EDGAR 10-K Filing

Company CIK: 1309402
Filing Year: 2021
Filename: 1309402_10-K_2021_0001309402-21-000014.json

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ITEM 1. BUSINESS
Item 1. Business.
References to “we,” “us,” “our,” “Green Plains,” or the “company” refer to Green Plains Inc. and its subsidiaries.
Overview
Green Plains is an Iowa corporation, founded in June 2004 as a producer of low carbon fuels and has grown to be one of the leading corn processors in the world. We continue the transition from a commodity-processing business to a value-add agricultural technology company focused on creating additional diverse, non-cyclical, higher margin feed ingredients, specialty alcohols and renewable feedstocks for the emerging renewable diesel industry. In addition, we are currently undergoing a number of project initiatives to improve our operating margins. Through our Project 24 initiative, we anticipate reductions in operating expense per gallon across our non-ICM plants. USP upgrades and planned GNS upgrades are expected to provide additional improvements to our financial results. Additionally, through our Ultra-High Protein initiative, we expect to produce various Ultra-High Protein and novel feed ingredients targeting the pet, dairy and aquaculture industries further increasing margin per gallon.
We recently completed the purchase of a majority interest in Fluid Quip Technologies, LLC. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production across Green Plains facilities, as well as offer these technologies to partnering biofuel facilities.
Additionally, we have taken advantage of opportunities to divest certain assets in recent years to reallocate capital toward our current growth initiatives. We are focused on generating stable operating margins through our business segments and risk management strategy and expanding our focus on specialty alcohols and high value protein ingredients. We own and operate assets throughout the ethanol value chain: upstream, with grain handling and storage; through our ethanol production facilities; and downstream, with marketing and distribution services to mitigate commodity price volatility.
We formed Green Plains Partners LP, a master limited partnership, to be our primary downstream storage and logistics provider since its assets are the principal method of storing and delivering the ethanol we produce. The partnership completed its initial public offering on July 1, 2015. As of December 31, 2020, we own a 48.9% limited partner interest, a 2.0% general partner interest and all of the partnership’s incentive distribution rights. The public owns the remaining 49.1% limited partner interest. The partnership is consolidated in our financial statements.
We group our business activities into the following four operating segments to manage performance:
Ethanol Production. Our ethanol production segment includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil at 12 ethanol plants in Illinois, Indiana, Iowa, Minnesota, Nebraska and Tennessee. At capacity, our facilities are capable of processing approximately 354 million bushels of corn per year and producing approximately 1.0 billion gallons of ethanol, 2.5 million tons of distillers grains and 276 million pounds of industrial grade corn oil, making us one of the largest ethanol producers in North America.
Agribusiness and Energy Services. Our agribusiness and energy services segment includes grain procurement, with approximately 38.1 million bushels of grain storage capacity, and our commodity marketing business, which markets, sells and distributes ethanol, distillers grains and corn oil produced at our ethanol plants. We also market ethanol for a third-party producer as well as buy and sell ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein, corn oil, grain, natural gas and other commodities in various markets.
Food and Ingredients. Our food and ingredients segment currently includes our food-grade corn oil operations. Fleischmann’s Vinegar, one of the world’s largest producers of food-grade industrial vinegar, was also included in the food and ingredients segment until its sale on November 27, 2018. On September 1, 2019, we formed a joint venture and sold 50% of our cattle feeding operations which has the capacity to support approximately 355,000 head of cattle and grain storage capacity of approximately 24.1 million bushels. The assets and liabilities and results of operations of GPCC prior to its divesture have been reclassified as discontinued operations for all periods presented. Our continued investment in GPCC was accounted for under the equity method of accounting until its disposition in October 2020. For more information about GPCC, refer to Note 5 - Acquisitions, Dispositions and Discontinued Operations and Note 21 - Equity Method Investments included as part of the notes to consolidated financial statements.
Partnership. Our master limited partnership 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. The partnership’s assets include 31 ethanol storage facilities, six fuel terminal facilities and approximately 2,480 leased railcars.
Risk Management and Hedging Activities
Our margins our highly dependent on commodity prices, particularly for ethanol, corn, distillers grains, corn oil and natural gas. Since market price fluctuations among these commodities are not always correlated, ethanol production has been and may continue to be unprofitable at times. We use a variety of risk management tools and hedging strategies to monitor real-time operating price risk exposure at each of our operations to obtain favorable margins, when available.
We use forward contracts to sell a portion of our ethanol, distillers grains, and corn oil production or buy some of the corn, natural gas, or ethanol we need to partially offset commodity price volatility. We also engage in other hedging transactions involving exchange-traded futures contracts for corn, natural gas, ethanol, soybean meal, soybean oil and other agricultural commodities. The financial impact of these activities depends on the price of the commodities involved and our ability to physically receive or deliver those commodities.
Hedging arrangements expose us to risk of financial loss when the counterparty defaults on its contract or, in the case of exchange-traded contracts, when the expected differential between the price of the underlying commodity and physical commodity changes. Hedging activities can result in losses when a position is purchased in a declining market or sold in a rising market. Hedging losses may be offset by a decreased cash price for corn and natural gas and an increased cash price for ethanol, distillers grains, Ultra-High Protein and corn oil. Depending on the circumstance, we vary the amount of hedging or other risk mitigation strategies we undertake and sometimes choose not to engage in hedging transactions at all.
Competitive Strengths
We are focused on managing commodity price risks, improving operational efficiencies and optimizing market opportunities to create an efficient platform with diversified income streams. Our competitive strengths include:
Disciplined Risk Management. Risk management is a core competency and we use a variety of risk management tools and hedging strategies to maintain a disciplined approach. Our internally developed operating margin management system allows us to monitor commodity price risk exposure at each of our operations and lock in favorable margins, when available, or temporarily reduce production levels during periods of compressed margins.
Operational Excellence. Our facilities are staffed with experienced industry personnel who share operational knowledge and expertise. We focus on making incremental operational improvements to enhance performance using real-time production data and systems to monitor our operations and optimize performance.
Technology Integration. Over our history, we have incorporated new technologies like corn oil extraction and Selective Milling Technology™ into our manufacturing processes that have enabled us to run more efficiently and improve our financial results. We are currently undergoing a number of project initiatives to improve margins. Through our Project 24 initiative, we have seen reductions in operating expenses and anticipate additional reductions in operating expense per gallon across our remaining non-ICM plants as a result of these continuing investments. USP upgrades and planned GNS and CST upgrades are expected to provide additional improvements to our financial results.
In addition, through our Ultra-High Protein initiative using Fluid Quip’s MSC™ system, we expect to achieve increased margins per gallon as a result of the ability to produce various high protein animal feed products. We have partnered with Novozymes in an exclusive venture to produce higher purity protein and protein meals with nutritional and other feed benefits through non-mechanical methods. In addition, the formation of an exclusive partnership with Hayashikane Sangyo of Japan, one of the oldest and most successful integrated aquafeed companies in the world broadens our access to innovative feed solutions. The acquisition of a majority interest in Fluid Quip Technologies secures additional intellectual property rights that could be deployed across the Green Plains platform, including those aimed at developing and implementing proven, value-added agriculture, food and industrial biotechnology systems, and rapidly expanding installation of Ultra-High Protein production across our facilities in parallel with offering these technologies to partnering biofuel facilities. We continue to evaluate additional technological opportunities to expand our capabilities and product offerings in the coming years.
Proven Management Team. Our senior management team averages approximately 30 years of commodity risk management and related industry experience. We have specific expertise across all of our businesses, including plant operations and management, commodity markets and risk management, quality assurance, quality control, and ethanol marketing and distribution. Our management team’s level of operational and financial expertise is essential to successfully executing our business strategies.
Business Strategy
We believe that the world will continue to increase its demand for protein for human consumption, driving the need to produce larger amounts of high protein feed for animals and aquaculture. With new technologies introduced in the ethanol industry, we believe that ethanol production facilities can increasingly become high-protein feed producers. We began operations to produce Ultra-High Protein in 2020 and have begun to deploy this technology at additional locations in an effort to capture higher co-product returns. We are striving to deploy Ultra-High Protein process technology across our platform to take advantage of the world’s growing demand for protein feed ingredients.
Our first Ultra-High Protein installation was completed at our Shenandoah plant during the first quarter of 2020 with shipments of dried product beginning in April 2020. The Ultra-High Protein installation at our Wood River plant began during the third quarter 2020 with shipments expected to begin in the third quarter of 2021. We anticipate that additional locations will be completed over the course of the next several years. Through our Ultra-High Protein initiative we expect to produce feed ingredients with protein concentration of 50% or greater, as well as other higher value products, such as post-MSC distillers grains.
We have also upgraded our York plant to produce USP grade alcohol and will complete further upgrades to produce GNS by adding additional distillation and processing capabilities to serve other high-value markets, including the beverage alcohol market. The GNS upgrade is expected to be completed during the second quarter of 2021. Our Wood River plant is undergoing upgrades to modify its capacity to produce USP and we anticipate completion of that project during the second quarter of 2021 and will continue to produce USP grade alcohol during construction. We expect to complete the CST production facility at York in the first quarter of 2021, which will allow for the production of both food and industrial grade dextrose. We anticipate modifying one or more biorefineries to CST production facilities to meet anticipated future customer demands.
We believe ethanol could become an increasingly larger portion of the global fuel supply driven by heightened environmental concerns and energy independence goals, supported by government policies and regulations. In the 1990’s, federal law required the use of oxygenates in reformulated gasoline to reduce vehicle emissions in cities with unhealthy levels of air pollution. Today, ethanol is the primary oxygenate used by the U.S. refining industry to meet various federal and state air emission standards. The high octane value of ethanol has also made it the primary additive used by refiners to increase octane value, which improves engine performance. Accordingly, ethanol has become a valuable blend component that comprises approximately 10% of the domestic gasoline supply with the potential to grow with higher blends and increased gasoline demand. Ethanol usage is further supported by federal government mandates under RFS II, which assigns individual refiners, blenders and importers the volume of renewable fuels they are obligated to use based on their percentage of total fuel sales. Advances in domestic corn yields have helped the U.S. ethanol industry become the lowest-cost producer of ethanol, surpassing Brazil, creating demand for U.S. ethanol worldwide.
In light of the ethanol industry’s environment, we are focused on continued improvement of our low-cost ethanol production platform and reducing costs. Owning grain storage at or near our ethanol plants allows us to develop relationships with local producers and originate corn more effectively at a lower average cost. We purchase approximately 55% of our corn volume directly from farmers and have approximately 45 production days of storage capacity at or near our ethanol plants. We use our performance data to develop strategies that can be applied across our platform and embrace technological advances to improve operational efficiencies and yields, such as Selective Milling Technology™ and Enogen® corn enzyme technology, to lower our processing cost per gallon and increase production volumes. We are executing on our Project 24 initiative at our non-ICM plants, except our York and Atkinson plants, to reduce energy consumption and increase operational reliability at these plants, reducing our operating expense per gallon which we anticipate completing during the second quarter of 2021.
We believe there is untapped value across our businesses and we intend to further develop and strengthen our business by identifying projects that maximize our production capabilities and lower existing costs at our production facilities. We also seek to leverage our core competencies in adjacent businesses such as aquafeeds, high protein animal feed and other commodity processing operations that maximize our operational and risk management expertise.
Recent Developments
The following is a summary of our significant recent developments. Additional information about these items can be found elsewhere in this report or in previous reports filed with the SEC.
BlackRock Note Facility
On February 9, 2021, Green Plains SPE LLC, a wholly owned subsidiary of the company and a special purpose entity (the Issuer) completed a $125.0 million, 5-year mezzanine note facility with funds and accounts managed by BlackRock. The proceeds will be used initially to support the construction and deployment of Ultra-High Protein technology and production at the Obion, Tennessee and Mount Vernon, Indiana facilities. In addition, the company announced BlackRock has invested alongside Ospaire Management and Green Plains in Fluid Quip Technologies LLC. As part of the transaction, BlackRock acquired 2,000,000 warrants for Green Plains stock (each warrant equal to one share of stock) with a strike price of $22.00 per share, which expire on February 9, 2026. See further discussions in Note 23 - Subsequent Events of the financial statements.
Disposition of Ord Ethanol Plant
On January 25, 2021, we entered into an Asset Purchase Agreement to sell our ethanol plant located in Ord, Nebraska to GreenAmerica Biofuels Ord LLC. The transaction involves the disposition of 65 million gallons of nameplate capacity, and is being sold for $64.0 million, plus an estimated $6.0 million of related working capital. Correspondingly, the partnership entered into an Asset Purchase Agreement to sell its storage assets located adjacent to the Ord plant to Green Plains for $27.0 million, which will be used to pay down debt, along with the transfer of associated railcar operating leases. As part of this transaction, upon closing, the quarterly storage and throughput minimum volume commitment with Green Plains Trade will be reduced to 217.7 mmg per quarter and the storage and throughput agreement with Green Plains Trade will be extended an additional year to June 30, 2029. The transaction is anticipated to close within 45 days, subject to customary closing conditions. See further discussions in Note 23 - Subsequent Events of the financial statements.
Disposition of Hereford Ethanol Plant
On December 28, 2020, we completed the sale of the ethanol plant located in Hereford, Texas, and certain related assets from subsidiaries, to Hereford Ethanol Partners, L.P. for the sale price of $39.0 million, plus working capital. Correspondingly, the partnership’s ethanol storage assets located adjacent to the Hereford plant were purchased by the company for $10.0 million, which was used to pay down debt, and certain railcar operating leases were assigned to Hereford Ethanol Partners, L.P. The divested assets were reported within the ethanol production, agribusiness and energy and partnership segments. We recorded a pretax loss on the sale of the ethanol plant of $22.4 million, of which $18.5 million was recorded within corporate activities and $3.9 million was recorded within the ethanol production segment. Transaction fees related to the disposal were not material. The agreement contains certain earn-out provisions to be received from Hereford Ethanol Partners, L.P. if certain future provisions are met. We will record any contingent amounts in the consolidated financial statements when the amount is reasonably determinable or the consideration is realized.
Acquisition of Majority Interest in Fluid Quip Technologies, LLC
In December 2020, we acquired a majority interest in Fluid Quip Technologies, LLC. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production of Ultra-High Protein across Green Plains facilities, as well as offer these technologies to partnering biofuel facilities. The agreement contains certain earn-out provisions to be received from the company if certain future results are met, including but not limited to, results of implementation and execution of technology. We will record the obligation related to the earn-out provision as compensation within selling, general and administrative expenses as the earn-out becomes probable.
Disposition of Equity Interest in Green Plains Cattle Company LLC
On October 9, 2020, we sold our remaining 50% joint venture interest in GPCC to AGR Special Opportunities Fund I LP (“AGR”), TGAM Agribusiness Fund LP and StepStone (the “Buyers”) for $80.5 million in cash, plus closing adjustments. The transaction was effective on October 1, 2020, and resulted in a reduction in other assets of $69.7 million as a result of removal of the equity method investment in GPCC, and a reduction in accumulated other comprehensive income (loss) of $10.7 million as a result of the removal of our share of GPCC’s accumulated other comprehensive loss. Transaction fees related to the disposal were not material. There was no material gain or loss recorded as part of this transaction. The agreement contains certain earn-out provisions to be paid to or received from the Buyers if certain EBITDA thresholds are
met. We will record any contingent amounts in the consolidated financial statements when the amount is probable and reasonably determinable or the consideration is realized.
Closing of $75.0 Million Loan Facility
On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, our wholly-owned subsidiaries, entered into a delayed draw loan agreement with MetLife Real Estate Lending LLC. The $75.0 million delayed draw loan matures on September 1, 2035 and is secured by substantially all of the assets of the Wood River and Shenandoah facilities. The delayed draw loan bears interest at a fixed rate of 5.02%, plus an interest rate premium of 1.5% until the loan is fully drawn, which must occur within the 18 month draw period. Principal payments of $1.5 million per year begin 24 months from the closing date. The proceeds from the loan are being used to add high protein processing systems at the Wood River and Shenandoah facilities as well as other capital expenditures.
Impact of COVID-19 and Decline in Gasoline Demand
We continue to closely monitor the impact of COVID-19 on all aspects of our business, including how it will impact our employees, customers, vendors, and business partners. Although we did not incur significant disruptions from COVID-19 during the year ended December 31, 2020, the COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the energy industry. The situation surrounding COVID-19 continues to evolve rapidly and the ultimate duration and impact of the outbreak as well as the continued decline in gasoline demand remains highly uncertain and subject to change. There was a significant reduction of gasoline demand in certain market areas particularly during the early months of the pandemic, which resulted in a reduction in ethanol demand. The return to prior levels of gasoline demand continues to be uncertain.
There has been no material adverse effect on our ability to maintain operations, including our financial reporting systems, our internal controls over financial reporting or our disclosure controls and procedures. In addition, to date we have not incurred any material COVID-19 related contingencies. We are unable to predict the impact that COVID-19 will have on our future financial position and operating results due to numerous uncertainties.
For further information regarding the impact of COVID-19 and the decline in gasoline demand on the company, please see Item 1A - Risk Factors, in this report, which is incorporated herein by reference.
Operating Segments
Ethanol Production Segment
Industry Overview. Ethanol, also known as ethyl alcohol or grain alcohol, is a colorless liquid produced by fermenting carbohydrates found in a number of different types of grains, such as corn, wheat and sorghum, and other cellulosic matter found in plants. Most of the ethanol produced in the United States is made from corn because it contains large quantities of carbohydrates that convert into glucose more easily than most other kinds of biomass, which can be handled efficiently and is in greater supply than other grains. According to the USDA, on average, one bushel, or 56 pounds, of corn, produces approximately 2.9 gallons of ethanol, 15 pounds of distillers grains and 0.7 pounds of corn oil. Outside of the United States, sugarcane is the primary feedstock used to produce ethanol.
Ethanol is a significant component of the biofuels industry, which includes all transportation fuels derived from renewable biological materials. Biofuels are an excellent oxygenate and source of octane. When added to petroleum-based transportation fuels, oxygenates reduce vehicle emissions. Ethanol is the most economical oxygenate and source of octane available on the market and its production costs are competitive with gasoline.
Ethanol Plants. We operate 12 dry mill ethanol production plants, located in six states, that produce ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil:
Plant Location
Initial Operation or
‎Acquisition Date
Technology
Plant Production
‎Capacity (mmgy)
Atkinson, Nebraska
June 2013
Delta-T
Central City, Nebraska
July 2009
ICM
Fairmont, Minnesota
Nov. 2013
Delta-T / ICM
Madison, Illinois
Sept. 2016
Vogelbusch
Mount Vernon, Indiana
Sept. 2016
Vogelbusch
Obion, Tennessee (1)
Nov. 2008
ICM
Ord, Nebraska
July 2009
ICM
Otter Tail, Minnesota
Mar. 2011
Delta-T / ICM
Shenandoah, Iowa (1)
Aug. 2007
ICM
Superior, Iowa (1)
July 2008
Delta-T / ICM
Wood River, Nebraska
Nov. 2013
Delta-T / ICM
York, Nebraska
Sept. 2016
Vogelbusch
Total
1,023
(1)We constructed these three plants; all other ethanol plants were acquired.
Our business is directly affected by the supply and demand for ethanol and other fuels in the markets served by our assets. Miles driven typically increase during the spring and summer months related to vacation travel, followed closely by the fall season due to holiday travel.
The majority of our plants are equipped with industry-leading ICM or Delta-T ethanol processing technology. Our years of experience building, acquiring and operating these technologies provides us with a deep understanding of how to effectively and efficiently manage both platforms for maximum performance. Through our Project 24 initiative, we anticipate reductions in operating expense per gallon across our non-ICM plants.
Industrial-Grade Alcohol. Industrial-grade alcohol is produced by further distillation processing of the 200-proof alcohol. Further distillation removes impurities from fuel-grade ethanol to allow for production of industrial-grade alcohol which can be used as an ingredient for sanitation products. Industrial-grade alcohol is currently produced at our Wood River and York facilities, with our Wood River biorefinery producing food chemical codex (FCC) grade industrial alcohol and our York biorefinery producing USP.
Corn Feedstock and Ethanol Production. Our plants use corn as feedstock in a dry mill ethanol production process. Each of our plants requires approximately 17 million to 42 million bushels of corn annually, depending on its production capacity. The price and availability of corn are subject to significant fluctuations driven by a number of factors that affect commodity prices in general, including crop conditions, weather, governmental programs, freight costs and global demand. Ethanol producers are generally unable to pass increased corn costs to customers.
Our corn supply is obtained primarily from local markets. We use cash and forward purchase contracts with grain producers and elevators to buy corn. We maintain direct relationships with local farmers, grain elevators and cooperatives, which serve as our primary sources of grain feedstock, at 10 of our ethanol plants. This allows us to purchase much of the corn we need directly from farmers throughout the year. At two of our ethanol plants, we contract with a third-party grain originator to supply the corn necessary for ethanol production. These contracts terminate in November 2023. Each of our plants is also situated on rail lines or has other logistical solutions to access corn supplies from other regions of the country should local supplies become insufficient.
Corn is received at the plant by truck or rail then weighed and unloaded into a receiving building. Grain storage facilities are used to inventory grain that is passed through a scalper to remove rocks and debris prior to processing. The corn is then transported to a hammer mill where it is ground into flour and conveyed into a slurry tank for enzymatic processing. Water, heat and enzymes are added to convert the complex starch molecules into simpler carbohydrates. The slurry is heated to reduce the potential of microbial contamination and pumped into a liquefaction tank where additional enzymes are added. Next, the grain slurry is pumped into fermenters, where yeast, enzymes, and nutrients are added and the fermentation process is started. A beer column, within the distillation system, separates the alcohol from the spent grain mash. The alcohol is dehydrated to 200-proof alcohol and either pumped into a holding tank and blended with approximately 2% denaturant as it is pumped into finished product storage tanks, or marketed as undenatured ethanol.
Distillers Grains. The spent grain mash is pumped from the beer column into a decanter-type centrifuge for dewatering. The water, or thin stillage, is pumped from the centrifuge into an evaporator, where it is concentrated into a thick syrup. The solids, or wet cake, that exit the centrifuge are conveyed to the dryer system and dried at varying temperatures to produce distillers grains. Syrup is reapplied to the wet cake prior to drying to provide additional nutrients. Distillers grains, the principal co-product of the ethanol production process, are used as mid-protein, high-energy animal feed and marketed to the dairy, beef, swine and poultry industries.
We can produce three forms of distillers grains, depending on the number of times the solids are passed through the dryer system:
wet distillers grains, which contain approximately 65% to 70% moisture, have a shelf life of approximately three days and is therefore sold to dairies or feedlots within the immediate vicinity;
modified wet distillers grains, which is dried further to approximately 50% to 55% moisture, have a shelf life of approximately three weeks and are marketed to regional dairies and feedlots; and
dried distillers grains, which have been dried more extensively to approximately 10% to 12% moisture, have an almost indefinite shelf life and may be stored, sold and shipped to any market.
Corn Oil. Corn oil systems extract non-edible corn oil from the thin stillage evaporation process immediately before the production of distillers grains. Corn oil is produced by processing the syrup through a decanter-style, or disk-stack, centrifuge. The centrifuges separate the relatively light corn oil from the heavier components of the syrup. We extract approximately 0.8 pounds of corn oil per bushel of corn used to produce ethanol. Industrial uses for corn oil include feedstock for renewable diesel, biodiesel and livestock feed additives. The syrup is blended into wet, modified wet or dried distillers grains.
Ultra-High Protein. Ultra-High Protein is produced by further processing of the spent grain mash from the beer column. The spent grain is processed by a FluidQuip Technologies MSCTM system. The MSC system contains a series of screening equipment to remove fiber from the spent grain which is sent to the distillers grain dryer. The remaining product is washed and clarified into a wet protein stream which is dried in a ring dryer to produce Ultra-High Protein meal. The product typically has protein concentration of 50% or greater and yields of approximately 3.5 pounds per bushel have been achieved.
Natural Gas. Depending on production parameters, our ethanol plants use approximately 20,000 to 45,000 BTUs of natural gas per gallon of production. We have service agreements to acquire the natural gas we need and transport the gas through pipelines to our plants.
Electricity. Our plants require between 0.5 and 1.6 kilowatt hours of electricity per gallon of production. Local utilities supply the necessary electricity to all of our ethanol plants.
Water. While some of our plants satisfy a majority of their water requirements from wells located on their respective properties, each plant also obtains drinkable water from local municipal water sources. Each facility either uses city water or operates a filtration system to purify the well water that is used for its operations. Local municipalities supply all of the necessary water for our plants that do not have onsite wells. Most of the water used in an ethanol plant is recycled in the production process.
Agribusiness and Energy Services Segment
Our agribusiness and energy services segment includes three grain elevators in three states with combined grain storage capacity of approximately 7.6 million bushels, and grain storage at our ethanol plants of approximately 30.5 million bushels, detailed in the following table:
Facility Location
On-Site Grain Storage Capacity
‎(thousands of bushels)
Grain Elevators
Archer, Nebraska
1,246
Essex, Iowa
3,651
Hopkins, Missouri
2,713
Ethanol Plants
Atkinson, Nebraska
5,109
Central City, Nebraska
1,400
Fairmont, Minnesota
1,611
Madison, Illinois
1,015
Mount Vernon, Indiana
1,034
Obion, Tennessee
8,168
Ord, Nebraska
2,575
Otter Tail, Minnesota
2,772
Shenandoah, Iowa
Superior, Iowa
2,230
Wood River, Nebraska
3,293
York, Nebraska
Total
38,050
We buy bulk grain, primarily corn and soybeans, from area producers, and provide grain drying and storage services to those producers. The grain is used as feedstock for our ethanol plants or sold to grain processing companies and area livestock producers. Bulk grain commodities are traded on commodity exchanges. Inventory values are affected by changes in these markets and spreads. To mitigate risks related to market fluctuations from purchase and sale commitments of grain, as well as grain held in inventory, we enter into exchange-traded futures and options contracts that function as economic and designated accounting hedges at times.
Seasonality is present within our agribusiness operations. The fall harvest period typically results in higher handling margins and stronger financial results during the fourth quarter of each year.
Through Green Plains Trade, we market the ethanol we and a third party produce to local, regional, national and international customers. We also purchase ethanol from independent producers for pricing arbitrage. We sell to various markets under sales agreements with integrated energy companies; retailers, traders and resellers in the United States and buyers for export to Brazil, Canada, Europe, China and other international markets. Under these agreements, ethanol is priced under both fixed and indexed pricing arrangements.
Also through Green Plains Trade, we market wet and modified wet distillers grains to local markets and dried distillers grains to local, national and international markets. The bulk of our demand is delivered to geographic regions that do not have significant local corn or distillers grains production.
Our markets can be further segmented by geographic region and livestock industry. Most of our wet and modified wet distillers grains are sold to midwestern feedlot markets. A substantial amount of dried distillers grains are shipped by barge, containers and rail to regional and national markets, as well as international markets. Our dried distillers grains are shipped to feedlots and poultry markets, as well as Texas and West Coast rail markets. Some of our distillers grains are shipped by truck to dairy, beef, and poultry operations in the eastern United States. We also ship by railcar to eastern and southeastern feed mills, poultry and dairy operations, and domestic trade companies. We sell to international markets indirectly through exporters. Access to diversified markets allows us to sell product to customers offering the highest net price.
Our corn oil is sold primarily to renewable diesel and biodiesel plants and, to a lesser extent, feedlot and poultry markets. We transport our corn oil by truck to locations in a close proximity to our ethanol plants primarily in the southeastern and midwestern regions of the United States. We also transport corn oil by rail and barges to national markets as well as to exporters for shipment on vessels to international markets.
Through Green Plains Trade, we provide marketing services of natural gas to our ethanol plants and to other third parties including the procurement of both the pipeline capacity and natural gas. We also enhance the value by aggregating volumes at various storage facilities which can be sold to either the plants or various intermediary markets and end markets.
Our railcar fleet for the agribusiness and energy services segment consists of approximately 400 leased hopper cars to transport distillers grains and approximately 170 leased tank cars to transport corn oil and crude oil. The initial terms of the lease contracts are for periods up to ten years and the weighted average remaining lease terms on these cars was approximately 3 years.
Food and Ingredients Segment
Food-grade corn oil production. Our food-grade corn oil operations focus on shipping corn oil from facilities across the Midwest by rail or barge to terminal facilities located in the southern United States. Once the corn oil arrives at the terminal facility, it is unloaded and consolidated into set volumes and prepared for shipment by vessel. The corn oil is then shipped to independent refiners outside the United States for refining into a refined, bleached, dewaxed and deodorized food-grade product. This finished product is then shipped by vessel or container to our various customers. In addition, we also execute trade volumes of corn oil and soybean oil in both domestic and international markets. Food-grade corn oil production had no activity during fiscal year 2020.
Vinegar operations. Fleischmann’s Vinegar, one of the world’s largest producers of food-grade industrial vinegar, was also included in the food and ingredients segment until its sale on November 27, 2018.
Partnership Segment
Our partnership segment provides fuel storage and transportation services through (i) 31 ethanol storage facilities located at or near our 12 operational ethanol production plants and one non-operational ethanol production plant, (ii) six fuel terminal facilities located near major rail lines, and (iii) a leased railcar fleet and other transportation assets.
Transportation and Delivery. Most of our ethanol plants are situated near major highways or rail lines to ensure efficient movement. We are able to move product from our ethanol plants to bulk terminals via truck, railcar or barge. We also manage the logistics and transportation requirements of our customers to improve our fleet’s efficiency and reduce operating costs.
Deliveries within 150 miles of our plants and the partnership’s fuel terminal facilities are generally transported by truck. Deliveries to distant markets are shipped using major U.S. rail carriers that can switch cars to other major railroads, allowing our plants to ship product throughout the United States.
To meet the challenge of marketing ethanol and distillers grains to diverse market segments, several of our plants are capable of simultaneously handling more than 150 railcars. Some of our locations have large loop tracks with unit train loading capabilities for both ethanol and dried distillers grains and spurs to connect the loop to the mainline or allow the movement and storage of railcars on site.
As of December 31, 2020, the partnership’s leased railcar fleet consisted of approximately 2,480 railcars with an aggregate capacity of 74.4 mmg. We expect the partnership’s railcar volumetric capacity to fluctuate over the normal course of business as the existing railcar leases expire and we enter into or acquire new railcar leases.
To optimize the partnership’s railcar assets, we transport products other than ethanol depending on market opportunities and have used a portion of our railcar fleet to transport crude oil for third parties and to lease railcars to other users.
Terminal and Distribution Services. Ethanol is transported from the partnership’s terminals to third-party terminal racks where it is blended with gasoline and transferred to the loading rack for delivery by truck to retail gas stations. The partnership owns and operates fuel holding tanks and terminals, and provides terminal services and logistics solutions to markets that do not have efficient access to renewable fuels. The partnership owns and operates fuel terminals at six locations in five states with combined storage capacity of approximately 7.2 mmg and throughput capacity of approximately 726 mmgy. We also have 31 ethanol storage facilities located at or near our 12 operational ethanol production plants and one non-operational ethanol production plant with a combined storage capacity of approximately 27.5 mmg to support current ethanol production capacity of approximately 1.0 bgy.
‎
Facility Location
Storage Capacity
‎(thousands of gallons)
Fuel Terminals
Birmingham, Alabama - Unit Train Terminal
6,542
Other Fuel Terminal Facilities (1)
Ethanol Plants
Atkinson, Nebraska (2)
2,074
Central City, Nebraska
2,250
Fairmont, Minnesota
3,124
Hopewell, Virginia (3)
Madison, Illinois
2,855
Mount Vernon, Indiana
2,855
Obion, Tennessee
3,000
Ord, Nebraska
1,550
Otter Tail, Minnesota
2,000
Shenandoah, Iowa
1,524
Superior, Iowa
1,238
Wood River, Nebraska
3,124
York, Nebraska
1,100
Total
34,687
(1)Represents five fuel terminals located in Alabama, Louisiana, Mississippi, Kentucky and Oklahoma.
(2)The ethanol storage facilities are located approximately 16 miles from the ethanol plant.
(3)Production at the Hopewell, Virginia facility ceased during the fourth quarter of 2018, however the storage and terminal assets remain in operating condition.
For more information about our segments, refer to Item 7. - Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
Our Competition
Domestic Ethanol Competitors
We are one of the largest consolidated owners’ of ethanol plants in the United States. We compete with other domestic ethanol producers in a highly fragmented industry. Our competitors also include plants owned by farmers, cooperatives, oil refiners and retail fuel operators. These competitors may continue to operate their plants even when market conditions are not favorable due to the benefits realized from their other operations.
As of December 31, 2020, the top five producers operated 69 plants and accounted for approximately 40% of the domestic production capacity with production capacities ranging from 800 mmgy to 1,800 mmgy. Approximately half of the 209 plants in the United States are standalone facilities and accounted for approximately 38% of domestic production capacity.
Demand for corn from ethanol plants and other corn consumers exists in all areas and regions in which we operate. According to the Renewable Fuels Association, there were 107 operational plants in the states where we have production facilities, including Illinois, Indiana, Iowa, Minnesota, Nebraska, and Tennessee, as of December 31, 2020. The largest concentration of operational plants is located in Iowa, Nebraska and Illinois, where 51% of all operational production capacity is located.
