 35.5% limited partner interest. The partnership is consolidated in our financial statements.
Recent Developments
During the fourth quarter of 2017, commercial development of the JGP Energy Partners intermodal import and export fuels terminal in Beaumont, Texas was completed, with storage capacity of 550 thousand barrels to support various export and domestic grades of ethanol. On December 4, 2017, the first ethanol shipment departed from the terminal. Green Plains formed the 50/50 joint venture to construct the terminal in June 2016 with Jefferson Ethanol Holdings LLC, a subsidiary of Fortress Transportation and Infrastructure Investors LLC. Per the omnibus agreement between Green Plains and the partnership, Green Plains is required to offer its interest in the joint venture to the partnership no later than six months after the completion of construction; however, the partnership and Green Plains have agreed to extend the offer period until no later than October 15, 2018.
On February 16, 2018, the partnership and Delek Logistics Partners LP formed DKGP Energy Terminals LLC, a 50/50 joint venture, to acquire and manage light products terminal assets in Texas and Arkansas. In conjunction with the formation of the joint venture, DKGP executed a membership interest purchase agreement with AMID Merger LP, to acquire all of the membership interests of AMID Refined Products LLC (“AMID”) for approximately $138.5 million. Due to regulatory obstacles, on August 1, 2018, DKGP Energy Terminals LLC notified AMID Merger LP of its termination of the membership interest purchase agreement.
On July 27, 2018, the company 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
$
10
8
.
9
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.
On July 31, 2018, the company
entered into an amendment of its Green Plains Cattle senior secured asset-based revolving credit facility with a group of lenders led by Bank of the West and ING Capital LLC, increasing the maximum commitment from $425.0 million to $500.0 million. The amendment was completed to fund the additional working capital requirements related to the acquisition of the
Sublette, Kansas and Tulia, Texas
cattle feeding operations. The amended credit facility also includes an accordion feature that enables the credit facility to be increased by up to $100.0 million with agent approval.
Results of Operations
During the second quarter of 2018, we continued to run several of our ethanol plants below capacity due to
scheduled downtime and
continued oversupply of domestic ethanol. Our average utilization rate was approximately
80.0
% of capacity, resulting in ethanol production of 296.
3
mmg for the second quarter of 2018, compared with 275.5 mmg, or 74.7% of capacity, for the same quarter last year.
U.S.
Ethanol Supply and Demand
According to the EIA, domestic ethanol production averaged 1.04 million barrels per day during the second quarter of 2018, maintaining the same rate of production as the previous quarter but 3.8% higher than the same quarter of last year. Year-to-date, production volumes are up 1.8% in 2018 compared with the same period in 2017. Refiner and blender input volume decreased slightly to 930 thousand barrels per day for the second quarter of 2018 compared with 934 thousand barrels per day for the same quarter last year despite a 2.0% increase in consumer gasoline demand due to seasonal demand and growing numbers of retail stations offering higher blends. As of June 30, 2018, there were approximately 1,431 retail stations selling E15 in 29 states, up from 1,210 at the beginning of the year, a
ccording to Growth Energy. Ethanol futures traded at an average discount of $0.66 to RBOB during the second quarter of 2018 related to weaker ethanol demand.
U.S. domestic ethanol ending stocks
increased slightly by approximately 400 thousand barrels to 22.0 million barrels on June 30, 2018, year over year.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, year-to-date domestic ethanol exports
through May 31, 2018, were 776.2 mmg, up 31%, from 594.0
mmg for the comparable period in 2017. Brazil remained the largest export destination for U.S. ethanol, which accounted for 40% 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. Canada, China, India and South Korea accounted for 16%, 7%, 6% and 5%, respectively, of U.S. ethanol exports.
U.S. corn-based ethanol continues to have a price advantage, including the current tariff in Brazil, over Brazilian ethanol due to the price of corn relative to sugar cane as a feedstock.
On April 1, 2018, China announced it would add a 15% tariff to the existing 30% tariff it had earlier imposed on ethanol imports from the United States and Brazil.
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 was approximately 12 cents per pound during the second quarter of 2018, compared with an average of 1
6
cents per pound for 2017.
We currently estimate that net ethanol exports will reach between 1.6 billion gallons and 1.8 billion gallons in 2018 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. Protein Supply and Demand
During the second quarter of 2018, the market sentiment for cattle continued to be optimistic due to anticipated lower
cost of feed, higher domestic beef consumption and increased export demand for beef.
July
corn futures were down 1
7
% from
May 2018 highs, according to the
Chicago Mercantile Exchange
. Domestic beef consumption per capita in 2018 is projected to
increase 1.0 pound to 57.9 pounds per
person compared with 2017. Export demand for beef is forecasted to increase
approximately 7% in
2018 compared with 2017 according to the USDA.
Cow-calf operations continue to be profitable, which has supported a period of expansion. Since the fourth quarter of 2017, the lack of precipitation threatened to force the liquidation of breeding stock on many ranches throughout the south and southwestern United States. Timely rains throughout the second quarter of 2018 minimized herd liquidation, keeping the expansion intact for the time being. Year-to-date
domestic cattle on feed increased 4.
