NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION and DESCRIPTION OF BUSINESS
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 December 31, 2018,
t
he company owns a
49.1
%
limited partner interest and a
2.0%
general partner interest in Green Plains Partners LP. Public investors own the remaining
48.9
%
limited partner interest in the partnership.
The company determined that the limited partners in the partnership with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact partnership’s economic performance; therefore, the partnership is considered a variable interest entity. The company, through its ownership of the general partner interest in the partnership, has the power to direct the activities that most significantly affect economic performance and is obligated to absorb losses and has the right to receive benefits that could be significant to the partnership. Therefore, the company is considered the primary beneficiary and consolidates the partnership in the company’s financial statements. The assets of the partnership cannot
be used by the company for general corporate purposes.
The partnership’s consolidated total assets as of December 31, 201
8
and 201
7
are
$
67.
3
million and
$
74.9
million, respectively, and primarily consist of property and equipment and goodwill. The partnership’s consolidated total liabilities as of December 31, 201
8
and 201
7
are
$
152.9
million and
$15
3
.0
million, respectively, which primarily consist of long-term debt as discussed in Note 1
2
– 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 consolidates their results in its consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did not affect total revenues, costs and expenses, net income or stockholders’ equity.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of 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, accounting for income taxes and assets acquired and liabilities assumed in acquisitions, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
Description of Business
The company operates within four business segments: (1) ethanol production, which includes the production of ethanol and distillers grains, and recovery of corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes cattle feeding and
food-grade corn oil operations and included vinegar production until the sale of Fleischmann’s Vinegar
during the fourth quarter of 2018
and
(4) partnership, which includes fuel storage and transportation services.
Ethanol Production Segment
Green Plains is
on
e
of the largest ethanol p
roducers
in North America
.
The company operates
13
ethanol plants in
seven
states through separate wholly owned operating subsidiaries. The company’s ethanol plants use a dry mill process to produce ethanol and co-products such as wet, modified wet or dried distillers grains, as well as corn oil. The corn oil systems are designed to extract non-edible corn oil from the whole stillage immediately prior to production of distillers grains. At capacity, the company expects to process
approximately
387
million bushels of corn and produce approximately
1.1
billion gallons of ethanol,
2.9
million tons of distillers grains and
292
million pounds
of industrial grade corn oil annually.
Agribusiness and Energy Services Segment
The company owns and operates grain handling and storage assets through its agribusiness and energy services segment, which has grain storage capacity of
approximately
47.2
million bushels, with
37.1
million bushels of storage capacity at the company’s ethanol plants and
10.1
million bushels
of total storage capacity at
its
four
grain
elevators. The company’s agribusiness operations provide synergies with the ethanol production segment as it supplies a portion of the feedstock needed to produce ethanol. The company has an in-hous
e marketing
business that is responsible for the sale, marketing and distribution of all ethanol, distillers grains and corn oil produced at its ethanol plants. The company also purchases and sells ethanol, distillers grains, corn oil, grain, natural gas and other commodities and participates in other merchant trading activities in various markets.
Food and Ingredients Segment
The company
owns
six
cattle feeding operations with the capacity to support approximately
355,000
head of cattle and grain storage capacity of approximately
11.7
million bushels
.
The company also has food-grade corn oil operations which focuses on shipping corn oil from facilities across the Midwest by rail or barge to terminal facilities located in the southern United States.
Until
its sale
on November 27, 2018,
t
he company
also owned
Fleischmann’s Vinegar
, which is one of the world’s largest producers o
f food-grade industrial vinegar.
Partnership Segment
The company’s partnership segment provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. As of
December 31, 2018
, the partnership owns
(i)
32
ethanol storage facilities located at or near the company’s
13
operational
ethanol production plants
and
one
non-operational ethanol production plant
, which have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at the company’s ethanol production plants, (ii)
seven
fuel terminal facilities, located near major rail lines, which enable the partnership to receive, store and deliver fuels from
and to markets that seek access to renewable fuels, and (iii) transportation assets, including a leased railcar fleet of approximately
2,840
railcars
which is utilized to transport ethanol from the company’s ethanol production plants to refineries throughout the United States and international export terminals.
2.
SUMMARY OF SIGNIFICANT accounting POLICIES
Cash and Cash Equivalents
Cash and cash equivalents includes bank deposits, as well as, short-term, highly liquid investments with original matu
rities 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 and at times, funds in escrow related to disposition activities. To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated statements of cash flows.
Revenue Recognition
The company recognizes revenue
when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.
Sales of ethanol, distillers grains, corn oil, natural gas and other commodities by the company’s marketing business are recognized
when obligations under the terms of a contract with a customer are satisfied. Generally, this occurs with the transfer of control of products or services.
Revenues related to marketing for third parties are presented on a gross basis as the company controls the product prior to the sale to the end customer, takes title of the product and has inventory risk. Unearned revenue is recorded for goods in transit when the company has received payment but control has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the product is delivered to the customer.
The company routinely enters into physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than delivering the physical commodity. Energy trading transactions are reported net as a component of revenue.
Revenues include net gains or losses from derivative
s related to products sold while cost of goods sold
includes net gains or losses from derivatives related to commodities purchased.
Revenues also include realized gains and losses on related derivative financial instruments and reclassifications of realized gains and losses on cash flow hedges from accumulated other comprehensive income or loss.
Sales of products, including agricultural commodities, cattle and vinegar, are recognized when control of the product is transferred to the customer, which depends on the agreed upon shipment or delivery terms. Revenues related to grain merchandising are presented gross and include shipping and handling, which is also a component of cost of goods sold. Revenues from grain storage are recognized when services are rendered.
A substantial portion of the partnership revenues are derived from fixed-fee commercial agreements for storage, terminal or transportation services. The partnership recognizes revenue
upon transfer of control of product from its
storage tanks and fuel terminals, when railcar volumetric capacity is provided, and as truck transportation services are performed. To the extent shortfalls associated with minimum volume commitments in the previous four quarters continue to exist, volumes in excess of the minimum volume commitment are applied to those shortfalls. Remaining excess volumes generating operating lease revenue are recognized as incurred.
Shipping and Handling Costs
The company accounts for shipping and handling activities related to contracts with customers as costs to fulfill its promise to transfer the associated products. Accordingly, the company records customer payments associated with shipping and handling costs as a component of revenue, and classifies such costs as a component of cost of goods sold.
Cost of Goods Sold
Cost of goods sold includes direct labor, materials, shipping and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol production cattle feeding operations and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also 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, feedlot expenses and outbound freight charges. Shipping costs incurred by the company, including railcar costs, are also reflected in cost of goods sold.
The company uses exchange-traded futures and options contracts and forward purchase and sales contracts to attempt to minimize the effect of price changes on ethanol, 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 commodities as one way to mitigate risk; however, there may be situations when these hedging activities themselves result in losses.
By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.
The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, cash flow hedge accounting treatment.
Certain qualifying derivatives
related to ethanol production, 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.
Concentrations of Credit Risk
The company is exposed to credit risk resulting from the possibility that another party may fail to perform according to the terms of the company’s contract. The company sells ethanol, corn oil and distillers grains and markets products for third parties, which can result in concentrations of credit risk from a variety of customers, including major integrated oil companies, large independent refiners, petroleum wholesalers and other marketers. The company also sells grain to large commercial buyers, including other ethanol plants, and sells cattle to meat processors. Although payments are typically received within fifteen days of the sale, the company continually monitors its exposure. The company is also exposed to credit risk on prepayments of undelivered inventories with a few major suppliers of petroleum products and agricultural inputs.
The company has master netting arrangements with various counterparties. On the consolidated balance sheets, the associated net amount for each counterparty is reflected as either an accounts r
eceivable or accounts payable.
If the amount for each
counterparty were reflected on a gross basis, the company’s accounts receivable and accounts payable would increase by
$13.7
million and
$23.4
million
at December 31, 201
8 and 2017
, respectively.
Inventories
Corn held for ethanol production, ethanol, corn oil and distillers grains inventories are recorded at lower of average cost or market.
Other grain inventories include readily marketable grain, forward contracts to buy and sell grain, and exchange traded futures and option contracts, which are all stated at market value. All grain inventories held for sale are marked to market. Changes are reflected in cost of goods sold. The forward contracts require performance in future periods. Contracts to purchase grain generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of grain to processors or other consumers generally do not extend beyond one year. The terms of the purchase and sale agreements for grain are consistent with industry standards.
Raw materials and finished goods inventories are valued at the lower of average cost or market. In addition to ethanol and related co-products in process, work-in-process inventory includes the cost of acquired cattle and related feed and veterinary supplies, as well as direct labor and feedlot overhead costs, all of which are valued at lower of average cost or market.
Property and
Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is generally calculated using the straight-line method over the following estimated useful life of the assets:
|
|
|
Years
|
Plant, buildings and improvements
|
10-40
|
Production equipment
|
15-40
|
Other machinery and equipment
|
5-7
|
Land improvements
|
20
|
Railroad track and equipment
|
20
|
Computer hardware and software
|
3-5
|
Office furniture and equipment
|
5-7
|
Property and equipment is capitalized at cost. Land improvements and other property improvements are capitalized and depreciated. Costs of repairs and maintenance are charged to expense when incurred. The company periodically evaluates whether events and circumstances have occurred that warrant a revision of the estimated useful life of its fixed assets.
Intangible
Assets
Our intangible assets consist of research and development technology and licenses that were capitalized at fair value at the time of consolidation of BioProcess Algae, and are being amortized over their estimated useful lives. Prior to the sale of Fleischmann’s Vinegar during the fourth quarter, our intangible assets also included the vinegar trade name and customer relationships.
Impairment of Long-Lived Assets
The company reviews its long-lived assets
, currently
consist
ing of property and equipment,
intangible assets
and equity method investments,
for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.
Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Significant management judgment is required to determine the fair value of long-lived assets, which includes discounted cash flows projections
. There were no material impairment charges recorded for the periods reported.
Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The determination of goodwill takes into consideration the fair value of net tangible and intangible assets.
The company’s goodwill currently consists of amounts related to the
acquisition of five
et
hanol plants and its fuel terminal and distribution business.
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. Under the amended guidance, an entity may first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).
We performed our annual goodwill assessment as of October 1, 2018, using a qualitative assessment, which resulted in no goodwill impairment.
We estimate the amount and timing of projected cash flows that will be generated by an asset over an extended period of time when we review our long-lived assets and goodwill. Circumstances that may indicate impairment include a decline in future projected cash flows, a decision to suspend plant operations for an extended period of time, sustained decline in our market capitalization or market prices for similar assets or businesses, or a significant adverse change in legal or regulatory matters or business climate. Significant management judgment is required to determine the fair value of our long-lived assets and goodwill and measure impairment, which includes projected cash flows. Fair value is determined by using various valuation techniques, including discounted cash flow models, sales of comparable properties and third-party independent appraisals. Changes in estimated fair value could result in a write-down of the asset.