Foreign Ethanol Competitors
We also compete globally with production from other countries. Brazil is the second largest ethanol producer in the world after the United States. Brazil primarily produces ethanol made from sugarcane, which may be less expensive to produce than ethanol made from corn depending on feedstock prices. Under RFS II, certain parties are obligated to meet an advanced biofuel standard. In recent years, sugarcane ethanol imported from Brazil has been one of the most economical means for obligated parties to meet this standard. Any significant additional ethanol production capacity could create excess supply in world markets, resulting in lower ethanol prices throughout the world, including the United States.
Other Competition
Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. Ethanol production technologies also continue to evolve. We expect changes to occur primarily in the area of cellulosic ethanol, which is made from biomass such as switch grass or fast-growing poplar trees. Since all of our plants are designed as single-feedstock facilities, adapting our plants for a different feedstock or process system would require additional capital investments and retooling which could be cost prohibitive.
Regulatory Matters
Government Ethanol Programs and Policies
We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. In the United States, the federal government mandates the use of renewable fuels under the RFS II. The EPA assigns individual refiners, blenders and importers the volume of renewable fuels they are obligated to blend into the fuel supply each year based on their percentage of total fuel sales. The EPA has the authority to waive the mandates in whole or in part if there is inadequate domestic renewable fuel supply, if the requirement severely harms the environment, or harms the economy of the nation or a state. The RFS II sets a floor for ethanol usage in the United States. When the RFS II was established in 2010, the required volume of “conventional” or corn-based ethanol to be blended with gasoline was to increase each year until it reached 15.0 billion gallons in 2015, which left the EPA to address existing limitations in both supply and demand. The EPA has not yet released a draft RVO rule for the 2021 volumes, despite the fact they typically release a draft mid-year and finalize the rule by November 30 each year. It is unclear when they will release the RVO for 2021.
According to the RFS II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022 - the year through which the statutorily prescribed volumes run. While conventional ethanol maintained 15 billion gallons, 2019 was the second consecutive year that the total proposed RVO was more than 20% below the statutory volumes levels. Thus, the EPA was expected to initiate a reset rulemaking, and modify statutory volumes through 2022, and do so based on the same factors they are to use in setting the RVOs post-2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development. In late 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020, however it is currently unclear if or when they will propose a reset rulemaking.
Under the RFS, RINs and SREs are important tools impacting supply and demand. The EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. Obligated parties use RINs to show compliance with the RFS II mandated volumes. Ethanol producers assign RINs to renewable fuels and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and can influence purchasing decisions by obligated parties. As it relates to SREs, a small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day. Small refineries can petition the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements. The EPA, through consultation with the DOE and the USDA can grant a full or partial waiver, or deny it outright within 90 days of submittal. The EPA granted significantly more of these waivers for the 2016, 2017 and 2018 reporting years than they had in prior years, totaling 790 mmg of waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017 and 1.43 billion gallons for 2018. In doing so, the EPA effectively reduced the RFS II mandated volumes for those compliance years by those amounts respectively, and as a result, RIN values declined significantly.
Biofuels groups have filed a lawsuit in the Court of Appeals for the D.C. Circuit, challenging the 2019 RVO rule over the EPA’s failure to address small refinery exemptions in the rulemaking. This was the first RFS II rulemaking since the expanded use of the exemptions came to light; however, the EPA had declined to cap the number of waivers it grants, and until late 2019, had declined to alter how it accounts for the retroactive waivers in its annual volume calculations. The EPA has a statutory mandate to ensure the volume requirements are met, which are achieved by setting the percentage standards for obligated parties. We believe the EPA’s recent approach accomplished the opposite in that even if all the obligated parties complied with their respective percentage obligations for 2019, the nation’s overall supply of renewable fuel would not meet the total volume requirements set by the EPA. This undermines Congressional intent to increase the consumption of renewable fuels in the domestic transportation fuel supply. Biofuels groups have argued the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and adjust the standards to account for any waivers it reasonably expects to grant in the future.
In 2019, in a supplemental rulemaking to the 2020 RVO rule, the EPA changed their approach, and for the first time accounted for the gallons that they anticipate will be waived from the blending requirements due to small refinery exemptions. To accomplish this, they added in the trailing three year average of gallons the DOE recommended be waived, in effect raising the blending volumes across the board in anticipation of waiving the obligations in whole or in part for certain refineries that qualify for the exemptions. Though the EPA has often disregarded the recommendations of the DOE in years past, they stated in the rule their intent to adhere to these recommendations going forward, including granting partial waivers rather than an all or nothing approach. The EPA will be adjudicating the 2020 compliance year small refinery exemption applications in early 2021, and have indicated they will also adhere to the DOE recommendations for the 2019 compliance year applications.
In January 2020, the U.S. Court of Appeals for the 10th Circuit ruled on RFA et. al. vs. EPA in favor of biofuels interests, overturning EPA’s granting of refinery exemptions to three refineries on two separate grounds. The Court agreed that, under the Clean Air Act, refineries are eligible for SREs for a given RVO year only if such exemptions are extensions of exemptions granted in previous RVO years. In this case, the three refineries at issue did not qualify for SREs in the year prior to the year that EPA granted them. They were thus ineligible for additional SRE relief because there were no immediately prior SREs to extend. In addition, the Court agreed that the disproportionate economic hardship prong of SRE eligibility should be determined solely by reference to whether compliance with the RFS II creates such hardship, not whether compliance plus other issues create disproportionate economic hardship. The Court thus vacated EPA's grant of SREs for certain years and remanded the grants back to EPA. The refiners appealed for a rehearing which was denied. Two of the refiners appealed the decision to the U.S. Supreme Court and in January 2021, the Supreme Court announced they would hear the case. If the decision against the EPA is upheld by the Supreme Court, it is uncertain how the EPA will propose to remedy the situation.
In light of the 10th Circuit ruling, a number of refineries have applied for “gap year” SREs in an effort to establish a continuous string of relief and to ensure they are able to qualify for SREs going forward. A total of 64 gap year requests were filed with the EPA and reviewed by the DOE. In September 2020 the EPA announced that they were denying 54 of the gap year requests that had been scored and returned by DOE, regardless of how they had been scored. Without a string of continuous SRE approvals, almost no small refinery would be eligible to apply for hardship relief in this manner, unless the Supreme Court overturns the 10th Circuit ruling, which we believe is unlikely.
To respond to the COVID-19 health crisis and attempt to offset the subsequent economic damage, Congress passed multiple relief measures, most notably the CARES Act in March 2020, which created and funded multiple programs that have impacted our industry. The USDA was given additional resources for the Commodity Credit Corporation (CCC) and they are using those funds to provide direct payments to farmers, including corn farmers from whom we purchase most of our feedstock for ethanol production. Similar to the trade aid payments made by the USDA over the past two years, this cash injection for farmers could cause them to delay marketing decisions and increase the price we have to pay to purchase corn. The CARES Act also allowed for certain net operating loss carrybacks, which has allowed us to receive certain tax refunds. In December 2020, Congress passed and President Trump signed into law an annual spending package coupled with another COVID relief bill which included additional funds for the Secretary of Agriculture to distribute to those impacted by the pandemic. The language of the bill specifically includes biofuels producers as eligible for some of this aid.
The CARES Act provided a tax exclusion on the shipment of un-denatured ethanol for use in manufacturing hand sanitizer, a key ingredient of which is undenatured ethanol of specific grades. The FDA has also provided expanded guidance to allow for more denaturants to be used in ethanol intended for hand sanitizer production, and has expanded the grades of ethanol allowed for the duration of the public health crisis.
See further discussion in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Environmental and Other Regulation
Our ethanol production, agribusiness and energy services, food and ingredients, and partnership segment activities are subject to various and extensive environmental and other regulations. We obtain and maintain various environmental permits to operate our plants and other facilities. Ethanol production involves the emission of various airborne pollutants, including particulate, carbon dioxide, oxides of nitrogen, hazardous air pollutants and volatile organic compounds. In 2007, the U.S. Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the EPA to regulate carbon dioxide in vehicle emissions, which the EPA later addressed in RFS II. While some of our plants operate as grandfathered at their current authorized capacity under the RFS II mandate, expansion above these capacities at grandfathered plants will require a 20% reduction in greenhouse gas emissions from a 2005 baseline measurement.
In addition, various states and countries are adopting regulatory schemes similar to what California has adopted. Specifically, CARB adopted LCFS requiring a 10% reduction in average carbon intensity of gasoline and diesel transportation fuels in California from 2010 to 2020. After a series of rulings that temporarily prevented CARB from enforcing these regulations, the State of California Office of Administrative Law approved the LCFS in November 2012, and revised LCFS regulations took effect in January 2013.
We employ maintenance and operations personnel at each of our plants. In addition to the attention we place on the health and safety of our employees, the operations of our facilities are regulated by the Occupational Safety and Health Administration.
See further discussion in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Exclusive Partnerships and Joint Ventures
In 2020, we acquired a majority interest in Fluid Quip Technologies, LLC. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production of Ultra-High Protein technology across our facilities, as well as offer these technologies to partnering biofuel facilities.
In 2020, we formed an exclusive partnership with Hayashikane Sangyo of Japan, one of the oldest and most successful integrated aquafeed companies in the world. The companies have come together to deliver innovative solutions for fast-growing global aquaculture markets using technology developed and successfully deployed in Japanese production. These technologies complement our Ultra-High Protein production capabilities.
In 2019, we joined with Novozymes in an exclusive venture to produce higher purity protein and protein meals with nutritional and other feed benefits through non-mechanical methods.
In July 2018, we formed Optimal Aquafeed, a 50/50 joint venture to produce high-quality aquaculture feeds utilizing proprietary techniques and high-protein feed ingredients. The joint venture brings together Green Plains’ production capabilities, commodity expertise, and infrastructure and combines that with Optimal Fish Food LLC’s intellectual property, industry expertise and customer relationships. We purchased the remaining 50% interest in Optimal Aquafeed in February 2020 and now own 100% of Optimal Aquafeed.
We are the majority owner of the BioProcess Algae joint venture, which was formed in 2008. The joint venture is focused on growing algae in commercially viable quantities using feedstocks that are created as part of our ethanol production process. We are currently focused on animal nutrition, using proprietary technology to customize specific products, based on proven benefits, for relevant markets.
In 2019, we formed the GPCC joint venture with TGAM and StepStone. GPCC has the capacity to support 355,000 head of cattle and has approximately 24.1 million bushels of grain storage capacity. In October 2020, we disposed of our remaining 50% interest in GPCC.
Human Capital Resources
The attraction, retention and development of employees is critical to our success. We accomplish this, in part, by our competitive compensation practices, training initiatives, and growth opportunities within the company. On December 31, 2020, we had 839 full-time, part-time, temporary and seasonal employees, including 122 employees at our corporate office in Omaha, Nebraska.
Workforce Health and Safety
We take workplace safety very seriously and our robust safety program means that we are constantly evaluating our safety protocols in an effort to keep our facilities safe for our workers.
Throughout the COVID-19 pandemic, we have remained focused on protecting the health and safety of our team members while meeting the needs of our customers. Shortly after the outset of COVID-19, we were an early adopter of enhanced safety measures and practices across our facilities to protect employee health and safety and ensure a reliable supply of products to our customers. This included the purchasing of masks, temperature check machines and hand sanitizer
at all locations. We donated industrial-grade alcohol, which can be used as an ingredient for sanitation products, to both the State of Nebraska and the State of Iowa, as well as the University of Nebraska. Additionally, all employees were provided with a twenty pound package of frozen ground beef at the start of the COVID-19 pandemic.
We monitor and track the impact of the pandemic on our teammates and within our operations, and proactively modify or adopt new practices to promote their health and safety.
Compensation and Benefits
As part of our compensation philosophy, we believe that we must offer and maintain market competitive compensation and benefit programs for our employees in order to attract and retain superior talent. In addition to competitive base wages, additional programs include the 2019 Equity Incentive Plan, a company matched 401(k) Plan, healthcare and insurance benefits, flexible spending accounts, paid time off, family leave, and employee assistance programs.
Diversity and Inclusion
We are committed to our continued efforts to increase diversity and foster an inclusive work environment that supports the workforce and the communities we serve. We recruit the best qualified employees regardless of gender, ethnicity or other protected traits and it is our policy to fully comply with all laws applicable to discrimination in the workplace.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available on our website at www.gpreinc.com shortly after we file or furnish the information with the SEC. You can also find the charters of our audit, compensation and nominating committees, as well as our code of ethics in the corporate governance section of our website. The information found on our website is not part of this or any other report we file with or furnish to the SEC. For more information on our partnership, please visit www.greenplainspartners.com. Alternatively, investors may visit the SEC website at www.sec.gov to access our reports, proxy and information statements filed with the SEC.

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ITEM 1A. RISK FACTORS
Item 1A. Risk F actors.
We operate in an industry that has numerous risks, many of which are beyond our control or are driven by factors that cannot always be predicted. Investors should carefully consider all of the risk factors in conjunction with the other information included in this report as our financial results and condition or market value could be adversely affected if any of these risks were to occur.
Risks Related to our Business and Industry
Our margins are dependent on managing the spread between the price of corn, natural gas, ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil.
Our operating results are highly sensitive to commodity prices, including the spread between the corn and natural gas we purchase, and the ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil we sell. Price and supply are subject to various market forces, such as weather, domestic and global demand, shortages, export prices, crude oil prices, currency valuations and government policies in the United States and around the world, over which we have no control. Price volatility of these commodities may cause our operating results to fluctuate substantially. Increases in corn or natural gas prices or decreases in ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil prices may make it unprofitable to operate. No assurance can be given that we will purchase corn and natural gas or sell ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil at or near prices which would provide us with positive margins. Consequently, our results of operations and financial position may be adversely affected by increases in corn or natural gas prices or decreases in ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil prices.
We continuously monitor the margins at our ethanol plants using a variety of risk management tools and hedging strategies, when appropriate. In recent years, the spread between ethanol and corn prices has fluctuated widely, narrowed significantly and been negative at times. Fluctuations are likely to continue. A sustained narrow spread or further reduction in the spread between ethanol and corn prices as a result of increased corn prices or decreased ethanol prices, would adversely affect our results of operations and financial position. Should our combined revenue from ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil fall below our cost of production, we could decide to slow or
suspend production at some or all of our ethanol plants, which also could adversely affect our results of operations and financial position.
The commodities we buy and sell are subject to price volatility and uncertainty.
Corn. We are generally unable to pass increased corn costs to our customers since ethanol competes with other fuels. At certain corn prices, ethanol may be uneconomical to produce. Ethanol plants, livestock industries and other corn-consuming enterprises put significant price pressure on local corn markets. In addition, local corn supplies and prices could be adversely affected by prices for alternative crops, increasing input costs, changes in government policies, shifts in global markets or damaging growing conditions, such as plant disease or adverse weather, including drought.
Ethanol. Our revenues are dependent on market prices for ethanol which can be volatile as a result of a number of factors, including: the price and availability of competing fuels; the overall supply and demand for ethanol and corn; the price of gasoline, crude oil and corn; and government policies.
Ethanol is marketed as a fuel additive that reduces vehicle emissions, an economical source of octanes and, to a lesser extent, a gasoline substitute. Consequently, gasoline supply and demand affect the price of ethanol. Should gasoline prices or demand decrease significantly, our results of operations could be materially impacted.
Ethanol imports also affect domestic supply and demand. Imported ethanol is not subject to an import tariff and, under the RFS II, sugarcane ethanol from Brazil is one of the most economical means for obligated parties to meet the advanced biofuel standard.
Industrial-grade alcohol is produced by further distillation processing of the 200-proof alcohol. Further distillation removes impurities from fuel-grade ethanol to allow for production of industrial-grade alcohol which can be used as an ingredient for sanitation products. Should industrial-grade alcohol prices or demand decrease significantly, our results of operations could be negatively impacted.
Distillers Grains. Increased U.S. dry mill ethanol production has resulted in increased distillers grains production. Should this trend continue, distillers grains prices could fall unless demand increases or other market sources are found. The price of distillers grains has historically been correlated with the price of corn. Occasionally, the price of distillers grains will lag behind fluctuations in corn or other feedstock prices, lowering our cost recovery percentage. Additionally, exports of distiller grains could be impacted by the enactment of foreign policy.
Distillers grains compete with other protein-based animal feed products. Downward pressure on other commodity prices, such as corn and soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grains.
Natural Gas. The price and availability of natural gas are subject to volatile market conditions. These market conditions are often affected by factors beyond our control, such as weather, drilling economics, overall economic conditions and government regulations. Significant disruptions in natural gas supply could impair our ability to produce ethanol. Furthermore, increases in natural gas price or changes in our cost relative to our competitors cannot be passed on to our customers which may adversely affect our results of operations and financial position.
Corn Oil. Industrial corn oil is generally marketed as a renewable diesel and biodiesel feedstock; therefore, the price of corn oil is affected by demand for renewable diesel and biodiesel. Expanded profitability in the renewable diesel and biodiesel industry due to the extended blending tax credit and low carbon fuels standards could impact corn oil demand. In general, corn oil prices follow the prices of heating oil and soybean oil. Decreases in the price of corn oil could have an unfavorable impact on our business.
Our risk management and commodity trading strategies could be ineffective and expose us to decreased liquidity.
As market conditions warrant, we use forward contracts to sell some of our ethanol, distillers grains, Ultra-High Protein, and corn oil, or buy some of the corn, and natural gas we need to partially offset commodity price volatility. We also engage in other hedging transactions and other commodity trading involving exchange-traded futures contracts for corn, natural gas, ethanol, soybean meal and other agricultural commodities. The financial impact of these activities depends on the price of the commodities involved and/or our ability to physically receive or deliver the commodities.
Hedging arrangements expose us to risk of financial loss when the counterparty defaults on its contract or, in the case of exchange-traded contracts, when the expected differential between the price of the underlying and physical commodity
changes. Hedging activities can result in losses when a position is purchased in a declining market or sold in a rising market. Hedging losses may be offset by a decreased cash price for corn, and natural gas and an increased cash price for ethanol, distillers grains, Ultra-High Protein and corn oil. We vary the amount of hedging and other risk mitigation strategies we undertake and sometimes choose not to engage in hedging transactions at all. We cannot provide assurance that our risk management and commodity trading strategies and decisions will be profitable or effectively offset commodity price volatility. If they are not our results of operations and financial position may be adversely affected.
The use of derivative financial instruments frequently involves cash deposits with brokers, or margin calls. Sudden changes in commodity prices may require additional cash deposits immediately. Depending on our open derivative positions, we may need additional liquidity with little advance notice to cover margin calls. While we continuously monitor our exposure to margin calls, we cannot guarantee we will be able to maintain adequate liquidity to cover margin calls in the future.
Government mandates affecting ethanol could change and impact the ethanol market.
Under the provisions of the Energy Independence and Security Act (EISA), Congress expanded the Renewable Fuel Standard (RFS II). The RFS II mandated the minimum volume of renewable fuels that must be blended into the transportation fuel supply which affects the domestic market for ethanol and each year, the Environmental Protection Agency (EPA) undertakes rulemaking to set the Renewable Volume Obligation (RVO) for the following year. Further, the EPA has the authority to waive the requirements, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or the environment. After 2022, volumes shall be determined by the EPA in coordination with the Secretaries of Energy and Agriculture, taking into account such factors as impact on environment, energy security, future rates of production, cost to consumers, infrastructure, and other factors such as impact on commodity prices, job creation, rural economic development, or impact on food prices. However, on December 19, 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020. It is unclear when or if they will propose a reset rulemaking. Volumes can also be impacted as small refineries can petition the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements. The EPA, through consultation with the DOE and the USDA can grant them a full or partial waiver, or deny it outright within 90 days of submittal. A small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day.
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Our operations could be adversely impacted by legislation, administration actions, EPA actions, or lawsuits, that may reduce the RFS II mandated volumes of conventional ethanol and other biofuels through the annual RVO, the 2022 reset rulemaking, the point of obligation for blending, or small refinery exemptions. A number of lawsuits are pending involving the RVO, the point of obligation and small refinery exemptions. Similarly, should federal mandates regarding oxygenated gasoline be repealed, the market for domestic ethanol could be adversely impacted. Economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS II mandate, may affect future demand. A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices. Moreover, changes to RFS II could negatively impact the price of ethanol or cause imported sugarcane ethanol to become more economical than domestic ethanol. Likewise state and regional low carbon fuel standards (LCFS) like that of California could be favorable or harmful to conventional ethanol, depending on how it is crafted.
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﻿ ﻿ Future demand may be influenced by economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the value of RFS II credits or Renewable Identification Numbers (RINs). A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices. Moreover, any changes to RFS II, whether by legislation, EPA action or lawsuit, originating from issues associated with the market price of RINs could negatively impact the demand for ethanol, discretionary blending of ethanol and/or the price of ethanol. Recent actions by the EPA to grant small refiner exemptions without accounting for the lost gallons has resulted in lower RIN prices.
Flexible-fuel vehicles (FFVs), which are designed to run on a mixture of fuels, including higher blends of ethanol such as E85, receive preferential treatment to meet corporate average fuel economy (CAFE) standards in the form of CAFE credits. There are approximately 21 million FFVs on the road in the U.S. today, 16 million of which are light duty trucks. FFV credits have been decreasing since 2014 and will be completely phased out in 2020. Absent CAFE preferences, auto manufacturers may not be willing to build flexible-fuel vehicles, which has the potential to slow the growth of E85 markets.
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To the extent federal or state laws or regulations are modified and/or enacted, it may result in the demand for ethanol being reduced, which could negatively and materially affect our financial performance.
Future demand for ethanol is uncertain and changes in public perception, consumer acceptance and overall consumer demand for transportation fuel could affect demand.
While many trade groups, academics and government agencies support ethanol as a fuel additive that promotes a cleaner environment, others claim ethanol production consumes considerably more energy, emits more greenhouse gases than other fuels and depletes water resources. While we do not agree, some studies suggest ethanol produced from corn is less efficient than ethanol produced from switch grass or wheat grain. Others claim corn-based ethanol negatively impacts consumers by causing the prices of meat and other food derived from corn-consuming livestock to increase. Ethanol critics also contend the industry redirects corn supplies from international food markets to domestic fuel markets, and contributes to land use change domestically and abroad.
There are limited markets for ethanol beyond the federal mandates. We believe further consumer acceptance of E15 and E85 fuels may be necessary before ethanol can achieve significant market share growth. Discretionary and E85 blending are important secondary markets. Discretionary blending is often determined by the price of ethanol relative to gasoline, and availability to consumers. When discretionary blending is financially unattractive, the demand for ethanol may be reduced.
Demand for ethanol is also affected by overall demand for transportation fuel, which is affected by cost, number of miles traveled and vehicle fuel economy. Miles traveled typically increases during the spring and summer months related to vacation travel, followed closely behind the fall season due to holiday travel. Global events, such as COVID-19, have greatly decreased miles traveled and in turn, the demand for ethanol. Consumer demand for gasoline may be impacted by emerging transportation trends, such as electric vehicles or ride sharing. In January 2021, General Motors announced a target date of 2035 for phasing out the production of gasoline and diesel powered vehicles. Similarly, Nissan has stated that their entire fleet will be electric vehicles by the early 2030s. These announcements coincide with pledges to ban the sale of internal combustion engines in countries such as Japan and the United Kingdom by 2035, as well as a statewide ban in California. While aspirational, if realized these bans would accelerate the decline of liquid fuel demand and by extension demand for ethanol, biodiesel and renewable diesel.
Additionally, factors such as over-supply of ethanol, which has been the case for some time, could continue to negatively impact our business. Reduced demand for ethanol may depress the value of our products, erode its margins, and reduce our ability to generate revenue or operate profitably.
Our business is directly affected by the supply and demand for ethanol and other fuels in the markets served by our assets. Reduced demand for ethanol, regardless of cause, may erode our margins and reduce our ability to generate revenue and operate profitably.
In the past, we have had operating losses and could incur future operating losses.
In the last five years, we incurred operating losses during certain quarters and could incur operating losses in the future that are substantial. Although we have had periods of sustained profitability, we may not be able to maintain or increase profitability on a quarterly or annual basis, which could impact the market price of our common stock and the value of your investment.
If the United States were to withdraw from or materially modify certain international trade agreements, our business, financial condition and results of operations could be materially adversely affected.
Ethanol and other products that we produce are or have been exported to Canada, Mexico, Brazil, China and other countries. The previous administration expressed antipathy towards certain existing international trade agreements and has significantly increased tariffs on goods imported into the United States, which in turn has led to retaliatory actions on U.S. exports. The current trade situation, the outcome of trade negotiations or lack thereof, has had and/or may continue to have a material effect on our business, financial condition and results of operations.
Our ability to access the partnership’s terminals adjacent to our ethanol plants could cause disruptions in our operations and adversely affect our production levels, profitability and needed capital expenditures.
We are party to the storage and throughput agreement with our partnership, under which we access the storage and throughput services offered by the partnership. In the event of a default by either party under that agreement, our ability to throughput our ethanol may be disrupted, which in turn could adversely affect our production levels, operating expenses, profitability and our need for capital expenditures for alternative throughput arrangements.
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Our debt exposes us to numerous risks that could have significant consequences to our shareholders.
Risks related to the level of debt we have include: (1) requiring a sizeable portion of cash to be dedicated for debt service, reducing the availability of cash flow for working capital, capital expenditures, and other general business activities and limiting our ability to invest in new growth opportunities; (2) limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other activities; (3) limiting our flexibility to plan for or react to changes in the businesses and industries in which we operate; (4) increasing our vulnerability to general and industry-specific adverse economic conditions; (5) being at a competitive disadvantage against less leveraged competitors; and (6) being vulnerable to increases in prevailing interest rates.
Most of our debt bears interest at variable rates, which creates exposure to interest rate risk. If interest rates increase, our debt service obligations at variable rates would increase even though the amount borrowed remained the same, decreasing net income.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned capital expenditures, acquisitions and other ongoing liquidity needs depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions as well as certain financial, business and other factors which are beyond our control. There can be no assurance that we will maintain a level of cash flow from operating activities in an amount sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to seek additional capital or restructure our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.
We are required to comply with a number of covenants under our existing loan agreements that could hinder our growth.
We are required to maintain specified financial ratios, including minimum cash flow coverage, working capital and tangible net worth under certain loan agreements. A breach of these covenants could result in default, and if such default is not cured or waived, our lenders could accelerate our debt and declare it immediately due and payable. If this occurs, we may not be able to repay or borrow sufficient funds to refinance the debt. Even if financing is available, it may not be on acceptable terms. No assurance can be given that our future operating results will be sufficient to comply with these covenants or remedy default.
In the past, we have received waivers from our lenders for failure to meet certain financial covenants and amended our loan agreements to change these covenants. In the event we are unable to comply with these covenants in the future, we cannot provide assurance that we will be able to obtain the necessary waivers or amend our loan agreements to prevent default. Under our convertible senior notes, default on any loan in excess of $10.0 million could result in the notes being declared due and payable, which would have a material and adverse effect on our ability to operate.
We operate in a capital intensive business and rely on cash generated from operations and external financing, which could be limited.
Increased commodity prices could increase liquidity requirements. Our operating cash flow is dependent on overall commodity market conditions as well as our ability to operate profitably. In addition, we may need to raise additional financing to fund growth. In some market environments, we may have limited access to incremental financing, which could defer or cancel growth projects, reduce business activity or cause us to default on our existing debt agreements if we are unable to meet our payment schedules. These events could have an adverse effect on our operations and financial position.
Our ability to repay current and anticipated future debt will depend on our financial and operating performance and successful implementation of our business strategies. Our financial and operational performance will depend on numerous factors including prevailing economic conditions, commodity prices, and financial, business and other factors beyond our control. If we cannot repay, refinance or extend our current debt at scheduled maturity dates, we could be forced to reduce or delay capital expenditures, sell assets, restructure our debt or seek additional capital. If we are unable to restructure our debt or raise funds, our operations and growth plans could be harmed and the value of our stock could be significantly reduced.
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Disruptions in the credit market could limit our access to capital.
We may need additional capital to fund our growth or other business activities in the future. The cost of capital under our existing or future financing arrangements could increase and affect our ability to trade with various commercial counterparties or cause our counterparties to require additional forms of credit support. If capital markets are disrupted, we may not be able to access capital at all or capital may only be available under less favorable terms.
We are required to continue to make payments to the partnership to the minimum volume commitment regardless of our production levels.
We are party to the storage and throughput agreement with our partnership, under which we are obligated to pay a minimum volume commitment regardless of whether or not we operate. We may not run our plants at volumes sufficient enough to cover the MVC resulting in payments being made to the partnership. In times of sustained negative margins, our volumes may be insufficient to recover these MVC payments in the following four quarters as outlined in the partnership agreement.
Our ability to maintain the required regulatory permits or manage changes in environmental, safety and TTB regulations is essential to successfully operating our plants.
Our plants are subject to extensive air, water, environmental and TTB regulations. Our production facilities involve the emission of various airborne pollutants, including particulate, carbon dioxide, nitrogen oxides, hazardous air pollutants and volatile organic compounds, which requires numerous environmental permits to operate our plants. Governing state agencies could impose costly conditions or restrictions that are detrimental to our profitability and have a material adverse effect on our operations, cash flows and financial position.
Environmental laws and regulations at the federal and state level are subject to change. These changes can also be made retroactively. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which could increase our operating costs and expenses. Consequently, even though we currently have the proper permits, we may be required to invest or spend considerable resources in order to comply with future environmental regulations. Furthermore, ongoing plant operations, which are governed by the Occupational Safety and Health Administration, may change in a way that increases the cost of plant operations. Any of these events could have a material adverse effect on our operations, cash flows and financial position.
Part of our business is regulated by environmental laws and regulations governing the labeling, use, storage, discharge and disposal of hazardous materials. Since we handle and use hazardous substances, changes in environmental requirements or an unanticipated significant adverse environmental event could have a negative impact on our business. While we strive to comply with all environmental requirements, we cannot provide assurance that we have been in compliance at all times or will not incur material costs or liabilities in connection with these requirements. Private parties, including current and former employees, could bring personal injury or other claims against us due to the presence of hazardous substances. We are also exposed to residual risk by our land and facilities which may have environmental liabilities from prior use. Changes in environmental regulations may require us to modify existing plant and processing facilities, which could significantly increase our cost of operations.
TTB regulations apply when producing our undenatured ethanol. These regulations carry substantial penalties for non-compliance and therefore any non-compliance may adversely affect our financial operations or adversely impact our ability to produce undenatured ethanol.
Any inability to generate or obtain RINs could adversely affect our operating margins.
Nearly all of our ethanol production is sold with RINs that are used by our customers to comply with the RFS II. Should our production not meet the EPA’s requirements for RIN generation in the future, we would need to purchase RINs in the open market or sell our ethanol at lower prices to compensate for the absence of RINs. The price of RINs depends on a variety of factors, including the availability of qualifying biofuels and RINs for purchase, production levels of transportation fuel and percentage mix of ethanol with other fuels, and cannot be predicted. Failure to obtain sufficient RINs or reliance on invalid RINs could subject us to fines and penalties imposed by the EPA which could adversely affect our results of operations, cash flows and financial condition.
As we trade ethanol acquired from third-parties, should it be discovered the RINs associated with the ethanol we purchased are invalid, albeit unknowingly, we could be subject to substantial penalties if we are assessed the maximum amount allowed by law. Prior to 2013, the EPA assessed only modest penalties for RIN violations. However, based on EPA
penalties assessed on RINS violations in the past few years, in the event of a violation, the EPA could assess penalties, which could have an adverse impact on our profitability.
Compliance with evolving environmental, health and safety laws and regulations, particularly those related to climate change, could be costly.
Our plants emit carbon dioxide as a by-product of ethanol production. In February 2010, the EPA released its final regulations on RFS II, grandfathering our plants at their current authorized capacity. While some of our plants have received efficient producer status and no longer rely on grandfathered status, for those still reliant upon it, expansion above these levels will require a 20% reduction in greenhouse gas emissions from the 2005 baseline measurement. Separately, CARB adopted a LCFS that took effect in January 2013, which requires a 10% reduction in the average carbon intensity of gasoline and diesel transportation fuels from 2010 to 2020. An ILUC component is included in the greenhouse gas emission calculation, which may have an adverse impact on the market for corn-based ethanol in California.
To expand our production capacity, federal and state regulations may require us to obtain additional permits, achieve EPA’s efficient producer status under the pathway petition program, install advanced technology or reduce drying distillers grains. Compliance with future laws or regulations to decrease carbon dioxide could be costly and may prevent us from operating our plants as profitably, which may have an adverse impact on our operations, cash flows and financial position.
We may fail to realize the anticipated benefits of mergers, acquisitions, joint ventures or partnerships.