3
% to 11.
3
million head through
June 30
, 2018, compared to the same period last year.
Packer demand was driven by strong domestic and international beef demand. Total steer and heifer slaughter through the first half of 2018
increased 2.5
% compared
with the first half of 2017. Slaughter capacity constraints, primarily due to labor shortages, have limited the packer’s ability to increase slaughter rates at the same pace as cattle on feed inventories, resulting in higher packer margins. Increased slaughter capacity will be crucial for cattle feeding margins from a demand perspective.
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.
Y
ear-to-date U.S. distillers grains exports through May 31, 2018, were 4.6 million metric tons, or less than a half of a percent lower than the same period last year, a
ccording to the USDA Foreign Agriculture Service
. Shipments of distillers grains to Southeast Asia increased 95% year over year due to growing demand for protein, which helped keep export volumes in line with last year. Mexico, South Korea, Vietnam, Thailand, Turkey, Canada and Indonesia accounted for approximately 68% of total U.S. distillers export volumes.
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. Bills have been introduced in the House and Senate, which would sunset the RFS entirely or the corn based ethanol portion of the mandate.
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, 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 may be necessary before ethanol can achieve significant growth in U.S. market share. CAFE, which was first enacted by Congress in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks, provides a 54% efficiency bonus to flexible-fuel vehicles running on E85. Another important factor is a waiver in the Clean Air Act, known as the One-Pound Waiver, which allows only E10 to be sold
year-round
, even though it exceeds the Reid vapor pressure limitation of nine pounds per square inch. The One-Pound Waiver does not apply to E15 or higher blends, even though it has similar physical properties to E10, so its sale is limited to flex-fuel vehicles
only
during the June 1 to September 15 summer driving season.
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, the EPA announced it would maintain the 15.0 billion gallon mandate for conventional ethanol in 2018. In June 2018, the EPA proposed to maintain 15.0 billion gallons for 2019, and plans to finalize the rule by November 30, 2018.
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 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 is the first year the total proposed RVOs are more than 20% below statutory volumes levels. Thus, the EPA Administrator directed his staff to initiate the required technical analysis to perform any future 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 expected, and 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.
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. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended with transportation fuel or traded 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.
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 be under 75,000 barrels per day and state their case for an exemption in an application to the EPA each year. The current administration has been granting these at a much higher rate than the previous one, waiving the obligation for 19 of 20 applicants for compliance year 2016, totaling 790 million gallons, and 29 of 33 for compliance year 2017, totaling 1.46 billion gallons. This effectively reduces the annual RVO by that amount, since the waived gallons are not reallocated to other obligated parties at this time. The resulting surplus of RINs in the market has brought values down significantly, from the mid $0.80 range early in the year to the low $0.20s. Since the RIN value helps to make higher blends of ethanol more cost effective, lower RIN values could negatively impact retailer and consumer adoption of E15 and higher blends.
On April 12, 2018, following a series of meetings involving President Trump, Senators, key federal agency leaders and the industry, President Trump indicated that the EPA would be moving forward to authorize year-round sales of E15 by rulemaking designed to address the One-Pound RVP Waiver that currently inhibits sales of E15 in certain markets during summer driving months. President Trump later planned to pair this move with a directive to allow ethanol gallons to retain RIN credits when they are exported, in an effort to keep RIN costs low for refiners. To date, nothing definitive has materialized from these efforts with respect to year-round sales of E15.
In November 2017, the EPA denied a petition to change the point of obligation under RFS II to the parties that own the gasoline before it is sold.
On July 28, 2017, the U.S. Federal District Court for the D.C. Circuit ruled in favor 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 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 fuel by consumers. As a result, the Court vacated the EPA’s decision 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.
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 the year due to a 30% tariff imposed on U.S. and Brazil fuel ethanol, which took effect in January 2017. There is no assurance the recently issued 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%. Our exports also face tariff 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 Mexico, CAMEX 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 ruling is valid for two years. In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which was challenged by 14
lawsuits. Eight cases were dismissed. The six 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 throughout Mexico except for its three largest metropolitan areas. U.S. ethanol exports to Mexico totaled 30 mmg in 2017.
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.
Comparability of our Financial Results
We report the financial and operating performance for the following four operating segments:
(1) ethanol production, which inc
ludes the production of ethanol and
distillers grains
,
and
recovery of
corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grain
s, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding, vinegar production and
food-grade
corn oil operations and
(4) partnership, which includes fuel storage and transportation services.