For additional information, please refer
to
Note 10
– Goodwill and Intangible Assets.
Financing Costs
Fees and costs related to securing debt are recorded as financing costs. Debt issuance costs are stated at cost and are amortized using the effective interest method for term loans and the straight-line basis over the life of the agreements for revolving credit arrangements and convertible notes. During periods of construction, amortization is capitalized in construction-in-progress.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of various expenses including employee salaries, incentives and benefits; office expenses; director compensation; professional fees for accounting, legal, consulting, and investor relations activities.
Stock-
Based Compensation
The company recognizes compensation cost using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees.
The company used the Monte Carlo valuation model to estimate the fair value of performance shares issued to employees.
Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between the financial reporting carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operating results in the period of enactment. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The company recognizes uncertainties in income taxes within the financial statements under a process by which the likelihood of a tax position is gauged based upon the technical merits of the position, and then a subsequent measurement relates the maximum benefit and the degree of likelihood to determine the amount of benefit recognized in the financial statements.
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 4 – 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 twelve months ended December 31, 2017, was adjusted to exclude the change in restricted cash and increased the previously reported balance by
$22.3
million. Net cash provided by financing activities for the twelve months ended December 31, 2017, was adjusted to exclude the
change in restricted cash and decreased the previously reported balance by
$34.5
million. Additionally, net cash provided by operating activities for the twelve months ended December 31, 2016, was adjusted to exclude the change in restricted cash and increased the previously reported balance by
$15.
5
million. Net cash provided by financing activities for the twelve months ended December 31, 2016, was adjusted to exclude the change in restricted cash and increased the previously reported balance by
$18.6
million.
Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 740,
Income Taxes: Intra-Entity Transfers of Assets other than Inventory
, which requires the recognition of current and deferred income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amended guidance is required on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The adoption of the guidance did not have an impact to the financial statements.
Effective January 1, 2018, the company adopted the amended guidance in ASC Topic 805,
Business Combinations: Clarifying the Definition of a Business
, which clarifies the definition of a business and provides guidance to assist companies and other reporting organizations evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amended guidance will be applied prospectively.
Effective January 1, 2018, the partnership early adopted the amended guidance in ASC Topic 350,
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment
, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amended guidance, an entity may first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). The amended guidance was applied prospectively when the annual impairment testing was performed in the current year. The new guidance did not 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 implemented a lease accounting system, which will assist in delivering the required accounting changes and disclosures under
ASC Topic 842,
Leases
. The company expects the adoption of the new standard to result in recognition of approximately
$6
0
million in 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. The impact to revenue streams reported as operating lease revenue under GAAP is expected to be
immaterial
. The company plans to elect the lessee non-
lease component separation practical expedient to include both the lease and non-lease components as a single component and account for them as a lease. In addition, the company expects to make an accounting policy election that will keep certain leases with a term of 12 months or less off the balance sheet and result in recognizing those lease payments on a straight-line basis over the lease term.
3. GREEN PLAINS PARTNERS LP
The partnership is a fee-based master limited partnership formed by Green Plains to provide fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. The partnership’s assets currently include (i)
32
ethanol storage facilities, located at or near the company’s
13
operational
ethanol production plants
and one non-operational ethanol plant
, which have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at the company’s ethanol production plants, (ii)
seven
fuel terminal facilities, located near major rail lines, which enable the partnership to receive, store and deliver fuels from and to markets that seek access to renewable fuels, and (iii) transportation assets, including a leased railcar fleet of approximately
2,840
railcars, which are contracted to transport ethanol from the company’s ethanol production plants to refineries throughout the United States and international export terminals. The partnership is the company’s primary downstream logistics provider to support its approximately
1.1
bgy ethanol marketing and distribution business since the partnership’s assets are the principal method of storing and delivering the ethanol the company produces.
As of December 31, 2018, the company
owns a
49.1%
limited partner interest, consisting of
11,586,548
common units, and a
2.0%
general partner interest in the partnership. The public owns the remaining
48.9%
limited partner interest in the partnership. As such, the partnership is consolidated in the company’s financial statements.
A substantial portion of the partnership’s revenues are derived from long-term, fee-based commercial agreements with Green Plains Trade, a subsidiary of the company. The partnership’s agreements with Green Plains Trade include the following:
|
·
|
|
10
-year storage and throughput agreement, originally expiring on June 30, 2025, extended to June 30, 2028;
|
|
·
|
|
10
-year rail transportation services agreement, expiring on June 30, 2025;
|
|
·
|
|
1
-year trucking transportation agreement, expiring on May 31, 2019;
|
|
·
|
|
Terminal services agreement for the Birmingham, Alabama unit train terminal, expiring December 31, 2019; and
|
|
·
|
|
Various other terminal services agreements for other fuel terminal facilities, each with Green Plains Trade.
|
The partnership’s storage and throughput agreement, and certain terminal services agreements, including the terminal services agreement for the Birmingham facility, are supported by minimum volume commitments. The partnership’s rail transportation services agreement is supported by minimum take-or-pay capacity commitments. The company also has agreements which establish fees for general and administrative, and operational and maintenance services it provides. These transactions are eliminated when the company consolidates its financial results.
The company consolidates the financial results of the partnership and records a noncontrolling interest in the partnership held by public common unitholders. Noncontrolling interest on the consolidated statements of income includes the portion of net income attributable to the economic interest held by the partnership’s public common unitholders. Noncontrolling interest on the consolidated balance sheets includes the portion of net assets attributable to the partnership’s public common unitholders.
4
. REVENUE
Adoption of ASC Topic 606
On January 1, 2018, the company adopted the amended guidance in ASC Topic 606,
Revenue from Contracts with Customers
, and all related amendments (“new revenue standard”) and applied it to all contracts using the modified retrospective transition method. There were no adjustments to the consolidated January 1, 2018 balance sheet for the adoption of the new revenue standard. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In addition, there was no impact of adoption on the consolidated statements of operations or balance sheets for the year ended December 31, 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 reven
ue by major source for the year
ended December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2018
|
|
Ethanol Production
|
|
Agribusiness & Energy Services
|
|
Food & Ingredients
|
|
Partnership
|
|
Eliminations
|
|
Total
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from contracts with customers under ASC 606:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
$
|
3,803
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,803
|
Distillers grains
|
|
195,509
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
195,509
|
Cattle and vinegar
|
|
-
|
|
|
-
|
|
|
1,007,833
|
|
|
-
|
|
|
-
|
|
|
1,007,833
|
Service revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,180
|
|
|
-
|
|
|
5,180
|
Other
|
|
5,369
|
|
|
3,014
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8,383
|
Intersegment revenues
|
|
2,914
|
|
|
23
|
|
|
156
|
|
|
9,030
|
|
|
(12,123)
|
|
|
-
|
Total revenues from contracts with customers
|
|
207,595
|
|
|
3,037
|
|
|
1,007,989
|
|
|
14,210
|
|
|
(12,123)
|
|
|
1,220,708
|
Revenues from contracts accounted for
as derivatives under ASC
815 (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
1,618,319
|
|
|
418,956
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,037,275
|
Distillers grains
|
|
198,738
|
|
|
136,461
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
335,199
|
Corn oil
|
|
66,567
|
|
|
22,623
|
|
|
13,110
|
|
|
-
|
|
|
-
|
|
|
102,300
|
Grain
|
|
520
|
|
|
73,754
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
74,274
|
Cattle and vinegar
|
|
-
|
|
|
-
|
|
|
(15,906)
|
|
|
-
|
|
|
-
|
|
|
(15,906)
|
Other
|
|
20,254
|
|
|
67,948
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
88,202
|
Intersegment revenues
|
|
8,668
|
|
|
46,177
|
|
|
-
|
|
|
-
|
|
|
(54,845)
|
|
|
-
|
Total revenues from contracts accounted for as derivatives
|
|
1,913,066
|
|
|
765,919
|
|
|
(2,796)
|
|
|
-
|
|
|
(54,845)
|
|
|
2,621,344
|
Leasing revenues under ASC 840 (2)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
86,538
|
|
|
(85,237)
|
|
|
1,301
|
Total Revenues
|
$
|
2,120,661
|
|
$
|
768,956
|
|
$
|
1,005,193
|
|
$
|
100,748
|
|
$
|
(152,205)
|
|
$
|
3,843,353
|
|
(1)
|
|
Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are
outside the scope of ASC
606,
Revenue from Contracts with Customers
(ASC
606), where the company recognizes revenue when control of the inventory is transferred
within the meaning of ASC
606 as req
uired by ASC
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
606, and continue to b
e accounted for under ASC
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. Unearned revenue is
generally recog
nized in the subsequent quarter and are not material to the company.
The company expects to recognize all of the unearned revenue associated with service agreements as of
December 31
, 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, the company elected to recognize the cost for shipping and handling activities that occur after the customer obtains control of the promised goods as fulfillment activities and not when performance obligations are met. The company also elected to exclude sales taxes from transaction prices.
5
. ACQUISITIONS
AND DI
SPOSITIONS
ACQUISIT
I
ONS
Acquisition of Cattle Feeding Operations – Bartlett Cattle Company, L.P.
On August 1, 2018, the company acquired
two
cattle-feeding operations from Bartlett Cattle Company, L.P. for $16.2 million, plus working capital of approximately
$106.6
million primarily consisting of work-in-process inventory. The transaction included the feed yards located in Sublette, Kansas and Tulia, Texas, which added combined feedlot capacity of
97,000
head of cattle to the company’s operations.
The transaction was financed using cash on hand and proceeds from the Green Plains Cattle senior secured asset-based revolving credit facility. There were no material acquisition costs recorded for the acquisition.
The following is a summary of the preliminary purchase price of assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Acquired and Liabilities Assumed
|
Accounts receivable
|
|
$
|
1,897
|
Inventory
|
|
|
104,809
|
Property and equipment, net
|
|
16,190
|
|
|
|
|
|
Current liabilities
|
|
(118)
|
|
Total identifiable net assets
|
$
|
122,778
|
The amounts above reflect a working capital payment by the company of
$0.9
million made during 2018.
Acquisition of Cattle Feeding Operations – Cargill Cattle Feeders, LLC
On May 16, 2017, the company acquired
two
cattle-feeding operations from Cargill Cattle Feeders, LLC for $59.3 million, including certain working capital adjustments. The transaction included the feed yards located in Leoti, Kansas and Eckley, Colorado, which added combined feedlot capacity of
155,000
head of cattle to the company’s operations. The transaction was financed using cash on hand.