We have increased the size and diversity of our operations through mergers, acquisitions and joint ventures or partnerships and intend to continue exploring potential growth opportunities. Acquisitions involve numerous risks that could harm our business, including: (1) difficulties integrating the operations, technologies, products, existing contracts, accounting processes and personnel and realizing anticipated synergies of the combined business; (2) risks relating to environmental hazards on purchased sites; (3) risks relating to developing the necessary infrastructure for facilities or acquired sites, including access to rail networks; (4) difficulties supporting and transitioning customers; (5) diversion of financial and management resources from existing operations; (6) the purchase price exceeding the value realized; (7) risks of entering new markets or areas outside of our core competencies; (7) potential loss of key employees, customers and strategic alliances from our existing or acquired business; (8) unanticipated problems or underlying liabilities; and (9) inability to generate sufficient revenue to offset acquisition and development costs.
The anticipated benefits of these transactions may not be fully realized or could take longer to realize than expected.
We have also pursued growth through joint ventures or partnerships, which typically involve restrictions on actions that the partnership or joint venture may take without the approval of the partners. These provisions could limit our ability to manage the partnership or joint venture in a manner that serves our best interests.
Future acquisitions may involve issuing equity as payment or to finance the business or assets, which could dilute your ownership interest. Furthermore, additional debt may be necessary to complete these transactions, which could have a material adverse effect on our financial condition. Failure to adequately address the risks associated with acquisitions or joint ventures could have a material adverse effect on our business, results of operations and financial condition.
We may be affected by our portfolio optimization and total transformation strategies.
In May 2018, we announced that we were evaluating the performance of our entire portfolio of assets and businesses. As part of that process, during the fourth quarter of 2018, we sold three ethanol plants, permanently closed one ethanol plant and sold Fleischmann’s Vinegar. Furthermore, we sold our 50% interest in JGP Energy Partners during the fourth quarter of 2019, we sold a 50% interest in GPCC during the third quarter of 2019 and the remaining 50% interest in GPCC during the fourth quarter of 2020, the Hereford, Texas ethanol plant in December 2020 and the recently announced sale of the Ord, Nebraska ethanol plant, which is expected to close within 45 days.
As we continue to evaluate our portfolio, we may sell additional assets or businesses or exit particular markets that are no longer a strategic fit or no longer meet their growth or profitability targets. Depending on the nature of the assets sold, our profitability may be impacted by lost operating income or cash flows from such businesses. In addition, divestitures we complete may not yield the targeted improvements in our business and may divert management’s attention from our day-to-day operations. We are also undergoing a number of project initiatives to improve margins, including the Project 24 initiative and increased investment into Ultra-High Protein animal feed products, as part of our total transformation strategy. Our failure to achieve the intended financial results associated with our portfolio optimization and total transformation strategies could have an adverse effect on our business, financial condition or results of operations.
Future events could result in impairment of long-lived assets, which may result in charges that adversely affect our results of operations.
Long-lived assets, including property, plant and equipment, intangible assets, goodwill and equity method investments, are evaluated for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Our impairment evaluations are sensitive to changes in key assumptions used in our analysis and may require use of financial estimates of future cash flows. Application of alternative assumptions could produce significantly different results. We may be required to recognize impairments of long-lived assets based on future economic factors such as unfavorable changes in estimated future undiscounted cash flows of an asset group.
Global competition could affect our profitability.
We compete with producers in the United States and abroad. Depending on feedstock, labor and other production costs, producers in other countries, such as Brazil, may be able to produce ethanol cheaper than we can. Under RFS II, certain parties are obligated to meet an advanced biofuel standard. In recent years, sugarcane ethanol imported from Brazil has been one of the most economical means for obligated parties to meet this standard. While transportation costs, infrastructure constraints and demand may temper the impact of ethanol imports, foreign competition remains a risk to our business. Moreover, significant additional foreign ethanol production could create excess supply, which could result in lower ethanol prices throughout the world, including the United States. Any penetration of ethanol imports into the domestic market may have a material adverse effect on our operations, cash flows and financial position.
International activities such as boycotts, embargoes, product rejection, trade policies and compliance matters, may have an adverse effect on our results of operations.
Government actions abroad can have a significant impact on our business. In 2020, we exported 21% of our ethanol production. In 2013, the European Union imposed a five-year tariff of $83.33 per metric ton on U.S. ethanol to discourage foreign competition. Effective January 1, 2017, China indicated its intention to raise its 5% tariff on U.S. and Brazil fuel ethanol to 30%. On April 1, 2018, China raised their tariff rate to 45%, and later raised it further to 70%. In January 2020, the two countries announced a “Phase I” trade deal with agricultural commodity purchase commitments, including ethanol; however, these ethanol tariffs have not been reduced or eliminated.
Although the ethanol export markets are affected by competition from other ethanol exporters, particularly Brazil, and in spite of the actions by China, we believe exports will remain active going forward. On September 1, 2017, Brazil’s Chamber of Foreign Trade, or CAMEX, issued an official written resolution, imposing a 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter. The ruling was extended for a year in 2019, and again by 90 days in 2020, but was allowed to lapse in December 2020, and a 20% duty now applies to all U.S. ethanol imports into Brazil.
In January 2016, China’s Ministry of Commerce initiated an anti-dumping investigation into U.S.-produced dried distillers grains exported to China. In January of 2017, the Ministry of Commerce of China announced it increased anti-dumping duties on U.S. distillers grains, ranging from 42.2% to 53.7%.
With more tariffs and reduced exports, the value of our products may be affected, which could have a negative impact on our profitability. Additionally, tariffs on U.S. ethanol may lead to further industry over-supply and reduce our profitability. Moreover, the America First trade position has caused more countries to toughen their positions on U.S. imports.
The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices.
The Organization of Petroleum Exporting Countries and their allies (collectively, OPEC+), is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market. Actions taken by OPEC+ members, including those taken alongside other oil exporting nations, have a significant impact on global oil supply and pricing. For example, OPEC+ and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices. In March 2020, members of OPEC+ considered extending and potentially increasing these oil production cuts, however these negotiations were unsuccessful. As a result, Saudi Arabia announced an immediate reduction in export prices and Russia announced that all previously agreed oil production cuts will expire on April 1, 2020. These actions led to an immediate and steep decrease in oil prices. There can be no assurance that OPEC+ members and other oil exporting nations will agree to future production cuts or other actions to support and stabilize oil prices, nor can there be any assurance that they will not further reduce oil prices or increase production. Uncertainty regarding future actions
to be taken by OPEC+ members or other oil exporting countries could lead to increased volatility in the price of oil, which could adversely affect our business, future financial condition and results of operations.
Increased ethanol industry penetration by oil and other multinational companies could impact our margins.
We operate in a very competitive environment and compete with other domestic ethanol producers in a relatively fragmented industry. The top five producers account for approximately 40% of the domestic production capacity with production capacity ranging from 800 mmgy to 1,800 mmgy. The remaining ethanol producers consist of smaller entities engaged exclusively in ethanol production and large integrated grain companies that produce ethanol in addition to their base grain businesses. We compete for capital, labor, corn and other resources with these companies.
Until recently, oil companies, petrochemical refiners and gasoline retailers were not engaged in ethanol production even though they form the primary distribution network for ethanol blended with gasoline. Over the past decade, several oil refiners have acquired ethanol production plants, and now account for almost 1/5 of domestic ethanol production. If these companies increase their ethanol plant ownership or additional companies commence production, the need to purchase ethanol from independent producers like us could diminish and adversely effect on our operations, cash flows and financial position.
Our agribusiness operations are subject to significant government regulations.
Our agribusiness operations are regulated by various government entities that can impose significant costs on our business. Failure to comply could result in additional expenditures, fines or criminal action. Our production levels, markets and grains we merchandise are affected by federal government programs, which include USDA acreage control and price support programs. Government policies such as tariffs, duties, subsidies, import and export restrictions and embargos can also impact our business. Changes in government policies and producer support could impact the type and amount of grains planted, which could affect our ability to buy grain. Export restrictions or tariffs could limit sales opportunities outside of the United States.
Commodities futures trading is subject to extensive regulations.
The futures industry is subject to extensive regulation. Since we use exchange-traded futures contracts as part of our business, we are required to comply with a wide range of requirements imposed by the Commodity Futures Trading Commission, National Futures Association and the exchanges on which we trade. These regulatory bodies are responsible for safeguarding the integrity of the futures markets and protecting the interests of market participants. As a market participant, we are subject to regulation concerning trade practices, business conduct, reporting, position limits, record retention, the conduct of our officers and employees, and other matters.
Failure to comply with the laws, rules or regulations applicable to futures trading could have adverse consequences. Such claims could result in fines, settlements or suspended trading privileges, which could have a material adverse impact on our business, financial condition or operating results.
Our success depends on our ability to manage our growing and changing operations.
Since our formation in 2004, our business has grown significantly in size, products and complexity. This growth places substantial demands on our management, systems, internal controls, and financial and physical resources. If we acquire additional operations, we may need to further develop our financial and managerial controls and reporting systems, and could incur expenses related to hiring additional qualified personnel and expanding our information technology infrastructure. Our ability to manage growth effectively could impact our results of operations, financial position and cash flows.
Replacement technologies could make corn-based ethanol or our process technology obsolete.
Ethanol is used primarily as an octane additive and oxygenate blended with gasoline. Critics of ethanol blends argue that it decreases fuel economy, causes corrosion and damages fuel pumps. Prior to federal restrictions and ethanol mandates, methyl tertiary-butyl ether, or MTBE, was the leading oxygenate. Other oxygenate products could enter the market and prove to be environmentally or economically superior to ethanol. Alternative biofuel alcohols, such as methanol and butanol, could evolve and replace ethanol.
Research is currently underway to develop products and processes that have advantages over ethanol, such as: lower vapor pressure, making it easier to add to gasoline; similar energy content as gasoline, reducing any decrease in fuel economy caused by blending with gasoline; ability to blend at higher concentration levels in standard vehicles; and reduced
susceptibility to separation when water is present. Products offering a competitive advantage over ethanol could reduce our ability to generate revenue and profits from ethanol production.
New ethanol process technologies could emerge that require less energy per gallon to produce and result in lower production costs. Our process technologies could become obsolete and place us at a competitive disadvantage, which could have a material adverse effect on our operations, cash flows and financial position.
We may be required to provide remedies for ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein or corn oil that does not meet the specifications defined in our sales contracts.
If we produce or purchase ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein or corn oil that does not meet the specifications defined in our sales contracts, we may be subject to quality claims. We could be required to refund the purchase price of any non-conforming product or replace the non-conforming product at our expense. Ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein or corn oil that we purchase or market and subsequently sell to others could result in similar claims if the product does not meet applicable contract specifications, which could have an adverse impact on our profitability.
Business disruptions due to unforeseen operational failures or factors outside of our control could impact our ability to fulfill contractual obligations.
Natural disasters, pandemics, transportation issues, significant track damage resulting from a train derailment or strikes by our transportation providers could delay shipments of raw materials to our plants or deliveries of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil to our customers. If we are unable to meet customer demand or contract delivery requirements due to stalled operations caused by business disruptions, we could potentially lose customers.
Adverse weather conditions, such as inadequate or excessive amounts of rain during the growing season, overly wet conditions, an early freeze or snowy weather during harvest could impact the supply of corn that is needed to produce ethanol. Corn stored in an open pile may be damaged by rain or warm weather before the corn is dried, shipped or moved into a storage structure.
Our business continues to be adversely impacted by the COVID-19 outbreak.
The outbreak of the coronavirus, or COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and continues to impact worldwide economic activity. COVID-19 poses a risk on all aspects of our business, including how it will impact our employees, customers, vendors, and business partners. We are unable to predict the impact that COVID-19 will have on our future financial position and operating results, due to numerous uncertainties. These uncertainties include, but are not limited to: (1) the severity of the virus and its impact on the demand for our products; (2) the duration of the outbreak; (3) federal, state or local governmental regulations or other actions which could include limitations on our operations; (4) the effect on customer demand resulting in a decline in the demand for our products; (5) impacts on our supply chain and potential limitations of supply of our feedstocks; (6) interruptions of our distribution systems and delays in the delivery of our products; (7) the health of our workforce, and our ability to meet staffing needs which is vital to our operations; and (8) volatility in the credit and financial markets.
The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the energy industry. We are unable to predict the overall impact these events will have on our future financial position and operations.
We continue to actively manage our response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to our future financial position and operating results, as well as adverse developments in our business. It is not possible for us to predict whether there will be additional government-mandated shelter-in-place and similar government orders that could affect our business, how long the existing orders will remain in place, and how these measures will impact our operations.
Our ethanol-related assets may be at greater risk of terrorist attacks, threats of war or actual war, than other possible targets.
Terrorist attacks in the United States, including threats of war or actual war, may adversely affect our operations. A direct attack on our ethanol production plants, or our partnership’s storage facilities, fuel terminals and railcars could have a material adverse effect on our financial condition, results of operations and cash flows. Furthermore, a terrorist attack could
have an adverse impact on ethanol prices. Disruption or significant increases in ethanol prices could result in government-imposed price controls.
Our network infrastructure, enterprise applications and internal technology systems could be damaged or otherwise fail and disrupt business activities.
Our network infrastructure, enterprise applications and internal technology systems are instrumental to the day-to-day operations of our business. Numerous factors outside of our control, including earthquakes, floods, lightning, tornados, fire, power loss, telecommunication failures, computer viruses, physical or electronic vandalism or similar disruptions could result in system failures, interruptions or loss of critical data and prevent us from fulfilling customer orders. We cannot provide assurance that our backup systems are sufficient to mitigate hardware or software failures, which could result in business disruptions that negatively impact our operating results and damage our reputation.
We could be adversely affected by cyber-attacks, data security breaches and significant information technology systems interruptions.
We rely on network infrastructure and enterprise applications, and internal technology systems for operational, marketing support and sales, and product development activities. The hardware and software systems related to such activities are subject to damage from earthquakes, floods, lightning, tornados, fire, power loss, telecommunication failures, cyber-attacks and other similar events. They are also subject to acts such as computer viruses, physical or electronic vandalism or other similar disruptions that could cause system interruptions and loss of critical data, and could prevent us from fulfilling customers’ orders. Cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology networks and systems to more sophisticated and targeted measures, known as advanced persistent threats, directed at the company, its products, its customers and/or its third-party service providers. Despite the implementation of cybersecurity measures (including access controls, data encryption, vulnerability assessments, employee training, continuous monitoring, and maintenance of backup and protective systems), the company’s information technology systems may still be vulnerable to cybersecurity threats and other electronic security breaches. While we have taken reasonable efforts to protect ourselves, and to date, we have not experienced any material losses related to cyber-attacks, we cannot assure our shareholders that any of our security measures would be sufficient in the future. Any event that causes failures or interruption in such hardware or software systems could result in disruption of our business operations, have a negative impact on our operating results, and damage our reputation, which could negatively affect our financial condition, results of operation, cash flows.
We may not be able to hire and retain qualified personnel to operate our facilities.
Our success depends, in part, on our ability to attract and retain competent employees. Qualified managers, engineers, merchandisers and other personnel must be hired for each of our locations. If we are unable to hire and retain productive, skilled personnel, we may not be able to maximize production, optimize plant operations or execute our business strategy.
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, gross receipts, and value-added taxes), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities as a result of these audits may subject us to interest and penalties.
Federal, state and local jurisdictions may challenge our tax return positions.
The positions taken in our federal and state tax return filings require significant judgments, use of estimates and the interpretation and application of complex tax laws. Significant judgment is also required in assessing the timing and amounts of deductible and taxable items. Despite management’s belief that our tax return positions are fully supportable, certain positions may be successfully challenged by federal, state and local jurisdictions.
Financial performance of our equity method investments are subject to risks beyond our control and can vary substantially from period to period.
The company invests in certain limited liability companies, which are accounted for using the equity method of accounting. This means that the company’s share of net income or loss in the investee increases or decreases, as applicable,
the carrying value of the investment. By operating a business through this arrangement, we do not have control over operating decisions as we would if we owned the business outright. Specifically, we cannot act on major business initiatives without the consent of the other investors.
The company recognizes these investments as a separate line item in the consolidated balance sheets its proportionate share of earnings on a separate line item in the consolidated statements of operations. As a result, the amount of net investment income recognized from these investments can vary substantially from period to period. Any losses experienced by these entities could adversely impact our results of operations and the value of our investment.
We are exposed to credit risk that could result in losses or affect our ability to make payments should a counterparty fail to perform according to the terms of our agreement.
We are exposed to credit risk from a variety of customers, including major integrated oil companies, large independent refiners, petroleum wholesalers and other ethanol plants. We are also exposed to credit risk with major suppliers of petroleum products and agricultural inputs when we make payments for undelivered inventories. Our fixed-price forward contracts are subject to credit risk when prices change significantly prior to delivery. The inability by a third party to pay us for our sales, provide product that was paid for in advance or deliver on a fixed-price contract could result in a loss and adversely impact our liquidity and ability to make our own payments when due.
The interest rates under our revolving credit facility may be impacted by the phase-out of LIBOR.
LIBOR is the basic rate of interest widely used as a reference for setting the interest rates on loans globally. We use LIBOR as a reference rate for our revolving credit facilities. In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, however, we are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such a possible transition to SOFR may be on our business, financial condition, and results of operations.
We have limitations, as a holding company, in our ability to receive distributions from a small number of our subsidiaries.
We conduct most of our operations through our subsidiaries and rely on dividends or intercompany transfers of funds to generate free cash flow. Some of our subsidiaries are currently, or are expected to be, limited in their ability to pay dividends or make distributions under the terms of their financing agreements. Consequently, we cannot fully rely on the cash flow from one subsidiary to satisfy the loan obligations of another subsidiary. As a result, if a subsidiary is unable to satisfy its loan obligations, we may not be able to prevent default by providing additional cash to that subsidiary, even if sufficient cash exists elsewhere within our organization.
Increased federal support of cellulosic ethanol could result in increased competition to corn-based ethanol producers.
Legislation, including the American Recovery and Reinvestment Act of 2009 and EISA, provides numerous funding opportunities supporting cellulosic ethanol production. In addition, RFS II mandates an increasing level of biofuel production that is not derived from corn, though this will be amended lower by the EPA in the reset rulemaking. Federal policies suggest a long-term political preference for cellulosic processing using feedstocks such as switch grass, silage, wood chips or other forms of biomass. Cellulosic ethanol is viewed more favorably since the feedstock is not diverted from food production and has a smaller carbon footprint. Several cellulosic ethanol plants are currently under development. While these have had limited success to date, as research and development programs persist, there is risk that cellulosic ethanol could displace corn ethanol.
Any changes in federal mandates from corn-based to cellulosic-based ethanol production may reduce our profitability. Our plants are designed as single-feedstock facilities and would require significant additional investments to convert production to cellulosic ethanol. Furthermore, our plants are strategically located in high-yield, low-cost corn production areas. At present, there is limited supply of alternative feedstocks near our facilities. As a result, the adoption of cellulosic ethanol and its use as the preferred form of ethanol could have a significant adverse impact on our business.
Environmental, social and corporate governance matters and uncertainty regarding regulation of such matters may increase our operating costs, impact our capital markets and potentially reduce the value of our products and assets.
The issue of global climate change continues to attract considerable public and scientific attention with widespread concern about the impacts of human activity, especially the emissions of greenhouse gases such as carbon dioxide and methane. With the incoming administration, climate change legislation in the U.S. is likely to receive increased focus and consideration over the next several years, with numerous proposals having been made and are likely to continue to be made at the international, national, regional and state levels of government that are intended to limit emissions of greenhouse gases and capture carbon. Several states have already adopted measures requiring reduction of greenhouse gases within state boundaries. Other states have elected to participate in voluntary regional cap-and-trade programs. While we believe our products are low carbon and result in a reduction of greenhouse gas emissions compared to alternatives, any significant legislative changes at the international, national, state or local levels could significantly affect our ability to produce and sell our products, could increase the cost of the production and sale of our products and could materially reduce the value of our products.
Apart from governmental regulation, some investment banks based both domestically and internationally have announced that they have adopted environmental, social and corporate governance guidelines (ESG). There have also been efforts in recent years affecting the investment community, including investment advisers, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities, and encouraging the consideration of ESG practices of companies in a manner that could negatively affect us. The impact of such efforts may adversely affect the demand for and price of securities issued by us, and impact our access to the capital and financial markets.
Further, it is believed by some that climate change itself may cause more extreme weather conditions such as more intense hurricanes, thunderstorms, tornadoes and snow or ice storms, as well as rising sea levels and increased volatility in seasonal temperatures. Extreme weather conditions can interfere with our operations and increase our costs, and damage resulting from extreme weather may not be fully insured. However, at this time, we are unable to determine the extent to which any potential climate change may lead to increased weather hazards affecting our operations.
Our insurance policies do not cover all losses, costs or liabilities that we may experience, and insurance companies that currently insure companies in the energy industry may cease to do so or substantially increase premiums.
We are insured under property, liability and business interruption policies, subject to the deductibles and limits under those policies. We have acquired insurance that we believe to be adequate to prevent loss from material foreseeable risks. However, events may occur for which no insurance is available or for which insurance is not available on terms that are acceptable. Loss from an event, such as, but not limited to war, riots, pandemics, terrorism or other risks, may not be insured and such a loss may have a material adverse effect on our operations, cash flows and financial position.
Certain of our ethanol production plants and our related storage tanks, as well as certain of our fuel terminal facilities are located within recognized seismic and flood zones. We believe that the design of these facilities have been modified to fortify them to meet structural requirements for those regions of the country. We have also obtained additional insurance coverage specific to earthquake and flood risks for the applicable plants and fuel terminals. However, there is no assurance that any such facility would remain in operation if a seismic or flood event were to occur.
Additionally, our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control. In addition, if we experience insurable events, our annual premiums could increase further or insurance may not be available at all. If significant changes in the number or financial solvency of insurance underwriters for the ethanol industry occur, we may be unable to obtain and maintain adequate insurance at a reasonable cost. We cannot assure our unitholders that we will be able to renew our insurance coverage on acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. The occurrence of an event that is not fully covered by insurance, the failure by one or more insurers to honor its commitments for an insured event or the loss of insurance coverage could have a material adverse effect on our financial condition, results of operations, cash flows and ability of the partnership to make distributions to its unitholders.
Risks Related to the Partnership
We depend on the partnership to provide fuel storage and transportation services.
The partnership’s operations are subject to all of the risks and hazards inherent in the storage and transportation of fuel, including: damages to storage facilities, railcars and surrounding properties caused by floods, fires, severe weather,
explosions, natural disasters or acts of terrorism; mechanical or structural failures at the partnership’s facilities or at third-party facilities at which its operations are dependent; curtailments of operations relative to severe weather; and other hazards, resulting in severe damage or destruction of the partnership’s assets or temporary or permanent shut-down of the partnership’s facilities. If the partnership is unable to serve our storage and transportation needs, our ability to operate our business could be adversely impacted, which could adversely affect our financial condition and results of operations. The inability of the partnership to continue operations, for any reason, could also impact the value of our investment in the partnership and, because the partnership is a consolidated entity, our business, financial condition and results of operations.
The partnership’s revolving credit facility includes restrictions that may limit its ability to finance future operations, meet its capital needs or expand its business. In addition, the partnership’s revolving credit facility matures on December 31, 2021 and the partnership may not be able to renew, extend or replace the expiring facility with similar terms. If the partnership fails to comply with covenants in its revolving credit facility or if the facility is terminated, the partnership may be required to repay its indebtedness thereunder, which may have an adverse effect on the partnership’s liquidity and its ability to operate and provide services to us.
The partnership is dependent upon the earnings and cash flow generated by its operations in order to meet its debt service obligations and to allow the partnership to pay cash distributions to our unitholders. The operating and financial restrictions and covenants in the partnership’s revolving credit facility or in any future financing agreements could restrict its ability to finance future operations or capital needs or to expand or pursue its business activities, which may, in turn, limit its ability to pay cash distributions to unitholders. For example, the partnership’s revolving credit facility restricts its ability to, among other things: (1) make certain cash distributions; (2) incur certain indebtedness; (3) create certain liens; (4) make certain investments; (5) merge or sell certain of our assets; and (6) expand the nature of our business.
Furthermore, the partnership’s revolving credit facility contains covenants requiring it to maintain certain financial ratios.
The provisions of the partnership’s revolving credit facility may affect its ability to obtain future financing and pursue attractive business opportunities and its flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of the partnership’s revolving credit facility could result in an event of default that could enable the partnership’s lenders, subject to the terms and conditions of the partnership’s revolving credit facility, to declare the outstanding principal of that debt, together with accrued interest, to be immediately due and payable and/or to proceed against the collateral granted to them to secure such debt. If there is a default or event of default, the payment of the partnership’s debt is accelerated, defaults under its other debt instruments, if any, may be triggered, and its assets may be insufficient to repay such debt in full. Therefore, the holders of our units could experience a partial or total loss of their investment.
The credit facility will mature on December 31, 2021. The partnership anticipates that it will renew and extend the credit facility prior to its maturity. Adverse changes in market conditions could make the renewal of the credit facility more difficult or cold result in an increase in the cost to renew.
The partnership may not have sufficient available cash to pay quarterly distributions on its units.
The amount of cash the partnership can distribute depends on how much cash is generated from operations, which can fluctuate from quarter to quarter based on ethanol and other fuel volumes, handling fees, payments associated with minimum volume commitments, timely payments by subsidiaries, and other third parties, and prevailing economic conditions. The amount of cash available for distribution also depends on the partnership’s operating and general and administrative expenses, capital expenditures, acquisitions and organic growth projects, debt service requirements, working capital needs, ability to borrow funds and access capital markets, revolving credit facility restrictions, cash reserves and other risks affecting cash levels. Increasing the partnership’s borrowings or other debt to finance certain projects could increase interest expense, which could impact the amount of cash available for distributions.
There are no limitations in the partnership agreement regarding its ability to issue additional units. Should the partnership issue additional units in connection with an acquisition or expansion, the distributions on the incremental units will increase the risk that the partnership will be unable to maintain or increase distributions on a per unit basis.
Increases in interest rates could adversely impact the partnership’s unit price, ability to issue equity or incur debt, and pay cash distributions at intended levels.
The partnership’s cash distributions and implied distribution yield affect its unit price. Distributions are often used by investors to compare and rank yield-oriented securities when making investment decisions. A rising interest rate environment
could have an adverse impact on the partnership’s unit price, ability to issue equity or incur debt or pay cash distributions at intended levels, which could adversely impact the value of our investment in the partnership.
We may be required to pay taxes on our share of the partnership’s income that are greater than the cash distributions we receive from the partnership.
The unitholders of the partnership generally include, for purposes of calculating their U.S. federal, state and local income taxes, their share of the partnership’s taxable income, whether they have received cash distributions from the partnership. We ultimately may not receive cash distributions from the partnership equal to our share of taxable income or the taxes that are due with respect to that income, which could negatively impact our liquidity.
A majority of the executive officers and directors of the partnership are also officers of our company, which could result in conflicts of interest.
We indirectly own and control the partnership and appoint all of its officers and directors. A majority of the executive officers and directors of the partnership are also officers or directors of our company. Although our directors and officers have a fiduciary responsibility to manage the company in a manner that is beneficial to us, as directors and officers of the partnership, they also have certain duties to the partnership and its unitholders. Conflicts of interest may arise between us and our affiliates, and the partnership and its unitholders, and in resolving these conflicts, the partnership may favor its own interests over the company’s interests. In certain circumstances, the partnership may refer conflicts of interest or potential conflicts of interest to its conflicts committee, which must consist entirely of independent directors, for resolution. The conflicts committee must act in the best interests of the public unitholders of the partnership. As a result, the partnership may manage its business in a manner that differs from the best interests of the company or our stockholders, which could adversely affect our profitability.
Cash available for distributions could be reduced and likely cause a substantial reduction in unit value if the partnership became subject to entity-level taxation for federal income tax purposes.
The present federal income tax treatment of publicly traded partnerships or investments in its units could be modified, at any time, by administrative, legislative or judicial changes and interpretations. From time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Should any legislative proposal eliminate the qualifying income exception, all publicly traded partnerships would be treated as corporations for federal income tax purposes. The partnership would be required to pay federal income tax on its taxable income at the corporate tax rate and likely state and local income taxes at varying rates as well. Distributions to unitholders would be taxed as corporate distributions. The partnership’s cash available for distributions and the value of the units would be substantially reduced.
Risks Related to our Common Stock
The price of our common stock may be highly volatile and subject to factors beyond our control.
Some of the many factors that can influence the price of our common stock include: (1) our results of operations and the performance of our competitors; (2) public’s reaction to our press releases, public announcements and filings with the SEC;
(3) changes in earnings estimates or recommendations by equity research analysts who follow us or other companies in our industry; (4) changes in general economic conditions; (5) changes in market prices for our products or raw materials and related substitutes; (6) sales of common stock by our directors, executive officers and significant shareholders; (7) actions by institutional investors trading in our stock; (8) disruptions in our operations; (9) changes in our management team; (10) other developments affecting us, our industry or our competitors; and (11) U.S. and international economic, legal and regulatory factors unrelated to our performance.
In recent years the stock market has experienced significant price and volume fluctuations, which are unrelated to the operating performance of any particular company. These broad market fluctuations could materially reduce the price of our common stock price based on factors that have little or nothing to do with our company or its performance.
Anti-takeover provisions could make it difficult for a third party to acquire us.
Our restated articles of incorporation, restated bylaws and Iowa’s law contain anti-takeover provisions that could delay or prevent change in control of us or our management. These provisions discourage proxy contests, making it difficult for our shareholders to elect directors or take other corporate actions without the consent of our board of directors, which include: (1) board members have three-year staggered terms; (2) board members can only be removed for cause with an affirmative vote of no less than two-thirds of the outstanding shares; (3) shareholder action can only be taken at a special or annual meeting,
not by written consent except where required by Iowa law; (4) shareholders are restricted from making proposals at shareholder meetings; and (5) the board of directors can issue authorized or unissued shares of stock.
We are subject to the provisions of the Iowa Business Corporations Act, which prohibits combinations between an Iowa corporation whose stock is publicly traded or held by more than 2,000 shareholders and an interested shareholder for three years unless certain exemption requirements are met.
Provisions in the convertible notes could also make it more difficult or too expensive for a third party to acquire us. If a takeover constitutes a fundamental change, holders of the notes have the right to require us to repurchase their notes in cash. If a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their notes. In either case, the obligation under the notes could increase the acquisition cost and discourage a third party from acquiring us.
These items discourage transactions that could otherwise command a premium over prevailing market prices and may limit the price investors are willing to pay for our stock.
Non-U.S. shareholders may be subject to U.S. income tax on gains related to the sale of their common stock.
If we are a U.S. real property holding corporation during the shorter of the five-year period before the stock was sold or the period the stock was held by a non-U.S. shareholder, the non-U.S. shareholder could be subject to U.S federal income tax on gains related to the sale of their common stock. Whether we are a U.S. real property holding corporation depends on the fair market value of our U.S. real property interests relative to our other trade or business assets and non-U.S. real property interests. We cannot provide assurance that we are not a U.S. real property holding corporation or will not become one in the future.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. U nresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Prope rties.
We believe the property owned and leased at our locations is sufficient to accommodate our current needs, as well as potential expansion.
Corporate
We lease approximately 54,000 square feet of office space at 1811 Aksarben Drive in Omaha, Nebraska for our corporate headquarters, which houses our corporate administrative functions and commodity trading operations.
Ethanol Production Segment
We own approximately 1,775 acres of land and lease approximately 78 acres of land at and around our ethanol production facilities. As detailed in our discussion of the ethanol production segment in Item 1 - Business, our ethanol plants have the capacity to produce approximately 1.0 billion gallons of ethanol per year.
Agribusiness and Energy Services Segment
We own approximately 39 acres of land at our three grain elevators. As detailed in our discussion in Item 1 - Business, our agribusiness and energy services segment facilities include three grain elevators with combined grain storage capacity of approximately 7.6 million bushels, and grain storage capacity at our ethanol plants of approximately 30.5 million bushels.
We lease approximately 50,500 square feet manufacturing space at 4500 S. 76th Circle in Omaha, Nebraska for our Optimal Aquafeed LLC operations which manufactures and stores fish food, feed ingredients and other related products.
Our marketing operations are conducted primarily at our corporate office, in Omaha, Nebraska.
‎
Partnership Segment
Our partnership owns approximately five acres of land and leases approximately 17 acres of land at six locations in five states, as disclosed in Item 1 - Business, where its fuel terminals are located and owns approximately 42 acres of land and leases approximately two acres of land where its storage facilities are located at our ethanol production facilities.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proc eedings. We are currently involved in litigation that has occurred in the ordinary course of doing business. We do not believe this will have a material adverse effect on our financial position, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
‎
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market fo r Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Common Stock
Our common stock trades under the symbol “GPRE” on Nasdaq.
Holders of Record
We had 1,999 holders of record of our common stock, not including beneficial holders whose shares are held in names other than their own, on February 11, 2021. This figure does not include approximately 32.7 million shares held in depository trusts.
Dividend Policy
On June 18, 2019, the company announced that its board of directors decided to suspend its future quarterly cash dividend following the June 14, 2019 dividend payment, in order to retain and redirect cash flow to the company’s Project 24 operating expense equalization plan, the deployment of high-protein technology and its stock repurchase program.