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, 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 June 30, 2018, w
e, together with our subsidiaries, own a 62.5% 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 35.5% 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
June 30,
|
|
%
|
|
Six Months Ended
June 30,
|
|
%
|
|
2018
|
|
2017
|
|
Variance
|
|
2018
|
|
2017
|
|
Variance
|
Revenues:
|
|
|
|
|
|
|
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|
|
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|
Ethanol production:
|
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|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
589,256
|
|
$
|
617,297
|
|
(4.5%)
|
|
$
|
1,153,019
|
|
$
|
1,237,176
|
|
(6.8%)
|
Intersegment revenues
|
|
4,219
|
|
|
1,549
|
|
172.4
|
|
|
6,172
|
|
|
3,045
|
|
102.7
|
Total segment revenues
|
|
593,475
|
|
|
618,846
|
|
(4.1)
|
|
|
1,159,191
|
|
|
1,240,221
|
|
(6.5)
|
Agribusiness and energy services:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Revenues from external customers
|
|
170,074
|
|
|
150,755
|
|
12.8
|
|
|
371,861
|
|
|
319,066
|
|
16.5
|
Intersegment revenues
|
|
14,128
|
|
|
9,781
|
|
44.4
|
|
|
25,557
|
|
|
19,273
|
|
32.6
|
Total segment revenues
|
|
184,202
|
|
|
160,536
|
|
14.7
|
|
|
397,418
|
|
|
338,339
|
|
17.5
|
Food and ingredients:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Revenues from external customers
|
|
225,887
|
|
|
116,660
|
|
93.6
|
|
|
503,996
|
|
|
214,682
|
|
134.8
|
Intersegment revenues
|
|
38
|
|
|
37
|
|
2.7
|
|
|
80
|
|
|
75
|
|
6.7
|
Total segment revenues
|
|
225,925
|
|
|
116,697
|
|
93.6
|
|
|
504,076
|
|
|
214,757
|
|
134.7
|
Partnership:
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Revenues from external customers
|
|
1,620
|
|
|
1,551
|
|
4.4
|
|
|
3,248
|
|
|
3,023
|
|
7.4
|
Intersegment revenues
|
|
24,220
|
|
|
23,514
|
|
3.0
|
|
|
48,477
|
|
|
49,271
|
|
(1.6)
|
Total segment revenues
|
|
25,840
|
|
|
25,065
|
|
3.1
|
|
|
51,725
|
|
|
52,294
|
|
(1.1)
|
Revenues including intersegment activity
|
|
1,029,442
|
|
|
921,144
|
|
11.8
|
|
|
2,112,410
|
|
|
1,845,611
|
|
14.5
|
Intersegment eliminations
|
|
(42,605)
|
|
|
(34,881)
|
|
22.1
|
|
|
(80,286)
|
|
|
(71,664)
|
|
12.0
|
Revenues as reported
|
$
|
986,837
|
|
$
|
886,263
|
|
11.3%
|
|
$
|
2,032,124
|
|
$
|
1,773,947
|
|
14.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
%
|
|
Six Months Ended
June 30,
|
|
%
|
|
2018
|
|
2017
|
|
Variance
|
|
2018
|
|
2017
|
|
Variance
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
581,613
|
|
$
|
612,646
|
|
(5.1%)
|
|
$
|
1,146,172
|
|
$
|
1,211,784
|
|
(5.4%)
|
Agribusiness and energy services
|
|
165,174
|
|
|
152,110
|
|
8.6
|
|
|
366,886
|
|
|
318,504
|
|
15.2
|
Food and ingredients
|
|
206,440
|
|
|
100,009
|
|
106.4
|
|
|
466,205
|
|
|
183,044
|
|
154.7
|
Partnership
|
|
-
|
|
|
-
|
|
*
|
|
|
-
|
|
|
-
|
|
*
|
Intersegment eliminations
|
|
(42,602)
|
|
|
(34,746)
|
|
22.6
|
|
|
(80,303)
|
|
|
(71,417)
|
|
12.4
|
|
$
|
910,625
|
|
$
|
830,019
|
|
9.7%
|
|
$
|
1,898,960
|
|
$
|
1,641,915
|
|
15.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
%
|
|
Six Months Ended
June 30,
|
|
%
|
|
2018
|
|
2017
|
|
Variance
|
|
2018
|
|
2017
|
|
Variance
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
(17,214)
|
|
$
|
(22,459)
|
|
23.4%
|
|
$
|
(44,743)
|
|
$
|
(29,057)
|
|
(54.0%)
|
Agribusiness and energy services
|
|
12,166
|
|
|
3,083
|
|
294.6
|
|
|
19,230
|
|
|
9,452
|
|
103.4
|
Food and ingredients
|
|
12,981
|
|
|
10,714
|
|
21.2
|
|
|
25,566
|
|
|
20,340
|
|
25.7
|
Partnership
|
|
16,129
|
|
|
14,798
|
|
9.0
|
|
|
31,489
|
|
|
31,417
|
|
0.2
|
Intersegment eliminations
|
|
144
|
|
|
(80)
|
|
*
|
|
|
212
|
|
|
(155)
|
|
*
|
Corporate activities
|
|
(12,441)
|
|
|
(9,842)
|
|
(26.4)
|
|
|
(23,914)
|
|
|
(18,391)
|
|
(30.0)
|
|
$
|
11,765
|
|
$
|
(3,786)
|
|
410.8%
|
|
$
|
7,840
|
|
$
|
13,606
|
|
(42.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
%
|
|
Six Months Ended
June 30,
|
|
%
|
|
2018
|
|
2017
|
|
Variance
|
|
2018
|
|
2017
|
|
Variance
|
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
$
|
3,362
|
|
$
|
(873)
|
|
*
|
|
$
|
(3,733)
|
|
$
|
12,951
|
|
*
|
Agribusiness and energy services
|
|
12,796
|
|
|
3,747
|
|
241.5%
|
|
|
20,498
|
|
|
10,760
|
|
90.5%
|
Food and ingredients
|
|
19,044
|
|
|
13,955
|
|
36.5
|
|
|
35,041
|
|
|
26,469
|
|
32.4
|
Partnership
|
|
17,138
|
|
|
16,066
|
|
6.7
|
|
|
33,761
|
|
|
33,960
|
|
(0.6)
|
Intersegment eliminations
|
|
144
|
|
|
(80)
|
|
*
|
|
|
212
|
|
|
(155)
|
|
*
|
Corporate activities
|
|
(10,642)
|
|
|
(8,742)
|
|
(21.7)
|
|
|
(20,817)
|
|
|
(16,063)
|
|
(29.6)
|
|
$
|
41,842
|
|
$
|
24,073
|
|
73.8%
|
|
$
|
64,962
|
|
$
|
67,922
|
|
(4.4%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Percentage variance not considered meaningful.