There were no material acquisition costs recorded for the acquisition.
As part of the transaction, the company also entered into a long-term cattle supply agreement with Cargill Meat Solutions Corporation. Under the cattle supply agreement, all cattle placed in the Leoti and Eckley feedlots are sold exclusively to Cargill Meat Solutions under an agreed upon pricing arrangement.
The following is a summary of the assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Acquired and Liabilities Assumed
|
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 final purchase price allocation, which included working capital true-up payments by the company of
$
1.6
million made during
2018
.
Acquisition of Fleischmann’s Vinegar
On
October 3, 2016
, the company acquired all of the issued and outstanding stock of SCI Ingredients, the holding company of Fle
ischmann’s Vinegar
, for $258.3 million in cash. Fleischmann’s Vinegar is one of the world’s largest producers of food-grade industrial vinegar. The company recorded
$2.3
million of acquisition costs for Fleischmann’s Vinegar to selling, general and administrative expenses during the year ended December 31, 2016.
The operating results of Fleischmann’s Vinegar have been included in the company’s consolidated financial statements since October 4, 2016.
The following is a summary of the assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Acquired and Liabilities Assumed
|
Cash
|
|
$
|
4,148
|
Inventory
|
|
|
9,308
|
Accounts receivable, net
|
|
|
13,919
|
Prepaid expenses and other
|
|
|
1,054
|
Property and equipment
|
|
|
49,175
|
Intangible assets
|
|
|
90,500
|
|
|
|
|
|
Current liabilities
|
|
|
(9,689)
|
Income taxes payable
|
|
|
(216)
|
Deferred tax liabilities
|
|
|
(41,882)
|
|
Total identifiable net assets
|
|
116,317
|
|
|
|
|
|
Goodwill
|
|
142,002
|
|
Purchase price
|
$
|
258,319
|
Acquisition of Abengoa Ethanol Plants
On
September 23, 2016
, the company acquired
three
ethanol plants located in Madison, Illinois, Mount Vernon, Indiana, and York, Nebraska from subsidiaries of Abengoa S.A. for approximately $234.9 million for the ethanol plant assets, and
$19.1
million for working capital acquired and liabilities assumed, subject to certain post-closing adjustments. These ethanol facilities have a combined annual production capacity of
230
mmgy. The company recorded
$1.3
million of acquisition costs for the Abengoa ethanol plants to selling, general and administrative expenses during the year ended December 31, 2016.
The operating results of Abengoa ethanol plants have been included in the company’s consolidated financial statements since September 23, 2016.
The following is a summary of assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Acquired and Liabilities Assumed
|
Inventory
|
|
$
|
16,904
|
Accounts receivable, net
|
|
1,826
|
Prepaid expenses and other
|
|
|
2,224
|
Property and equipment
|
|
234,947
|
Other assets
|
|
|
3,885
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
(406)
|
Current liabilities
|
|
(2,580)
|
Long-term debt
|
|
|
(2,763)
|
|
Total identifiable net assets
|
$
|
254,037
|
|
|
|
|
|
Concurrently with the company’s acquisition of the Abengoa ethanol plants, on September 23, 2016, the partnership acquired the storage assets of the Abengoa ethanol plants from the company for
$90.0
million in a transfer between entities under common control and entered into amendments to the related commercial agreements with Green Plains Trade.
DISPOSITIONS
Disposition of Fleischmann’s Vinegar
On November 27, 2018, the company a
nd Green Plains II LLC
, an indirect
wholly-owned subsidiary of the c
ompany, completed the sale of Fle
ischmann’s Vinegar Company
, Inc.
to Kerry Holding Co. (“Kerry”). The company received as consideration from Kerry
$353.9
million in cash and restricted cash, including net working capital adjustments.
The divested assets were reported with
in the c
ompany’s food and ingredients segment.
The company recorded a
pre-tax
gain on the sale of Fleischmann’s Vinegar of
$58.2
million
, including offsetting
related transaction costs of
$7.4
million within the corporate segment.
The
assets and liabilities of Fleischmann’s Vinegar at closing on No
vember 27, 2018 were as follows
(in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
|
Cash
|
|
$
|
2,107
|
Accounts receivable, net
|
|
|
15,935
|
Inventory
|
|
|
15,167
|
Prepaid expenses and other
|
|
|
853
|
Property and equipment
|
|
|
64,552
|
Other assets
|
|
|
79,389
|
|
|
|
|
|
Current liabilities
|
|
|
(8,587)
|
Deferred tax liabilities
|
|
|
(26,617)
|
|
Total identifiable net assets
|
|
142,799
|
|
|
|
|
|
Goodwill
|
|
142,002
|
|
Net assets disposed
|
$
|
284,801
|
The amounts reflec
ted above represent
working capital estimates which are considered preliminary until contractual post-closing working capital adjustments are finalized.
Disposition of
Bluff
ton, Lakota and Riga Ethanol Plants
On November 15, 2018, the company completed the sale of three ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan, and certain related assets from subsidiaries, to
Valero Renewable Fuels Company, LLC (“Valero”)
for the sale price of $319.8 million, including
preliminary
net working capital and other a
djustments
.
Correspondingly,
the partnership’s storage assets located adjacent to such plants were sold to Green Plains Inc.
for
$120.9
million.
The company received as consideration from Valero approximately
$319.8
million, while the partnership received as consideration from the company
8.7
million partnership units and a portion of the general partner interest equating to
0.2
million
equivalent
limited partner units to maintain the general partner’s
2%
interest. In addition, t
he partnership also received
additional
consideration
of
approximately
$2.7
million
from Valero for the assignment of certain railcar operating leases
.
The divested assets were reported with
in the c
ompany’s ethanol production
, agribusiness and energy services and partnership
segment
s
.
The company recorded a
pre-tax
gain on the sale of the three ethanol plants of
$92.2
million, of which
$89.5
million was recorded within the corporate segment and
$2.7
million was recorded
within the partnership segment, including offsetting
transaction costs of
$4.2
million, of which
$3.7
million were recorded within the corporate segment and
$0.5
million were recorded within the partnership segment.
The assets and liabilities of the
Bluffton, Lakota and Riga
ethanol plants at closing on No
vember 15, 2018 were as follows
(in thousands):
|
|
|
|
|
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
|
Inventory
|
|
$
|
37,227
|
Prepaid expenses and other
|
|
|
542
|
Property and equipment
|
|
|
184,969
|
Other assets
|
|
|
1,717
|
|
|
|
|
|
Current liabilities
|
|
|
(1,366)
|
Other liabilities
|
|
|
(4,706)
|
|
Total identifiable net assets
|
|
218,383
|
|
|
|
|
|
Goodwill
|
|
6,188
|
|
Net assets disposed
|
$
|
224,571
|
The amounts reflec
ted above represent
working capital estimates which are considered preliminary until contractual post-closing working capital adjustments are finalized.
The company recorded a receivable of
$3.
1
million
as of December 31, 2018 to reflect the estimated
working capital true-up primarily related to additional inventory transferred.
The company
det
ermined that the
dispositions
n
oted above did not meet the criteria for disco
ntinued operations presentation
as the
disposition of
these businesses did not represent a strategic shift that will have a major effect on its operations and financial results.
6
. FAIR VALUE DISCLOSURES
The following methods, assumptions and valuation techniques were used in estimating the fair value of the company’s financial instruments:
Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities the company can access at the measurement date.
Level 2 – directly or indirectly observable inputs such as quoted prices for similar assets or liabilities in active markets other than quoted prices included within Level 1, quoted prices for identical or similar assets in markets that are not active, and other inputs that are observable or can be substantially corroborated by observable market data through correlation or other means. Grain inventories held for sale in the agribusiness and energy services segment are valued at nearby futures values, plus or minus nearby basis.
Level 3 – unobservable inputs that are supported by little or no market activity and comprise a significant component of the fair value of the assets or liabilities. The company currently does not have any recurring Level 3 financial instruments.
Derivative contracts include exchange-traded commodity futures and options contracts and forward commodity purchase and sale contracts. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the company’s exchange-traded futures and options contracts are cash-settled on a daily basis.
There have been no changes in valuation techniques and inputs used in measuring fair value. The company’s assets and liabilities by level are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
251,683
|
|
$
|
-
|
|
|
$
|
251,683
|
Restricted cash
|
|
66,512
|
|
|
-
|
|
|
|
66,512
|
Inventories carried at market
|
|
-
|
|
|
111,960
|
|
|
|
111,960
|
Unrealized gains on derivatives
|
|
-
|
|
|
9,976
|
|
|
|
9,976
|
Other assets
|
|
114
|
|
|
1
|
|
|
|
115
|
Total assets measured at fair value
|
$
|
318,309
|
|
$
|
121,937
|
|
|
$
|
440,246
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
(1)
|
$
|
-
|
|
$
|
16,573
|
|
|
$
|
16,573
|
Unrealized losses on derivatives
|
|
-
|
|
|
7,852
|
|
|
|
7,852
|
Other liabilities
|
|
-
|
|
|
2
|
|
|
|
2
|
Total liabilities measured at fair value
|
$
|
-
|
|
$
|
24,427
|
|
|
$
|
24,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
$16.6
million and $
37.4
million at
December 31, 2018
and
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 approximately $891.2 million
at
December 31, 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 values of its accounts receivable approximated book value, which was $
100.4
million and $
151.1
million, respectively, at
December 31, 2018
and
2017
.
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 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.
7
. SEGMENT INFORMATION
The company reports the financial and operating performance for the following
four
operating segments: (1) ethanol production, which includes the production of ethanol, distillers grains and 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 and other commodities, (3) food and ingredients,
which includes cattle feeding
and food-grade corn oil operations
and included vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018
and (4) partnership, which includes fuel storage and transportation services.
Corporate activities include selling
, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment.
During the normal course of business, the operating segments conduct business with each other. For example, the agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil for the ethanol production segment. The partnership segment provides fuel storage and transportation services for the ethanol production segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact the company’s consolidated results since the revenues and corresponding costs are eliminated.