Issuer Purchases of Equity Securities
Employees surrender shares when restricted stock grants are vested to satisfy statutory minimum required payroll tax withholding obligations. No restricted stock vested during the fourth quarter of 2020 and therefore no shares were surrendered.
Our board of directors authorized a share repurchase program of up to $200.0 million of our common stock. Under this program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated buyback programs, tender offers or by other means. The timing and amount of the transactions are determined by management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time, without prior notice. We did not repurchase any shares during the fourth quarter of 2020. Since inception, the company has repurchased 7,396,936 shares of common stock for approximately $92.8 million under the program.
Recent Sales of Unregistered Securities
None.
Equity Compensation Plans
Refer to Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for information regarding shares authorized for issuance under equity compensation plans.
‎
Performance Graph
The following graph compares our cumulative total return with the S&P SmallCap 600 Index and the Nasdaq Clean Edge Green Energy Index (CELS) for each of the five years ended December 31, 2020. The graph assumes a $100 investment in our common stock and each index at December 31, 2015, and that all dividends were reinvest ed.
12/15
12/16
12/17
12/18
12/19
12/20
Green Plains Inc.
$
100.00
$
124.59
$
77.28
$
61.73
$
73.83
$
63.02
S&P SmallCap 600
100.00
126.56
143.30
131.15
161.03
179.20
Nasdaq Clean Edge Green Energy
100.00
97.35
128.55
112.98
161.18
459.09
The information in the graph will not be considered solicitation material, nor will it be filed with the SEC or incorporated by reference into any future filing under the Securities Act or the Exchange Act, unless we specifically incorporate it by reference into our filing.
‎

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. S elected Financial Data.
The statement of operations data for the years ended December 31, 2020, 2019 and 2018 and the balance sheet data as of December 31, 2020 and 2019 are derived from our audited consolidated financial statements and should be read together with the accompanying notes included elsewhere in this report.
The statement of operations data for the years ended December 31, 2017 and 2016 and the balance sheet data as of December 31, 2018, 2017 and 2016 are derived from our audited consolidated financial statements that are not included in this report, which describe a number of matters that materially affect the comparability of the periods presented.
The following selected financial data should be read together with Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report. The financial information below is not necessarily indicative of results to be expected for any future period. Future results could differ materially from historical results due to numerous factors, including those discussed in Item 1A - Risk Factors of this report.
Year Ended December 31,
2019 (1)
2018 (1) (2)
2017 (1)
2016 (1)
Statement of Operations Data:
(in thousands, except per share information)
Revenues
$
1,923,719
$
2,417,238
$
2,983,932
$
3,289,475
$
3,159,313
Costs and expenses
2,046,415
2,559,808
2,893,978
3,265,727
3,080,101
Operating income (loss) from continuing operations (3)
(122,696)
(142,570)
89,954
23,748
79,212
Total other expense (4)
38,434
30,372
84,310
78,902
50,918
Net income (loss) from continuing operations including noncontrolling interest
(89,654)
(148,829)
25,195
76,633
24,669
Net income from discontinued operations, net of income taxes
-
11,539
4,998
5,822
Net income (loss)
(89,654)
(148,000)
36,734
81,631
30,491
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
$
61,061
$
10,663
Basic earnings per share:
Earnings (loss) per share from continuing operations
$
(3.14)
$
(4.40)
$
0.11
$
1.43
$
0.13
Earnings per share from discontinued operations
-
0.02
0.28
0.13
0.15
Earnings (loss) per share attributable to Green Plains
$
(3.14)
$
(4.38)
$
0.39
$
1.56
$
0.28
Diluted earnings per share:
Earnings (loss) per share from continuing operations
$
(3.14)
$
(4.40)
$
0.11
$
1.37
$
0.13
Earnings per share from discontinued operations
-
0.02
0.28
0.10
0.15
Earnings (loss) per share attributable to Green Plains
$
(3.14)
$
(4.38)
$
0.39
$
1.47
$
0.28
Cash dividend declared per share (5)
$
-
$
0.24
$
0.48
$
0.48
$
0.40
Other Data: (Non-GAAP)
Adjusted EBITDA (in thousands)
$
36,748
$
(39,940)
$
75,429
$
154,451
$
175,106
‎
Year Ended December 31,
2018 (1)
2017 (1)
2016 (1)
Balance Sheet Data (in thousands):
Cash and cash equivalents
$
233,860
$
245,977
$
251,681
$
266,619
$
303,449
Current assets
642,353
667,913
1,206,642
1,211,965
1,000,576
Total assets
1,578,917
1,698,218
2,216,432
2,790,144
2,506,492
Current liabilities
452,556
541,791
833,700
891,755
594,946
Long-term debt
287,299
243,990
298,110
767,278
782,610
Total liabilities
802,253
832,932
1,153,443
1,731,008
1,527,301
Stockholders' equity
776,664
865,286
1,062,989
1,059,136
979,191
(1)The assets and liabilities and results of operations of GPCC prior to its divesture on September 1, 2019 have been reclassified as discontinued operations.
(2)Fiscal year 2018 includes approximately eleven months of operations of the Bluffton, Indiana, Lakota, Iowa, Riga, Michigan and the Hopewell, Virginia ethanol plants, as well as Fleischmann’s Vinegar.
(3)Fiscal year 2020 includes the goodwill impairment charge of $24.1 million, the $22.4 million loss on sale of assets, net from the sale of the Hereford, Texas ethanol plant and the $1.5 million gain from sale of GPCC. Fiscal year 2018 includes the $150.4 million gain on the sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants, as well as Fleischmann’s Vinegar during the fourth quarter.
(4)Fiscal year 2019 includes the $4.8 million gain related to the sale of our 50% interest in JGP Energy Partners LLC.
(5)On June 18, 2019, the company announced that its board of directors decided to suspend its future quarterly cash dividend following the June 14, 2019 dividend payment.
We use EBITDA and adjusted EBITDA as segment measures of profitability to compare the financial performance of our reportable segments and manage those segments. EBITDA is defined as earnings before interest expense, income tax expense, including related tax expense of equity method investments, depreciation and amortization excluding the amortization of right-of-use assets and debt issuance costs. Adjusted EBITDA includes adjustments related to operational results of GPCC prior to its disposition which are recorded as discontinued operations, our proportional share of EBITDA adjustments of our equity method investees, noncash goodwill impairment and the loss (gain) on sale of assets, net. We believe EBITDA and adjusted EBITDA are useful measures to compare our performance against other companies. EBITDA and adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, which is prepared in accordance with GAAP. EBITDA and adjusted EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA and adjusted EBITDA may not be comparable with a similarly titled measure of other companies.
The following table reconciles net income (loss) from continuing operations including noncontrolling interest to adjusted EBITDA (in thousands):
Year Ended December 31,
Net income (loss) from continuing operations including noncontrolling interest
$
(89,654)
$
(148,829)
$
25,195
$
76,633
$
24,669
Interest expense
39,993
40,200
87,449
83,700
49,935
Income tax expense (benefit), net of equity method income tax expense
(43,879)
(21,316)
(20,147)
(132,061)
3,625
Depreciation and amortization (1)
78,244
72,127
98,258
103,582
83,137
EBITDA
(15,296)
(57,818)
190,755
131,854
161,366
EBITDA adjustments related to discontinued operations
-
17,703
33,897
22,516
13,615
Proportional share of EBITDA adjustments to equity method investees
7,093
4,974
1,128
Loss (gain) on sale of assets, net (2)
20,860
(4,799)
(150,351)
-
-
Noncash goodwill impairment
24,091
-
-
-
-
Adjusted EBITDA
$
36,748
$
(39,940)
$
75,429
$
154,451
$
175,106
(1)Excludes the amortization of operating lease right-of-use assets and amortization of debt issuance costs.
(2)Fiscal year 2019 includes gain reported in other income (expense).
‎

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Managem ent’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion and analysis includes information management believes is relevant to understand and assess our consolidated financial condition and results of operations. This section should be read in conjunction with our consolidated financial statements, accompanying notes and the risk factors contained in this report.
Overview
Green Plains is an Iowa corporation, founded in June 2004 as a producer of low carbon fuels and has grown to be one of the leading corn processors in the world. We continue the transition from a commodity-processing business to a value-add agricultural technology company focusing on creating diverse, non-cyclical, higher margin products. In addition, we are currently undergoing a number of project initiatives to improve margins. Through our Project 24 initiative, we anticipate reductions in operating expense per gallon across our non-ICM plants and with our high-protein initiative, we expect to produce various Ultra-High Protein feed ingredients further increasing margins per gallon.
Our first Ultra-High Protein installation was completed at our Shenandoah plant during the first quarter of 2020 with shipments of dried product beginning in April 2020. Installation at our Wood River plant began during the third quarter 2020 with shipments expected to begin in the third quarter of 2021. We anticipate that additional locations will be completed over the course of the next several years.
We have also upgraded our York facility to include USP grade alcohol capabilities and it will be further upgraded to GNS by adding additional distillation and processing capabilities to serve other high-value markets, including the beverage alcohol market and will continue to produce USP grade alcohol during construction. The GNS upgrade is expected to be completed during the second quarter of 2021. We expect to complete the CST production facility at York in the first quarter of 2021, which will allow for the production of both food and industrial grade dextrose. We anticipate modifying one or more biorefineries to CST production facilities to meet anticipated future customer demands.
We recently completed the purchase of a majority interest in Fluid Quip Technologies, LLC. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production of Ultra-High Protein across Green Plains facilities, as well as offer these technologies to partnering biofuel facilities.
Additionally, we have taken advantage of opportunities to divest certain assets in recent years. We are focused on generating stable operating margins through our business segments and risk management strategy. We own and operate assets throughout the ethanol value chain: upstream, with grain handling and storage; through our ethanol production facilities; and downstream, with marketing and distribution services to mitigate commodity price volatility. Our other businesses leverage our supply chain, production platform and expertise.
Our profitability is highly dependent on commodity prices, particularly for ethanol, distillers grains, corn oil, corn, and natural gas. Since market price fluctuations of these commodities are not always correlated, our operations may be unprofitable at times. We use a variety of risk management tools and hedging strategies to monitor price risk exposure at our ethanol plants and lock in favorable margins or reduce production when margins are compressed.
More information about our business, properties and strategy can be found under Item 1 - Business and a description of our risk factors can be found under Item 1A - Risk Factors.
Industry Factors Affecting our Results of Operations
U.S. Ethanol Supply and Demand
According to the EIA, domestic ethanol production averaged 0.91 million barrels per day in 2020, which was 12% lower than the 1.03 million barrels per day in 2019. Refiner and blender input volume decreased 13% to 798 thousand barrels per day for 2020, compared with 921 thousand barrels per day in 2019. Gasoline demand decreased 1.2 million barrels per day, or 13% in 2020. U.S. domestic ethanol ending stocks increased by approximately 2.5 million barrels, or 12%, year over year to 23.5 million barrels. As of December 31, 2020, according to Prime the Pump, there were approximately 2,300 retail stations selling E15 in 30 states, up from 2,080 at the beginning of the year, as well as 203 pipeline terminal locations now offering E15 to wholesale customers.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports through November 30, 2020 were approximately 1.22 bgy, down 7.6% from 1.32 bgy for the same period of 2019. Canada was the largest export destination for U.S. ethanol accounting for 25% of domestic ethanol export volume. Brazil, India, and South Korea accounted for 16%, 15%, and 8%, respectively, of U.S. ethanol exports. We currently estimate that net ethanol exports will range from 1.3 to 1.5 billion gallons in 2021, excluding any significant exports to China, based on historical demand from a variety of countries and certain countries who seek to improve their air quality and eliminate MTBE from their own fuel supplies.
On April 1, 2018, China announced it would add an additional 15% tariff to the existing 30% tariff it had earlier imposed on ethanol imports from the United States and Brazil. China later raised the tariff further to 70% as the trade war escalated. In January 2020, China and the United States struck a “Phase I” trade agreement, which included commitments on agricultural commodity purchases. Ethanol, corn and distillers grains were included as potential purchases in the agreement. China has been purchasing large quantities of corn, which has raised domestic prices of this feedstock for our ethanol production process. In addition, in October 2020 it was announced that China had purchased a shipment of U.S. ethanol for the first time since March 2018.
The cost to produce the equivalent amount of starch found in sugar from $3.50-per-bushel corn is 7 cents per pound. The average price of sugar was approximately 12.9 cents per pound during 2020.
Year-to-date U.S. distillers grains exports through November 30, 2020, were 10.1 million metric tons, or 1% higher than the same period last year, according to the USDA Foreign Agriculture Service. Mexico, Vietnam, South Korea, Indonesia, Thailand, and Turkey accounted for approximately 62.5% of total U.S. distillers export volumes.
Legislation and Regulation
We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. Over the past few years, various bills and amendments have been proposed in the House and Senate which would eliminate the RFS II entirely, eliminate the corn based ethanol portion of the mandate, and make it more difficult to sell fuel blends with higher levels of ethanol. We believe it is unlikely that any of these bills will become law in the current Congress. In addition, the manner in which the EPA administers the RFS II and related regulations can have a significant impact on the actual amount of ethanol blended into the domestic fuel supply.
Federal mandates and state-level clean fuel programs supporting the use of renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by concerns for the environment, diversifying our fuel supply, and reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehicles and higher ethanol blends of ethanol in non-flex-fuel vehicles may be necessary before ethanol can achieve further growth in U.S. market share. In addition, expansion of clean fuel programs in other states, or a national low carbon fuel standard could increase the demand for ethanol, depending on how it is structured.
Congress first enacted CAFE in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks. Flexible-fuel vehicles (FFVs), which are designed to run on a mixture of fuels, including higher blends of ethanol such as E85, receive preferential treatment in the form of CAFE credits. There are approximately 21 million FFVs on the road in the U.S. today, 16 million of which are light duty trucks. FFV credits have been decreasing since 2014 and were completely phased out in 2020. Absent CAFE preferences, auto manufacturers may not be willing to build flexible-fuel vehicles, which has the potential to slow the growth of E85 markets. However, California’s Low Carbon Fuel Standard program (LCFS) has driven growth in E85 usage, and other state/regional LCFS programs have the potential to do the same.
The RFS II sets a floor for ethanol usage in the United States. When the RFS II was established in 2010, the required volume of “conventional” or corn-based ethanol to be blended with gasoline was to increase each year until it reached 15.0 billion gallons in 2015, which left the EPA to address existing limitations in both supply and demand. The EPA has not yet released a draft RVO rule for the 2021 volumes, despite the fact they typically release a draft mid-year and finalize the rule by November 30 each year. It is unclear when they will release the RVO for 2021.
According to the RFS II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022 - the year through which the statutorily prescribed volumes run. While conventional ethanol maintained 15 billion gallons, 2019 was the second consecutive year that the total proposed RVO was more than 20% below the statutory volumes levels. Thus, the EPA was expected to initiate a reset
rulemaking, and modify statutory volumes through 2022, and do so based on the same factors they are to use in setting the RVOs post-2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development. However, in late 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020. It is unclear when or if they will propose a reset rulemaking.
Under the RFS, RINs and SREs are important tools impacting supply and demand. The EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. Obligated parties use RINs to show compliance with the RFS II mandated volumes. Ethanol producers assign RINs to renewable fuels and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and can influence purchasing decisions by obligated parties. As it relates to SREs, a small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day. Small refineries can petition the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements. The EPA, through consultation with the DOE and the USDA can grant them a full or partial waiver, or deny it outright within 90 days of submittal. The EPA granted significantly more of these waivers for 2016, 2017 and 2018 than they had in the past, totaling 790 mmg of waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017 and 1.43 billion gallons for 2018. In doing so, the EPA effectively reduced the RFS II mandated volumes for those compliance years by those amounts respectively, and as a result, RIN values declined significantly.
The One-Pound Waiver that was extended in May 2019 to allow E15 to be sold year-round to all vehicles model year 2001 and newer is being challenged in an action filed in Federal District Court for the D.C. Circuit. However, the One-Pound Waiver remains in effect, and E15 is sold year-round in approximately 30 states.
Biofuels groups have filed a lawsuit in the Court of Appeals for the D.C. Circuit, challenging the 2019 RVO rule over the EPA’s failure to address small refinery exemptions in the rulemaking. This was the first RFS II rulemaking since the expanded use of the exemptions came to light; however, the EPA had declined to cap the number of waivers it grants, and until late 2019, had declined to alter how it accounts for the retroactive waivers in its annual volume calculations. The EPA has a statutory mandate to ensure the volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The EPA’s recent approach accomplished the opposite. Even if all the obligated parties complied with their respective percentage obligations for 2019, the nation’s overall supply of renewable fuel would not meet the total volume requirements set by the EPA. This undermines Congressional intent to increase the consumption of renewable fuels in the domestic transportation fuel supply. Biofuels groups have argued the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and adjust the standards to account for any waivers it reasonably expects to grant in the future.
In 2017, the D.C. Circuit ruled in favor of biofuel groups against the EPA related to its decision to lower the 2016 volume requirements by 500 mmg. As a result, the Court remanded to the EPA to make up for the 500 mmg. Despite this, in the proposed 2020 RVO rulemaking released in July 2019, the EPA stated it does not intend to make up the 500 mmg as the court directed, citing potential burden on obligated parties. The EPA had indicated that it plans to address this court ordered remand in conjunction with the 2021 RVO rulemaking, however that rulemaking has been delayed indefinitely for political reasons.
In 2019, in a supplemental rulemaking to the 2020 RVO rule, the EPA changed their approach, and for the first time accounted for the gallons that they anticipate they will be waiving from the blending requirements due to small refinery exemptions. To accomplish this, they added in the trailing three year average of gallons the DOE recommended be waived, in effect raising the blending volumes across the board in anticipation of waiving the obligations in whole or in part for certain refineries that qualify for the exemptions. Though the EPA has often disregarded the recommendations of the DOE in years past, they stated in the rule their intent to adhere to these recommendations going forward, including granting partial waivers rather than an all or nothing approach. The EPA will be adjudicating the 2020 compliance year small refinery exemption applications in early 2021, but have indicated they will adhere to the DOE recommendations for the 2019 compliance year applications as well.
In January 2020, the U.S. Court of Appeals for the 10th Circuit ruled on RFA et. al. vs. EPA in favor of biofuels interests, overturning EPA’s granting of refinery exemptions to three refineries on two separate grounds. The Court agreed that, under the Clean Air Act, refineries are eligible for SREs for a given RVO year only if such exemptions are extensions of exemptions granted in previous RVO years. In this case, the three refineries at issue did not qualify for SREs in the year prior to the year that EPA granted them. They were thus ineligible for additional SRE relief because there were no immediately prior SREs to extend. In addition, the Court agreed that the disproportionate economic hardship prong of SRE eligibility should be determined solely by reference to whether compliance with the RFS II creates such hardship, not whether
compliance plus other issues create disproportionate economic hardship. The Court thus vacated EPA's grant of SREs for certain years and remanded the grants back to EPA. The refiners appealed for a rehearing which was denied. Two of the refiners appealed the decision to the U.S. Supreme Court and in January 2021, the Supreme Court announced they would hear the case. If the decision against the EPA is upheld by the Supreme Court, it is uncertain how the EPA will propose to remedy the situation.
In light of the 10th Circuit ruling, a number of refineries have applied for “gap year” SREs in an effort to establish a continuous string of relief and to ensure they are able to qualify for SREs going forward. A total of 64 gap year requests were filed with the EPA and reviewed by the DOE. In September 2020 the EPA announced that they were denying 54 of the gap year requests that had been scored and returned by DOE, regardless of how they had been scored. Without a string of continuous SRE approvals, almost no small refinery would be eligible to apply for hardship relief in this manner, unless the Supreme Court overturns the 10th Circuit ruling, which we believe is unlikely.
In October 2019, the White House directed the USDA and EPA to move forward with rulemaking to expand access to higher blends of biofuels. This includes funding for infrastructure, labeling changes and allowing E15 to be sold through E10 infrastructure. The USDA rolled out the Higher Blend Infrastructure Incentive Program in the summer of 2020, providing competitive grants to fuel terminals and retailers for installing equipment for dispensing higher blends of ethanol and biodiesel. The EPA had indicated it would move forward with notice of proposed rulemaking on E15 labeling reforms, but they have not as of this filing. In 2020, five Governors and 15 Republican Senators sent letters to the EPA requesting a general waiver from the RFS due to the drop in demand caused by COVID-19 travel restrictions. As of this filing the EPA had indicated only that they are watching the situation closely and reviewing the letters.
To respond to the COVID-19 health crisis and attempt to offset the subsequent economic damage, Congress passed multiple relief measures, most notably the CARES Act in March 2020, which created and funded multiple programs that have impacted our industry. The USDA was given additional resources for the Commodity Credit Corporation (CCC) and they are using those funds to provide direct payments to farmers, including corn farmers from whom we purchase most of our feedstock for ethanol production. Similar to the trade aid payments made by the USDA over the past two years, this cash injection for farmers could cause them to delay marketing decisions and increase the price we have to pay to purchase corn. The CARES Act also allowed for certain net operating loss carrybacks, which has allowed us to receive certain tax refunds. In December 2020, Congress passed and the President signed into law an annual spending package coupled with another COVID relief bill which included additional funds for the Secretary of Agriculture to distribute to those impacted by the pandemic. The language of the bill specifically includes biofuels producers as eligible for some of this aid.
The CARES Act provided a tax exclusion on the shipment of undenatured ethanol for use in manufacturing hand sanitizer, a key ingredient of which is undenatured ethanol of specific grades. The FDA has also provided expanded guidance to allow for more denaturants to be used in ethanol intended for hand sanitizer production, and has expanded the grades of ethanol allowed for the duration of the public health crisis.
Government actions abroad can significantly impact the demand for U.S. ethanol. In September 2017, China’s National Development and Reform Commission, the National Energy Agency and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. China, the number three importer of U.S. ethanol in 2016, imported negligible volumes during 2018 and 2019 due to a 30% tariff on U.S. ethanol, which increased to 70% in early 2018. There is no assurance that China’s joint plan to expand blending to 10% will be carried to fruition, nor that it will lead to increased imports of U.S. ethanol in the near term. Ethanol is included as an agricultural commodity under the “Phase I” agreement with China, wherein they are to purchase upwards of $40 billion in agricultural commodities from the U.S. in both 2020 and 2021. In 2020, there were few meaningful purchases of U.S. ethanol by China.
In Brazil, the Secretary of Foreign Trade had issued a tariff rate quota which expired in December of 2020. Exports to Brazil were on pace for 120 mmg in 2020. All U.S. ethanol gallons now face a 20% tariff into Brazil. Our exports also face tariffs, rate quotas, countervailing duties, and other hurdles in the European Union, India, Peru, Columbia and elsewhere, which limits the ability to compete in some markets. We believe some countries are using the COVID-19 crisis as justification for raising duties on imports of U.S. ethanol, or blocking our imports entirely.
In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which was challenged by multiple lawsuits, of which several were dismissed. The remaining four cases follow one of two tracks: 1) to determine the constitutionality of the CRE regulation, or 2) to determine the benefits, or lack thereof, of introducing E10 to Mexico. An injunction was granted in October 2017, preventing the blending and selling of E10, but was overturned by a higher court in June 2018 making it legal to blend and sell E10 by PEMEX throughout Mexico except for its three largest metropolitan areas. On January 15, 2020, the Mexican Supreme Court ruled that the expedited process for the CRE regulation was unconstitutional, and that after a 180 day period the maximum ethanol blend allowed in the country would revert to
5.8%. There is an effort underway to go through the full regulatory process to allow for 10% blends countrywide, including in the three major metropolitan areas. The 180 day window was extended due to COVID-19, and the new deadline is March 20, 2021.
In January 2020, the updated North American Free Trade Agreement, known as the United States Mexico Canada Agreement or USMCA was signed. The USMCA went into effect on July 1, 2020, and maintains the duty free access of U.S. agricultural commodities, including ethanol, into Canada and Mexico. According to the Department of Commerce, exports to Canada were 303.5 mmg and exports to Mexico were 61.5 mmg through November 30, 2020.
Environmental and Other Regulation
Our operations are subject to environmental regulations, including those that govern the handling and release of ethanol, crude oil and other liquid hydrocarbon materials. Compliance with existing and anticipated environmental laws and regulations may increase our overall cost of doing business, including capital costs to construct, maintain, operate, and upgrade equipment and facilities. Our business may also be impacted by government policies, such as tariffs, duties, subsidies, import and export restrictions and outright embargos. We employ maintenance and operations personnel at each of its facilities, which are regulated by the Occupational Safety and Health Administration.
The U.S. ethanol industry relies heavily on tank cars to deliver its product to market. In 2015, the DOT finalized the Enhanced Tank Car Standard and Operational Controls for High-Hazard and Flammable Trains, or DOT specification 117, which established a schedule to retrofit or replace older tank cars that carry crude oil and ethanol, braking standards intended to reduce the severity of accidents and new operational protocols. The deadline for compliance with DOT specification 117 is May 1, 2023. The rule may increase our lease costs for railcars over the long term, which will in turn result in an increase in fees the partnership charges for railcar capacity. Additionally, existing railcars may be out of service for a period of time while upgrades are made, tightening supply in an industry that is highly dependent on railcars to transport product. We intend to strategically manage our leased railcar fleet to comply with the new regulations and have commenced transition of our fleet to DOT 117 compliant railcars. As of December 31, 2020, approximately 50% of our railcar fleet was DOT 117 compliant. We anticipate that an additional 20% of our railcar fleet will be DOT 117 compliant by the end of 2021, and that our entire fleet will be fully compliant by 2023.
In September 2015, the FDA issued rules for Current Good Manufacturing Practice, Hazard Analysis and Risk-Based Preventative Controls for food for animals in response to FSMA. The rules require FDA-registered food facilities to address safety concerns for sourcing, manufacturing and shipping food products and food for animals through food safety programs that include conducting hazard analyses, developing risk-based preventative controls and monitoring, and addressing intentional adulteration, recalls, sanitary transportation and supplier verification. We believe we have taken sufficient measures to comply with these regulations.
Variability of Commodity Prices
Our business is highly sensitive to commodity price fluctuations, particularly for corn, ethanol, corn oil, distillers grains and natural gas, which are impacted by factors that are outside of our control, including weather conditions, corn yield, changes in domestic and global ethanol supply and demand, government programs and policies and the price of crude oil, gasoline and substitute fuels. We use various financial instruments to manage and reduce our exposure to price variability. For more information about our commodity price risk, refer to Item 7A. - Qualitative and Quantitative Disclosures About Market Risk, Commodity Price Risk in this report.
During 2020, we continued to experience a weak ethanol margin environment. We maintained an average utilization rate of approximately 71% of capacity during 2020, compared with 76% of capacity, for the prior year. The reduction in the average utilization rate was primarily due to continued poor margins driven in part by a reduction in motor fuel demand as a result of the COVID-19 pandemic. Our operating strategy is to reduce operating expenses, energy usage and water consumption through our Project 24 initiative while running at higher utilization rates in order to achieve improved margins. However, in the current environment, we may exercise operational discretion that results in reductions in production. Additionally, we may experience lower run rates due to the construction of various projects as well as due to delays in receiving the necessary permits required to operate our facilities. It is possible that production could be below minimum volume commitments in the future, depending on various factors that drive each biorefineries variable contribution margin, including future driving and gasoline demand for the industry.
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Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires that we use estimates that affect the reported assets, liabilities, revenue and expense and related disclosures for contingent assets and liabilities. We base our estimates on experience and assumptions we believe are proper and reasonable. While we regularly evaluate the appropriateness of these estimates, actual results could differ materially from our estimates. The following accounting policies, in particular, may be impacted by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize 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 we collect 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 we control the product prior to the sale to the end customer, take title of the product and have inventory risk. Unearned revenue is recorded for goods in transit when we have 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.
We routinely enter into physical-delivery energy commodity purchase and sale agreements. At times, we settle these transactions by transferring 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 derivatives 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 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 over time as the 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.
Intercompany revenues are eliminated on a consolidated basis for reporting purposes.
Impairment of Long-Lived Assets and Goodwill
Our long-lived assets consist of property and equipment, operating lease right-of-use assets, intangible assets and equity method investments. We review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. We measure recoverability by comparing the carrying amount of the asset with the estimated undiscounted future cash flows the asset is expected to generate. If the carrying amount of the asset exceeds its estimated future cash flows, we record an impairment charge for the amount in excess of the fair value. There were no material impairment charges recorded for the periods reported.
Our goodwill is related to certain acquisitions within our ethanol production and partnership segments. We review goodwill for impairment at least annually, as of October 1, or more frequently whenever events or changes in circumstances indicate that an impairment may have occurred.
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, a sustained decline in our
market capitalization, a sustained decline in 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, including projected cash flows. Fair value is determined through various valuation techniques, including discounted cash flow models utilizing assumed margins, cost of capital, inflation and other inputs, sales of comparable properties and third-party independent appraisals. Changes in estimated fair value as a result of declining ethanol margins, loss of significant customers or other factors could result in an impairment of the asset.
Near term industry outlook due to the significant decrease in crude oil prices, lower gasoline demand, general uncertainty due to the COVID-19 outbreak and the subsequent decline in our stock price caused a decline in the company’s market capitalization during the three months ended March 31, 2020. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill as of March 31, 2020. Significant assumptions inherent in the valuation methodologies for goodwill were employed and included, but were not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit did not exceed its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was impaired and recorded a non-cash impairment charge of $24.1 million.
During the first half of 2020, a decline in the partnership’s stock price resulted in a decrease in the partnership’s market capitalization. As such, we determined a triggering event had occurred that required an interim impairment assessment as of March 31, 2020 and June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill impairment testing were employed and include market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the partnership’s quantitative evaluation as of March 31, 2020 and June 30, 2020, it was determined that the fair value of the partnership reporting unit substantially exceeded its carrying value, and the partnership concluded that the goodwill was not impaired.
We performed the annual goodwill impairment assessment as of October 1, 2020 using a qualitative approach, which resulted in no identified triggering events, and as such, no goodwill impairment. Please refer to Note 10 - Goodwill and Intangible Assets to the consolidated financial statements for further details.
Leases
On January 1, 2019, we adopted the amended guidance in ASC 842, Leases, and all related amendments and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The standard does not require the guidance to be applied to the earliest comparative period presented in the financial statements. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
We lease certain facilities, parcels of land, and equipment. Our leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the lease term. The term of the lease may include options to extend or terminate the lease when it is reasonably certain that we will exercise one of those options. For leases with initial terms greater than 12 months, we record operating lease right-of-use assets and corresponding operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet. Operating lease right-of-use assets represent our right to control an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. These assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date to determine the present value of future payments.
Our partnership segment records the majority of its operating lease revenue from its storage and throughput services and rail transportation services agreements with Green Plains Trade. The lease revenue from Green Plains Trade is eliminated upon consolidation. In addition, the partnership may sublease certain of its railcars to third parties on a short-term basis. These subleases are classified as operating leases, with the associated sublease revenue recognized on a straight-line basis over the lease term.
Refer to Note 18 - Commitments and Contingencies to the consolidated financial statements for further details on operating lease expense.
Derivative Financial Instruments
We use 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, natural gas, soybean meal, soybean oil and crude oil. We monitor and manage this exposure as part of our overall risk management policy to reduce the adverse effect market volatility may have on our operating results. We 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, we are exposed to credit and market risk. Our exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. We minimize our 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. We manage market risk by incorporating parameters to monitor exposure within our risk management strategy, which limits the types of derivative instruments and strategies we can use and the degree of market risk we can take using derivative instruments.
We evaluate our 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 we elect, cash flow hedge accounting treatment.
Certain qualifying derivatives related to ethanol production and agribusiness and energy services segments are designated as cash flow hedges. We evaluate 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 current liabilities at fair value.
At times, we hedge our exposure to changes in inventory values and designate 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.
Accounting for Income Taxes
Income taxes are accounted for under the asset and liability method in accordance with GAAP. Deferred tax assets and liabilities are recognized for future tax consequences between existing assets and liabilities and their respective tax basis, and for net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in years temporary differences are expected to be recovered or settled. The effect of a tax rate change is recognized in the period that includes the enactment date. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences become deductible. Management considers scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies to make this assessment. A valuation allowance is recorded by the company when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, management considers the positive and negative evidence to support the need for, or reversal of, a valuation allowance. The weight given to the potential effects of positive and negative evidence is based on the extent it can be objectively verified.
To account for uncertainty in income taxes, we gauge the likelihood of a tax position based on the technical merits of the position, perform a subsequent measurement related to the maximum benefit and degree of likelihood, and determine the benefit to be recognized in the financial statements, if any.
Recently Issued Accounting Pronouncements
For information related to recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies included as part of the notes to consolidated financial statements in this report.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Components of Revenues and Expenses
Revenues. For our ethanol production segment, our revenues are derived primarily from the sale of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil. For our agribusiness and energy services segment, our primary sources of revenue include sales of ethanol, distillers grains and corn oil that we market for our ethanol plants, in which we earn a marketing fee, sales of ethanol we market for a third-party and sales of grain and other commodities purchased in the open market. For our food and ingredients segment, the sale of corn oil, and vinegar prior to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018, are our primary sources of revenue. For our partnership segment, our revenues consist primarily of fees for receiving, storing, transferring and transporting ethanol and other fuels. Revenues include net gains or losses from derivatives related to products sold.