We use EBITDA as a segment measure of profitability to compare the financial performance of our reportable segments and manage those segments. We believe EBITDA is a useful measure to compare our performance against other companies. EBITDA should not be considered an alternative to, or more meaningful than, net income, which is prepared in accordance with GAAP. EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA may not be comparable with a similarly titled measure of other companies.
The following table reconciles net
income (
loss
)
to EBITDA for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income (loss)
|
$
|
3,751
|
|
$
|
(11,796)
|
|
$
|
(15,704)
|
|
$
|
(10,145)
|
Interest expense
|
|
22,021
|
|
|
19,430
|
|
|
44,149
|
|
|
37,926
|
Income tax benefit
|
|
(10,753)
|
|
|
(9,749)
|
|
|
(16,780)
|
|
|
(12,130)
|
Depreciation and amortization
|
|
26,823
|
|
|
26,188
|
|
|
53,297
|
|
|
52,271
|
EBITDA
|
$
|
41,842
|
|
$
|
24,073
|
|
$
|
64,962
|
|
$
|
67,922
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2018
, C
ompared with the Three Months Ended
June 30, 2017
Consolidated Results
Consolidated revenues increased
$100.6
million for the three months ended June 30, 2018, compared with the same period in 2017, primarily
as a result of
the acquisitions of cattle feeding operations at the end of the first quarter and at the beginning of
the second quarter of 2017. The increase was partially offset by lower aver
age realized prices for ethanol
and corn oil.
Operating income increased $15.6 million and EBITDA
increased
$17.8
million
for the three months ended June 30, 2018 compared with
the same period last year primarily due to
higher cattle volumes sold,
increased average prices for distiller grains and
in
creased margins
in our agribusiness and energy services and
ethanol production
segments
. Interest
expense increased $2.6 million for the three months ended June 30, 2018,
compared with the same period in 2017, primarily due to higher average debt outstanding as well as higher borrowing costs. Income tax benefit was
$10.8
million for the three months ended June 30, 2018, compared with $9.7 million for the same period in 2017.
The following discussion provides greater detail about our
second
quarter segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
% Variance
|
|
|
|
|
|
|
|
Ethanol produced
|
|
|
|
|
|
|
(thousands of gallons)
|
|
296,282
|
|
275,539
|
|
7.5
|
Distillers grains produced
|
|
|
|
|
|
|
(thousands of equivalent dried tons)
|
|
739
|
|
728
|
|
1.5
|
Corn oil produced
|
|
|
|
|
|
|
(thousands of pounds)
|
|
75,556
|
|
65,685
|
|
15.0
|
Corn consumed
|
|
|
|
|
|
|
(thousands of bushels)
|
|
103,147
|
|
95,680
|
|
7.8
|
Revenues in our ethanol production segment decreased
$25.4
million for the three months ended June 30, 2018, compared with the same
period in 2017 primarily due to lower average ethanol and corn oil prices realized
and lower ethanol volumes sold
, partially offset by higher average distillers grains prices realized.
Cost of goods sold for our ethanol production segment decreased
$31.0
million for the three months ended June 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
increased $5.2 million
and EBITDA
in
creased $
4.2
million for the three months ended June 30, 2018, compared with the same period in 2017. Depreciation and amortization expense for the
segment was $20.6 million for the three months ended June 30, 2018, compared with $20.1 million for the same period last year.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment increased
$23.7
million while
operating income
increased $9.1 million
and EBITDA increased by
$9.0
million for the three months ended June 30, 2018, compared with the same period in
2017.