The following tables set forth certain financial data for the company’s operating segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Ethanol production:
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
(1)
|
|
$
|
2,109,079
|
|
$
|
2,497,360
|
|
$
|
2,409,102
|
Intersegment revenues
|
|
|
11,582
|
|
|
10,313
|
|
|
-
|
Total segment revenues
|
|
|
2,120,661
|
|
|
2,507,673
|
|
|
2,409,102
|
Agribusiness and energy services:
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
(1)
|
|
|
722,756
|
|
|
621,223
|
|
|
675,446
|
Intersegment revenues
|
|
|
46,200
|
|
|
47,538
|
|
|
34,461
|
Total segment revenues
|
|
|
768,956
|
|
|
668,761
|
|
|
709,907
|
Food and ingredients:
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
(1)
|
|
|
1,005,037
|
|
|
471,398
|
|
|
318,031
|
Intersegment revenues
|
|
|
156
|
|
|
383
|
|
|
150
|
Total segment revenues
|
|
|
1,005,193
|
|
|
471,781
|
|
|
318,181
|
Partnership:
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
|
6,481
|
|
|
6,185
|
|
|
8,302
|
Intersegment revenues
|
|
|
94,267
|
|
|
100,808
|
|
|
95,470
|
Total segment revenues
|
|
|
100,748
|
|
|
106,993
|
|
|
103,772
|
Revenues including intersegment activity
|
|
|
3,995,558
|
|
|
3,755,208
|
|
|
3,540,962
|
Intersegment eliminations
|
|
|
(152,205)
|
|
|
(159,042)
|
|
|
(130,081)
|
Revenues as reported
|
|
$
|
3,843,353
|
|
$
|
3,596,166
|
|
$
|
3,410,881
|
|
(1)
|
|
Revenues from external customers include realized gains and losses from derivative financial instruments.
|
Refer to
Note 4
– Revenue
, for further disaggregation of revenue by operating segment.
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
2,118,787
|
|
$
|
2,434,001
|
|
$
|
2,280,906
|
Agribusiness and energy services
|
|
|
717,772
|
|
|
614,582
|
|
|
650,538
|
Food and ingredients
|
|
|
939,838
|
|
|
411,781
|
|
|
294,396
|
Partnership
|
|
|
-
|
|
|
-
|
|
|
-
|
Intersegment eliminations
|
|
|
(148,764)
|
|
|
(158,777)
|
|
|
(129,761)
|
|
|
$
|
3,627,633
|
|
$
|
3,301,587
|
|
$
|
3,096,079
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
(111,823)
|
|
$
|
(45,074)
|
|
$
|
28,125
|
Agribusiness and energy services
|
|
|
29,076
|
|
|
30,443
|
|
|
34,039
|
Food and ingredients
|
|
|
40,130
|
|
|
35,961
|
|
|
16,436
|
Partnership
|
|
|
64,770
|
|
|
65,709
|
|
|
60,903
|
Intersegment eliminations
|
|
|
(3,110)
|
|
|
(61)
|
|
|
(170)
|
Corporate activities
|
|
|
96,687
|
|
|
(45,232)
|
|
|
(47,645)
|
|
|
$
|
115,730
|
|
$
|
41,746
|
|
$
|
91,688
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
EBITDA:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
(31,623)
|
|
$
|
40,069
|
|
$
|
97,113
|
Agribusiness and energy services
|
|
|
31,583
|
|
|
33,906
|
|
|
34,209
|
Food and ingredients
|
|
|
55,805
|
|
|
49,803
|
|
|
20,190
|
Partnership
|
|
|
69,399
|
|
|
71,041
|
|
|
66,633
|
Intersegment eliminations
|
|
|
(3,110)
|
|
|
(61)
|
|
|
(732)
|
Corporate activities
|
|
|
102,598
|
|
|
(40,388)
|
|
|
(42,985)
|
|
|
$
|
224,652
|
|
$
|
154,370
|
|
$
|
174,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
80,227
|
|
$
|
81,987
|
|
$
|
68,746
|
Agribusiness and energy services
|
|
|
2,470
|
|
|
3,462
|
|
|
2,536
|
Food and ingredients
|
|
|
12,914
|
|
|
13,103
|
|
|
3,705
|
Partnership
|
|
|
4,442
|
|
|
5,111
|
|
|
5,647
|
Corporate activities
|
|
|
3,566
|
|
|
3,698
|
|
|
3,592
|
|
|
$
|
103,619
|
|
$
|
107,361
|
|
$
|
84,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
27,322
|
|
$
|
28,996
|
|
$
|
39,555
|
Agribusiness and energy services
|
|
|
277
|
|
|
397
|
|
|
2,340
|
Food and ingredients
|
|
|
15,452
|
|
|
17,772
|
|
|
2,479
|
Partnership
|
|
|
1,268
|
|
|
2,024
|
|
|
400
|
Corporate activities
|
|
|
451
|
|
|
3,115
|
|
|
11,638
|
|
|
$
|
44,770
|
|
$
|
52,304
|
|
$
|
56,412
|
The following table reconciles net income to EBITDA (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Net income:
|
|
$
|
36,734
|
|
$
|
81,631
|
|
$
|
30,491
|
Interest expense
|
|
|
101,025
|
|
|
90,160
|
|
|
51,851
|
Income tax expense (benefit)
|
|
|
(16,726)
|
|
|
(124,782)
|
|
|
7,860
|
Depreciation and amortization
|
|
|
103,619
|
|
|
107,361
|
|
|
84,226
|
EBITDA
|
|
$
|
224,652
|
|
$
|
154,370
|
|
$
|
174,428
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth total assets by operating segment (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
Total assets:
|
|
|
|
|
|
|
Ethanol production
|
|
$
|
872,845
|
|
$
|
1,144,459
|
Agribusiness and energy services
|
|
|
399,633
|
|
|
554,981
|
Food and ingredients
|
|
|
552,459
|
|
|
725,232
|
Partnership
|
|
|
67,297
|
|
|
74,935
|
Corporate assets
|
|
|
334,236
|
|
|
295,217
|
Intersegment eliminations
|
|
|
(10,038)
|
|
|
(10,174)
|
|
|
$
|
2,216,432
|
|
$
|
2,784,650
|
|
|
|
|
|
|
|
|
(1)
|
|
Asset balances by segment exclude intercompany payable and receivable balances.
|
8
. 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.
As of
December 31, 2018, the company recorded a $
6.0
million
lower of cost or market inventory adjustment
reflected in cost of goods sold within the ethanol production segment.
The components of inventories are as follows (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Finished goods
|
$
|
99,765
|
|
$
|
146,269
|
Commodities held for sale
|
|
62,980
|
|
|
65,693
|
Raw materials
|
|
119,014
|
|
|
144,520
|
Work-in-process
|
|
423,840
|
|
|
320,664
|
Supplies and parts
|
|
29,284
|
|
|
34,732
|
|
$
|
734,883
|
|
$
|
711,878
|
|
|
|
|
|
|
9
. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Plant equipment
|
$
|
931,321
|
|
$
|
1,232,724
|
Buildings and improvements
|
|
176,279
|
|
|
212,426
|
Land and improvements
|
|
115,503
|
|
|
136,274
|
Railroad track and equipment
|
|
34,163
|
|
|
42,149
|
Construction-in-progress
|
|
12,484
|
|
|
17,019
|
Computer hardware and software
|
|
19,082
|
|
|
19,653
|
Office furniture and equipment
|
|
3,733
|
|
|
3,854
|
Leasehold improvements and other
|
|
24,416
|
|
|
27,193
|
Total property and equipment
|
|
1,316,981
|
|
|
1,691,292
|
Less: accumulated depreciation and amortization
|
|
(430,405)
|
|
|
(514,585)
|
Property and equipment, net
|
$
|
886,576
|
|
$
|
1,176,707
|
10
. GOODWILL
AND INTANGIBLE ASSETS
Goodwill
The company currently has
two
reporting units, to which goodwill is assigned.
For the year ended December 31, 2017, the company determined a step one analysis was appropriate due to the passage of time since the last quantitative analysis was performed. A cash flow and valuation analysis was performed to estimate the fair value of each reporting unit. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on this quantitative test, we determined that the fair value of each reporting unit exceeded its carrying amount and, therefore, step two of the two-step goodwill impairment test was unnecessary.
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 o
f goodwill by eliminating Step 2
from the goodwill impairment test. Under the amended guidance, an entity may first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).
The annual goodwill
impairment review for the year
ended December 31, 201
8
,
was a qualitative assessment that showed
no indications of impairment.
Changes in the carrying amount of goodwill attributable to each business segment during the years ended
December
31, 2018
and
2017
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol
|
|
Food and
|
|
|
|
|
|
Production
|
|
Ingredients
|
|
Partnership
|
|
Total
|
Balance, December 31, 2016
|
$
|
30,279
|
|
$
|
142,819
|
|
$
|
10,598
|
|
$
|
183,696
|
Adjustment to preliminary Fleischmann's Vinegar valuation
|
|
-
|
|
|
(817)
|
|
|
-
|
|
|
(817)
|
Balance, December 31, 2017
|
$
|
30,279
|
|
$
|
142,002
|
|
$
|
10,598
|
|
$
|
182,879
|
Dispositions
|
|
(6,188)
|
|
|
(142,002)
|
|
|
-
|
|
|
(148,190)
|
Balance, December 31, 2018
|
$
|
24,091
|
|
$
|
-
|
|
$
|
10,598
|
|
$
|
34,689
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
Dece
mber 31, 2018
, in connection with the
sale
of
the
Bluffton, Lakota and Riga ethanol plants
and
Fleischmann’s
Vinegar
, the fair val
ue of goodwill was reduced by $
6.2
million and $
142.0
million, respectively.
Intangible Assets
As of November 27, 2018, the company’s customer relationship intangible asset recognized in connection with the Fleischmann’s
Vinegar
acquisition
of
$68.
9
million, net of
$11.
1
million
of amortization
,
was disposed of in connection with the Fleischmann’s
Vinegar
sale. As of November 27, 2018, the company’s indefinite-lived trade name intangible asset of
$10.5
million was disposed of as part of the Fleischmann’s
Vinegar
sale. Prior to its disposition, the company
recognized
$
4.
4
million
, $
5.3
million and $1.4 million, respectively,
of
amortiza
tion expense associated with
amortizing
the
customer relationship intangible asset during the year
s
ended December 31, 2018
, 2017 and 2016
.
11
. DERIVATIVE FINANCIAL INSTRUMENTS
At
December 31, 2018
, the company’s consolidated balance sheet reflected unrealized losses
of $
16.0
million, net
of tax, in accumulated other comprehensive loss. The company expects these losses will be reclassified as 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 at December 31,
|
|
Fair Value at December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Derivative financial instruments
|
$
|
9,976
|
(1)
|
$
|
12,045
|
(2)
|
$
|
7,852
|
(3)
|
$
|
12,884
|
Other assets
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
Other liabilities
|
|
-
|
|
|
-
|
|
|
2
|
|
|
92
|
Total
|
$
|
9,977
|
|
$
|
12,045
|
|
$
|
7,854
|
|
$
|
12,976
|
|
(1)
|
|
At December 31, 2018, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of
$16.3
million.
|
|
(2)
|
|
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.
|
|
(3)
|
|
At
December 31, 2018, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of
$16.9
million, which included
$16.5
million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.
|
Refer to
Note 6
- Fair Value Disclosures
, which contains fair value information related to derivative financial instruments.