Cost of Goods Sold. For our ethanol production segment, cost of goods sold includes direct labor, materials and plant overhead costs. Direct labor includes compensation and related benefits of non-management personnel involved in ethanol plant operations. Plant overhead consists primarily of plant utilities and outbound freight charges. Corn is the most significant raw material cost followed by natural gas, which is used to power steam generation in the ethanol production process and dry distillers grains. Cost of goods sold also includes net gains or losses from derivatives related to commodities purchased.
For our agribusiness and energy services segment, purchases of ethanol, distillers grains, corn oil and grain are the primary component of cost of goods sold. 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, such as transportation, between the exchange-traded market and local markets where the terms of the contracts are based. Changes in the market value of grain inventories, forward purchase and sale contracts, and exchange-traded futures and options contracts are recognized as a component of cost of goods sold.
For our food and ingredients segment, food-grade ethanol was the most significant raw material cost. For our vinegar operation, which was sold during the fourth quarter of 2018, cost of goods sold included direct labor, materials and plant overhead costs. Direct labor included compensation and related benefits of non-management personnel involved in vinegar operations.
Operations and Maintenance Expense. For our partnership segment, transportation expense is the primary component of operations and maintenance expense. Transportation expense includes rail car leases, shipping and freight and costs incurred for storing ethanol at destination terminals.
Loss (Gain) on Sale of Assets, Net. We completed the sale of the ethanol plant located in Hereford, Texas during the fourth quarter of 2020. We completed the sale of the three ethanol plants located in Bluffton, Indiana, Lakota, Iowa and Riga, Michigan, as well as Fleischmann’s Vinegar during the fourth quarter of 2018. Proceeds from these sales, offset by related expenses, were recorded primarily at the corporate level, with only the loss on Hereford of $3.9 million being recorded at the ethanol production level and the gain on the assignment of operating leases of $2.7 million being recorded at the partnership level.
Selling, General and Administrative Expense. Selling, general and administrative expenses are recognized at the operating segment and corporate level. These expenses consist of employee salaries, incentives and benefits; office expenses; director fees; and professional fees for accounting, legal, consulting and investor relations services. Personnel costs, which include employee salaries, incentives, and benefits, as well as severance and separation costs, are the largest expenditure. Selling, general and administrative expenses that cannot be allocated to an operating segment are referred to as corporate activities.
Other Income (Expense). Other income (expense) includes interest earned, interest expense and other non-operating items, including a gain of $4.8 million related to the sale of our 50% interest in JGP Energy Partners LLC during fiscal year 2019.
Income (loss) from Equity Method Investees, Net of Income Taxes. Income (loss) from equity method investees, net of income taxes, represents our proportional share of earnings from our equity method investees. Refer to Note 21 - Equity Method Investments to the consolidated financial statements for further details.
Net Income from Discontinued Operations, Net of Income Taxes. Net income from discontinued operations, net of income taxes represents the operations of GPCC prior to its disposition during the third quarter of 2019. GPCC was previously a wholly owned subsidiary of Green Plains until the formation of the GPCC joint venture and disposition September 1, 2019. Refer to Note 5 - Acquisitions, Dispositions and Discontinued Operations to the consolidated financial statements for further details.
Results of Operations
Comparability
The following summarizes various events that affect the comparability of our operating results for the past three years:
 August 2018
Sublette, Kansas and Tulia, Texas cattle feeding operations were acquired.
 November 2018
Bluffton, Indiana, Lakota, Iowa and Riga, Michigan ethanol plants were sold and certain storage assets of these plants were acquired from the partnership prior to being sold.
 November 2018
Hopewell, Virginia ethanol plant was permanently closed.
 November 2018
Fleischmann’s Vinegar was sold.
 September 2019
An aggregate 50% membership interest of GPCC was sold, resulting in the deconsolidation of GPCC and the equity method of accounting treatment of our continued investment. Operational results of GPCC prior to its disposition have been reclassified as discontinued operations in our consolidated financial statements. The assets and liabilities of GPCC have been reclassified as assets and liabilities of discontinued operations.
 December 2019
Our 50% membership interest in JGP Energy Partners was sold.
 October 2020
Our remaining 50% membership interest in GPCC was sold.
 December 2020
Hereford, Texas ethanol plant was sold and certain storage assets of this plant were acquired from the partnership prior to being sold.
 December 2020
Acquired a majority interest in Fluid Quip Technologies, LLC.
The year ended December 31, 2018, includes approximately five months of operations at our Sublette and Tulia cattle feeding businesses, eleven months of operations at our Bluffton, Lakota, Hopewell and Riga ethanol plants and eleven months of our Fleischmann’s Vinegar operations. The year ended December 31, 2019, includes eight months of operations of GPCC which are included in discontinued operations with the remaining four months of the GPCC joint venture being accounted for using the equity method of accounting. Additionally, operations of GPCC have been reclassified as discontinued operations and assets and liabilities of GPCC have been reclassified as assets and liabilities of discontinued operations. The year ended December 31, 2020, includes approximately nine months of operations of the GPCC joint venture being accounted for using the equity method of accounting. The sale of the Hereford plant and acquisition of a majority interest in FQT did not have a material impact on comparability.
Segment Results
We report the financial and operating performance for the following four operating segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein 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, natural gas and other commodities, (3) food and ingredients, which includes 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.
During the normal course of business, our operating segments do business with each other. For example, our agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil of our ethanol production segment. Our partnership segment provides fuel storage and transportation services for our agribusiness and energy services segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact our consolidated results since the revenues and corresponding costs are eliminated.
Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment and the loss (gain) on sale of assets, net recorded during the fourth quarter of 2020 and the fourth quarter of 2018. When we evaluate segment performance, we review the following segment information as well as earnings before interest, income taxes, depreciation and amortization, or EBITDA, and adjusted EBITDA.
The selected operating segment financial information are as follows (in thousands):
Year Ended December 31,
Revenues:
Ethanol production:
Revenues from external customers
$
1,502,481
$
1,700,615
$
2,120,475
Intersegment revenues
Total segment revenues
1,502,581
1,700,715
2,120,661
Agribusiness and energy services:
Revenues from external customers
416,403
708,316
735,855
Intersegment revenues
27,468
27,184
33,101
Total segment revenues
443,871
735,500
768,956
Food and ingredients:
Revenues from external customers
-
1,451
121,121
Intersegment revenues
-
-
-
Total segment revenues
-
1,451
121,121
Partnership:
Revenues from external customers
4,835
6,856
6,481
Intersegment revenues
78,510
75,531
94,267
Total segment revenues
83,345
82,387
100,748
Revenues including intersegment activity
2,029,797
2,520,053
3,111,486
Intersegment eliminations
(106,078)
(102,815)
(127,554)
Revenues as reported
$
1,923,719
$
2,417,238
$
2,983,932
Year Ended December 31,
Cost of goods sold:
Ethanol production
$
1,507,335
$
1,791,099
$
2,118,787
Agribusiness and energy services
409,407
696,226
717,772
Food and ingredients
-
1,526
94,679
Partnership
-
-
-
Intersegment eliminations
(104,579)
(103,904)
(124,270)
$
1,812,163
$
2,384,947
$
2,806,968
Year Ended December 31,
Operating income (loss):
Ethanol production (1)
$
(129,618)
$
(178,575)
$
(111,823)
Agribusiness and energy services
15,773
22,777
29,076
Food and ingredients
-
(76)
14,354
Partnership
50,437
50,635
64,770
Intersegment eliminations
(1,400)
1,188
(3,110)
Corporate activities (2)
(57,888)
(38,519)
96,687
$
(122,696)
$
(142,570)
$
89,954
(1)Operating loss for the ethanol production segment for fiscal year 2020 includes a goodwill impairment charge of $24.1 million and $3.9 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant.
(2)Corporate activities for fiscal year 2020 include a goodwill impairment charge of $24.1 million, $18.5 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant and a $1.5 million net gain from sale of GPCC. Fiscal year 2018 includes a $150.4 million gain on the sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants, as well as Fleischmann’s Vinegar during the fourth quarter.
‎
We use EBITDA and adjusted EBITDA as segment measures of profitability to compare the financial performance of our reportable segments and manage those segments. EBITDA is defined as earnings before interest expense, income tax expense, including related tax expense of equity method investments, depreciation and amortization excluding the amortization of right-of-use assets and debt issuance costs. Adjusted EBITDA includes adjustments related to operational results of GPCC prior to its disposition which are recorded as discontinued operations, our proportional share of EBITDA adjustments of our equity method investees, noncash goodwill impairment and the loss (gain) on sale of assets, net. We believe EBITDA and adjusted EBITDA are useful measures to compare our performance against other companies. EBITDA and adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, which is prepared in accordance with GAAP. EBITDA and adjusted EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA and adjusted EBITDA may not be comparable with a similarly titled measure of other companies.
The following table reconciles net income (loss) from continuing operations including noncontrolling interest to adjusted EBITDA (in thousands):
Year Ended December 31,
Net income (loss) from continuing operations including noncontrolling interest
$
(89,654)
$
(148,829)
$
25,195
Interest expense
39,993
40,200
87,449
Income tax benefit, net of equity method income taxes
(43,879)
(21,316)
(20,147)
Depreciation and amortization (1)
78,244
72,127
98,258
EBITDA
(15,296)
(57,818)
190,755
EBITDA adjustments related to discontinued operations
-
17,703
33,897
Proportional share of EBITDA adjustments to equity method investees
7,093
4,974
1,128
Loss (gain) on sale of assets, net (2)
20,860
(4,799)
(150,351)
Noncash goodwill impairment
24,091
-
-
Adjusted EBITDA
$
36,748
$
(39,940)
$
75,429
(1)Excludes the amortization of operating lease right-of-use assets and amortization of debt issuance costs.
(2)Fiscal year 2019 includes gain reported in other income (expense).
The following table reconciles net income (loss) from continuing operations including noncontrolling interest to adjusted EBITDA by segment (in thousands):
Year Ended December 31,
Adjusted EBITDA:
Ethanol production (1)
$
(60,868)
$
(114,494)
$
(31,623)
Agribusiness and energy services
18,430
25,050
31,583
Food and ingredients
-
(76)
21,908
Partnership
54,907
54,853
69,399
Intersegment eliminations
(1,400)
1,188
(3,110)
Corporate activities (2)
(26,365)
(24,339)
102,598
EBITDA
(15,296)
(57,818)
190,755
EBITDA adjustments related to discontinued operations
-
17,703
33,897
Proportional share of EBITDA adjustments to equity method investees
7,093
4,974
1,128
Loss (gain) on sale of assets, net
20,860
(4,799)
(150,351)
Noncash goodwill impairment
24,091
-
-
Adjusted EBITDA
$
36,748
$
(39,940)
$
75,429
(1)Fiscal year 2020 includes the goodwill impairment charge of $24.1 million and $3.9 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant.
(2)Corporate activities for fiscal year 2020 include a goodwill impairment charge of $24.1 million, a $18.5 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant and the $1.5 million gain from sale of GPCC. Fiscal year 2019 includes a $4.8 million gain related to the sale of our 50% interest in JGP Energy Partners LLC. Fiscal year 2018 includes the $150.4 million gain on the sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants, as well as Fleischmann’s Vinegar during the fourth quarter.
‎
Total assets by segment are as follows (in thousands):
Year Ended December 31,
Total assets (1):
Ethanol production
$
852,959
$
884,293
Agribusiness and energy services
426,724
410,400
Partnership
91,205
90,011
Corporate assets
228,074
324,280
Intersegment eliminations
(20,045)
(10,766)
$
1,578,917
$
1,698,218
(1)Asset balances by segment exclude intercompany payable and receivable balances.
Year Ended December 31, 2020 Compared with the Year Ended December 31, 2019
Consolidated Results
Consolidated revenues decreased $493.5 million in 2020, compared with 2019 primarily due to lower production volumes of ethanol and distillers grains in our ethanol production segment and decreased trading revenues within our agribusiness and energy services segment.
Operating loss decreased $19.9 million and adjusted EBITDA increased $76.7 million in 2020, compared with 2019 primarily due to increased margins associated with the sales of industrial-grade alcohol and Ultra-High Protein feed, offset by the pretax write-off of the goodwill in the ethanol production segment and loss on sale of assets, net during fiscal year 2020. Interest expense decreased $0.2 million in 2020, compared with 2019 primarily due to lower interest rates. Income tax benefit was $50.4 million in 2020, compared to $21.3 million in 2019. The change in income tax benefit is primarily due to the carry back of a tax NOL generated in 2019 to the 2014 tax year under the newly enacted CARES Act of 2020, as well as the release of a valuation allowance recorded against the 2019 tax NOL and other deferred tax assets, while in 2019 we recorded a tax benefit due to a loss before income taxes, partially offset by the recognition of a $25.9 million valuation allowance against the company’s deferred tax assets.
The following discussion provides greater detail about our segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Year Ended December 31,
Ethanol sold
(thousands of gallons)
793,743
856,623
Distillers grains sold
(thousands of equivalent dried tons)
2,054
2,234
Corn oil sold
(thousands of pounds)
213,818
212,071
Corn consumed
(thousands of bushels)
275,351
298,178
Revenues in the ethanol production segment decreased $198.1 million in 2020 compared with 2019 primarily due to lower production volumes of ethanol and distillers grains.
Cost of goods sold in the ethanol production segment decreased $283.8 million for 2020 compared with 2019 due to lower production volumes. Operating loss decreased $49.0 million and EBITDA decreased $53.6 million in 2020 compared with the 2019 primarily due to improved margins as well as increased sales of industrial-grade alcohol and Ultra-High Protein feed, offset by the pretax write-off of the goodwill and the loss on sale of assets, net during fiscal year 2020. Depreciation and amortization expense for the ethanol production segment was $68.0 million for 2020, compared with $63.1 million during 2019.
Agribusiness and Energy Services Segment
Revenues in the agribusiness and energy services segment decreased $291.6 million while operating income decreased $7.0 million and EBITDA decreased $6.6 million in 2020 compared with 2019. The decrease in revenues was primarily due to a decrease in ethanol and distillers grain trading activity, as well as lower average realized prices for ethanol. Operating income and EBITDA decreased primarily as a result of decreased margins during the first and second quarters.
Food and Ingredients Segment
The food and ingredients segment, which now represents food-grade corn oil production had no activity during fiscal year 2020.
Partnership Segment
Revenues generated from the partnership segment increased $1.0 million in 2020 compared with 2019. Storage and throughput service revenue increased $1.5 million due to an increase in the rate per gallon charged to Green Plains Trade beginning on July 1, 2020. Trucking and other revenue increased $0.4 million primarily due to an increase in volumes transported for Green Plains Trade. Railcar transportation services revenue increased $0.2 million primarily due to an increase in average volumetric capacity provided and the average capacity fee charged of $0.7 million, offset by a decrease in railcar sublease revenue of $0.5 million. Terminal services revenue decreased $1.1 million as a result of a reduction in fees associated with minimum volume commitments.
Operating income for the partnership segment decreased $0.2 million while EBITDA increased $0.1 million in 2020 compared to 2019 due to the changes in revenues discussed above, partially offset by an increase in operations and maintenance expenses of $0.5 million.
Intersegment Eliminations
Intersegment eliminations of revenues increased by $3.3 million for 2020 compared with 2019 due to increased storage and throughput fees paid to the partnership segment.
Corporate Activities
Operating loss increased by $19.4 million for 2020 compared with 2019, primarily due to the loss on sale of assets recorded during the fourth quarter of 2020.
Income Taxes
We recorded income tax benefit of $50.4 million for 2020 compared to $21.3 million in 2019. The change in income tax benefit is primarily due to the carry back of a tax NOL generated in 2019 to the 2014 tax year under the newly enacted CARES Act of 2020, as well the release of a valuation allowance recorded against the 2019 tax NOL and other deferred tax assets, while in 2019 we recorded a tax benefit due to a loss before income taxes, partially offset by the recognition of a $25.9 million valuation allowance against the company’s deferred tax assets. We increased the valuation allowance for our net deferred tax assets due to uncertainty that we will realize these assets in the future. The valuation allowance on deferred tax assets was recognized as a result of negative evidence, including cumulative losses in recent years, outweighing the more subjective positive evidence.
Net Income from Discontinued Operations
As previously discussed, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC was no longer consolidated in our consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. GPCC results for all reported periods prior to its disposition are classified as discontinued operations. Net income from discontinued operations was $0.8 million in 2019.
Year Ended December 31, 2019 Compared with the Year Ended December 31, 2018
Consolidated Results
Consolidated revenues decreased $566.7 million in 2019, compared with 2018 primarily due to the disposition of three ethanol plants and the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.
Operating income decreased $232.5 million and adjusted EBITDA decreased $115.4 million in 2019, compared with 2018 primarily due to lower volumes and decreased margins on ethanol production in 2019. Interest expense decreased $47.2 million in 2019, compared with 2018 primarily due to the repayment of the $500 million senior secured term loan during the fourth quarter of 2018 and the deconsolidation of GPCC and elimination of the related revolver in the third quarter of 2019. Income tax benefit was $21.3 million in 2019, compared to $20.1 million in 2018. The change in income tax benefit is primarily due to a loss before income taxes in 2019, partially offset by the recognition of a valuation allowance of $25.9 million against the company’s net deferred tax assets, while in 2018 we recorded the impact of R&D credits, net of FIN 48 reserves, of $19.8 million.
The following discussion provides greater detail about our segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Year Ended December 31,
Ethanol sold
(thousands of gallons)
856,623
1,086,633
Distillers grains sold
(thousands of equivalent dried tons)
2,234
2,815
Corn oil sold
(thousands of pounds)
212,071
276,299
Corn consumed
(thousands of bushels)
298,178
377,084
Revenues in the ethanol production segment decreased $419.9 million in 2019 compared with 2018 primarily due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower production volumes of ethanol, distillers grains and corn oil due to the depressed margin environment and lower average realized prices for ethanol and distillers grains in 2019.
Cost of goods sold in the ethanol production segment decreased $327.7 million for 2019 compared with 2018 due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower production volumes. As a result of the factors identified above, operating income decreased $66.8 million and EBITDA decreased $82.9 million during 2019. Depreciation and amortization expense for the ethanol production segment was $63.1 million for 2019, compared with $80.2 million during 2018 due to the sale of three ethanol plants during the fourth quarter of 2018.
Agribusiness and Energy Services Segment
Revenues in the agribusiness and energy services segment decreased $33.5 million while operating income decreased $6.3 million and EBITDA decreased $6.5 million in 2019 compared with 2018. The decrease in revenues was primarily due to a decrease in ethanol, distillers grain and corn oil production and trading activity, as well as lower average realized prices for ethanol. Operating income and EBITDA decreased primarily as a result of decreased margins.
Food and Ingredients Segment
Revenues in our food and ingredients segment decreased $119.7 million while operating income decreased by $14.4 million and EBITDA decreased $22.0 million during 2019, compared with 2018. The decrease in revenues, operating income and EBITDA was primarily due to the sale of Fleischmann’s Vinegar outlined above.
Partnership Segment
Revenues generated from the partnership segment decreased $18.4 million in 2019 compared with 2018. Storage and throughput revenues decreased $12.1 million primarily due to a decrease in throughput volumes as a result the disposition of three ethanol plants in the fourth quarter of 2018. Revenues generated from rail transportation services decreased $4.8 million primarily due to the reduction in volumetric capacity provided as a result of the assignment of railcar operating leases as part of the disposition discussed above. Terminal services revenue decreased $0.8 million as a result of reduced throughput volume at our terminals. Trucking and other revenues decreased $0.6 million primarily due to a reduction in volumes transported for Green Plains Trade, partially offset by an increase in volumes transported for third party customers.
Operating income for the partnership segment decreased $14.1 million while EBITDA decreased $14.5 million in 2019 compared to 2018 due to the changes in revenues discussed above, partially offset by a decrease in operations and maintenance expenses of $5.2 million as a result of the factors identified above.
Intersegment Eliminations
Intersegment eliminations of revenues decreased by $24.7 million for 2019 compared with 2018 due to a decrease in storage and throughput fees paid to the partnership segment as well as decreased intersegment marketing fees within the agribusiness and energy services segment as a result of lower production volumes.
Corporate Activities
Operating income decreased by $135.2 million for 2019 compared with 2018, primarily due to the gain on sale of assets recorded during the fourth quarter of 2018.
Income Taxes
We recorded income tax benefit of $21.3 million for 2019 compared to $20.1 million in 2018. The change in income tax benefit is primarily due to a loss before income taxes in 2019, partially offset by the recognition of a $25.9 million valuation allowance against the company’s net deferred tax assets, while in 2018 we recorded the impact of R&D credits, net of FIN 48 reserves, of $19.8 million. We increased the valuation allowance for our net deferred tax assets due to uncertainty that we will realize these assets in the future. The valuation allowance on deferred tax assets was recognized as a result of negative evidence, including cumulative losses in recent years, outweighing the more subjective positive evidence.
Net Income from Discontinued Operations
As previously discussed, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC was no longer consolidated in our consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. GPCC results for all reported periods prior to its disposition are classified as discontinued operations. Net income from discontinued operations decreased by $10.7 million in 2019 primarily due to severe winter weather and abnormally negative basis during the first quarter of 2019.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities and bank credit facilities. We fund our operating expenses and service debt primarily with operating cash flows. Capital resources for maintenance and growth expenditures are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, or issuance of senior notes or equity. Our ability to access capital markets for debt under reasonable terms depends on our financial condition, credit ratings and market conditions. We believe that our ability to obtain financing at reasonable rates and history of positive cash flow from operating activities, which have been positive for seven of the previous ten years, provide a solid foundation to meet our future liquidity and capital resource requirements.
On December 31, 2020, we had $233.9 million in cash and equivalents, excluding restricted cash, consisting of $180.7 million available to our parent company and the remainder at our subsidiaries. Additionally, we had $41.0 million in restricted cash at December 31, 2020. We also had $332.0 million available under our committed revolving credit agreements and delayed draw term loan, including $5.0 million available under the partnership’s credit facility, some of which were subject to restrictions or other lending conditions. Funds held by our subsidiaries are generally required for their ongoing operational needs and restricted from distribution. At December 31, 2020, our subsidiaries had approximately $77.7 million of net assets that were not available to use in the form of dividends, loans or advances due to restrictions contained in their credit facilities.
Net cash provided by operating activities of continuing operations was $98.9 million in 2020 compared with net cash used in operating activities of continuing operations of $27.0 million in 2019. Operating activities compared to the prior year were primarily affected by the decrease in operating loss, distributions from equity method investments, goodwill impairment and the loss on disposal of assets during fiscal year 2020. Net cash used in investing activities of continuing operations was $11.5 million in 2020, compared to net cash provided by investing activities of continuing operations of $34.8 million in 2019 due primarily to an increase in capital expenditures during fiscal year 2020. Net cash used in financing activities of continued operations was $82.5 million in 2020, compared to $18.9 million in 2019 primarily due to an increase in debt repayments offset by lower repurchases of common stock during fiscal year 2020.
Additionally, Green Plains Trade, Green Plains Grain and Green Plains Commodity Management use revolving credit facilities to finance working capital requirements. We frequently draw from and repay these facilities which results in significant cash movements reflected on a gross basis within financing activities as proceeds from and payments on short-term borrowings.
We incurred capital expenditures of $111.8 million in 2020 primarily for high-protein expansion projects at our Shenandoah and Wood River biorefineries, Project 24 operating expense reduction and for various maintenance projects. The current projected estimate for capital spending for 2021 is approximately $200 million to $225 million, which is subject to review prior to the initiation of any project. The estimate includes additional expenditures for our high-protein and Project 24 initiatives, as well as expenditures for various other maintenance projects, and is expected to be financed with cash proceeds from recent dispositions, available borrowings under our credit facilities and notes and cash provided by operating activities.
Our business is highly sensitive to the price of commodities, particularly for corn, ethanol, distillers grains, corn oil and natural gas. We use derivative financial instruments to reduce the market risk associated with fluctuations in commodity prices. Sudden changes in commodity prices may require cash deposits with brokers for margin calls or significant liquidity with little advanced notice to meet margin calls, depending on our open derivative positions. On December 31, 2020, we had $29.8 million in margin deposits for broker margin requirements included in the balance of restricted cash. We continuously monitor our exposure to margin calls and believe we will continue to maintain adequate liquidity to cover margin calls from our operating results and borrowings.
On June 18, 2019, we announced that our board of directors decided to suspend future quarterly cash dividends following the June 14, 2019 dividend payment, in order to retain and redirect cash flow to our Project 24 operating expense equalization plan, the deployment of high-protein technology and our stock repurchase program.
Our board of directors authorized a share repurchase program of up to $200.0 million of our common stock. Under the program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers or by other means. The timing and amount of repurchase transactions are determined by our management based on market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. During 2020, we purchased a total of 880,979 shares of common stock for approximately $11.5 million. As of December 31, 2020, we have repurchased 7,396,936 of common stock for approximately $92.8 million under the program.
The requirements under the partnership agreement for the conversion of all of the outstanding subordinated units into common units were satisfied upon the payment of the distribution with respect to the quarter ended June 30, 2018. Accordingly, the subordination period ended on August 13, 2018, the first business day after the date of the distribution payment, and all of the 15,889,642 outstanding subordinated units were converted into common units on a one-for-one basis. The conversion of the subordinated units does not impact the amount of cash distributions paid or the total number of outstanding units.
On December 27, 2019, we filed a shelf registration statement on Form S-3 with the SEC, declared effective January 7, 2020, registering an indeterminate number of shares of common stock, warrants and debt securities up to $250,000,000.
We believe we have sufficient working capital for our existing operations. Additionally, subsequent to December 31, 2020, we closed on a $125 million, 5-year mezzanine note facility with BlackRock. Furthermore, our liquidity position is expected to improve as a result of the sale of the ethanol plant located in Ord, Nebraska, announced in January 2021, which is expected to close within 45 days. A continued sustained period of unprofitable operations, however, may strain our liquidity. We may sell additional assets or equity or borrow capital to improve or preserve our liquidity, expand our business or acquire businesses. We cannot provide assurance that we will be able to secure funding necessary for additional working capital or these projects at reasonable terms, if at all.
Debt
We were in compliance with our debt covenants at December 31, 2020. Based on our forecasts, we believe we will maintain compliance at each of our subsidiaries for the next twelve months or have sufficient liquidity available on a consolidated basis to resolve noncompliance. We cannot provide assurance that actual results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event a subsidiary is unable to comply with its debt covenants, the subsidiary’s lenders may determine that an event of default has occurred, and following notice, the lenders may terminate the commitment and declare the unpaid balance due and payable.
As outlined in Note 12 - Debt, we use LIBOR as a reference rate for certain revolving credit facilities. LIBOR is currently set to be phased out at the end of 2021. At this time, it is not possible to predict the effect of this change or the alternative reference rate to be used. We will need to renegotiate certain credit facilities to determine the interest rate to replace LIBOR with the new standard that is established. As such, the potential effect of any such event on interest expense cannot yet be determined.
Corporate Activities
In 2019, we issued $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The initial conversion rate will be 64.1540 shares of our common stock per $1,000 principal amount of the 4.00% notes, which is equivalent to an initial conversion price of approximately $15.59 per share of our common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events. In addition, we may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including our calling the 4.00% notes for redemption. We may settle the 4.00% notes in cash, common stock or a combination of cash and common stock. At December 31, 2020, the outstanding principal balance was $89.1 million on the 4.00% notes.
In August 2016, we issued $170.0 million of 4.125% convertible senior notes due in 2022, or 4.125% notes, which are senior, unsecured obligations with interest payable on March 1 and September 1 of each year. Prior to March 1, 2022, the 4.125% notes are not convertible unless certain conditions are satisfied. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds $0.12 per share. We may settle the 4.125% notes in cash, common stock or a combination of cash and common stock. At December 31, 2020, the outstanding principal balance was $156.4 million on the 4.125% notes.
Agribusiness and Energy Services Segment
Green Plains Trade has a $300.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in July of 2022. This facility can be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal to a daily LIBOR rate plus 2.25% or the base rate plus 1.25%. The unused portion of the credit facility is also subject to a commitment fee of 0.375% per annum. At December 31, 2020, the outstanding principal balance was $79.3 million on the facility and the interest rate was 2.43%.
Green Plains Grain has a $100.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in June of 2022. This facility can be increased by an additional $75.0 million with agent approval and up to $50.0 million for seasonal borrowings. Total commitments outstanding under the facility cannot exceed $225.0 million. At December 31, 2020, the outstanding principal balance was $38.7 million and the interest rate was 3.65%.
Green Plains Grain has short-term inventory financing agreements with a financial institution with a maximum commitment of up to $50.0 million, which matures June 2022. Green Plains Grain 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. Green Plains Grain had no short-term notes payable related to these inventory financing agreements as of December 31, 2020.
Green Plains Commodity Management has an uncommitted $30.0 million revolving credit facility. The revolving credit facility, which matures April 30, 2023, is used to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBOR plus 1.75%. At December 31, 2020, the outstanding principal balance was $21.7 million and the interest rate was 1.85%.
Ethanol Production Segment
On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a $75.0 million delayed draw loan agreement, which matures on September 1, 2035. At December 31, 2020, the outstanding principal balance was $30.0 million on the loan and the interest rate was 6.52%. The loan is guaranteed by the company and has certain limitations on distributions, dividends or loans to Green Plains by Wood River and Shenandoah unless immediately after giving effect to such action, there will not exist any event of default.
We also have small equipment financing loans, capital leases on equipment or facilities, and other forms of debt financing.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a credit facility to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. The credit facility was amended on June 4, 2020, decreasing the size of the facility from $200.0 million to $135.0 million. The amended credit facility includes a $130.0 million term loan and a $5.0 million revolving credit facility which matures on December 31, 2021. Payments of $30.0 million were made on the term loan principal during fiscal year 2020 including the proceeds of $10.0 million related to the sale of the Hereford, Texas ethanol plant. As of December 31, 2020, no additional prepayments on the term loan were required or paid. The term loan requires monthly principal payments of $2.5 million, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity. As of December 31, 2020, the term loan had a balance of $100.0 million and an interest rate of 6.00%, and there were no outstanding swing line loans.
In certain situations we are required to make prepayments on the outstanding principal balance on the credit facility. If at any time our cash balance exceeds $2.5 million for more than five consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. We are also required to prepay outstanding principal on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment.
While the partnership has not yet renegotiated the credit facility or secured additional funding necessary to repay the loan, the partnership believes it is probable that it will source appropriate funding given the partnership’s consistent and stable fee-based cash flows, ongoing profitability, low leverage and history of obtaining financing on reasonable commercial terms. In the unlikely scenario that the partnership is unable to refinance its debt with the lenders prior to its maturity, the partnership will consider other financing sources, including but not limited to, the restructuring or issuance of new debt with a different lending group, the issuance of additional partnership units, other strategic actions to extinguish the debt, or support from the company.
Refer to Note 12 - Debt included as part of the notes to consolidated financial statements for more information about our debt.
Contractual Obligations
Contractual obligations as of December 31, 2020 were as follows (in thousands):
Payments Due By Period
Contractual Obligations
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Long-term and short-term debt obligations (1)
$
571,744
$
241,121
$
173,646
$
118,623
$
38,354
Interest and fees on debt obligations (2)
66,675
23,651
19,601
7,468
15,955
Operating lease obligations (3)
75,996
17,303
27,000
16,343
15,350
Other
24,224
4,644
5,171
6,865
7,544
Purchase obligations
Forward grain purchase contracts (4)
190,541
188,004
1,890
-
Other commodity purchase contracts (5)
112,284
85,768
21,258
5,258
-
Other
-
Total contractual obligations
$
1,041,985
$
560,848
$
248,704
$
155,230
$
77,203
(1)Includes the current portion of long-term debt and future finance lease obligations and excludes the effect of any debt discounts and issuance costs.
(2)Interest amounts are calculated over the terms of the loans using current interest rates, assuming scheduled principal and interest amounts are paid pursuant to the debt agreements. Includes administrative and/or commitment fees on debt obligations.
(3)Operating lease costs are primarily for railcars, land and office space and exclude leases not yet commenced with undiscounted future lease payments of approximately $6.5 million.
(4)Purchase contracts represent index-priced and fixed-price contracts. Index purchase contracts are valued at current year-end prices.
(5)Includes fixed-price ethanol, dried distillers grains and natural gas purchase contracts.
‎

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Q ualitative and Quantitative Disclosures About Market Risk.
We use various financial instruments to manage and reduce our exposure to various market risks, including changes in commodity prices and interest rates. We conduct the majority of our business in U.S. dollars and are not currently exposed to material foreign currency risk.
Interest Rate Risk
We are exposed to interest rate risk through our loans which bear interest at variable rates. Interest rates on our variable-rate debt are based on the market rate for the lender’s prime rate or LIBOR. A 10% increase in interest rates would affect our interest cost by approximately $0.9 million per year. At December 31, 2020, we had $526.2 million in debt, $237.4 million of which had variable interest rates.