The increase in revenues was primarily due to an increase in ethanol trading activity, partially offset by a decrease in grain and corn oil trading activity and 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
$109.2
million for the three months ended June 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 operations during the first and second quarters of 2017
. Cattle head sold for the three months ended June 30, 2018 and 2017 was approximately
118
,000 and 38,000, respectively.
Operating income increased by
$2.3
million and EBITDA increased
$5.1
million for the three months ended June 30, 2018, compared with the same period in 2017 primarily due to the increase in cattle volumes outlined above.
During the three months ended June 30, 2018, the company recognized a gain within other income of $2.6 million related to property insurance proceeds received in excess of the book value of certain fixed assets that were damaged at the Hereford cattle feed yard.
Partnership Segment
Revenues generated
by our partnership segment
in
creased
$0.8
million for
the three months ended June 30, 2018 compared to the same period of 2017, due to
higher
storage and throughput volumes and
trucking revenue
, partially offset by a reduction in revenues generated from our rail transportation
services
. O
perating income
increased $1.3 million and EBITDA in
creased
$1.1
million for the three months ended June 30, 2018, compared with the same period in 2017
primarily due to
lower railcar lease expense
associated with our terminal operations.
Intersegment Eliminations
Intersegment eliminations of
revenues increased by
$7.7
million for the three months ended June 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 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
$2.6
million for the three months ended June
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
$10.8
million for the three months ended June 30, 2018, compared with
$9.7
million for the same
period in 2017. The
in
crease in income tax benefit was due
primarily to the company’s recognition of
a net tax benefit of $8.3 million
during the three months ended June 30, 2018
for federal and state R&D Credits relating to current and prior periods.
Six
Months Ended
June 30, 2018
, C
ompared with the
Six
Months Ended
June 30, 2017
Consolidated Results
Consolidated revenues increased
$258.2
million for the six months ended June 30, 2018, compared with the same period in 2017, primarily
as a result of
the acquisitions of cattle feeding operations at the end of the first quarter and at the beginning of the second quarter of
2017. The increase was also driven by additional natural gas volumes sold, partially offset by a decrease in volumes
for ethanol and distillers grain
s
and lower average realized prices for ethanol
and
corn oil.
Operating income decreased
$5.8
million and EBITDA decreased
$3.0
million for the six months ended June 30, 2018 compared with the same period last year primarily due to decreased margins
in our
ethanol production
segment
. Interest expense increased
$6.2
million for the six months ended June 30, 2018,
compared with the same period in 2017, primarily due to higher average debt outstanding as well as higher borrowing costs. Income tax benefit was
$16.8
million for the six months ended June 30, 2018, compared with $12.1 million for the same period in 2017.
The following discussion provides greater detail about our
second
quarter segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2018
|
|
2017
|
|
% Variance
|
|
|
|
|
|
|
|
Ethanol produced
|
|
|
|
|
|
|
(thousands of gallons)
|
|
576,692
|
|
601,965
|
|
(4.2)
|
Distillers grains produced
|
|
|
|
|
|
|
(thousands of equivalent dried tons)
|
|
1,468
|
|
1,605
|
|
(8.5)
|
Corn oil produced
|
|
|
|
|
|
|
(thousands of pounds)
|
|
144,690
|
|
141,042
|
|
2.6
|
Corn consumed
|
|
|
|
|
|
|
(thousands of bushels)
|
|
200,430
|
|
209,165
|
|
(4.2)
|
Revenues in our ethanol production segment decreased
$81.0
million for the six months ended June 30, 2018, compared with the same period in 2017 primarily
d
ue 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
$65.6
million for the six months ended June 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 $15.7 million
and EBITDA decreased
$16.7
million for the six months ended June 30, 2018, compared with the same period in 2017. Depreciation and amortization expense for the segment was
$41.0
million for the six months ended June 30, 2018, compared with $40.5 million for the same period last year.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment increased
$59.1
million while
operating income
increased $9.8
million
and EBITDA increased by
$9.7
million for the six months ended June 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 a decrease in corn oil trading activity and 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
$289.3
million for the six months ended June 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 operations during the first and second quarters of 2017
. Cattle head sold for the six months ended June 30, 2018 and 2017
was approximately 255,000
and 80,000, respectively.
Operating income increased by
$5.2
million and EBITDA increased
$8.6
million for the six months ended June 30, 2018, compared with the same period in 2017 primarily due to the increase in cattle volumes and margins outlined above.
During the six months ended June 30, 2018, the company recognized a gain within other income of $2.6 million related to property insurance proceeds received in excess of the book value of certain fixed assets that were damaged at the Hereford cattle feed yard.
Partnership Segment
Revenues generated by our partnership segment decreased
$0.6
million for the six months ended June 30, 2018 compared to the same period of 2017, due to lower
revenues generated from our rail transportation
and terminal
services
.
O
perating income
increased $0.1 million
for the six months ended
June 30, 2018, compared with the same period in 2017
primarily due to
a decrease in railcar lease expense
, partially offset by increased wages, fuel and other expenses
.