Effect of Derivative Instruments on Consolidated Statements of Income and Consolidated Statements of Stockholders’ Equity and
Comprehensive Income
The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
|
Location of Gain or (Loss) Reclassified from
|
|
Year Ended December 31,
|
Accumulated Other Comprehensive Income into Income
|
|
2018
|
|
2017
|
|
2016
|
Revenues
|
|
$
|
(10,808)
|
|
$
|
18,167
|
|
$
|
(8,094)
|
Cost of goods sold
|
|
|
1,252
|
|
|
(11,936)
|
|
|
(16,508)
|
Net increase (decrease) recognized in earnings before tax
|
|
$
|
(9,556)
|
|
$
|
6,231
|
|
$
|
(24,602)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized in Other Comprehensive Income on Derivatives
|
Loss Recognized in
|
|
Year Ended December 31,
|
Other Comprehensive Income on Derivatives
|
|
2018
|
|
2017
|
|
2016
|
Commodity Contracts
|
|
$
|
(9,642)
|
|
$
|
(8,015)
|
|
$
|
(29,238)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or
|
|
Amount of Gain Recognized in Income on Derivatives
|
Derivatives Not Designated
|
|
(Loss) Recognized in
|
|
Year Ended December 31,
|
as Hedging Instruments
|
|
Income on Derivatives
|
|
2018
|
|
2017
|
|
2016
|
Commodity Contracts
|
|
Revenues
|
|
$
|
10,115
|
|
$
|
(12,583)
|
|
$
|
6,071
|
Commodity Contracts
|
|
Costs of goods sold
|
|
|
18,944
|
|
|
27,078
|
|
|
11
|
|
|
|
|
$
|
29,059
|
|
$
|
14,495
|
|
$
|
6,082
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
89,188
|
|
$
|
2,430
|
|
|
|
|
|
|
|
Effect of Ca
sh Flow and Fair Value Hedge Accounting on the Statement
s
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Revenue
|
|
|
Cost of
Goods
Sold
|
|
|
Revenue
|
|
|
Cost of
Goods
Sold
|
|
|
Revenue
|
|
|
Cost of
Goods
Sold
|
Gain or (loss) on cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or loss reclassified from accumulated other comprehensive income into income
|
$
|
(10,808)
|
|
$
|
1,252
|
|
$
|
18,167
|
|
$
|
(11,936)
|
|
$
|
(8,094)
|
|
$
|
(16,508)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (loss) on fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged item
|
|
-
|
|
|
13,681
|
|
|
1,451
|
|
|
(6,229)
|
|
|
1,388
|
|
|
21,430
|
Derivatives designated as hedging instruments
|
|
-
|
|
|
(12,304)
|
|
|
(1,734)
|
|
|
8,530
|
|
|
(1,388)
|
|
|
(16,219)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of cash flow or fair value hedges are recorded
|
$
|
(10,808)
|
|
$
|
2,629
|
|
$
|
17,884
|
|
$
|
(9,635)
|
|
$
|
(8,094)
|
|
$
|
(11,297)
|
There were
no
gains or losses from discontinuing cash flow or fair value hedge treatment during the years ended December 31, 2018, 2017 and 2016.
The open commodity derivative positions as of
December 31, 2018
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Exchange Traded
|
|
Non-Exchange Traded
|
|
|
|
|
Derivative Instruments
|
|
Net Long & (Short)
(1)
|
|
Long
(2)
|
|
(Short)
(2)
|
|
Unit of Measure
|
|
Commodity
|
Futures
|
|
(23,025)
|
|
|
|
|
|
Bushels
|
|
Corn and Soybeans
|
Futures
|
|
750
|
(3)
|
|
|
|
|
Bushels
|
|
Corn
|
Futures
|
|
(14,500)
|
(4)
|
|
|
|
|
Bushels
|
|
Corn
|
Futures
|
|
(80,850)
|
|
|
|
|
|
Gallons
|
|
Ethanol
|
Futures
|
|
(2,275)
|
|
|
|
|
|
mmBTU
|
|
Natural Gas
|
Futures
|
|
(13,888)
|
(4)
|
|
|
|
|
mmBTU
|
|
Natural Gas
|
Futures
|
|
(39,600)
|
|
|
|
|
|
Pounds
|
|
Livestock
|
Futures
|
|
(402,840)
|
(3)
|
|
|
|
|
Pounds
|
|
Cattle
|
Options
|
|
116
|
|
|
|
|
|
Tons
|
|
Soybean Meal
|
Options
|
|
5,519
|
|
|
|
|
|
Bushels
|
|
Corn and Soybeans
|
Options
|
|
13,146
|
|
|
|
|
|
Gallons
|
|
Ethanol
|
Options
|
|
(2,015)
|
|
|
|
|
|
mmBTU
|
|
Natural Gas
|
Options
|
|
(18,628)
|
|
|
|
|
|
Pounds
|
|
Livestock
|
Options
|
|
19
|
|
|
|
|
|
Barrels
|
|
Crude Oil
|
Forwards
|
|
|
|
25,071
|
|
(2,299)
|
|
Bushels
|
|
Corn and Soybeans
|
Forwards
|
|
|
|
567
|
|
(256,596)
|
|
Gallons
|
|
Ethanol
|
Forwards
|
|
|
|
131
|
|
(207)
|
|
Tons
|
|
Distillers Grains
|
Forwards
|
|
|
|
14,160
|
|
(43,426)
|
|
Pounds
|
|
Corn Oil
|
Forwards
|
|
|
|
15,422
|
|
(8,696)
|
|
mmBTU
|
|
Natural Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Exchange traded futures and options are presented on a net long and (short) position basis. Options are presented on a delta-adjusted basis.
|
|
(2)
|
|
Non-exchange traded forwards are presented on a gross long and (short) position basis including both fixed-price and basis contracts.
|
|
(3)
|
|
Futures used for cash flow hedges.
|
|
(4)
|
|
Futures or non-exchange traded forwards used for fair value hedges.
|
Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of income. Included in revenues are net
gains of
$23.1
million,
$35.4
million, and
$11.6
million for the years ended
December 31, 2018
,
2017
, and
2016
respectively, on energy trading contracts.
12
. DEBT
The components of long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Corporate:
|
|
|
|
|
|
$500.0
million term loan
|
$
|
-
|
|
$
|
498,750
|
3.25%
convertible notes due 2018
|
|
-
|
|
|
61,442
|
3.25%
convertible notes due 2019
|
|
53,457
|
|
|
-
|
4.125% convertible notes due 2022
|
|
142,708
|
|
|
136,739
|
Green Plains Partners:
|
|
|
|
|
|
$200.0
million revolving credit facility
|
|
134,000
|
|
|
126,900
|
Other
|
|
26,022
|
|
|
27,744
|
Total face value of long-term debt
|
|
356,187
|
|
|
851,575
|
Unamortized debt issuance costs
|
|
(3,190)
|
|
|
(16,256)
|
Less: current portion of long-term debt
|
|
(54,807)
|
|
|
(67,923)
|
Total long-term debt
|
$
|
298,190
|
|
$
|
767,396
|
|
|
|
|
|
|
Scheduled long-term debt repayments, including full accretion of the
3.25%
convertible notes due 201
9
and of the
4.125%
convertible notes due 2022 at maturity but excluding the effects of any debt discounts and debt issuance costs, are as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2019
|
|
$
|
58,185
|
2020
|
|
|
1,218
|
2021
|
|
|
135,007
|
2022
|
|
|
171,006
|
2023
|
|
|
1,006
|
Thereafter
|
|
|
20,437
|
Total
|
|
$
|
386,859
|
The components of short-term notes payable and other borrowings are as follows (in thousands):
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Green Plains Cattle:
|
|
|
|
|
|
$500.0
million revolver
|
$
|
374,492
|
|
$
|
270,860
|
Green Plains Grain:
|
|
|
|
|
|
$125.0
million revolver
|
|
41,000
|
|
|
75,000
|
$50.0
million inventory financing
|
|
-
|
|
|
-
|
Green Plains Trade:
|
|
|
|
|
|
$300.0
million revolver
|
|
108,485
|
|
|
180,320
|
Green Plains Commodity Management:
|
|
|
|
|
|
$20.0
million hedge line
|
|
14,266
|
|
|
-
|
Total short-term notes payable and other borrowings
|
$
|
538,243
|
|
$
|
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.
In November 2018,
we
rep
aid the remaining outstanding balance of our
$500.0 million term loan using a portion of the proceeds from the sale
s of the three ethanol plants and
Fleischmann’s Vinegar.
We
did not incur any early termination penalties to the lenders as a result of the repayment.
Prior to the repayment of the
$500.0 million term loan
on November 27, 2018,
the term loan was 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 contained certain customary representations and warranties, affirmative covenants, negative covenants, financial covenants and events of default. The negative covenants included 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 required 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 had 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 were subject
to prepayment fees of
1.0%
if prepaid before the
eighteen
-month anniversary of the credit agreement. Scheduled principal payments were
$1.25
million each quarter until maturity. The term loan b
ore
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. Prior to close of the exchange agreements on October 1, 2018, the company could settle the 3.25% notes in cash, common stock or a combination of cash and common stock. Prior to April 1, 2018, the 3.25% notes were not convertible unless certain conditions
were
s
atisfied. The conversion rate was
subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds
$0.04
per share. The conversion rate was recently adjusted as of
September 30, 2018, to
50.8753
shares of common stock per
$1,000
of principal, which is equal to a conversion price of approximately
$19.66
per share. 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.
Prior to the close of the exchange agreements on October 1, 2018, the company could redeem all of the 3.25% notes at any time on or after October 1, 2016, if the company’s common stock equal
ed or exceeded
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
would
equal
100%
of the principal plus any accrued and unpaid interest. Holders of the 3.25% notes ha
d
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
was
a fundamental change, such as change in control.
If an event of default occur
r
ed
, it could result in the 3.25% notes being declared due and payable.
During the second quarter of 2018, the company entered into a privately negotiated agreement with a certain holder, on behalf of a certain beneficial owner of the company’s 3.25% notes. Under this agreement,
50
shares
of the company’s common stock
were exchanged for approximately
$
1
thousand
in aggregate principal amount of the 3.25% notes. Common stock held as treasury shares were
exchanged for the 3.25% notes.
Following the closing of this agreement,
$63.7
million aggregate principal amount of the 3.25% notes remain
ed
outstanding.