Refer to Note 12 - Debt included as part of the notes to consolidated financial statements for more information about our debt.
Commodity Price Risk
Our business is highly sensitive to commodity price risk, particularly for ethanol, corn, distillers grains, corn oil and natural gas. Ethanol prices are sensitive to world crude oil supply and demand, the price of crude oil, gasoline, corn, the price of substitute fuels, refining capacity and utilization, government regulation and consumer demand for alternative fuels. Corn prices are affected by weather conditions, yield, changes in domestic and global supply and demand, and government programs and policies. Distillers grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production. Natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American energy exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons.
To reduce the risk associated with fluctuations in the price of ethanol, corn, distillers grains, corn oil and natural gas, at times we use forward fixed-price physical contracts and derivative financial instruments, such as futures and options executed on the Chicago Board of Trade, the New York Mercantile Exchange and the Chicago Mercantile Exchange. We focus on locking in favorable operating margins, when available, using a model that continually monitors market prices for corn, natural gas and other inputs relative to the price for ethanol and distillers grains at each of our production facilities. We create offsetting positions using a combination of forward fixed-price purchases, sales contracts and derivative financial instruments. As a result, we frequently have gains on derivative financial instruments that are offset by losses on forward fixed-price physical contracts or inventories and vice versa. Our results are impacted by a mismatch of gains or losses associated with the derivative instrument during a reporting period when the physical commodity purchases or sale has not yet occurred. For the year ended December 31, 2020, revenues included net losses of $5.3 million and cost of goods sold included net gains of $27.0 million associated with derivative instruments.
Ethanol Production Segment
In the ethanol production segment, net gains and losses from settled derivative instruments are offset by physical commodity purchases or sales to achieve the intended operating margins. To reduce commodity price risk caused by market fluctuations, we enter into exchange-traded futures and options contracts that serve as economic hedges. Our results are impacted when there is a mismatch of gains or losses associated with the derivative instrument during a reporting period when the physical commodity purchases or sale has not yet occurred.
‎
Our exposure to market risk, which includes the impact of our risk management activities resulting from our fixed-price purchase and sale contracts and derivatives, is based on the estimated net income effect resulting from a hypothetical 10% change in price for the next 12 months starting on December 31, 2020, are as follows (in thousands):
Commodity
Estimated Total Volume
‎Requirements for the Next
‎12 Months (1)
Unit of Measure
Net Income Effect of
‎Approximate 10% Change
‎in Price
Ethanol
1,023,000
Gallons
$
100,273
Corn
354,000
Bushels
$
122,275
Distillers grains
2,500
Tons (2)
$
35,296
Corn Oil
276,000
Pounds
$
6,320
Natural gas
29,400
MMBTU
$
4,396
(1)Estimated volumes reflect anticipated expansion of production capacity at our ethanol plants and assumes production at full capacity.
(2)Distillers grains quantities are stated on an equivalent dried ton basis.
Agribusiness and Energy Services Segment
In the agribusiness and energy services segment, our inventories, physical purchase and sale contracts and derivatives are marked to market. To reduce commodity price risk caused by market fluctuations for purchase and sale commitments of grain and grain held in inventory, we enter into exchange-traded futures and options contracts that serve as economic hedges.
The market value of exchange-traded futures and options used for hedging are highly correlated with the underlying market value of grain inventories and related purchase and sale contracts for grain. The less correlated portion of inventory and purchase and sale contract market values, known as basis, is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. Inventory values are affected by the month-to-month spread in the futures markets. These spreads are also less volatile than overall market value of our inventory and tend to follow historical patterns, but cannot be mitigated directly. Our accounting policy for futures and options, as well as the underlying inventory held for sale and purchase and sale contracts, is to reflect their current market values and include gains and losses in the consolidated statement of operations.
Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position was approximately $0.2 million for grain at December 31, 2020. Our market risk at that date, based on the estimated net income effect resulting from a hypothetical 10% change in price, was approximately $18 thousand.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financi al Statements and Supplementary Data.
The required consolidated financial statements and accompanying notes are listed in Part IV, Item 15.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes i n and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9 A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure information that must be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
‎
Under the supervision of and participation of our chief executive officer and chief financial officer, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and concluded that our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
Under the supervision and participation of our chief executive officer and chief financial officer, management assessed the design and operating effectiveness of our internal control over financial reporting as of December 31, 2020, based on the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We completed the acquisition of Fluid Quip Technologies, LLC during fiscal year 2020. Our management excluded from its assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2020, the acquired businesses’ internal control over financial reporting associated with the acquired assets which represent approximately 3% of the company’s consolidated total assets and approximately 0% of the company’s consolidated total revenues as of and for the year ended December 31, 2020. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2020, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with GAAP. We have not identified any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
‎
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
‎Green Plains Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Green Plains Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 16, 2021 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Fluid Quip Technologies, LLC during 2020, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, Fluid Quip Technologies, LLC’s internal control over financial reporting associated with total assets of 3% and total revenues of 0% included in the consolidated financial statements of the Company as of and for the year ended December 31, 2020. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Fluid Quip Technologies, LLC.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
‎
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Omaha, Nebraska
‎February 16, 2021
‎
Item 9B. Other Info rmation.
None.
PART III
Item 10. Direc tors, Executive Officers and Corporate Governance.
Information in our Proxy Statement for the 2021 Annual Meeting of Stockholders (“Proxy Statement”) under “Corporate Governance,” “Proposal 1 - Election of Directors,” “Our Management,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated by reference.
We have adopted a code of ethics that applies to our chief executive officer, chief financial officer and all other senior financial officers. Our code of ethics is available on our website at www.gpreinc.com in the “Investors - Corporate Governance” section. Amendments or waivers are disclosed within five business days following its adoption.
Item 11. Executive Compensation.
Information included in the Proxy Statement under “Corporate Governance” and “Executive Compensation” is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information in the Proxy Statement under “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information in the Proxy Statement under “Transactions with Related Persons, Promoters and Certain Control Persons” is incorporated by reference.
Item 14. Principal Accounting Fees and Services.
Information in the Proxy Statement under “Independent Public Accountants” is incorporated by reference.
‎
PART IV
Item 1 5. Exhibits, Financial Statement Schedules.
(1) Financial Statements. The following consolidated financial statements and notes are filed as part of this annual report on Form 10-K.
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years-ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years-ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years-ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years-ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. All schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits. The following exhibits are incorporated by reference, filed or furnished as part of this annual report on Form 10-K.
Exhibit Index
Exhibit No.
Description of Exhibit
2.1
Membership Interest Purchase Agreement between Murphy Oil USA, Inc. and Green Plains Inc. dated October 28, 2015 (certain exhibits and disclosure schedules to this agreement have been omitted; Green Plains will furnish such exhibits and disclosure schedules to the SEC upon request) (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K dated November 12, 2015)
2.2
Asset Purchase Agreement, dated as of July 27, 2018, by and among Green Plains Cattle Company LLC, and Bartlett Cattle Company, L.P. (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed on August 1, 2018)
2.3(a)
Asset Purchase Agreement among Green Plains Bluffton LLC, Green Plains Holdings II LLC, Green Plains Inc. and Valero Renewable Fuels Company, LLC, dated October 8, 2018. (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed on October 10, 2018). (The schedules to the Asset Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request.)
2.3(b)
Asset Purchase Agreement among Green Plains Partners LP, Green Plains Holdings LLC, Green Plains Operating Company LLC, Green Plains Ethanol Storage LLC, Green Plains Logistics LLC, Green Plains Inc., Green Plains Trade Group LLC, Green Plains Bluffton LLC and Green Plains Holdings II LLC (incorporated by reference to Exhibit 2.2 of our Current Report on Form 8-K filed on October 10, 2018). (The schedules to the Asset Purchase Agreement have been omitted. The Partnership will furnish such schedules to the SEC upon request).
2.4
Asset Purchase Agreement, dated as of April 25, 2017, by and among Green Plains Cattle Company LLC, and Cargill Cattle Feeders, LLC. (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K dated April 26, 2017)
2.5
Stock Purchase Agreement among Green Plains Inc., Green Plains II LLC and Kerry Holding Co. dated October 23, 2018. (The schedules to the Stock Purchase Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed October 25, 2018)
2.6
Securities Purchase Agreement, dated as of September 6, 2019, by and among Green Plains Inc., Green Plains Cattle Company LLC, TGAM Agribusiness Fund Holdings-B LP, and StepStone Atlantic Fund, L.P. (Certain schedules to the Securities Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed September 9, 2019)
2.7
Second Amended and Restated Limited Liability Company Agreement of Green Plains Cattle Company LLC, dated September 6, 2019 (Certain schedules to the Second Amended and Restated Limited Liability Company Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed September 9, 2019)
2.8
Securities Purchase Agreement, dated as of October 9, 2020, by and among Green Plains Inc., Green Plains Cattle Company LLC, AGR Special Opportunities Fund I, LP, TGAM Agribusiness Fund LP, and StepStone Atlantic Fund, LP (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K filed on October 13, 2020) (Certain schedules to the Securities Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request)
2.9(a)
Asset Purchase Agreement among Hereford Ethanol Partners, L.P. and Green Plains Hereford LLC, dated December 11, 2020. (The schedules to the Asset Purchase Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.)
2.9(b)
Asset Purchase Agreement, dated December 14, 2020, by and among Green Plains Partners LP, Green Plains Holdings LLC, Green Plains Operating Company LLC, Green Plains Ethanol Storage LLC, Green Plains Logistics LLC, Green Plains Inc., Green Plains Trade Group LLC and Green Plains Hereford LLC. (incorporated herein by reference to Exhibit 2.2 to the company’s Current Report on Form 8-K filed on December 15, 2020)
2.10 (a)
Asset Purchase Agreement, dated January 25, 2021, by and among Green Plains Partners LP, Green Plains Holdings LLC, Green Plains Operating Company LLC, Green Plains Ethanol Storage LLC, Green Plains Logistics LLC, Green Plains Inc., Green Plains Trade Group LLC and Green Plains Ord LLC. (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K filed on January 27, 2021)
3.1(a)
Second Amended and Restated Articles of Incorporation of the company (incorporated herein by reference to Exhibit 3.1 of the company’s Current Report on Form 8-K filed October 15, 2008)
3.1(b)
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Green Plains Renewable Energy, Inc. (incorporated herein by reference to Exhibit 3.1 of the company’s Current Report on Form 8-K filed May 9, 2011)
3.1(c)
Second Articles of Amendment to Second Amended and Restated Articles of Incorporation of Green Plains Renewable Energy, Inc. (incorporated herein by reference to Exhibit 3.1 of the company’s Current Report on Form 8-K filed May 16, 2014)
3.2
Third Amended and Restated Bylaws of Green Plains Inc., dated October 1, 2020 (incorporated herein by reference to Exhibit 3.1 to the company’s Current Report on Form 8-K filed on October 5, 2020)
4.1
Shareholders’ Agreement by and among Green Plains Renewable Energy, Inc., each of the investors listed on Schedule A, and each of the existing shareholders and affiliates identified on Schedule B, dated May 7, 2008 (incorporated herein by reference to Appendix F of the company’s Registration Statement on Form S-4/A filed September 4, 2008)
4.2
Indenture relating to the 4.125% Convertible Senior Notes due 2022, dated as of August 15, 2016, between Green Plains Inc. and Wilmington Trust, National Association, including the form of Global Note attached as Exhibit A thereto (incorporated herein by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed August 15, 2016)
4.3
Indenture relating to the 3.25% Convertible Senior Notes due 2019, dated as of August 14, 2018, between Green Plains Inc. and Wilmington Trust, National Association, as trustee (including therein Form of 3.25% Convertible Senior Notes Due 2019) (incorporated herein by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed August 14, 2018)
4.4
Indenture relating to the 4.00% Convertible Senior Notes due 2024, dated as of June 21, 2019, between Green Plains Inc. and Wilmington Trust, National Association, including the form of Global Note attached as Exhibit A thereto (incorporated herein by reference to Exhibit 4.1 of the company’s Current Report on Form 8-K filed on June 21, 2019)
4.5
Description of Securities Registered Under Section 12 of the Exchange Act (incorporated herein by reference to Exhibit 4.7 of the company’s Annual Report on Form 10-K filed February 20, 2020)
*10.1
2007 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 27, 2007)
10.2
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.53 of the company’s Registration Statement on Form S-4/A filed August 1, 2008)
*10.3(a)
Employment Agreement with Todd Becker (incorporated herein by reference to Exhibit 10.54 of the company’s Registration Statement on Form S-4/A filed August 1, 2008)
*10.3(b)
Amendment No. 1 to Employment Agreement with Todd Becker, dated December 18, 2009. (incorporated herein by reference to Exhibit 10.7(b) of the company’s Annual Report on Form 10-K filed February 24, 2010)
*10.3(c)
Amendment No. 2 to Employment Agreement with Todd Becker, dated March 27, 2018 (incorporated herein by reference to Exhibit 10.52 of the company’s Quarterly Report on Form 10-Q filed on May 7, 2018)
*10.4(a)
2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K dated May 11, 2009)
*10.4(b)
Amendment No. 1 to the 2009 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 25, 2011)
*10.4(c)
Amendment No. 2 to the 2009 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 29, 2013)
*10.4(d)
Amended and Restated 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.1 of the company’s Registration Statement on Form S-8 filed June 23, 2017)
*10.4(e)
Form of Stock Option Award Agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.19(b) of the company’s Annual Report on Form 10-K filed February 24, 2010)
*10.4(f)
Form of Restricted Stock Award Agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.19(c) of the company’s Annual Report on Form 10-K/A (Amendment No. 1) filed February 25, 2010)
*10.4(g)
Amended Form of Restricted Stock Award agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.53 of the company’s Quarterly Report on Form 10-Q filed on May 7, 2018)
*10.4(h)
Form of Deferred Stock Unit Award Agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.19(d) of the company’s Annual Report on Form 10-K filed February 24, 2010)
*10.4(i)
Form of Performance Share Unit Award agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.54 of the company’s Quarterly Report on Form 10-Q filed on May 7, 2018)
*10.4(j)
2019 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 28, 2019)
*10.4(k)
Amendment No. 1 to the 2019 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 26, 2020)
10.5(a)
Second Amended and Restated Revolving Credit and Security Agreement dated April 26, 2013 by and among Green Plains Trade Group LLC and PNC Bank, National Association (as Lender and Agent) (incorporated herein by reference to Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(b)
Third Amended and Restated Revolving Credit and Security Agreement dated November 26, 2014 by and among Green Plains Trade Group LLC, the Lenders and PNC Bank, National Association (as Lender and Agent) (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed December 2, 2014)
10.5(c)
Fourth Amended and Restated Revolving Credit and Security Agreement dated July 28, 2017, among Green Plains Trade Group LLC, the Lenders and PNC Bank, National Association as Lender and Agent (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated July 31, 2017)
10.5(d)
First Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement, dated as of August 29, 2017, among Green Plains Trade Group LLC and PNC Bank, National Association, as agent, and the lenders party to the Credit and Security Agreement (incorporated herein by reference to Exhibit 10.4(a) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.5(e)
Second Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement, dated as of March 15, 2018, by and among Green Plains Trade Group LLC and PNC Bank, National Association (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q dated May 7, 2018)
10.5(f)
Third Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement, dated as of November 27, 2019, by and among Green Plains Trade Group LLC and PNC Bank, National Association (incorporated herein by reference to Exhibit 10.5(f) of the company’s Annual Report on Form 10-K filed February 20, 2020)
10.5(g)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and Citibank, N.A. (incorporated herein by reference to Exhibit 10.2(b) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(h)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and BMO Harris Bank N.A. (incorporated herein by reference to Exhibit 10.2(c) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(i)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and Alostar Bank of Commerce (incorporated herein by reference to Exhibit 10.2(d) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(j)
Second Amended and Restated Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.2(a) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(k)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and Bank of America (incorporated here by reference to Exhibit 10.2(e) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(l)
ABL Intercreditor Agreement, dated as of August 29, 2017, among PNC Bank, National Association, as ABL Collateral Agent, and BNP Paribas, as Term Loan Collateral Agent, and acknowledged by Green Plains Trade Group LLC and the other ABL Grantors (incorporated herein by reference to Exhibit 10.4(b) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.5(m)
Guaranty, dated as of August 29, 2017, in favor of PNC Bank, National Association, as agent (incorporated herein by reference to Exhibit 10.4(c) to the company’s Current Report on Form 8-K dated August 29, 2017)
*10.6
Umbrella Short-Term Incentive Plan (incorporated herein by reference to Appendix A of the company’s Proxy Statement filed April 3, 2014)
*10.7
Director Compensation effective May 11, 2016 (incorporated herein by reference to Exhibit 10.4 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
*10.8
Director Compensation effective November 14, 2017 (incorporated herein by reference to Exhibit 10.9 of the company’s Annual Report on Form 10-K filed February 15, 2018)
10.9(a)
Credit Agreement dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc., BNP Paribas Securities Corp. as Lead Arranger, Rabo Agrifinance, Inc. as Syndication Agent, ABN AMRO Capital USA LLC as Documentation Agent and BNP Paribas as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(b)
Security Agreement dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and BNP Paribas (incorporated herein by reference to Exhibit 10.2 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(c)
Promissory Note dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and Bank of Oklahoma (incorporated herein by reference to Exhibit 10.3 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(d)
Promissory Note dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and U.S. Bank National Association (incorporated herein by reference to Exhibit 10.4 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(e)
Promissory Note dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and Farm Credit Bank of Texas (incorporated herein by reference to Exhibit 10.5 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(f)
First Amendment to Credit Agreement dated January 6, 2012 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc., BNP Paribas and the Required Lenders (incorporated herein by reference to Exhibit 10.26(k) of the company’s Annual Report on Form 10-K filed February 17, 2012)
10.9(g)
Second Amendment to Credit Agreement, dated October 26, 2012, by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex, Inc., BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.5 of the company’s Quarterly Report on Form 10-Q filed November 1, 2012)
10.9(h)
Third Amendment to Credit Agreement, dated August 27, 2013, by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex, Inc., BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed October 31, 2013)
10.9(i)
Fourth Amendment to Credit Agreement, dated August 8, 2014, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed October 30, 2014)
10.9(j)
Fifth Amendment to Credit Agreement, dated June 1, 2015, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.5 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.9(k)
Sixth Amendment to Credit Agreement, dated January 5, 2016, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.6 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.9(l)
Seventh Amendment to Credit Agreement, dated July 27, 2016, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.7 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.9(m)
Eighth Amendment to Credit Agreement, dated as of August 29, 2017, among Green Plains Grain Company and BNP Paribas, as Administrative Agent, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.3(a) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.9(n)
Ninth Amendment to Credit Agreement, dated as of June 28, 2019, among Green Plains Grain Company LLC and BNP Paribas, as Administrative Agent, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed on July 1, 2019)
10.9(o)
ABL Intercreditor Agreement, dated as of August 29, 2017, among BNP Paribas, as ABL Collateral Agent, and BNP Paribas, as Term Loan Collateral Agent, and acknowledged by Green Plains Grain Company LLC and the other ABL Grantors (incorporated herein by reference to Exhibit 10.3(b) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.9(p)
Guaranty, dated as of August 29, 2017, in favor of BNP Paribas, as administrative agent (incorporated herein by reference to Exhibit 10.3(c) to the company’s Current Report on Form 8-K dated August 29, 2017)
*10.10
Employment Agreement by and between Green Plains Renewable Energy, Inc. and Patrich Simpkins dated April 1, 2012 (incorporated herein by reference to Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed May 1, 2014)
*10.11
Employment Agreement with Michelle S. Mapes (incorporated herein by reference to Exhibit 10.12 of the company’s Annual Report on Form 10-K filed February 20, 2020)
10.12
Amended and Restated Credit Agreement, dated as of August 28, 2019, by and among Green Plains Cattle Company LLC, Bank of the West and ING Capital LLC, as Joint Administrative Agents, and the lenders party to the Credit Agreement (Certain schedules to the Amended and Restated Credit Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.3 of the company’s Current Report on Form 8-K filed September 9, 2019)
10.13
Contribution, Conveyance and Assumption Agreement, dated July 1, 2015, by and among Green Plains Inc., Green Plains Obion LLC, Green Plains Trucking LLC, Green Plains Holdings LLC, Green Plains Partners LP and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.14(a)
Omnibus Agreement, dated July 1, 2015, by and among Green Plains Inc., Green Plains Holdings LLC, Green Plains Partners LP and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.14(b)
First Amendment to the Omnibus Agreement, dated January 1, 2016, by and among Green Plains Inc., Green Plains Holdings LLC, Green Plains Partners LP and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.22(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.14(c)
Second Amendment to the Omnibus Agreement, dated September 23, 2016, by and among Green Plains Inc., Green Plains Partners LP, Green Plains Holdings LLC and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated September 26, 2016)
10.14(d)
Third Amendment to the Omnibus Agreement, dated November 15, 2018, by and among Green Plains Inc., Green Plains Partners LP, Green Plains Holdings LLC and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.18(d) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.15(a)
Operational Services and Secondment Agreement, dated July 1, 2015, by and between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.15(b)
Amendment No. 1 to the Operational Services and Secondment Agreement, dated January 1, 2016, by and between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.23(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.15(c)
Amendment No. 2 to Operational Services and Secondment Agreement, dated September 23, 2016, between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated September 26, 2016)
10.15(d)
Amendment No. 3 to Operational Services and Secondment Agreement, dated November 15, 2018, between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.19(d) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.15(e)
Amendment No. 4 to Operational Services and Secondment Agreement, dated December 28, 2020, between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed December 28, 2020)
10.16(a)
Rail Transportation Services Agreement, dated July 1, 2015, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.16(b)
Amendment No. 1 to Rail Transportation Services Agreement, dated September 1, 2015, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.16(c)
Correction to Rail Transportation Services Agreement, dated May 12, 2016, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.16(d)
Amendment No. 2 to Rail Transportation Services Agreement, dated November 30, 2016 (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated December 1, 2016)
10.16(e)
Amendment No. 3 to Rail Transportation Services Agreement, dated November 15, 2018 (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated November 15, 2018)
10.16(f)
Corrective Amendment to Rail Transportation Services Agreement, dated November 15, 2018, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.20(f) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.16(g)
Amendment No. 4 to Rail Transportation Services Agreement, dated December 28, 2020 (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated December 28, 2020
10.17(a)
Ethanol Storage and Throughput Agreement, dated July 1, 2015, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.17(b)
Amendment No. 1 to the Ethanol Storage and Throughput Agreement, dated January 1, 2016, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.25(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.17(c)
Clarifying Amendment to Ethanol Storage and Throughput Agreement, dated January 4, 2016, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.17(d)
Amendment No. 2 to Ethanol Storage and Throughput Agreement, dated September 23, 2016, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K dated September 26, 2016)
10.17(e)
Amendment No. 3 to Ethanol Storage and Throughput Agreement, dated November 15, 2018, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated November 15, 2018) (The exhibits to Amendment No. 3 have been omitted. The company will furnish such schedules to the SEC upon request).
10.17(f)
Amendment No. 4 to Ethanol Storage and Throughput Agreement, dated December 28, 2020, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated December 28, 2020)
10.18(a)
Credit Agreement, dated July 1, 2015, by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.6 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.18(b)
First Amendment to Credit Agreement, dated September 16, 2016 by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.22(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(c)
Incremental Joinder Agreement, dated October 27, 2017, among Green Plains Operating Company LLC and Bank of America, as Administrative (incorporated herein by reference to Exhibit 10.8 to the company’s Quarterly Report on Form 10-Q dated November 2, 2017)
10.18(d)
Second Amendment to Credit Agreement, dated February 16, 2018 by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.22(d) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(e)
Incremental Joinder Agreement, dated February 20, 2018, among Green Plains Operating Company LLC and Bank of America, as Administrative (incorporated herein by reference to Exhibit 10.22(e) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(f)
Third Amendment to Credit Agreement, dated October 12, 2018 by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.22(f) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(g)
Consent to Credit Agreement, dated July 15, 2019, by and among Green Plains Operating Company LLC and Bank of America, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q dated August 6, 2019)
10.18(h)
Fourth Amendment to Credit Agreement, dated June 4, 2020, by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A. and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed on June 4, 2020)
10.19
Second Amendment to Term Loan Agreement, dated July 13, 2018, among Green Plains Inc. and BNP Paribas, as administrative agent and collateral agent (incorporated herein by reference to Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q dated August 2, 2018)
10.20
Partial Release of Security Interest, dated as of April 30, 2018, by and among Green Plains Inc., its subsidiaries and BNP Paribas, as collateral agent (incorporated herein by reference to Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q dated May 7, 2018)
10.21(a)
Revolving Credit Facility, dated as of April 30, 2018, by and among Green Plains Commodity Management LLC and Macquarie Bank Limited (incorporated herein by reference to Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q dated May 7, 2018)
10.21(b)
Amendment to Revolving Credit Facility, dated as of June 18, 2019, by and among Green Plains Commodity Management LLC and Macquarie Bank Limited (incorporated herein by reference to Exhibit 10.24(b) of the company’s Annual Report on Form 10-K filed February 20, 2020)
10.22
Promissory Note between Green Plains Inc. and StepStone Atlantic Fund, L.P., dated September 6, 2019 (incorporated herein by reference to Exhibit 10.2 of the company’s Current Report on Form 8-K filed September 9, 2019)
10.23(a)
Loan Agreement dated September 3, 2020 by and among Green Plains Wood River LLC and Green Plains Shenandoah LLC, as the Borrowers, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(b)
Delayed Draw Term Promissory Note dated September 3, 2020 by and among Green Plains Wood River LLC and Green Plains Shenandoah LLC, as the Borrowers, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(c)
Loan Guaranty Agreement dated September 3, 2020 by and among Green Plains Inc, as the Guarantor, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(d)
Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated September 3, 2020 by and among Green Plains Wood River LLC, as the Trustor, and MetLife Real Estate Lending LLC, as the Beneficiary (incorporated herein by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(e)
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated September 3, 2020 by and among Green Plains Shenandoah LLC, as the Borrower, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.24(a)
Note Purchase Agreement dated February 9, 2021 by and among Green Plains SPE LLC, as the Issuer, Green Plains Inc., as Guarantor, and Purchasers signatory thereto. (The schedules to the Note Purchase Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(b)
Pledge and Security Agreement dated February 9, 2021 by and among Green Plains SPE LLC, as the Pledgor, in favor of Wilmington Trust, National Association, as Trustee. (The schedules to the Pledge and Security Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(c)
Indenture dated February 9, 2021 by Green Plains SPE LLC, as Issuer, Green Plains Inc., as Guarantor and Wilmington Trust, National Association, as Trustee. (The schedules to the Indenture have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(d)
First Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement from Green Plains Mount Vernon LLC, as Mortgagor and Wilmington Trust, National Association, as Mortgagee. (incorporated herein by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(e)
First Priority Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement from Green Plains Obion LLC, as Mortgagor and Wilmington Trust, National Association, as Mortgagee. (incorporated herein by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K filed on February 12, 2021)
21.1
Schedule of Subsidiaries
23.1
Consent of KPMG LLP
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following information from Green Plains Inc.’s Annual Report on Form 10-K for the annual period ended December 31, 2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (iv) the Consolidated Statements of Stockholders’ Equity (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements and Financial Statement Schedule.
The cover page from Green Plains Inc. Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL
_______________________________________________________
* Represents management compensatory contracts
Item 16. Form 10-K Summary.
None.
‎
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
c
‎
‎
‎
‎
Date: February 16, 2021
GREEN PLAINS INC
(Registrant)
By: /s/ Todd A. Becker
Todd A. Becker
‎President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Todd A. Becker
President and Chief Executive Officer
February 16, 2021
Todd A. Becker
(Principal Executive Officer) and Director
/s/ G. Patrich Simpkins Jr.
Chief Financial Officer (Principal Financial
February 16, 2021
G. Patrich Simpkins Jr.
Officer and Principal Accounting Officer)
/s/ Wayne B. Hoovestol
Chairman of the Board
February 16, 2021
Wayne B. Hoovestol
/s/ Jim Anderson
Director
February 16, 2021
Jim Anderson
/s/ James F. Crowley
Director
February 16, 2021
James F. Crowley
/s/ S. Eugene Edwards
Director
February 16, 2021
S. Eugene Edwards
/s/ Gordon F. Glade
Director
February 16, 2021
Gordon F. Glade
/s/ Ejnar A. Knudsen III
Director
February 16, 2021
Ejnar A. Knudsen III
/s/ Thomas L. Manuel
Director
February 16, 2021
Thomas L. Manuel
/s/ Brian D. Peterson
Director
February 16, 2021
Brian D. Peterson
/s/ Alain Treuer
Director
February 16, 2021
Alain Treuer
/s/ Kimberly Wagner
Director
February 16, 2021
Kimberly Wagner
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
‎Green Plains Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Green Plains Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 18 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASC Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MatterThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of physical delivery contracts
As discussed in Note 2 to the consolidated financial statements, the Company records physical delivery contracts that do not meet the normal purchase or sale criteria at fair value. The Company estimates a fair value based on exchange-quoted prices, adjusted as appropriate for regional location basis values, which represent differences in local markets including transportation as well as quality or grade differences. Basis values are generally determined using inputs from broker quotations or market transactions. As of December 31, 2020, the recorded balances of the Company’s derivative assets and liabilities associated with physical delivery contracts were $22.0 million and $11.0 million, respectively, and are classified as Level 2 assets and liabilities within Note 6.
We identified the assessment of the valuation of physical delivery contracts as a critical audit matter. Specifically, auditing the valuation of physical delivery contracts, which includes assumptions related to exchange-quoted prices and adjustments for regional location basis values, is complex due to the judgment involved in determining the fair value.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls related to the valuation of physical delivery contracts. To assess the valuation of physical delivery contracts, for a sample of contracts, we:
●tested the Company’s exchange-quoted price by comparing the amount used to observable market transactions
●evaluated the Company’s adjustments for regional location basis values by comparing inputs used by the Company to third-party information, including broker quotations or market transactions.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Omaha, Nebraska
‎February 16, 2021
‎
GRE EN PLAINS INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
ASSETS
Current assets
Cash and cash equivalents
$
233,860
$
245,977
Restricted cash
40,950
23,919
Accounts receivable, net of allowances of $143 and $166, respectively
55,568
107,183
Income taxes receivable
6,216
Inventories
269,491
252,992
Prepaid expenses and other
16,531
13,685
Derivative financial instruments
25,292
17,941
Total current assets
642,353
667,913
Property and equipment, net
801,690
827,271
Operating lease right-of-use assets
61,883
52,476
Investment in equity method investees
3,994
68,998
Other assets
68,997
81,560
Total assets
$
1,578,917
$
1,698,218
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
$
140,058
$
156,693
Accrued and other liabilities
38,471
39,384
Derivative financial instruments
20,265
8,721
Operating lease current liabilities
14,902
16,626
Short-term notes payable and other borrowings
140,808
187,812
Current maturities of long-term debt
98,052
132,555
Total current liabilities
452,556
541,791
Long-term debt
287,299
243,990
Operating lease long-term liabilities
49,549
38,314
Other liabilities
12,849
8,837
Total liabilities
802,253
832,932
Commitments and contingencies (Note 18)
Stockholders' equity
Common stock, $0.001 par value; 75,000,000 shares authorized;
‎47,470,505 and 46,964,115 shares issued, and 35,657,344
‎and 36,031,933 shares outstanding, respectively
Additional paid-in capital
740,889
734,580
Retained earnings
39,375
148,150
Accumulated other comprehensive loss
(2,172)
(11,064)
Treasury stock, 11,813,161 and 10,932,182 shares, respectively
(131,287)
(119,808)
Total Green Plains stockholders' equity
646,852
751,905
Noncontrolling interests
129,812
113,381
Total stockholders' equity
776,664
865,286
Total liabilities and stockholders' equity
$
1,578,917
$
1,698,218
See accompanying notes to the consolidated financial statements.
‎
GREE N PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
Revenues
Product revenues
$
1,918,884
$
2,410,382
$
2,977,451
Service revenues
4,835
6,856
6,481
Total revenues
1,923,719
2,417,238
2,983,932
Costs and expenses
Cost of goods sold (excluding depreciation and amortization expenses reflected below)
1,812,163
2,384,947
2,806,968
Operations and maintenance expenses
26,125
25,657
30,844
Selling, general and administrative expenses
84,932
77,077
108,259
Loss (gain) on sale of assets, net
20,860
-
(150,351)
Goodwill impairment
24,091
-
-
Depreciation and amortization expenses
78,244
72,127
98,258
Total costs and expenses
2,046,415
2,559,808
2,893,978
Operating income (loss) from continuing operations
(122,696)
(142,570)
89,954
Other income (expense)
Interest income
4,333
2,961
Interest expense
(39,993)
(40,200)
(87,449)
Other, net
5,495
Total other expense
(38,434)
(30,372)
(84,310)
Income (loss) from continuing operations before income taxes and income (loss) from equity method investees
(161,130)
(172,942)
5,644
Income tax benefit
50,383
21,316
20,147
Income (loss) from equity method investees, net of income taxes
21,093
2,797
(596)
Net income (loss) from continuing operations including noncontrolling interest
(89,654)
(148,829)
25,195
Net income from discontinued operations, net of income taxes
-
11,539
Net income (loss)
(89,654)
(148,000)
36,734
Net income attributable to noncontrolling interests
19,121
18,860
20,811
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
Earnings (loss) per share - basic and diluted
Net income (loss) from continuing operations
$
(3.14)
$
(4.40)
$
0.11
Net income from discontinued operations
-
0.02
0.28
Net income (loss) attributable to Green Plains
$
(3.14)
$
(4.38)
$
0.39
Weighted average shares outstanding:
Basic
34,631
38,111
40,320
Diluted
34,631
38,111
41,254
See accompanying notes to the consolidated financial statements.