EBITDA decreased
$0.2
million for the six months ended June 30, 2018, compared with the same period in 2017
primarily due to
the decrease in revenue
.
Intersegment Eliminations
Intersegment eliminations of revenues increased by
$8.6
million for the six months ended June 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 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
$5.5
million for the six months ended June 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
$16.8
million for the six months ended June 30, 2018, compared with $12.1 million for the same
period in 2017. The
increase in income tax benefit was due primarily to the company’s recognition of
a net tax benefit of $8.3 million
during the six months ended June 30, 2018
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
June 30, 2018
, we had
$235.1
million
in cash and equivalents, excluding restricted cash, consisting of
$171.9
million held at our parent company and the remainder held at our subsidiaries.
Additionally, we had
$15.9
million in restricted cash at
June 30, 2018
.
We also had
$568.6
million available under our 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
June 30, 2018
, our subsidiaries had
approximately
$166.0
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 by
operating activities was
$45.9
million for the
six
months ended
June 30, 2018
, compared with
$37.7
million
used
for the same period in 2017. Operating activities compared to the prior year were primarily affected by
a
decrease
in inve
ntory, partially offset by lesse
r decreases
in accounts payable and
accrued liabilities as well as decreases in operating income when compared to the
same period of the prior year.
Net cash used in investing activities was
$11.0
million for the
six
months ended
June 30, 2018
, due primarily to capital expenditures at our existing ethanol and vinegar plants partially offset by cash received from other investing activities. Net cash used in financing activities was
$96.2
million for the
six
months end
ed June 30, 2018 compared with
$15.7
million
for the same period in 2017, with the increase in cash used resulting from
higher repayments of short-term borrowings
.
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
$14.6
million in the
first
six
months of
2018
for various maintenance and expansion projects. Capital spending for the remainder of
2018
is expected to be
approximately
$
11.3
million
for
various projects
,
which are expected to be financed with
cash p
rovided by operating activities and
available borrowings
under our credit facilities.
Our business is highly sensitive to the price of commodities, particularly for corn, ethanol, distillers grains, corn oil, natural gas and cattle. 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 a quarterly cash dividend since August 2013 and anticipate declaring a cash dividend in future quarters on a regular basis. Future declarations of
dividends, however, are subject to board approval and may be adjusted as our liquidity, business needs or market conditions change.
On
May 9
, 201
8
, our board of directors declared a quarterly cash dividend of
$0.12 per share. The dividend was paid
on
June 15
, 201
8
, to shareholders of record at the close
of business on
May 25
, 2018
.
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement requires
the partnership
to distribute all av
ailable 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
July
19
, 201
8
, the board of directors of the general partner of the partnership declared a cash distribution of $0.4
75
per unit on outstanding common and subordinated units. The distri
bution is payable on
August
10
, 201
8
, to unitholders of record at the
close of business on
August
3
, 201
8.
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
any
shares during the
second
quarter of 2018
due to
certain restrictions under the term loan a
greement
. To date, we have repurchased
909,667
shares of common stock for approximately
$
16.7
million under the program.
We believe we have sufficient working capital for our existing operations. A sustained period of unprofitable operations, however, may strain our liquidity
,
making it difficult to maintain compliance with our financing arrangements. We may sell additional 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
included as part of the notes to consolidated financial statements and
Note 11 – 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
.
We
were in compliance
with our debt covenants at
June 30, 2018
. Based on our forecasts and the current margin environment, 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.
Corporate Activities
On August 29, 2017, the company and substantially all of the company’s subsidiaries, but not including Green Plains Partners and certain other entities as guarantors, entered into a
$500.0
million term loan agreement with BNP Paribas, as administrat
ive 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 a
greement requires principal payments 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 a
greement
.
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 a
greement
is gua
ranteed by the company and the term loan o
bligors, and secured by substantially all of the as
sets of the company and the term loan o
bligors, including 17 ethanol production facilities with annual capacity of approximately 1.5 billion gallons, as well as the vinegar production fa
cilities.
The
term loan a
greement
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 a
greement
; 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 acc
rued interest on the term loan a
greement will become immediately due and payable.
In September 2013, we issued $120.0 million of 3.25% convertible senior notes due in 2018, or 3.25% notes, which are senior, unsecured obligations with interest payable on April 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
June 30, 2018
to
50.6481
shares of common stock per $1,000 of
principal, which is equal to a
conversion price of approximately
$19.74
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. Following the closing of these agreements,
$63.7 million aggregate principal of the 3.25% notes remain outstanding.
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.
Ethanol Production Segment
We have small equipment financing loans, capital 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 commitmen
t 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
June 30, 2018
, the outstanding principal balance was
$71.8
million on the facili
ty and our interest rate was
5.22%
.
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 eligibl
e 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
June 30, 2018
, the outstanding principal balance was
$131.2
million on
the facility and the interest rate was
4.27%
.
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 ra
tes equal to LIBOR plus 1.75%. At June 30, 2018, the outstanding principal balance was $11.4 million on the facility and the interest rate was 3.73%.