During the three months ended September 30, 2018, the company entered into exchange agreements with certain beneficial owners of the company’s outstanding 3.25% convertible senior notes due 2018 (the “Old N
otes”), pursuant to which such i
nvestors exchanged (the “Exchange”)
$56.8
million in aggregate principal amount of the Old Notes for
$56.8
million in aggregate principal amount of notes due 2019 (the “New Notes”). The company evaluated the Exchange in accordance with ASC 470-50 and concluded that the Exchange qualified as a debt modification as the cash flows and fair value of the embedded conversion option of the New Notes were not substantially different from the Old Notes. As a result, the New Notes were recorded at fair value at the time of the exchange, and the company recorded a non-cash adjustment to additional paid-in capital of
$
3.5
million
,
net of a
$1.2 million
tax impact
,
related to the difference in fair value of the embedded conversion option of the Old Notes and the New Notes.
Following the closing of these agreements,
$6.9
million aggregate principal of the Old Notes remain
ed
outstanding. On October 1, 2018, the maturity date of the Old Notes, the remaining aggregate principal of
$6.9
million was paid.
The New Notes are the senior, unsecured obligations of the company and bear interest at a rate of 3.25% per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2018. Interest on the New Notes will accrue from, and including, April 1, 2018. The New Notes will mature on October 1, 2019, unless earlier converted. Holders of New Notes may convert their New Notes, at their option, in integral multiples of
$1,000
principal amount, at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date of the New Notes. The conversion rate for the New Notes was initially
50.6481
shares of the company’s common stock per
$1,000
principal amount of New Notes, which corresponded to an initial conversion price of approximately
$19.74
per share of the company’s common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events. Upon conversion of the convertible notes, the company will settle its conversion obligation by delivering shares of its common stock at the applicable conversion rate, together with cash in lieu of any fractional share.
The company does not have the right to redeem the New Notes at its election before their maturity. The New Notes are subject to customary provisions providing for the acceleration of their principal and interest upon the occurrence of events that co
nstitute an “event of default.”
Events of default include, among other events, certain payment defaults, defaults in settling conversions, certain defaults under the company’s other indebtedness and certain insolvency-related events. Upon maturity, the company will settle the New Notes in cash.
In August 2016, the company issued
$170.0
million of
4.125%
convertible senior notes due in 2022, or the 4.125% notes. The 4.125% notes are senior, unsecured obligations of the company, with interest payable on March 1 and September 1 of each year. The company may settle the 4.125% notes in cash, common stock or a combination of cash and common stock.
Prior to March 1, 2022, the 4.125% notes are not convertible unless certain conditions are satisfied. The conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds
$0.12
per 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 ass
ets owned by Green Plains Grain.
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 only if the company has long-term indebtedness on the date of
calculation. As of December 31
, 2018, Green Plains Grain had
no
long-term indebtedness. The credit facility also contains restrictions on distributions related to capital stock, with exceptions for distributions up to
50%
of net profit before tax, subject to certain conditions
.
Green Plains Trade has a
$300.0
million senior secured asset-based revolving credit facility to finance working capital for marketing and distribution activities based on eligible collateral equal to the sum of percentages of eligible receivables and inventories,
less miscellaneous adjustments. The credit facility
matures
on July
28,
2022
and
consists of a
$285
million credit facility and a
$15
million first-in-last-out (FILO) credit facility, and includes an accordion feature that enables the credit facility to be increased by up to
$70.0
million with agent approval. Advances are subject to variable interest rates equal to daily LIBOR plus
2.25%
on the credit facility and daily LIBOR plus
3.25%
on the FILO credit facility. The total unused portion of the revolving credit facility is also subject to a commitment fee of
0.375%
per annum.
The terms impose affirmative and negative covenants for Green Plains Trade, including maintaining a minimum fixed charge coverage ratio of
1.15
to 1.00. Capital expenditures are
limited to
$1.5
million per
year under the credit facility. The credit facility also restricts distributions related to capital stock, with an exception for distributions up to
50%
of net income if, on a pro forma basis, (a) availability has been greater than
$10.0
million for the last 30 days and (b) the borrower would be in compliance with the fixed charge coverage ratio on the distribution date.
Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. The company has accounted for the agreements as short-term notes, rather than sales, and has elected the fair value option to offset fluctuations in market prices of the inventory.
The company had no
short-term notes payable
related to these inventory financing agreements as of December 31, 2018.
Green Plains Commodity Management has an uncommitted
$20.0
million revolving credit facility which matures
April 30, 2023
to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBOR plus
1.75%
.
At December 31, 2018, the company had $14.3 million outstanding on this facility.
Food and Ingredients Segment
Green Plains Cattle has a senior secured asset-based revolving credit facility, which was amended on July 31, 2018, to increase the maximum commitment from
$425.0
million to
$500.0
million and can be increased by an additional
$100.0
million with agent approval.
On October 5, 2018, the company amended its revolving credit facility to provide the Joint Administrator, at its sole discretion, irrevocable authorization to (1) release any term loan priority collateral; (2) release any guarantor related to any release of any term loan priority collateral and/or (3) release the guaranty upon termination of the term loan agreement and repayment of all obligations owed by the company under the term loan agreement.
The credit facility, which matures on April 30, 2020, finances
working capital for the cattle feeding operations
up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible 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
.
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
$2
00
.0
million revolving credit facility, which matures on
July 1, 2020
, to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes.
Advances under the credit facility are subject to a floating interest rate based on the preceding fiscal quarter’s consolidated leverage ratio at a base rate plus
1.25%
to
2.00%
or LIBOR plus
2.25%
to
3.00%
.
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.
On November 15, 2018,
the partnership decreased the
revo
lving credit facility
from
$235.0
million to
$200.0
million.
The credit facility can be increased by an additional
$
20
.0
million without
the consent of the lenders. The unused portion of the credit facility is also subject to a commitment fee of
0.35%
to
0.50%
, depending on the preceding fiscal quarter’s consolidated leverage ratio.
There were no other significant changes in other covenants.
The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the capital stock of the partnership’s present and future subsidiaries, (ii) all of the partnership’s present and future personal property, such as investment property, general intangibles and contract rights, including rights under agreements with Green Plains Trade, and (iii) all proceeds and products of the equity interests of the partnership’s present and future subsidiaries and its personal property. The terms impose affirmative and negative covenants including restricting the partnership’s ability to incur additional debt, acquire and sell assets, create liens, invest capital, pay distributions and materially amend the partnership’s commercial agreements with Green Plains Trade.
The credit facility also requires the partnership to maintain a maximum consolidated net leverage ratio of no more than
3.50x
and a minimum consolidated interest coverage ratio of no less than
2.75x
, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures occurring during the applicable period. The consolidated leverage ratio is calculated by dividing total funded indebtedness minus the lesser of cash in excess of
$5.0
million or
$30.0
million by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated interest coverage ratio is calculated by dividing the sum of the four preceding fiscal quarters’ consolidated EBITDA by the sum of the four preceding fiscal quarters’ interest charges.
In June 2013, the company issued promissory notes payable of
$10.0
million
, which is recorded in long-term debt,
and a note receivable of
$8.1
million
, which is recorded in other assets,
to execute a New Markets Tax Credit transaction related to the Birmingham, Alabama terminal. Beginning in March 2020, the promissory notes and note receivable each require quarterly principal and interest payments of approximately
$0.2
million. The company retains the right to call
$8.1
million of the promissory notes in 2020. The promissory notes payable and note receivable will be fully amortized upon maturity in September 2031. Income tax credits were generated for the lender, which the company has guaranteed over their statutory life of
seven
years in the event the credits are recaptured or reduced. At the time of the transaction, the income tax credits were valued at
$5.0
million. The company has not established a liability in connection with the guarantee because it believes the likelihood of recapture or reduction is remote.
Covenant Compliance
The company
was in compliance
with its debt covenants as of
December 31, 2018
and 2017.
Restricted
Net Assets
At
December 31, 2018
, there were approximately
$
243.
4
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.
13
.
STOCK-BASED COMPENSATION
The company has an equity incentive plan that reserves
4,110,000
shares of common stock for issuance to its directors and employees. The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock,
performance share awards,
and restricted and deferred stock unit awards, to be granted to eligible employees, non-employee directors and consultants. The company measures stock-based compensation at fair value on the grant date,
with no adjustments for
estimated forfeitures. The company records noncash compensation expense related to equity awards in its consolidated financial statements over the requisite period on a straight-line basis. Substantially all of the existing stock-based compensation has been equity awards.
Grants under the equity incentive plans may include
stock
options, stock awards
, performance share awards
or deferred stock units:
|
·
|
|
Stock
Options
– Stock options may be granted that can be exercised immediately in installments or at a fixed future date. Certain options are exercisable regardless of employment status while others expire following termination. Options issued to date may be exercised immediately or at future vesting dates, and expire
five
to
eight
years after the grant date. Compensation expense for stock options that vest over time is recognized on a straight-line basis over the requisite service period.
|
|
·
|
|
Restricted
Stock Awards
–
Restricted s
tock awards may be granted to directors and employees that vest immediately or over a period of time as determined by the compensation committee. Stock awards granted to date vested immediately and over a period of time, and included sale restrictions. Compensation expense is recognized on the grant date if fully vested or over the requisite vesting period.
|
|
·
|
|
Performance Share Awards
– Performance share
awards may be granted to directors and em
ployees that cliff-vest
after a
period of time as determined by the compensation committee.
Performance share
awards granted to date
cliff-vest
after
a period of time, and included sale restrictions. Compensation expense is recognized over the requisite vesting period.
|
|
·
|
|
Deferred Stock Units
– Deferred stock units may be granted to directors and employees that vest immediately or over a period of time as determined by the compensation committee. Deferred stock units granted to date vest over a period of time with underlying shares of common stock that are issuable after the vesting date. Compensation expense is recognized on the grant date if fully vested, or over the requisite vesting period.
|
Stock Options
The fair value of the stock options is estimated on the date of the grant using the Black
‑Scholes option
‑pricing model, a pricing model acceptable under GAAP. The expected life of the options is the period of time the options are expected to be outstanding. The company did
no
t grant any stock option awards during the years ended
December 31, 2018
,
2017
,
and
2016
.
The activity related to the exercisable stock options for the year ended
December 31, 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 December 31, 2018
|
128,750
|
|
$
|
12.72
|
|
1.0
|
|
$
|
89
|
Exercisable at December 31, 2018
(1)
|
128,750
|
|
$
|
12.72
|
|
1.0
|
|
$
|
89
|
|
(1)
|
|
Includes in-the-money options
totaling
118,750
shares at a weighted-average exercise price of $
12.36
.
|
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 option in the open market. The company uses newly issued shares of common stock to satisfy its stock-based payment obligations.