‎
GRE EN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
Net income (loss)
$
(89,654)
$
(148,000)
$
36,734
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of $257, ($14,431) and $2,854, respectively
(768)
55,973
(6,788)
Reclassification of realized losses (gains) on derivatives, net of tax expense (benefit) of $857, $10,002 and ($2,887), respectively
(2,566)
(38,795)
6,669
Other comprehensive income (loss), net of tax
(3,334)
17,178
(119)
Share of equity method investees other comprehensive gain (loss) arising during the period, net of tax benefit (expense) of ($3,929), $3,929 and $0, respectively
12,226
(12,226)
-
Total other comprehensive income (loss), net of tax
8,892
4,952
(119)
Comprehensive income (loss)
(80,762)
(143,048)
36,615
Comprehensive income attributable to noncontrolling interests
19,121
18,860
20,811
Comprehensive income (loss) attributable to Green Plains
$
(99,883)
$
(161,908)
$
15,804
See accompanying notes to the consolidated financial statements.
‎
GRE EN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Total
Common
Additional
Accum. Other
Green Plains
Non-
Total
Stock
Paid-in
Retained
Comp. Income
Treasury Stock
Stockholders'
Control.
Stockholders'
Shares
Amount
Capital
Earnings
(Loss)
Shares
Amount
Equity
Interests
Equity
Balance, December 31, 2017
46,410
$
$
685,019
$
325,411
$
(13,110)
5,326
$
(55,184)
$
942,182
$
116,954
$
1,059,136
Reclassification of certain tax effects from other comprehensive loss (Note 1)
-
-
-
2,787
(2,787)
-
-
-
-
-
Balance, January 1, 2018
46,410
685,019
328,198
(15,897)
5,326
(55,184)
942,182
116,954
1,059,136
Net income
-
-
-
15,923
-
-
-
15,923
20,811
36,734
Cash dividends and distributions declared
-
-
-
(19,393)
-
-
-
(19,393)
(21,872)
(41,265)
Other comprehensive loss before reclassification
-
-
-
-
(6,788)
-
-
-
-
-
Amounts reclassified from accum. other comp. loss
-
-
-
-
6,669
-
-
-
-
-
Other comp. loss, net of tax
-
-
-
-
(119)
-
-
(119)
-
(119)
Repurchase of common stock
-
-
-
-
-
(2,979)
(2,979)
-
(2,979)
Modification of 3.25% convertible notes due 2019
-
-
3,480
-
-
-
-
3,480
-
3,480
Exchange of 3.25% convertible notes due 2018
-
-
-
-
-
-
-
Stock-based compensation
7,573
-
-
-
-
7,574
7,851
Stock options exercised
-
-
-
-
-
-
Balance, December 31, 2018
46,638
696,222
324,728
(16,016)
5,536
(58,162)
946,819
116,170
1,062,989
Net income (loss)
-
-
-
(166,860)
-
-
-
(166,860)
18,860
(148,000)
Cash dividends and distributions declared
-
-
-
(9,718)
-
-
-
(9,718)
(21,968)
(31,686)
Other comp. income before reclassification
-
-
-
-
55,973
-
-
-
-
-
Amounts reclassified from accum. other comp. loss
-
-
-
-
(38,795)
-
-
-
-
-
Other comprehensive income, net of tax
-
-
-
-
17,178
-
-
17,178
-
17,178
Share of equity method investees other comprehensive loss arising during the period, net of tax
-
-
-
-
(12,226)
-
-
(12,226)
-
(12,226)
Proceeds from disgorgement of shareholders short-swing profits, net of tax
-
-
5,054
-
-
-
-
5,054
-
5,054
Issuance of 4.00% convertible notes due 2024, net of tax
-
-
24,928
-
-
-
-
24,928
-
24,928
Settlements of 3.25% convertible notes due 2019, net of tax
-
-
(271)
-
-
-
-
(271)
-
(271)
Repurchase of common stock
-
-
-
-
-
5,396
(61,646)
(61,646)
-
(61,646)
Stock-based compensation
-
7,052
-
-
-
-
7,052
7,371
Stock options exercised
-
1,595
-
-
-
-
1,595
-
1,595
Balance, December 31, 2019
46,964
734,580
148,150
(11,064)
10,932
(119,808)
751,905
113,381
865,286
Net income (loss)
-
-
-
(108,775)
-
-
-
(108,775)
19,121
(89,654)
Cash dividends and distributions declared
-
-
-
-
-
-
-
-
(9,675)
(9,675)
Other comprehensive loss before reclassification
-
-
-
-
(768)
-
-
-
-
-
Amounts reclassified from accumulated other comprehensive loss
-
-
-
-
(2,566)
-
-
-
-
-
Other comprehensive income, net of tax
-
-
-
-
(3,334)
-
-
(3,334)
-
(3,334)
Share of equity method investees other comprehensive loss arising during the period, net of tax
-
-
-
-
12,226
-
-
12,226
-
12,226
Acquisition of FQT
-
-
-
-
-
-
-
-
6,667
6,667
Repurchase of common stock
-
-
-
-
-
(11,479)
(11,479)
-
(11,479)
Stock-based compensation
-
6,309
-
-
-
-
6,309
6,627
Balance, December 31, 2020
47,471
$
$
740,889
$
39,375
$
(2,172)
11,813
$
(131,287)
$
646,852
$
129,812
$
776,664
See accompanying notes to the consolidated financial statements.
‎
GREE N PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
Cash flows from operating activities:
Net income (loss) from continuing operations including noncontrolling interest
$
(89,654)
$
(148,829)
$
25,195
Net income from discontinued operations, net of income taxes
-
11,539
Net income (loss)
(89,654)
(148,000)
36,734
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
78,244
72,127
98,258
Amortization of debt issuance costs and debt discount
22,500
20,364
13,277
Loss (gain) on the disposal of assets, net
21,464
(3,680)
(150,351)
Goodwill impairment
24,091
-
-
Write-off of deferred financing fees related to extinguishment of debt
-
-
13,178
Deferred income taxes
(13,336)
(17,252)
(24,484)
Stock-based compensation
7,915
9,692
11,420
Loss (income) from equity method investees, net of income taxes
(21,093)
(2,797)
Distribution from equity method investees, net of income taxes
27,910
-
-
Other
-
-
(11,604)
Changes in operating assets and liabilities before effects of
‎business combinations and dispositions:
Accounts receivable
57,060
(21,762)
43,443
Inventories
(21,632)
50,022
26,972
Derivative financial instruments
1,274
12,420
(12,294)
Prepaid expenses and other assets
(2,105)
1,907
Accounts payable and accrued liabilities
(22,772)
(1,778)
(53,565)
Current income taxes
30,073
3,138
31,517
Other
(1,044)
(288)
4,526
Net cash provided by (used in) operating activities - continuing operations
98,895
(27,001)
29,530
Net cash provided by operating activities - discontinued operations
-
17,469
9,437
Net cash provided by (used in) operating activities
98,895
(9,532)
38,967
Cash flows from investing activities:
Purchases of property and equipment, net
(110,579)
(75,481)
(40,529)
Proceeds from sale of discontinued operations, net of cash divested
-
76,884
-
Proceeds from the sale of assets, net
39,952
3,469
671,650
Disposition of equity method investee
80,500
29,721
-
Acquisition of businesses, net of cash acquired
(21,325)
-
-
Distributions from (contribution to) equity method investees
-
(3,091)
Other investing activities
-
-
7,500
Net cash provided by (used in) investing activities - continuing operations
(11,452)
34,813
635,530
Net cash used in investing activities - discontinued operations
-
(4,169)
(128,065)
Net cash provided by (used in) investing activities
(11,452)
30,644
507,465
Cash flows from financing activities:
Proceeds from the issuance of long-term debt
33,000
157,710
83,100
Payments of principal on long-term debt
(12,987)
(45,702)
(576,389)
Proceeds from short-term borrowings
2,392,258
2,802,199
3,479,784
Payments on short-term borrowings
(2,468,485)
(2,840,505)
(3,578,629)
Payments for repurchase of common stock
(11,479)
(61,646)
(2,978)
Payments of cash dividends and distributions
(9,675)
(31,686)
(41,265)
Proceeds from disgorgement of shareholder short-swing profits
-
6,699
-
Payments of loan fees
(3,873)
(5,291)
(3,808)
Payments related to tax withholdings for stock-based compensation
(1,288)
(2,320)
(3,569)
Proceeds from exercises of stock options
-
1,595
Net cash used in financing activities - continuing operations
(82,529)
(18,947)
(643,604)
Net cash provided by (used in) financing activities - discontinued operations
-
(50,464)
103,007
Net cash used in financing activities
(82,529)
(69,411)
(540,597)
Net change in cash, cash equivalents and restricted cash
4,914
(48,299)
5,835
Cash, cash equivalents and restricted cash, beginning of period
269,896
283,284
289,667
Discontinued operations cash activity included above:
Add: Cash balance included in current assets of discontinued operations at beginning of period
-
34,911
22,693
Less: Cash balance included in current assets of discontinued operations at end of period
-
-
(34,911)
Cash, cash equivalents and restricted cash, end of period
$
274,810
$
269,896
$
283,284
Continued on the following page
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Continued from the previous page
Year Ended December 31,
Reconciliation of total cash, cash equivalents and restricted cash:
Cash and cash equivalents
$
233,860
$
245,977
$
251,683
Restricted cash
40,950
23,919
66,512
Discontinued operations cash activity included above:
Less: Cash, cash equivalents and restricted cash balance included in current assets of discontinued operations at end of period
-
-
(34,911)
Total cash, cash equivalents and restricted cash
$
274,810
$
269,896
$
283,284
Non-cash financing activity:
Settlement of NMTC transaction
$
-
$
8,100
$
-
Modification of 3.25% convertible notes due 2019, net
$
-
$
-
$
3,480
Exchange of common stock held in treasury stock for 3.25% convertible notes due 2018
$
-
$
-
$
Supplemental investing and financing activities:
Assets acquired in acquisitions, net of cash
$
42,443
$
-
$
124,525
Less: liabilities assumed
(14,451)
-
(118)
Less: noncontrolling interests assumed
(6,667)
-
-
Net assets acquired
$
21,325
$
-
$
124,407
Assets disposed of in sale
$
67,711
$
527,614
$
550,648
Less: liabilities disposed
(6,234)
(373,846)
(41,276)
Net assets disposed
$
61,477
$
153,768
$
509,372
Supplemental disclosures of cash flow:
Cash paid (refunded) for income taxes
$
(60,587)
$
$
(22,478)
Cash paid for interest of continuing operations
$
23,300
$
24,287
$
60,664
Cash paid for interest of discontinued operations
$
-
$
11,557
$
12,481
See accompanying notes to the consolidated financial statements.
‎
GRE EN PLAINS INC. AND SUBSIDIARIES
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, 2020, the company owns a 48.9% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 49.1% 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, 2020 and 2019, excluding intercompany balances, are $91.2 million and $90.0 million, respectively, and primarily consist of property and equipment, operating lease right-of-use assets and goodwill. The partnership’s consolidated total liabilities as of December 31, 2020 and 2019, excluding intercompany balances, are $151.2 million and $180.9 million, respectively, which primarily consist of current maturities of long-term debt as discussed in Note 12 - Debt and operating lease liabilities. The liabilities recognized as a result of consolidating the partnership do not represent additional claims on our general assets.
GPCC, previously a wholly owned subsidiary of Green Plains, was disposed of during the third quarter of 2019. After closing, GPCC was no longer consolidated in the company’s consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20 Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”) to be presented as discontinued operations. As such, GPCC results prior to its disposition are classified as discontinued operations in prior period consolidated financial statements.
Additionally, on October 1, 2020, pursuant to the Securities Purchase Agreement, the company sold its remaining 50% joint venture interest in GPCC to AGR, TGAM Agribusiness Fund LP and StepStone. The transaction resulted in a reduction in investment in equity method investees of $69.7 million as a result of removal of the equity method investment in GPCC, and a reduction in accumulated other comprehensive income (loss) of $10.7 million as a result of the removal of the company’s share of equity method investees accumulated other comprehensive loss. See Note 5 - Acquisitions, Dispositions and Discontinued Operations and Note 21 - Equity Method Investments for further details.
The company also owns a 90.0% interest in BioProcess Algae, a joint venture formed in 2008, as well as a majority interest in Fluid Quip Technologies, LLC with their results being consolidated in our consolidated financial statements.
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, carrying value of intangible assets, operating leases, impairment of long-lived assets and goodwill, derivative financial instruments, accounting for income taxes and assets acquired and liabilities assumed in acquisitions, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
Description of Business
The company operates within four business segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein 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, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil 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 one of the largest ethanol producers in North America. The company operates 12 ethanol plants in six 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 354 million bushels of corn and produce approximately 1.0 billion gallons of ethanol, 2.5 million tons of distillers grains and 276 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 38.1 million bushels, with 30.5 million bushels of storage capacity at the company’s ethanol plants and 7.6 million bushels of total storage capacity at its three 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-house 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 has food-grade corn oil operations which focus 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, the company also owned Fleischmann’s Vinegar, which is one of the world’s largest producers of 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, 2020, the partnership owns (i) 31 ethanol storage facilities located at or near the company’s 12 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) six 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 2,480 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 maturities of three months or less.
Restricted Cash
The company has restricted cash, which can only be used for funding letters of credit or for payment towards a credit agreement. Restricted cash also includes cash margins and securities pledged to commodity exchange clearinghouses and at times, funds in escrow related to acquisition and disposition activities. To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated balance sheets.
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 derivatives 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, 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 over time as the 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 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, and process chemicals. Corn feedstock costs include gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs, as well as reclassifications of gains and losses on cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant utilities, repairs and maintenance 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 sale contracts to attempt to minimize the effect of price changes on ethanol, grain and natural gas. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for basis 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, natural gas and crude oil. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk; however, there may be situations when these hedging activities themselves result in losses.
By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.
The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, cash flow hedge accounting treatment.
Certain qualifying derivatives related to ethanol production and agribusiness and energy services 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 and the physical transaction is completed. 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 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. Estimated fair values carried at market are based on exchange-quoted prices, adjusted as appropriate for regional location basis values which represent differences in local markets including transportation as well as quality or grade differences. Basis values are generally determined using inputs from broker quotations or other market transactions. However a portion of the value may be derived using unobservable inputs. 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. 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 receivable 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 $1.1 million and $1.2 million at December 31, 2020 and 2019, respectively.
‎
Inventories
Corn held for ethanol production, ethanol, corn oil and distillers grains inventories are recorded at the lower of average cost or net realizable value.
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 net realizable value.
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
Railroad track and equipment
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 primarily of customer relationships, intellectual property, research and development technology and licenses. These intangible assets were capitalized at fair market value and are being amortized over their estimated useful lives.
Impairment of Long-Lived Assets
The company reviews its long-lived assets, currently consisting of property and equipment, operating lease right-of-use assets, 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 our long-lived assets 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 an impairment of the asset. 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 is related to certain acquisitions within our ethanol production and partnership segments.
On January 1, 2018, the company early adopted the amended guidance in ASC 350, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amended guidance, an entity may first assess qualitative factors to determine whether it
is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).
The company is required to perform impairment tests related to goodwill annually, which it performs as of October 1, or sooner if an indicator of impairment occurs. Circumstances that may indicate impairment include a decline in the company’s future projected cash flows, a decision to suspend plant operations for an extended period of time, sustained decline in the company’s 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 goodwill and measure impairment, which include, but are not limited to, market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. 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.
Near term industry outlook due to the significant decrease in crude oil prices, lower gasoline demand, general uncertainty due to the COVID-19 outbreak and the subsequent decline in our stock price caused a decline in the company’s market capitalization during the three months ended March 31, 2020. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit and as such we evaluated our goodwill as of March 31, 2020. Significant assumptions inherent in the valuation methodologies for goodwill were employed and included, but were not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit did not exceed its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was impaired and recorded a non-cash impairment charge of $24.1 million.
The company also identified triggering events due to decreases in the partnership’s stock price and as a result, its market capitalization, and performed interim quantitative goodwill assessments as of March 31, 2020 and June 30, 2020. The company performed its annual goodwill assessment as of October 1, 2020, using a qualitative assessment. Each of the goodwill assessments resulted in no goodwill impairment.
For additional information, please refer to Note 10 - Goodwill and Intangible Assets.
Leases
On January 1, 2019, the company adopted the amended guidance in ASC 842, Leases, and all related amendments and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The standard does not require the guidance to be applied to the earliest comparative period presented in the financial statements. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The company leases certain facilities, parcels of land, and equipment. These leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the lease term. The term of the lease may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. For leases with initial terms greater than 12 months, the company records operating lease right-of-use assets and corresponding operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The company did not incur any material short-term lease expense for the years ended December 31, 2020 or 2019.
Operating lease right-of-use assets represent the right to control an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on information available at commencement date to determine the present value of future payments.
The company elected to utilize a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For railcar leases, the company elected to combine the railcars within each rider and account for each rider as an individual lease.
From a lessee perspective, the company combines both the lease and non-lease components and accounts for them as one lease. Certain of the company’s railcar agreements provide for maintenance costs to be the responsibility of the company as incurred or charged by the lessor. This maintenance cost is a non-lease component that the company combines with the
monthly rental payment and accounts for the total cost as operating lease expense. In addition, the company has a land lease that contains a non-lease component for the handling and unloading services the landlord provides. The company combines the cost of services with the land lease cost and accounts for the total as operating lease expense.
The partnership segment records the majority of it operating lease revenue from its storage and throughput services, rail transportation services and certain terminal services agreements with Green Plains Trade. In addition, the partnership may sublease certain of its railcars to third parties on a short-term basis. These subleases are classified as operating leases, with the associated sublease revenue recognized on a straight-line basis over the lease term.
Please refer to Note 18 - Commitments and Contingencies to the consolidated financial statements for further details on operating lease expense and revenue.
Investments in Equity Method Investees
The company accounts for investments in which the company exercises significant influence using the equity method so long as the company (i) does not control the investee and (ii) is not the primary beneficiary of the entity. The company recognizes these investments as a separate line item in the consolidated balance sheets and its proportionate share of earnings on a separate line item in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the consolidated balance sheet.
The company recognizes losses in the value of equity method investments when there is evidence of an other-than-temporary decrease in value. Evidence of a loss might include, but would not necessarily be limited to, the inability to recover the carrying amount of the investment or the inability of the equity method investee to sustain an earnings capacity that justifies the carrying amount of the investment. The current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. The company evaluates equity method investments for impairment if there is evidence an investment may be impaired. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows.
Discontinued Operations
In determining whether a disposal group should be presented as discontinued operations, the company makes a determination of whether such a group being disposed of comprises a component of the entity, or a group of components of the entity, that represents a strategic shift that has, or will have, a major effect on the company's operations and financial results. If these determinations are made affirmatively, the results of operations of the group being disposed of are aggregated for separate presentation apart from the continuing operations of the company for all periods presented in the consolidated financial statements. General corporate overhead is not allocated to discontinued operations.
Net income from discontinued operations, net of income taxes, relates to the operations of GPCC, which was previously a wholly owned subsidiary of Green Plains until the formation of the GPCC joint venture and partial sale during the third quarter of 2019. The assets and liabilities of GPCC have been reclassified as assets and liabilities of discontinued operations in the prior year. The company entered into a shared service agreement whereby they continued to provide certain administrative services to GPCC and received $400 thousand on a quarterly basis through December 31, 2020, at which time administrative services began to unwind as a result of the disposition of the GPCC joint venture on October 1, 2020. Associated services are not expected to be material in the future. See Note 5 - Acquisitions, Dispositions and Discontinued Operations for further details.
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, interest is capitalized in construction-in-progress.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist 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, 2020, the company adopted the amended guidance in ASC 326, Financial Instruments - Credit Losses, which replaces the current incurred loss impairment method with a method that reflects expected credit losses on financial instruments. The new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2019, and allows for early adoption. The adoption of the new guidance did not have a material impact on the company’s consolidated financial statements.
In December 2019, the FASB issued amended guidance in ASC 740, Income Taxes - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. The company is evaluating the impact of this standard on its consolidated financial statements.
In March 2020, the FASB issued amended guidance in ASC 848, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The guidance is effective upon issuance and to be applied prospectively from any date beginning March 12, 2020 through December 31, 2022. The amended guidance is not expected to have a material impact on the company’s consolidated financial statements.
In August 2020, the FASB issued amended guidance in ASC 470-20, Debt - Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity - Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity. The amended guidance simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The amended guidance also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. The amended guidance is effective for fiscal periods beginning after December 15, 2021, including interim periods within those fiscal periods. Early adoption is permitted, but no earlier than fiscal periods beginning after December 15, 2020. The amended guidance permits the use of either the modified retrospective or fully retrospective method of transition. The company intends on adopting the amended guidance on January 1, 2022 using the modified retrospective method of transition. The company is evaluating the impact of this standard on its consolidated
financial statements and anticipates it will result in an increase to long-term debt and a decrease in additional paid-in-capital as well as a reduction of non-cash interest expense related to the company’s convertible notes.
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) 31 ethanol storage facilities, located at or near the company’s 12 operational ethanol production plants, which have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at the company’s ethanol production plants, (ii) six 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 2,480 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 1.0 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, 2020, the company owns a 48.9% 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 49.1% limited partner interest in the partnership. 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, expiring on June 30, 2028;
10-year rail transportation services agreement, expiring on June 30, 2025;
1-year trucking transportation agreement, expiring on May 31, 2021;
Terminal services agreement for the Birmingham, Alabama unit train terminal, expiring December 31, 2022; 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 operations 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
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.
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Revenue by Source
The following tables disaggregate revenue by major source (in thousands):
Twelve Months Ended December 31, 2020
Ethanol Production
Agribusiness & Energy Services
Food & Ingredients
Partnership
Eliminations
Total
Revenues:
Revenues from contracts with customers under ASC 606:
Ethanol
$
-
$
-
$
-
$
-
$
-
$
-
Distillers grains
32,032
-
-
-
-
32,032
Corn oil
-
2,938
-
-
-
2,938
Service revenues
-
-
-
4,434
-
4,434
Other
4,306
6,423
-
-
-
10,729
Intersegment revenues
4,463
-
8,411
(12,974)
-
Total revenues from contracts with customers
36,438
13,824
-
12,845
(12,974)
50,133
Revenues from contracts accounted for as derivatives under ASC 815 (1):
Ethanol
1,150,018
287,261
-
-
-
1,437,279
Distillers grains
261,554
41,184
-
-
-
302,738
Corn oil
49,666
33,563
-
-
-
83,229
Grain
32,833
-
-
-
32,875
Other
4,863
12,201
-
-
-
17,064
Intersegment revenues
-
23,005
-
-
(23,005)
-
Total revenues from contracts accounted for as derivatives
1,466,143
430,047
-
-
(23,005)
1,873,185
Leasing revenues under ASC 842 (2)
-
-
-
70,500
(70,099)
Total Revenues
$
1,502,581
$
443,871
$
-
$
83,345
$
(106,078)
$
1,923,719
Twelve Months Ended December 31, 2019
Ethanol Production
Agribusiness & Energy Services
Food & Ingredients
Partnership
Eliminations
Total
Revenues:
Revenues from contracts with customers under ASC 606:
Ethanol
$
$
-
$
-
$
-
$
-
$
Distillers grains
70,729
-
-
-
-
70,729
Service revenues
-
-
-
6,422
-
6,422
Other
2,589
3,684
-
-
-
6,273
Intersegment revenues
-
-
7,126
(7,226)
-
Total revenues from contracts with customers
74,038
3,684
-
13,548
(7,226)
84,044
Revenues from contracts accounted for as derivatives under ASC 815 (1):
Ethanol
1,338,093
522,572
-
-
-
1,860,665
Distillers grains
228,849
42,445
-
-
-
271,294
Corn oil
50,290
28,034
1,451
-
-
79,775
Grain
63,233
-
-
-
63,408
Other
9,270
48,348
-
-
-
57,618
Intersegment revenues
-
27,184
-
-
(27,184)
-
Total revenues from contracts accounted for as derivatives
1,626,677
731,816
1,451
-
(27,184)
2,332,760
Leasing revenues under ASC 842 (2)
-
-
-
68,839
(68,405)
Total Revenues
$
1,700,715
$
735,500
$
1,451
$
82,387
$
(102,815)
$
2,417,238
‎
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
206,905
-
-
-
-
206,905
Vinegar
-
-
108,011
-
-
108,011
Service revenues
-
-
-
5,180
-
5,180
Other
5,369
3,014
-
-
-
8,383
Intersegment revenues
-
9,030
(9,240)
-
Total revenues from contracts with customers
216,263
3,038
108,011
14,210
(9,240)
332,282
Revenues from contracts accounted for as derivatives under ASC 815 (1):
Ethanol
1,618,319
418,956
-
-
-
2,037,275
Distillers grains
198,738
141,140
-
-
-
339,878
Corn oil
66,567
22,623
13,110
-
-
102,300
Grain
81,742
-
-
-
82,262
Other
20,254
68,380
-
-
-
88,634
Intersegment revenues
-
33,077
-
-
(33,077)
-
Total revenues from contracts accounted for as derivatives
1,904,398
765,918
13,110
-
(33,077)
2,650,349
Leasing revenues under ASC 840 (2)
-
-
-
86,538
(85,237)
1,301
Total Revenues
$
2,120,661
$
768,956
$
121,121
$
100,748
$
(127,554)
$
2,983,932
(1)Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC 606, where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC 606 as required by ASC 610-20, Gains and Losses from Derecognition of Nonfinancial Assets.
(2)Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases for 2020 and 2019 and ASC 840, Leases for 2018.
Major Customer
Revenues from Customer A represented 16% and 11% of total revenues for the year ended December 31, 2020 and 2019, respectively and are reported in the ethanol production segment. There were no third party customers that accounted for more than 10% of total revenues for the year ended December 31, 2018.
Payment Terms
The company has standard payment terms, which vary depending upon the nature of the services provided, with the majority falling within 10 to 30 days after transfer of control or completion of services. In instances where the timing of revenue recognition differs from the timing of invoicing, the company has determined that contracts generally do not include a significant financing component.
Contract Liabilities
The company records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of service and lease agreements. Unearned revenue from service agreements, which represents a contract liability, is recorded for fees that have been charged to the customer prior to the completion of performance obligations. Unearned revenue is generally recognized in the subsequent quarter and is not material to the company. The company expects to recognize all of the unearned revenue associated with service agreements as of December 31, 2020, in the subsequent quarter when the inventory is withdrawn from the partnership’s tank storage.
5. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS
ACQUISITIONS
Acquisition of a Majority Interest in Fluid Quip Technologies, LLC
On December 9, 2020, the company acquired a majority interest in Fluid Quip Technologies, LLC. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production of Ultra-High Protein across Green Plains facilities, as well as offer these technologies to partnering biofuel facilities. The agreement contains certain earn-out provisions to be received from the company if certain future results are met, including but not limited to, results of
implementation and execution of technology. We will record the obligation related to the earn-out provision as compensation within selling, general and administrative expenses as the earn-out becomes probable.
The purchase price allocation is based on the preliminary results of an external valuation. The purchase price and purchase price allocation are preliminary until contractual post-closing working capital adjustments and valuations are finalized. The company paid $29.1 million for its interests in Fluid Quip Technologies, of which $2.4 million settled liabilities assumed in conjunction with the acquisition, and recognized $6.7 million of noncontrolling interest as part of the FQT 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
Cash and restricted cash
$
8,911
Accounts receivable (1)
5,446
Inventory
3,037
Intangible assets
30,803
Other assets
2,059
Current liabilities (1)
(13,708)
Other long term liabilities
(743)
Total identifiable net assets
$
35,805
(1)Accounts receivable contain $3.4 million of pre-existing receivables owed by the company, and current liabilities contain $5.8 million in deferred revenues associated with services to be performed for the company. These net to $2.4 million in liabilities assumed that were effectively settled at the time of acquisition of FQT.
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 assets acquired and liabilities assumed (in thousands):
Amounts of Identifiable Assets Acquired and Liabilities Assumed
Accounts receivable
$
1,897
Inventory
104,809
Property and equipment, net
16,190
Current liabilities
(118)
Total identifiable net assets
$
122,778
The amounts above reflect the final purchase price allocation, which included working capital true-up payments by the company of $0.9 million made during 2018. After the disposition of GPCC, the assets and liabilities of the acquired feedlots were reclassified as discontinued operations. See Disposition of Equity Interest in Green Plains Cattle Company LLC and Disposition of Green Plains Cattle Company LLC described below.
DISPOSITIONS
Disposition of Hereford Ethanol Plant
On December 28, 2020, the company completed the sale of the ethanol plant located in Hereford, Texas, and certain related assets, to Hereford Ethanol Partners, L.P. for the sale price of $39.0 million, plus working capital. Correspondingly, the partnership’s ethanol storage assets located adjacent to such plants were sold to the company for $10.0 million, and certain railcar operating leases were assigned to Hereford Ethanol Partners, L.P. The divested assets were reported within the company’s ethanol production, agribusiness and energy and partnership segments. The company recorded a pretax loss on the sale of the ethanol plant of $22.4 million, of which a loss of $18.5 million was recorded within corporate activities and a loss
of $3.9 million was recorded within the ethanol production segment. Transaction fees related to the disposal were not material. The agreement contains certain earn-out provisions to be received from the buyers if certain provisions are met. The company will record any contingent amounts in the consolidated financial statements when the amount is reasonably determinable or the consideration is realized.
The asset and liabilities of the Hereford ethanol plant at closing on December 28, 2020 were as follows: (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Inventory
$
8,140
Prepaid expenses and other
Property and equipment
54,279
Operating lease right-of-use-assets
5,096
Accrued and other liabilities
(870)
Operating lease current liabilities
(977)
Operating lease long-term liabilities
(4,201)
Long-term liabilities
(186)
Total identifiable net assets disposed
$
61,477
The amounts reflected above represent working capital estimates which are considered preliminary until contractual post-closing working capital adjustments are finalized.
Disposition of Equity Interest in Green Plains Cattle Company LLC
On October 1, 2020, pursuant to the Securities Purchase Agreement, the company sold its remaining 50% joint venture interest in GPCC to AGR, TGAM Agribusiness Fund LP and StepStone (the “Buyers”) for $80.5 million in cash, plus closing adjustments. The transaction resulted in a reduction in other assets of $69.7 million as a result of the removal of the equity method investment in GPCC, and a reduction in accumulated other comprehensive income (loss) of $10.7 million as a result of the removal of the company’s share of equity method investees accumulated other comprehensive loss. Transaction fees related to the disposal were not material. There was no material gain or loss recorded as part of this transaction. The Securities Purchase Agreement contains certain earn-out provisions to be paid to or received from the Buyers if certain EBITDA thresholds are met. The company will record any contingent amounts associated with the earn-out provision in the consolidated financial statements when the amount is probable and reasonably determinable or the consideration is realized. See Note 21 - Equity Method Investments for further details.
Disposition of Fleischmann’s Vinegar
On November 27, 2018, the company and Green Plains II LLC, an indirect wholly-owned subsidiary of the company, completed the sale of Fleischmann’s Vinegar Company, Inc. to Kerry Holding Co. (“Kerry”). The company received as net consideration from Kerry $354.0 million in cash and restricted cash, excluding net working capital adjustments. The divested assets were reported within the company’s food and ingredients segment. The company recorded a pretax gain on the sale of Fleischmann’s Vinegar of $58.2 million, including offsetting related transaction costs of $7.4 million within corporate activities.
‎
The assets and liabilities of Fleischmann’s Vinegar at closing on November 27, 2018 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Cash
$
2,107
Accounts receivable, net
16,142
Inventory
15,167
Prepaid expenses and other
Property and equipment
64,552
Other assets
79,389
Current liabilities
(8,837)
Deferred tax liabilities
(26,617)
Total identifiable net assets
142,756
Goodwill
142,002
Net assets disposed
$
284,758
The amounts above reflect the final purchase price allocation, including a working capital payment made to and received from Kerry of $0.3 million and $0.3 million during the first and third quarters of 2019, respectively.