Food and
Ingredients
Segment
Green Plains Cattle has a
$425
.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 $75.0 million with agent approval
and includes a swing-line sublimit of $20.0 million
.
At
June 30, 2018
, the outstanding principal balance was
$243.1
million on the facili
ty and our interest rate was
4.11%
.
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 preceding three months’ excess borrowing availability. Interest is payable as required, but not less than quarterly in arrears and principal is due upon maturity.
Subsequent to June 30, 2018, the company amended the
Green Plains Cattle senior secured asset-based revolving credit facility, increasing the maximum commitment from $425.0 million to $500.0 million. The amended credit facility also includes an accordion feature that enables the credit facility to be increased by up to $100.0 million with agent approval.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary,
has a
$235.0
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
a portion of its available accordion to increase the revolving credit facility by $40.0 million,
from $195.0 million to $235.0 million.
At
June 30, 2018
, the outstanding principal balance
was
$128.9
million
on the facility and
the
interest rate
was
4.86%
.
Contractual Obligations
Contractual obligations as of
June 30, 2018
, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
Contractual Obligations
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term and short-term debt obligations
(1)
|
$
|
1,343,485
|
|
$
|
528,004
|
|
$
|
141,208
|
|
$
|
182,035
|
|
$
|
492,238
|
Interest and fees on debt obligations
(2)
|
|
247,208
|
|
|
68,816
|
|
|
89,306
|
|
|
75,249
|
|
|
13,837
|
Operating lease obligations
(3)
|
|
100,092
|
|
|
28,723
|
|
|
35,721
|
|
|
13,846
|
|
|
21,802
|
Other
|
|
13,227
|
|
|
424
|
|
|
6,544
|
|
|
4,379
|
|
|
1,880
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward grain purchase contracts
(4)
|
|
306,066
|
|
|
299,146
|
|
|
4,503
|
|
|
2,000
|
|
|
417
|
Other commodity purchase contracts
(5)
|
|
175,231
|
|
|
175,231
|
|
|
-
|
|
|
-
|
|
|
-
|
Other
|
|
419
|
|
|
209
|
|
|
210
|
|
|
-
|
|
|
-
|
Total contractual obligations
|
$
|
2,185,728
|
|
$
|
1,100,553
|
|
$
|
277,492
|
|
$
|
277,509
|
|
$
|
530,174
|
|
|
(1)
|
|
Includes the current portion of long-term debt 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 pu
rsuant 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, 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
.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements other than the operating leases, which are entered into during the ordinary course of business and disclosed in the
Contractual Obligations
section above.
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.
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
$6.0
million per year
. At
June 30, 2018
, we had
$1.
3
b
illion in debt,
$
1.
1
billion
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 11 – 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
.
Commodity Price Risk
Our business is highly sensitive to commodity price risk, particularly for
corn, corn oil, natural gas, ethanol, distillers grains and cattle.
Corn prices are affected by weather conditions, yield, changes in domestic and global supply and demand, and government programs and policies. 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 corn, natural gas, ethanol, distillers grains, corn oil and cattle, 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 and the New York 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 re
sults 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 six months ended
June 30, 2018, revenues included net
gains
of
$6.7
million and
$9.4
million, respectively, and cost of goods sold included net gains of
$7.8
million
and
net losses of
$8.7
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
June 30, 2018
, are as follows (in thousands):
|
|
|
|
|
|
|
|
Commodity
|
|
Estimated Total Volume
Requirements for the
Next 12 Months
(1)
|
|
Unit of
Measure
|
|
Net Income Effect of
Approximate 10%
Change in Price
|
|
|
|
|
|
|
|
|
Ethanol
|
|
1,470,000
|
|
Gallons
|
|
$
|
167,585
|
Corn
|
|
518,000
|
|
Bushels
|
|
$
|
152,095
|
Distillers grains
|
|
4,100
|
|
Tons
(2)
|
|
$
|
37,717
|
Corn oil
|
|
359,000
|
|
Pounds
|
|
$
|
6,802
|
Natural gas
|
|
41,700
|
|
MmBTU
|
|
$
|
7,030
|
|
|
|
|
|
|
|
|
(1) Estimated volumes reflect anticipated expansion of production capacity at our ethanol plants and assumes production at full capacity.
(2) Distillers grains quantities are stated on an equivalent dried ton basis.
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
and related market risk
at June 30, 2018
was immaterial
.
Food and
Ingredients Segment
In the food and
ingred
ients 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 $
7.3
million for
cattle at
June 30, 2018
. Our market risk at that date, based on the e
stimated net income effect resulting from a hypothetical 10%
change
in price, was approximately $
0.6
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 $
19.0
million for
grain and other cattle feed at
June 30, 2018
. Our market risk at that date, based on the e
stimated net income effect resulting from a hypothetical 10% change in price, was approximately $
0.
4
million.
Item 4.
Controls and Pr
ocedures.