Restricted
Stock
Awards
and Deferred Stock Units
The non-vested
restricted
stock award and deferred stock unit activity for the year ended
December 31, 2018
, are as follows:
|
|
|
|
|
|
|
|
Non-Vested
Shares and
Deferred
Stock Units
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
Weighted-Average
Remaining
Vesting Term
(in years)
|
Nonvested at December 31, 2017
|
1,068,947
|
|
$
|
20.41
|
|
|
Granted
|
519,876
|
|
|
18.24
|
|
|
Forfeited
|
(109,996)
|
|
|
19.59
|
|
|
Vested
|
(596,539)
|
|
|
20.57
|
|
|
Nonvested at December 31, 2018
|
882,288
|
|
$
|
19.12
|
|
1.7
|
Performance Share Awards
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
201,033
performance shares or
150%
of the
134,022
performance shares
outstanding as of December 31, 2018
. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.
The company used the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The weighted average assumptions used by the company in applying the Monte Carlo valuation model for performance share grants during th
e twelve
months ended December 31
, 2018, are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
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 company’s total shareholder return relative to peer performance. The company’s closing stock price was
$18.15
on the date of the grant.
The non-vested performance share award activity for the year ended December 31, 2018, are as follows:
|
|
|
Performance
Shares
|
Nonvested at December 31, 2017
|
-
|
Granted
|
153,030
|
Forfeited
|
(19,008)
|
Nonvested at December 31, 2018
|
134,022
|
At December 31, 2018, unrecognized stock compensation expense of
$1.8
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 has 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 period on a straight-line basis.
The non-vested unit-based awards activity for the year ended December 31, 2018, are as follows:
|
|
|
|
|
|
|
|
Non-Vested
Shares and
Deferred
Stock Units
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
Weighted-Average
Remaining
Vesting Term
(in years)
|
Nonv
ested at December 31, 2017
|
11,549
|
|
$
|
19.06
|
|
|
Granted
|
18,582
|
|
|
16.96
|
|
|
Forfeited
|
-
|
|
|
-
|
|
|
Vested
|
(11,549)
|
|
|
19.06
|
|
|
Nonvested at December 31, 2018
|
18,582
|
|
$
|
16.96
|
|
0.5
|
Stock-Based and Unit-Based Compensation Expense
Compensation costs for stock-based and unit-based payment plans during the years ended
December 31, 2018
,
2017
and 201
6
, were
approximately $
11.4
million, $
12.2
million and $
9.5
million, respectively.
The
decrease
in stock compensation for the year ended December 31, 2018 was largely due to
current year forfeitures,
offset
by
additional
expense recorded due to the accelerated vesting of stock awards during the year.
At
December 31, 2018
, there
were $
9.9
million of unrecognized compensation costs from stock-based and unit-based compensation related to non-vested awards. This compensation is expected to be recognized over a weighted
-average period of approximately
1.6
years. The potential tax benefit related to stock-based payment is approximately
25.2
% of
these expenses.
14
. 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.
During 2016, diluted EPS was computed using the treasury stock method for the convertible debt instruments, by dividing net income by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of the convertible debt instruments and any other outstanding dilutive securities.
Beginning in the
first quarter of 2017, the company changed its method for calculating dilutive EPS related to its convertible debt instruments from the treasury stock method to the if-converted method, as the company changed its financial strategy with respect to cash settlement of these instruments. As such, the company computed diluted EPS for 2017
and 2018
by dividing net income on an if-converted basis, adjusted to add back net interest expense related to the convertible debt instruments, by the weighted average number of common shares outstanding during the period, adjusted to include the shares that would be issued if the convertible debt instruments were converted to common shares and the effect of any outstanding dilutive securities.
The basic and diluted EPS are calculated as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Basic EPS:
|
|
|
|
|
|
|
|
|
Net income attributable to Green Plains
|
$
|
15,923
|
|
$
|
61,061
|
|
$
|
10,663
|
Weighted average shares outstanding - basic
|
|
40,320
|
|
|
39,247
|
|
|
38,318
|
EPS - basic
|
$
|
0.39
|
|
$
|
1.56
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
Net income attributable to Green Plains
|
$
|
15,923
|
|
$
|
61,061
|
|
$
|
10,663
|
Interest and amortization on convertible debt, net of tax effect:
|
|
|
|
|
|
|
|
|
3.25% notes
|
|
-
|
|
|
4,433
|
|
|
-
|
4.125% notes
|
|
-
|
|
|
8,159
|
|
|
-
|
Net income attributable to Green Plains - diluted
|
$
|
15,923
|
|
$
|
73,653
|
|
$
|
10,663
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
40,320
|
|
|
39,247
|
|
|
38,318
|
Effect of dilutive convertible debt:
|
|
|
|
|
|
|
|
|
3.25% notes
|
|
-
|
|
|
4,209
|
|
|
155
|
4.125% notes
|
|
-
|
|
|
6,071
|
|
|
-
|
Effect of dilutive stock-based compensation awards
|
|
934
|
|
|
713
|
|
|
100
|
Weighted average shares outstanding - diluted
|
|
41,254
|
|
|
50,240
|
|
|
38,573
|
|
|
|
|
|
|
|
|
|
EPS - diluted
|
$
|
0.39
|
|
$
|
1.47
|
|
$
|
0.28
|
Excluded from the calculation of dilut
ed EPS for the twelve months ended December 31, 2018 were
7
.
3
million
shares related to the effect of the convertible debt, as the inclusion of these shares would have been dilutive.
15
. STOCKHOLDERS’ EQUITY
Treasury
Stock
The company holds 5.
5
million shares of its common stock at a cost of $
58
.2 million. Treasury
stock is recorded at cost and reduces stockholders’ equity in the consolidated balance sheets. When shares are reissued, the company will use the weighted average cost method for determining the cost basis. The difference between the cost and the issuance price is added or deducted from additional paid-in capital.
Share Repurchase Program
In August 2014, the company announced a share repurchase program of up to
$100
million of its common stock. Under the program, the company 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 its 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.
The company repurchased
209,682
share
s
of
common stock for approximately
$3.0
million during 201
8
. Since incepti
on, the company has repurchased
1,119,349
shares of
common stock for approximately
$19.7
million
under the program.
Dividends
The company has paid a quarterly cash dividend since August 2013 and anticipates 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 the company’s liquidity, business needs or market conditions change. On
February 6
, 201
9
, the company’s board of directors declared a quarterly cash dividend of
$0.12
per share. The dividend is payable on
March 15
, 201
9
, to shareholders of record at the close of business on
February 22
, 201
9
.
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement requires the partnership to distribute all available cash, as defined, to its partners 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 the general partner of the partnership plus all or any portion of the cash on hand
resulting from working capital borrowings made subsequent to the end of that quarter. On
January 17
, 2019
, the board of directors of the general partner of the partnership declared a cash distribution of
$0.47
5
per unit on outstanding common
units
. The distribution is payable on
February 8
, 2019
, to unitholders of record at the close of business on
February 1
, 2019
.
Accumulated Other
Comprehensive Income
Changes in accumulated other comprehensive income are associated primarily with gains and losses on derivative financial instruments. Amounts reclassified from accumulated other comprehensive income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Statements of Income
|
|
2018
|
|
2017
|
|
2016
|
|
Classification
|
Gains (losses) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
(10,808)
|
|
$
|
18,167
|
|
$
|
(8,094)
|
|
Revenues
|
Commodity derivatives
|
|
1,252
|
|
|
(11,936)
|
|
|
(16,508)
|
|
Cost of goods sold
|
Total
|
|
(9,556)
|
|
|
6,231
|
|
|
(24,602)
|
|
Income (loss) before income taxes
|
Income tax expense (benefit)
|
|
(2,887)
|
|
|
2,306
|
|
|
(8,830)
|
|
Income tax expense (benefit)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
$
|
(6,669)
|
|
$
|
3,925
|
|
$
|
(15,772)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 201
8
and 201
7
, the company’s consolidated balance sheets reflected unrealize
d losses
of $
1
6.0
million
and $13
.1 million, net of tax, in accumulated other comprehensive loss, respectively.
Hereford and Hopewell Drop-Down
Effective January 1, 2016, the partnership acquired the storage and transportation assets of the Hereford and Hopewell production facilities in a transfer between entities under common control for approximately
$62.3
million
.
1
6. R
ESTRUCTURING ACTIVITIES
In the second quarter of 2
018, the company announced its portfolio optimization p
rogram of which one of the five strategic objectives was to
reduce controllable expenses.
As part of
the program, the company
implemented a workforce reduction at certain of
its
facilities, including
its
corporate location.
The associated severance costs were recognized at the time both the employee and employer were irrevocably committed to
the terms of the separation.
As of December 31, 2018,
the
company recognized a
$4.2
million charge for such workforce reductions
it
ha
d implemented through that date with
$3.8
million classified as
selling, general and administrative expense
and
$0.4
million classified as costs of goods sold
. Of the $
4.2
million charge,
$3.1
million was recorded in the corporate segment,
$0.7
million was recorded in the agribusiness
and energy services segment,
$0.4
million was recorded in the ethanol production segment. A
pproximately
$2.7
million of the total charge was included in accrued liabilities as of December 31, 2018.
17
. INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases, and net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted rates expected to be applicable to taxable income in the years those temporary differences are recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income during the period that includes the enactment date. The Tax Cuts and Jobs Act was enacted on December 22, 2017 and
was effective January 1, 2018.
Due to the significance of the legislation, the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides for a measurement period to complete the accounting for certain elements of the tax reform.
We have completed the analysis of the legislation and its impact to the financial statements. The company has determined that the deductibility of certain officer compensation is now limited under the new legislation. The tax impact of
$0.7
million for the amount that is not expected to be realized has been recorded to tax expense. This adjustment had an immaterial impact to the effective tax rate.
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 such income taxes on pre-tax income or loss attributable to the noncontrolling interest in the partnership.
Income tax expense (benefit) consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Current
|
|
$
|
7,758
|
|
$
|
(43,705)
|
|
$
|
2,950
|
Deferred
|
|
|
(24,484)
|
|
|
(81,077)
|
|
|
4,910
|
Total
|
|
$
|
(16,726)
|
|
$
|
(124,782)
|
|
$
|
7,860
|
The reduced benefit in 2018 compared to 2017 is primarily due to the company’s recognition of tax benefits related to enactment of the Tax Cuts and Jobs Act and for the completion of a multi-year study for Research and Development credits, or R&D Credits in 2017.
During the year
s
ended December 31, 201
8
and 2017
, the company recognized a net income tax benefit of
$19
.
6
million
and
$48.1
million, respectively
,
for federal and state R&D Credits
.
In addition,
$2
.
3
million
and
$9.2
million
, net, in
refundable credits not dependent upon taxable income was recorded as a reduction of cost of goods sold
during the years ended December 31, 2018 and 2017, respectively
.