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
. M
anagement is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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
June 30, 2018
, 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 accept
ed 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
Item 1
. Legal Proceedings.
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.
Item 1A
. Risk Factors.
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, 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. 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 supplements 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 change and impact the ethanol market.
Under the provisions of the EISA, Congress established a mandate setting the minimum volume of renewable fuels that must be blended with gasoline under 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 year of the trigger event, based on 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 favor 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. As a result, the Court vacated the EPA’s decision to reduce the total renewable fuel volume requirements for 2016 through its waiver authority, which the EPA is expected to address.
On November 22, 2017, the EPA issued a Notice 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 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 Renewable Volume Obligation (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.
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 EPA to grant small refiner exemptions as well as the Philadelphia Energy Solutions Bankruptcy Court’s decision to grant RIN relief have resulted in lower RIN prices.
Flexible-fuel vehicles, which are designed to run on a mixture of fuels such as E85, receive preferential treatment to meet corporate average fuel economy standards in the form of CAFE credits. Flexible-fuel vehicle credits have been decreasing since 2014 and will be completely phased out by 2020. Absent CAFE preferences, auto manufacturers may not be willing to build flexible-fuel vehicles, reducing the growth of E85 markets and resulting in lower ethanol prices.
To the extent federal or state laws or regulations are modified, the demand for ethanol may be reduced, which could negatively and materially affect 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,
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 on the nature of the assets sold, our profitability may be impacted by lost operating income or cash flows from such businesses. In addition, divestitures
we complete
may not yield the targeted improvements in their business and may divert management’s attention f
rom our day-to-day operations.
Any charges that we are required to record or the failure to achieve the intended financial results associated with our portfolio optimization strategy could have an adverse effect on our business, financial condition or results of operations.
I
tem 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
second
quarter of 2018:
|
|
|
|
|
|
Period
|
|
Total Number of
Shares Withheld for
Employee Awards
|
|
Average Price
Paid per Share
|
April 1 - April 30
|
|
-
|
|
$
|
-
|
May 1 - May 31
|
|
6,440
|
|
|
19.30
|
June 1 - June 30
|
|
-
|
|
|
-
|
Total
|
|
6,440
|
|
$
|
19.30
|
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 not repurchase any shares during the
second
quarter of 2018 due to
certain restrictions under the term loan a
greement.
Approximately
$
83.3
million of shares are remaining to be repurchased under the program.
On April 13, 2018, we entered into a privately negotiated agreement with a holder, of our 3.25% Convertible Senior Notes due 2018 (the “2018 Notes”). Under the agreement, we exchanged 50 shares of our common stock, par value $0.01 per share, for $1 thousand in aggregate principal amount of the 2018 Notes. The exchange was completed on April 23, 2018.
The exchange of treasury shares of common stock for the 2018 Notes is being made pursuant to an exemption from registration provided in Section 4(a)(2) of the Securities Act of 1933, as amended.
Item 3
. Defaults U
pon Senior Securities.
None.
Item 4
. Mine Safety Disclosures.
Not applicable.
Item 5
. Other Information.
Green Plains Commodity Management Credit Agreement
On April 30, 2018 Green Plains Commodity Management entered into an agreement for an uncommitted $20.0 mil
lion revolving credit facility,
which matures
on
April 30, 2023, to finance margins related to its hedging programs. Advances are subject to variable interest ra
tes equal to LIBOR plus 1.75%.
This credit a
greement is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and incorporated herein by reference.
Item 6.
Exhibits
.
Exhibit Index
|
|
|
|
|
|
Exhibit No.
|
Description of Exhibit
|
10.1
|
Replacement Page for Fifth Amendment to the Credit Agreement, dated as of November 16, 2017, among Green Plains Cattle Company LLC, Bank of the West and ING Capital LLC, as Joint Administrative Agents, and the lenders party to the Credit Agreement, originally filed as Exhibit 10.1 to the company’s Current Report on Form 8-K dated November 17, 2017
|
10.2
|
Credit Agreement, dated April 30, 2018, by and among Green Plains Commodity Management LLC (as borrower) and Macquarie Bank Limited (as agent for lenders)
|
10.3
|
Second Amendment to Term Loan Agreement, dated July 13, 2018, among Green Plains Inc. and BNP Paribas, as administrative agent and collateral agent
|
10.4
|
Sixth Amendment to the Credit Agreement, dated as of July 31, 2018, by and among Green Plains Cattle Company LLC and Bank of the West and ING Capital LLC, as Joint Administrative Agents, and the lenders party to the Credit Agreement
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101
|
The following information from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended
June 30
, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements
|
SIGN
ATU
RES
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.
|
|
|
|
Date:
August
2
,
201
8
|
GREEN PLAINS INC.
(Registrant)
By:
/s/ Todd A. Becker
_
Todd A. Becker
President and Chief Executive Officer
(Principal Executive Officer)
|
Date:
August 2
, 201
8
|
By:
/s/ John W. Neppl
_
John W. Neppl
Chief Financial Officer
(Principal Financial Officer)
|