R&D Credits recorded during 2017 related to tax years 2013 to 2016 as well as an estimated year-to-date tax benefit for federal and state R&D Credits for the 2017 tax year.
Differences between income tax expense at the statutory federal income tax rate and as presented on the consolidated statements of income are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Tax expense at federal statutory rate
|
$
|
4,202
|
|
$
|
(15,103)
|
|
$
|
13,423
|
State income tax expense, net of federal benefit
|
|
981
|
|
|
(915)
|
|
|
323
|
Nondeductible compensation
|
|
921
|
|
|
222
|
|
|
185
|
Noncontrolling interests
|
|
(4,370)
|
|
|
(7,199)
|
|
|
(6,940)
|
Unrecognized tax benefits
|
|
15,148
|
|
|
25,720
|
|
|
-
|
R&D credits
|
|
(34,979)
|
|
|
(74,033)
|
|
|
-
|
Disposition of subsidiary
|
|
(1,022)
|
|
|
-
|
|
|
-
|
Tax Cuts and Jobs Act impact
|
|
278
|
|
|
(54,485)
|
|
|
-
|
Stock compensation
|
|
993
|
|
|
-
|
|
|
-
|
Audit adjustments
|
|
559
|
|
|
-
|
|
|
-
|
Amended return adjustments
|
|
374
|
|
|
-
|
|
|
-
|
Other
|
|
189
|
|
|
1,011
|
|
|
869
|
Income tax expense (benefit)
|
$
|
(16,726)
|
|
$
|
(124,782)
|
|
$
|
7,860
|
Significant components of deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
Net operating loss carryforwards - Federal
|
$
|
-
|
|
$
|
12,767
|
Net operating loss carryforwards - State
|
|
4,004
|
|
|
5,291
|
Tax credit carryforwards - Federal
|
|
47,956
|
|
|
30,783
|
Tax credit carryforwards - State
|
|
9,369
|
|
|
5,342
|
Derivative financial instruments
|
|
-
|
|
|
2,592
|
Deferred revenue
|
|
2,236
|
|
|
919
|
Interest expense carryforward
|
|
2,048
|
|
|
-
|
Investment in partnerships
|
|
50,009
|
|
|
55,956
|
Inventory valuation
|
|
3,603
|
|
|
1,944
|
Stock-based compensation
|
|
1,458
|
|
|
2,468
|
Accrued expenses
|
|
5,439
|
|
|
5,541
|
Capital leases
|
|
2,516
|
|
|
2,426
|
Other
|
|
43
|
|
|
47
|
Total deferred tax assets
|
|
128,681
|
|
|
126,076
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Convertible debt
|
|
(7,508)
|
|
|
(8,350)
|
Fixed assets
|
|
(118,330)
|
|
|
(149,746)
|
Derivative financial instruments
|
|
(1,573)
|
|
|
-
|
Organizational and start-up costs
|
|
(3,980)
|
|
|
(20,947)
|
Total deferred tax liabilities
|
|
(131,391)
|
|
|
(179,043)
|
Valuation allowance
|
|
(7,413)
|
|
|
(3,834)
|
Deferred income taxes
|
$
|
(10,123)
|
|
$
|
(56,801)
|
At December 31, 2018, the company has federal R&D credits of $4
8
.
0
million which will begin to expire in 2033.
The company also has $9.
4
million of state credits which will expire beginning in 2021.
The company has
state net operating losses of $4
.
0
million which will begin to expire in 202
2
.
The company maintains a valuation allowance for its net deferred tax assets due to uncertainty that it will realize these assets in the future.
The deferred tax valuation allowance of $
7.4
million as of
December 31, 2018
,
relates to state tax credits that are not expected to be realized prior to expiration
starting in 2021
.
The deferred tax valuation allowance as of December 31, 2017 was $3.8 million. The increase
in the deferred tax valuation allowance was primarily due to state R&D credits generated that are not expected to be realized prior to expiration.
M
anagement considers whether it is more likely than not that some or all of the deferred tax assets will be realized, which is dependent on the generation of future taxable income and other tax attributes during the periods those temporary differences become deductible. Scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies
are considered to make this assessment.
The company’s federal and state returns for the tax years ended December 31, 2014, and later are still subject to audit. A reconciliation of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
Unrecognized Tax Benefits
|
Balance at January 1, 2018
|
$
|
25,976
|
Additions for prior year tax positions
|
|
5,980
|
Additions for current year tax positions
|
|
20,922
|
Settlements of prior year tax positions
|
|
(1,149)
|
Reductions for prior year tax positions
|
|
(171)
|
Balance at December 31, 2018
|
$
|
51,558
|
Recognition of these tax benefits would favorably impact the company’s effective tax rate.
Unrecognized tax benefits of $51.6
million include
$
4
0
.
8
million
recorded
as a reduction of the deferred asset associated with the federal tax credit carryforwards. Interest and penalties associated with uncertain tax positions are accrued as part of income taxes payable.
18
. 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
$38.8
million, $
45.8
million and $
38.0
million during the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Aggregate minimum lease payments under these agreements for future fiscal years are as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2019
|
|
$
|
23,552
|
2020
|
|
|
17,473
|
2021
|
|
|
9,812
|
2022
|
|
|
7,325
|
2023
|
|
|
3,594
|
Thereafter
|
|
|
28,542
|
Total
|
|
$
|
90,298
|
Commodities
As of
December 31, 2018
, the
company had contracted future purchases of grain, corn oil, natural gas, ethanol, distillers grains and cattle, valued at approximately
$2
89
.
3
million.
Legal
In November 2013, the company acquired two ethanol plants located in Fairmont, Minnesota an
d Wood River, Nebraska. There was
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.
On October 30, 2018, the ongoing litigation was settled and
an adjustment to reduce the cost of inventory purchased in the acquisition
was
recorded in the fourth quarter as a reduction of costs of goods sold.
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.
19
. EMPLOYEE BENEFIT PLANS
The company offers eligible employees a comprehensive employee benefits plan that includes health, dental, vision, life and accidental death, short-term disability and long-term disability insurance, and flexible spending accounts. The company also offers a 401(k) plan enabling eligible employees to save for retirement on a tax-deferred basis up to the limits allowed under the Internal Revenue Code and matches up to
4
% of eligible employee contributions. Employee and employer contributions are
100
%
vested immediately. Employer contributions to the 401(k) plan for the years ended
December 31, 2018
,
2017
and
2016
were
$2.
2
million, $
2.1
million and $
1.6
million, respectively.
The company contributes to a defined benefit pension plan. Since January of 2009, the benefits under the plan were frozen; however, the
company remains obligated to ensure the plan is funded according to its requirements. As of
December 31, 2018
, the plan’s assets were $
4.9
million and liabilities were $
6.5
million. At
December 31, 2018
and
2017
, net liabilities of $
1.6
million and
$0.6
million were
included in other liabilities on the consolidated balance sheets, respectively.
20
. 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, whom Gordon Glade, a member of the company’s board of directors,
was formerly a shareholder. Amur Equipment Finance is no longer considered a related party as of the third quarter of 2018.
There was
$
0.6
million related to th
ese financing arrangements
included in debt at
December 31, 2017
. Payments, including principal and interest,
totaled
$0.2
million
for
the year
ended
December 31, 2018
and
$0.3
million for the years ended December 31,
2017
and
2016
.
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. During the years ended
December 31, 2018
,
2017
and
2016
, payments related to these leases totaled $
159
thousand,
$
182
thousand and $
190
thousand
, respectively. The company had
n
o
outstanding payables related to these agreements at
December 31, 2018
, and
$2
thousand
in
outstanding payable
s
related to these agreements at
December 31, 2017
.
21
. QUARTERLY FINANCIAL DATA (Unaudited)
The following table includes unaudited financial data for each of the quarters within the years ended
December 31, 2018
and
2017
(in thousands, except per share amounts), which is derived from the company’s consolidated financial statements. In management’s opinion, the financial data reflects all of the adjustments necessary for a fair presentation of the quarters presented. The operating results for any quarter are not necessarily indicative of results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
Revenues
|
$
|
811,129
|
|
$
|
1,000,100
|
|
$
|
986,837
|
|
$
|
1,045,287
|
Costs and expenses
(1)
|
|
703,888
|
|
|
999,451
|
|
|
975,072
|
|
|
1,049,212
|
Operating income (loss)
|
|
107,241
|
|
|
649
|
|
|
11,765
|
|
|
(3,925)
|
Other expense
|
|
(32,672)
|
|
|
(22,726)
|
|
|
(18,767)
|
|
|
(21,557)
|
Income tax benefit (expense)
|
|
(14,712)
|
|
|
14,658
|
|
|
10,753
|
|
|
6,027
|
Net income (loss) attributable to Green Plains
|
|
53,503
|
|
|
(12,469)
|
|
|
(994)
|
|
|
(24,117)
|
Basic earnings (loss) per share attributable to Green Plains
|
|
1.32
|
|
|
(0.31)
|
|
|
(0.02)
|
|
|
(0.60)
|
Diluted earnings (loss) per share attributable to Green Plains
|
|
1.13
|
|
|
(0.31)
|
|
|
(0.02)
|
|
|
(0.60)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
December 31,
2017
|
|
September 30,
2017
|
|
June 30,
2017
|
|
March 31,
2017
|
Revenues
|
$
|
920,984
|
|
$
|
901,235
|
|
$
|
886,263
|
|
$
|
887,684
|
Costs and expenses
|
|
913,560
|
|
|
880,519
|
|
|
890,049
|
|
|
870,292
|
Operating income (loss)
|
|
7,424
|
|
|
20,716
|
|
|
(3,786)
|
|
|
17,392
|
Other expense
|
|
(18,954)
|
|
|
(30,062)
|
|
|
(17,759)
|
|
|
(18,122)
|
Income tax benefit
(2)
|
|
63,877
|
|
|
48,775
|
|
|
9,749
|
|
|
2,381
|
Net income (loss) attributable to Green Plains
|
|
46,630
|
|
|
34,394
|
|
|
(16,366)
|
|
|
(3,597)
|
Basic earnings (loss) per share attributable to Green Plains
|
|
1.16
|
|
|
0.83
|
|
|
(0.41)
|
|
|
(0.09)
|
Diluted earnings (loss) per share attributable to Green Plains
|
|
0.99
|
|
|
0.74
|
|
|
(0.41)
|
|
|
(0.09)
|
|
(1)
|
|
The fourth quarter of 2018 includes
the net gain on the sale of assets of $
15
0.4
million related to the sale of three ethanol plants and Fleischmann’s Vinegar.
|
|
(2)
|
|
The third and fourth quarters of 2017 reflect adjustments for R&D Credits and the reduced tax rate due to the Tax Cuts and Jobs Act.
|
.