Disposition of Bluffton, Lakota and Riga Ethanol Plants
On November 15, 2018, the company completed the sale of 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 $323.2 million, including net working capital and other adjustments. Correspondingly, the partnership’s storage assets located adjacent to such plants were sold to Green Plains Inc. for $120.9 million. The company received as consideration from Valero approximately $323.2 million, while the partnership received as consideration from the company 8.7 million partnership units and a portion of the general partner interest equating to 0.2 million equivalent limited partner units to maintain the general partner’s 2% interest. In addition, the partnership also received additional consideration of approximately $2.7 million from Valero for the assignment of certain railcar operating leases. The divested assets were reported within the company’s ethanol production, agribusiness and energy services and partnership segments. The company recorded a pretax gain on the sale of the three ethanol plants of $92.2 million, of which $89.5 million was recorded within corporate activities 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 corporate activities and $0.5 million were recorded within the partnership segment.
The assets and liabilities of the Bluffton, Lakota and Riga ethanol plants at closing on November 15, 2018 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Inventory
$
36,812
Prepaid expenses and other
Property and equipment
184,970
Other assets
1,717
Current liabilities
(746)
Other liabilities
(4,706)
Total identifiable net assets
218,236
Goodwill
6,188
Net assets disposed
$
224,424
The amounts above reflect the final working capital true-up payments by Valero of $3.4 million received during the first quarter of 2019.
The company determined that the dispositions noted above did not meet the criteria for discontinued 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.
Disposition of Green Plains Cattle Company LLC
On September 1, 2019, the company, TGAM and StepStone formed a joint venture and entered into the LLC Agreement. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains for approximately $76.9 million in cash. There was no gain or loss recorded as part of this transaction. The LLC Agreement contains certain earn-out or bonus provisions to be paid by or received from GPCC if certain EBITDA thresholds are met. Pursuant to the bonus provision, on August 31, 2020, Green Plains earned $2.0 million which has been recorded within loss (gain) on sale of assets, net on the consolidated statements of operations for the year ended December 31, 2020.
The assets and liabilities of the GPCC at closing on September 1, 2019 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Cash
$
Accounts receivable, net
17,920
Inventory
387,534
Derivative financial instruments
48,189
Property and equipment
71,678
Other assets
2,291
Current liabilities
(49,297)
Short-term notes payable and other borrowings
(38)
Current maturities of long-term debt
(324,028)
Long-term debt
(80)
Other liabilities
(403)
Total identifiable net assets disposed
$
153,768
DISCONTINUED OPERATIONS
After closing on September 1, 2019, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20. As such, GPCC results prior to its disposition are classified as discontinued operations for the years ended December 31, 2019 and 2018. Financial results of GPCC were previously recorded within the food and ingredients segment.
‎
Summarized Results of Discontinued Operations
The following table presents the results of our discontinued operations for the periods presented. GPCC was disposed of on September 1, 2019, and as such, operational results through August 31, 2019 are included in the fiscal year 2019 amounts presented below (in thousands).
Year Ended December 31,
2019 (1)
2018 (1)
Product revenues
$
638,122
$
884,072
Costs and expenses
Cost of goods sold (excluding depreciation and amortization expenses reflected below)
614,671
845,160
Selling, general and administrative expenses
5,931
7,775
Depreciation and amortization expenses
4,198
5,361
Total costs and expenses
624,800
858,296
Operating income
13,322
25,776
Other income (expense)
Interest income
Interest expense
(12,417)
(13,576)
Other, net
-
2,613
Total other expense
(12,235)
(10,816)
Income before income taxes
1,087
14,960
Income tax expense
(258)
(3,421)
Net income
$
$
11,539
(1)Product revenues, costs of goods sold and selling, general and administrative expenses include certain revenue and expense items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue and costs of goods sold transactions total $14.5 million and $24.6 million for the years ended December 31, 2019 and 2018, respectively.
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 values, which represent differences in local markets including transportation or commodity quality or grade differences.
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, 2020
Quoted Prices in
‎Active Markets for
‎Identical Assets
Significant Other
‎Observable Inputs
(Level 1)
(Level 2)
Total
Assets:
Cash and cash equivalents
$
233,860
$
-
$
233,860
Restricted cash
40,950
-
40,950
Inventories carried at market
-
77,900
77,900
Unrealized gains on derivatives
-
21,956
21,956
Other assets
Total assets measured at fair value
$
274,922
$
99,885
$
374,807
Liabilities:
Accounts payable (1)
$
-
$
19,355
$
19,355
Unrealized losses on derivatives
-
10,997
10,997
Total liabilities measured at fair value
$
-
$
30,352
$
30,352
Fair Value Measurements at December 31, 2019
Quoted Prices in
‎Active Markets for
‎Identical Assets
Significant Other
‎Observable Inputs
(Level 1)
(Level 2)
Total
Assets:
Cash and cash equivalents
$
245,977
$
-
$
245,977
Restricted cash
23,919
-
23,919
Inventories carried at market
-
73,318
73,318
Unrealized gains on derivatives
-
14,515
14,515
Other assets
-
Total assets measured at fair value
$
270,009
$
87,833
$
357,842
Liabilities:
Accounts payable (1)
$
-
$
37,294
$
37,294
Unrealized losses on derivatives
-
7,771
7,771
Total liabilities measured at fair value
$
-
$
45,065
$
45,065
(1)Accounts payable is generally stated at historical amounts with the exception of $19.4.million and $37.3 million at December 31, 2020 and 2019, 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 fair value of the company’s debt was approximately $535.9 million compared with a book value of $526.2 million at December 31, 2020. The fair value of the company’s debt approximated book value, which was $564.4 million at December 31, 2019. 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 $55.6 million and $107.2 million, respectively, at December 31, 2020 and 2019.
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, including industrial-grade alcohol, distillers grains, Ultra-High Protein 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, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil 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, excluding amounts related to discontinued operations (in thousands):
Year Ended December 31,
Revenues:
Ethanol production:
Revenues from external customers
$
1,502,481
$
1,700,615
$
2,120,475
Intersegment revenues
Total segment revenues
1,502,581
1,700,715
2,120,661
Agribusiness and energy services:
Revenues from external customers
416,403
708,316
735,855
Intersegment revenues
27,468
27,184
33,101
Total segment revenues
443,871
735,500
768,956
Food and ingredients:
Revenues from external customers
-
1,451
121,121
Intersegment revenues
-
-
-
Total segment revenues
-
1,451
121,121
Partnership:
Revenues from external customers
4,835
6,856
6,481
Intersegment revenues
78,510
75,531
94,267
Total segment revenues
83,345
82,387
100,748
Revenues including intersegment activity
2,029,797
2,520,053
3,111,486
Intersegment eliminations
(106,078)
(102,815)
(127,554)
Revenues as reported
$
1,923,719
$
2,417,238
$
2,983,932
Refer to Note 4 - Revenue, for further disaggregation of revenue by operating segment.
Year Ended December 31,
Cost of goods sold:
Ethanol production
$
1,507,335
$
1,791,099
$
2,118,787
Agribusiness and energy services
409,407
696,226
717,772
Food and ingredients
-
1,526
94,679
Partnership
-
-
-
Intersegment eliminations
(104,579)
(103,904)
(124,270)
$
1,812,163
$
2,384,947
$
2,806,968
Year Ended December 31,
Operating income (loss):
Ethanol production (1)
$
(129,618)
$
(178,575)
$
(111,823)
Agribusiness and energy services
15,773
22,777
29,076
Food and ingredients
-
(76)
14,354
Partnership
50,437
50,635
64,770
Intersegment eliminations
(1,400)
1,188
(3,110)
Corporate activities (2)
(57,888)
(38,519)
96,687
$
(122,696)
$
(142,570)
$
89,954
(1)Operating loss for the ethanol production segment for fiscal year 2020 includes a goodwill impairment charge of $24.1 million and $3.9 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant.
(2)Corporate activities for fiscal year 2020 include a goodwill impairment charge of $24.1 million, $18.5 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant and a $1.5 million net gain from sale of GPCC. Fiscal year 2018 includes a $150.4 million gain on the sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants, as well as Fleischmann’s Vinegar during the fourth quarter.
Year Ended December 31,
Depreciation and amortization:
Ethanol production
$
67,956
$
63,073
$
80,227
Agribusiness and energy services
2,512
2,222
2,470
Food and ingredients
-
-
7,553
Partnership
3,806
3,441
4,442
Corporate activities
3,970
3,391
3,566
$
78,244
$
72,127
$
98,258
Year Ended December 31,
Capital expenditures:
Ethanol production
$
109,970
$
72,374
$
27,322
Agribusiness and energy services
1,195
2,251
Food and ingredients
-
-
9,025
Partnership
1,268
Corporate activities
1,542
$
111,799
$
76,472
$
38,343
The following table sets forth total assets by operating segment (in thousands):
Year Ended December 31,
Total assets (1):
Ethanol production
$
852,959
$
884,293
Agribusiness and energy services
426,724
410,400
Partnership
91,205
90,011
Corporate assets
228,074
324,280
Intersegment eliminations
(20,045)
(10,766)
$
1,578,917
$
1,698,218
(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, 2020, there was no lower cost of market inventory adjustment recorded. The company recorded a $6.6 million lower of cost or market inventory adjustment reflected in cost of goods sold within the ethanol production segment as of December 31, 2019.
‎
The components of inventories are as follows (in thousands):
December 31,
Finished goods
$
89,223
$
85,975
Commodities held for sale
40,147
42,836
Raw materials
90,800
77,900
Work-in-process
13,201
13,523
Supplies and parts
36,120
32,758
$
269,491
$
252,992
9. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
December 31,
Plant equipment
$
940,363
$
911,097
Buildings and improvements
170,813
168,309
Land and improvements
86,909
92,321
Railroad track and equipment
34,637
34,404
Construction-in-progress
48,378
60,262
Computer hardware and software
20,477
19,368
Office furniture and equipment
3,797
3,716
Leasehold improvements and other
26,510
24,471
Total property and equipment
1,331,884
1,313,948
Less: accumulated depreciation and amortization
(530,194)
(486,677)
Property and equipment, net
$
801,690
$
827,271
10. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The company had two reporting units, to which goodwill was assigned. We are required to perform impairment tests related to our goodwill annually, which we perform as of October 1, or sooner if an indicator of impairment occurs. Near term industry outlook due to the significant decrease in crude oil prices, lower gasoline demand, general uncertainty due to the COVID-19 outbreak and the subsequent decline in our stock price caused a decline in the company’s market capitalization during the three months ended March 31, 2020. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill as of March 31, 2020. Significant assumptions inherent in the valuation methodologies for goodwill were employed and included, but were not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit did not exceed its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was impaired and recorded a non-cash impairment charge of $24.1 million.
During the first half of 2020, a decline in the partnership’s stock price resulted in a decrease in the partnership’s market capitalization. As such, the company determined a triggering event had occurred that required an interim impairment assessment as of March 31, 2020 and June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill impairment testing were employed and include market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the partnership’s quantitative evaluation as of March 31, 2020 and June 30, 2020, it was determined that the fair value of the partnership reporting unit substantially exceeded its carrying value, and the partnership concluded that the goodwill was not impaired. During the three months ended September 30, 2020, the company did not identify any triggering events, and as such, no impairment assessment was deemed necessary.
The company performed the annual goodwill assessment as of October 1, 2020, and given the quantitative work performed during previous quarters as described above, the partnership used a qualitative assessment, which resulted in no goodwill impairment.
‎
Changes in the carrying amount of goodwill attributable to each business segment during the years ended December 31, 2020 and 2019 were as follows (in thousands):
Ethanol
Production
Partnership
Total
Balance, December 31, 2018
$
24,091
$
10,598
$
34,689
Balance, December 31, 2019 (1)
$
24,091
$
10,598
$
34,689
Impairment charge
(24,091)
-
(24,091)
Balance, December 31, 2020 (1)
$
-
$
10,598
$
10,598
(1)The company records goodwill within other assets on the consolidated balance sheets.
Intangible Assets
The company recognized certain customer relationships, intellectual property and trade names in connection with the FQT acquisition during the fourth quarter 2020. As of December 31, 2020, the company’s intangible asset balance related to FQT was $30.6 million, which primarily consisted of $18.8 million of customer relationship and backlog assets, $10.4 million of intellectual property and $1.4 million of trade name assets, net of $0.2 million of accumulated amortization, and has a remaining 12-year weighted-average amortization period. The company recognized $0.2 million of amortization expense associated with amortization of these intangible assets during fiscal year 2020, and expects estimated amortization expense of $5.9 million, $5.1 million, $3.1 million, $2.7 million and $2.4 million, respectively for the years ended December 31, 2021, 2022, 2023, 2024 and 2025, as well as $11.4 million thereafter. The company’s intangible assets are recorded within other assets on the consolidated balance sheets.
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 of amortization expense associated with amortizing the customer relationship intangible asset during the year ended December 31, 2018.
11. DERIVATIVE FINANCIAL INSTRUMENTS
At December 31, 2020, the company’s consolidated balance sheet reflected unrealized losses of $2.2 million, net of tax, in accumulated other comprehensive loss. The company expects these items 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,
Derivative financial instruments
$
21,956
(1)
$
14,515
(2)
$
10,997
(3)
$
7,771
Other assets
-
-
-
Total
$
21,985
$
14,515
$
10,997
$
7,771
(1)At December 31, 2020, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $3.3 million, which include $2.8 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.
(2)At December 31, 2019, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $3.4 million, which include $0.1 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.
(3)At December 31, 2020, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of $9.3 million, none of which were 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 Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Location of Gain (Loss) Reclassified from
Year Ended December 31,
Accumulated Other Comprehensive Income into Income
Revenues
$
5,538
$
-
$
3,648
Cost of goods sold
(2,115)
-
1,258
Net income (loss) from discontinued operations, net of income taxes
-
48,797
(14,462)
Net gain (loss) recognized in loss before tax
$
3,423
$
48,797
$
(9,556)
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives
Gain (Loss) Recognized in
Year Ended December 31,
Other Comprehensive Income on Derivatives
Commodity Contracts
$
(1,025)
$
70,404
$
(9,642)
Location of Gain (Loss)
Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives Not Designated
Recognized in
Year Ended December 31,
as Hedging Instruments
Income on Derivatives
Commodity contracts
Revenues
$
(10,813)
$
(10,202)
$
11,565
Commodity contracts
Costs of goods sold
32,914
(2,442)
21,101
Commodity contracts
Net income (loss) from discontinued operations, net of income taxes
-
(2,470)
(3,607)
$
22,101
$
(15,114)
$
29,059
The following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):
December 31, 2020
December 31, 2019
Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included
Carrying Amount of the Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Carrying Amount of the Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Inventories
$
53,963
$
9,041
$
55,021
$
(2,808)
‎
Effect of Cash Flow and Fair Value Hedge Accounting on the Statements of Operations
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Year Ended December 31, 2020
Revenue
Cost of
‎Goods Sold
Net Income from Discontinued Operations, Net of Income Taxes
Gain (loss) on cash flow hedging relationships:
Commodity contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
$
5,538
$
(2,115)
$
-
Gain (loss) on fair value hedging relationships:
Commodity contracts:
Hedged item
-
5,098
-
Derivatives designated as hedging instruments
-
(3,752)
-
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow or fair value hedges are recorded
$
5,538
$
(769)
$
-
Location and Amount of Gain Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Year Ended December 31, 2019
Revenue
Cost of
‎Goods Sold
Net Income from Discontinued Operations, Net of Income Taxes
Gain on cash flow hedging relationships:
Commodity contracts:
Amount of gain reclassified from accumulated other comprehensive income into income
$
-
$
-
$
48,797
Gain (loss) on fair value hedging relationships:
Commodity contracts:
Hedged item
-
(844)
-
Derivatives designated as hedging instruments
-
4,254
-
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow or fair value hedges are recorded
$
-
$
3,410
$
48,797
‎
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Year Ended December 31, 2018
Revenue
Cost of
‎Goods Sold
Net Income from Discontinued Operations, Net of Income Taxes
Gain (loss) on cash flow hedging relationships:
Commodity contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
$
3,648
$
1,258
$
(14,462)
Gain (loss) on fair value hedging relationships:
Commodity contracts:
Hedged item
-
13,681
-
Derivatives designated as hedging instruments
-
(12,304)
-
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow or fair value hedges are recorded
$
3,648
$
2,635
$
(14,462)
There were no gains or losses from discontinuing cash flow or fair value hedge treatment during the years ended December 31, 2020, 2019 and 2018.
The open commodity derivative positions as of December 31, 2020, are as follows (in thousands):
December 31, 2020
Exchange Traded
Non-Exchange Traded
Derivative Instruments
Net Long & (Short) (1)
Long (2)
(Short) (2)
Unit of Measure
Commodity
Futures
(27,245)
Bushels
Corn and Soybeans
Futures
45,520
(3)
Bushels
Corn
Futures
(7,430)
(4)
Bushels
Corn
Futures
(161,070)
Gallons
Ethanol
Futures
(134,946)
(3)
Gallons
Ethanol
Futures
(14,200)
mmBTU
Natural Gas
Futures
(6,888)
(4)
mmBTU
Natural Gas
Futures
Tons
Soybean Meal
Options
Tons
Soybean Meal
Options
73,973
Pounds
Soybean Oil
Options
6,168
Bushels
Corn
Options
Gallons
Ethanol
Options
mmBTU
Natural Gas
Forwards
41,357
(302)
Bushels
Corn and Soybeans
Forwards
-
(147,432)
Gallons
Ethanol
Forwards
(343)
Tons
Distillers Grains
Forwards
(47,057)
Pounds
Corn Oil
Forwards
11,242
(931)
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 used for fair value hedges.
Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Included in revenues are net gains of $3.0 million, $12.3 million, and $23.1 million for the years ended December 31, 2020, 2019, and 2018 respectively, on energy trading contracts.
12. DEBT
The components of long-term debt are as follows (in thousands):
December 31,
Corporate:
$170.0 million convertible notes due 2022 (1)
$
156,441
$
149,256
$115.0 million convertible notes due 2024 (2)
89,125
83,497
Green Plains Partners:
$135.0 million credit facility (3)
100,000
132,100
Green Plains Wood River and Green Plains Shenandoah:
$75.0 million delayed draw loan agreement (4)
30,000
-
Other
15,936
16,512
Total book value of long-term debt
391,502
381,365
Unamortized debt issuance costs
(6,151)
(4,820)
Less: current maturities of long-term debt
(98,052)
(132,555)
Total long-term debt
$
287,299
$
243,990
(1)Includes $1.3 million and $2.0 million of unamortized debt issuance costs as of December 31, 2020 and 2019, respectively.
(2)Includes $2.2 million and $2.8 million of unamortized debt issuance costs as of December 31, 2020 and 2019, respectively.
(3)The Green Plains Partners credit facility was amended on June 4, 2020 and includes $2.3 million of unamortized debt issuance costs as of December 31, 2020. Additionally, the credit facility is included in current maturities of long-term debt on the consolidated balance sheet as of December 31, 2020 as its maturity date is December 31, 2021. See below for further discussion.
(4)On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a $75.0 million delayed draw loan agreement. The delayed draw loan includes $0.3 million of unamortized debt issuance costs as of December 31, 2020.
Scheduled long-term debt repayments, including full accretion of the $170.0 million convertible notes due 2022 and of the $115.0 million convertible notes due 2024 at maturity but excluding the effects of any debt discounts and debt issuance costs, are as follows (in thousands):
Year Ending December 31,
Amount
$
100,313
171,831
1,815
116,819
1,804
Thereafter
38,354
Total
$
430,936
The components of short-term notes payable and other borrowings are as follows (in thousands):
December 31,
Green Plains Trade:
$300.0 million revolver
$
79,251
$
138,204
Green Plains Grain:
$100.0 million revolver
38,700
40,000
$50.0 million inventory financing
-
-
Green Plains Commodity Management:
$30.0 million hedge line
21,682
9,608
Other
1,175
-
Total short-term notes payable and other borrowings
$
140,808
$
187,812
Corporate Activities
During 2019, the company issued an aggregate $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations of the company, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The 4.00% notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased. The 4.00% notes will be convertible, at the option of the holders, into consideration consisting of, at the company’s election, cash, shares of the company’s common stock, or a combination of
cash and shares of the company’s common stock until the close of business on the scheduled trading day immediately preceding the maturity date. However, before January 1, 2024, the 4.00% notes will not be convertible unless certain conditions are satisfied. The initial conversion rate is 64.1540 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $15.59 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events. In addition, the company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the company’s calling the 4.00% notes for redemption.
On and after July 1, 2022, and prior to the maturity date, the company may redeem all, but not less than all, of the 4.00% notes for cash if the sale price of the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal amount of the 4.00% notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change, holders of the 4.00% notes will have the right, at their option, to require the company to repurchase the 4.00% notes in cash at a price equal to 100% of the principal amount of the 4.00% notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
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 initial conversion rate is 35.7143 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including upon redemption of the 4.125% notes.
The company may redeem all, but not less than all, of the 4.125% notes at any time on or after September 1, 2020, if the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal plus any accrued and unpaid interest. Holders of the 4.125% notes have the option to require the company to repurchase the 4.125% notes in cash at a price equal to 100% of the principal plus accrued and unpaid interest when there is a fundamental change, such as change in control. If an event of default occurs, it could result in the 4.125% notes being declared due and payable.
Agribusiness and Energy Services Segment
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 a $100.0 million senior secured asset-based revolving credit facility, which matures on June 28, 2022. The credit facility finances working capital up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible cash, receivables and inventories, less miscellaneous adjustments. 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 $225.0 million. Depending on utilization, the total unused portion of the $100.0 million revolving credit facility is also subject to a commitment fee ranging from 0.375% to 0.50%.
Lenders receive a first priority lien on certain cash, inventory, accounts receivable and other assets owned by Green Plains Grain. The terms impose affirmative and negative covenants for Green Plains Grain, including maintaining minimum working capital to be the greater of (i) $18,000,000 and (ii) 18% of the sum of the then total commitment plus the aggregate
seasonal line commitments. Minimum tangible net worth is required to be greater than 21% of the sum of the then total commitment plus the aggregate seasonal line commitments. The credit facility also requires the company to maintain a maximum annual leverage of 6.00 to 1.00. Capital expenditures are limited to $8.0 million per year under the credit facility, plus equity contributions from the company and unused amounts of up to $8.0 million from the previous year. In addition, if the company has long-term indebtedness on the date of calculation of greater than $10.0 million, the credit facility requires the company to maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum long term debt capitalization of 40%.
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, 2020.
Green Plains Commodity Management has an uncommitted $30.0 million revolving credit facility, which matures April 30, 2023, is used to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBOR plus 1.75%.
Ethanol Production Segment
On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a delayed draw loan agreement with MetLife Real Estate Lending LLC. The $75.0 million delayed draw loan matures on September 1, 2035 and is secured by substantially all of the assets of the Wood River and Shenandoah facilities. The proceeds from the loan will be used to add high protein processing systems at the Wood River and Shenandoah facilities as well as other capital expenditures.
The delayed draw loan bears interest at a fixed rate of 5.02%, plus an interest rate premium of 1.5% until the loan is fully drawn, which must occur within the 18 month draw period. After the earlier of the 18 month draw period or the loan being fully drawn, the interest rate premium may be adjusted quarterly from 0.00% to 1.50% based on the leverage ratio of total funded debt to EBITDA of Wood River and Shenandoah. Principal payments of $1.5 million per year begin 24 months from the closing date. Prepayments are prohibited until September 2024. Financial covenants of the delayed draw loan agreement include a minimum loan to value ratio of 50%, a minimum fixed charge coverage ratio of 1.25x commencing on June 30, 2021, a total debt service reserve of six months of future principal and interest payments and a minimum working capital requirement at Green Plains of not less than $0.10 per gallon of nameplate capacity or $102.3 million. The loan is guaranteed by the company and has certain limitations on distributions, dividends or loans to Green Plains by Wood River and Shenandoah unless immediately after giving effect to such action, there will not exist any event of default.
The company also has small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a $135.0 million credit facility to fund working capital, capital expenditures and other general partnership purposes. The credit facility was amended on June 4, 2020, decreasing the size of the facility from $200.0 million to $135.0 million. The amended credit facility consists of a $130.0 million term loan and a $5.0 million revolver, and matures on December 31, 2021. The partnership made $30.0 million in principal payments on the term loan during fiscal year 2020 including $10.0 million related to the sale of the Hereford, Texas ethanol plant. As of December 31, 2020, no additional prepayments on the term loan were required or paid. Monthly principal payments of $2.5 million are required October 15, 2020 through April 15, 2021, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity.
In certain situations we are required to make prepayments on the outstanding principal balance on the credit facility. If at any time our cash balance exceeds $2.5 million for more than five consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. The partnership is also required to prepay outstanding principal on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment.
The term loan balance, and any advances on the revolver, are subject to a floating interest rate based on a 1.0% LIBOR floor plus 4.50% to 5.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. However, if less than $40.0 million of prepayments in excess of the scheduled monthly payments have been made prior to April 1, 2021, the term loan balance and any advances on the revolver will be subject to a floating rate based on a 1.00% Libor floor plus 5.00% to
5.75% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. The unused portion of the revolver is also subject to a commitment fee of 0.50%. The credit facility also allows for swing line loans subject to the revolver availability. Swing line loans are subject to a floating interest rate based on the Prime Rate plus 3.5% to 4.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. Under the terms of the credit facility, swing line loans must be repaid within 10 days of the date of the advance. As of December 31, 2020, the term loan had a balance of $100.0 million and an interest rate of 6.00% and there were no outstanding swing line loans.
The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the equity interests 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 any 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 and (iv) substantially all of the partnership’s real property and material leases of real property. The terms impose affirmative and negative covenants, including restrictions on 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 leverage ratio, as of the end of any fiscal quarter, of no more than 3.0x that decreases 0.25x each quarter to 1.50x by December 31, 2021, and a minimum consolidated debt service coverage ratio of 1.1x, 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 by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated debt service coverage ratio is calculated by taking the sum of the four preceding fiscal quarters’ consolidated EBITDA minus income taxes and consolidated capital expenditures for such period divided by the sum of the four preceding fiscal quarters’ consolidated interest charges plus consolidated scheduled funded debt payments for such period.
Under the amended terms of the credit facility, the partnership may make quarterly distribution payments in an aggregate amount not to exceed $0.12 per outstanding unit, so long as (i) no default has occurred and is continuing, or would result from payment of the distribution, and (ii) the partnership and its subsidiaries are in compliance with its financial covenants and remain in compliance after payment of the distribution. The credit facility is not guaranteed by the company.
The facility, which is supported by a group of financial institutions, will mature on December 31, 2021 unless extended by agreement of the lenders or replaced by another funding source. While the partnership has not yet renegotiated the credit facility or secured additional funding necessary to repay the loan, the partnership believes it is probable that it will source appropriate funding given the partnership’s consistent and stable fee-based cash flows, ongoing profitability, low debt leverage and history of obtaining financing on reasonable commercial terms. In the unlikely scenario that the partnership is unable to refinance its debt with the lenders prior to its maturity, the partnership will consider other financing sources, including but not limited to, the restructuring or issuance of new debt with a different lending group, the issuance of additional partnership units, other strategic actions to extinguish the debt, or support from the company.
In June 2013, the partnership, through a wholly owned subsidiary, Birmingham BioEnergy, was a recipient of qualified low income community investment notes in conjunction with New Markets Tax Credits financing related to the Birmingham, Alabama terminal. Two promissory notes payable of $1.9 million and $8.1 million, and a note receivable of $8.1 million, were issued in connection with this transaction. On December 31, 2019, the parties to the transaction executed certain provisions under the agreements whereby the promissory notes payable totaling $10.0 million were assigned to BlendStar in satisfaction of the $8.1 million note receivable. The partnership previously accounted for the $1.9 million promissory note payable as grant revenue, which was reflected as a reduction in the carrying value of the property and equipment at Birmingham BioEnergy and recognized in earnings as a decrease in depreciation expense over the useful life of the assets. The remaining $8.1 million promissory note payable and note receivable between Birmingham BioEnergy and BlendStar were forgiven in conjunction with the closing on December 31, 2019.
Covenant Compliance
The company was in compliance with its debt covenants as of December 31, 2020 and 2019.
Restricted Net Assets
At December 31, 2020, there were approximately $77.7 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
On May 6, 2020, the shareholders of the company approved the 2019 Equity Incentive Plan which granted an additional 1.6 million shares of common stock for stock-based compensation. All shares remaining under the 2009 Equity Incentive Plan rolled into the 2019 Equity Incentive Plan effective May 6, 2020. The 2019 Equity Inventive Plan reserves 5.7 million shares of common stock for issuance to its directors and employees. The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, 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.
Grants under the equity incentive plans may include stock options, stock awards, performance share awards or deferred stock units:
Restricted Stock Awards - Restricted stock 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.
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.
Performance Share Awards - Performance share awards may be granted to directors and employees 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.
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 could have been exercised immediately or at future vesting dates, and expired 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 and Deferred Stock Units
The non-vested restricted stock award and deferred stock unit activity for the year ended December 31, 2020, are as follows:
Non-Vested
‎Shares and
‎Deferred
‎Stock Units
Weighted-
‎Average Grant-
‎Date Fair Value
Weighted-Average
‎Remaining
‎Vesting Term
‎(in years)
Non-Vested at December 31, 2019
751,315
$
17.48
Granted
650,745
9.79
Forfeited
(21,241)
16.01
Vested
(352,080)
18.83
Non-Vested at December 31, 2020
1,028,739
$
12.18
1.7
Performance Share Awards
On March 18, 2020, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the level of achievement of certain performance goals, including the incremental value achieved from the company’s high-protein initiatives, annual production levels and return on investment (ROI). Performance shares granted in 2020 do not contain market based factors requiring a Monte Carlo valuation model. The performance shares were granted at a target of 100%, but each performance share will reduce or increase depending on results for the performance period. If the company achieves the maximum performance goals, the
maximum amount of shares available to be issued pursuant to the 2020 awards are 641,823 performance shares which represents approximately 276% of the 232,566 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual performance targets achieved at the end of the performance period.
On February 19, 2019 and March 19, 2018, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the company’s average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on the third anniversary of the grant, if the RONA and TSR criteria are achieved and the participant is then employed by the company. 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 reduce or increase depending on results for the performance period for the company's RONA, and the company’s TSR relative to that of the performance peer group. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to the 2018 and 2019 awards are 428,104 performance shares or 150% of the 285,403 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.
For performance shares which include market based factors, the company uses 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 and related valuation are illustrated in the following table:
FY 2019 Performance Awards
FY 2018 Performance Awards
Risk-free interest rate
2.45
%
2.44
%
Dividend yield
3.13
%
2.64
%
Expected volatility
41.69
%
45.11
%
Monte Carlo valuation
99.62
%
97.39
%
Closing stock price on the date of grant
$
15.34
$
18.15
The non-vested performance share award activity for the year ended December 31, 2020, is as follows:
Performance
‎Shares
Weighted-
‎Average Grant-
‎Date Fair Value
Weighted-Average
‎Remaining
‎Vesting Term
‎(in years)
Non-Vested at December 31, 2019
285,403
$
16.38
Granted
232,566
10.64
Non-Vested at December 31, 2020
517,969
$
13.80
1.8
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 not grant any stock option awards during the years ended December 31, 2020, 2019 and 2018.
‎
The activity related to the exercisable stock options for the year ended December 31, 2020, is as follows:
Shares
Weighted-
‎Average
‎Exercise Price
Weighted-Average
‎Remaining
‎Contractual Term
‎(in years)
Aggregate
‎Intrinsic Value
‎(in thousands)
Outstanding at December 31, 2019
10,000
$
16.95
0.2
$
-
Expired
(10,000)
16.95
-
-
Outstanding at December 31, 2020
-
$
-
-
$
-
Exercisable at December 31, 2020
-
$
-
-
$
-
Green Plains Partners
Green Plains Partners has a long-term incentive plan (LTIP) intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation awards to employees, consultants and directors to encourage superior performance. The LTIP reserves 2,500,000 common limited partner units for issuance in the form of options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profit 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, 2020, are as follows:
Non-Vested
‎Shares and
‎Deferred
‎Stock Units
Weighted-
‎ Average
‎ Grant-Date
‎Fair Value
Weighted-Average
‎Remaining
‎Vesting Term
‎(in years)
Non-Vested at December 31, 2019
22,856
$
14.00
Granted
47,620
6.72
Vested
(22,856)
14.00
Non-Vested at December 31, 2020
47,620
$
6.72
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, 2020, 2019 and 2018, were approximately $7.9 million, $9.7 million and $11.4 million, respectively. At December 31, 2020, there were $9.6 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 1.7 years. The potential tax benefit related to stock-based payment is approximately 24.0% 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.
The company computed diluted EPS by dividing net income on an if-converted basis, adjusted to add back net interest expense related to the convertible debt instruments, by the weighted average number of common shares outstanding during the period, adjusted to include the shares that would be issued if the convertible debt instruments were converted to common shares and the effect of any outstanding dilutive securities. In addition, due to the presentation of GPCC as discontinued operations, the company has presented basic and diluted earnings per share from both continuing operations and from discontinued operations.
‎
The basic and diluted EPS are calculated as follows (in thousands):
Year Ended December 31,
Basic EPS:
Net income (loss) from continuing operations (1)
$
(108,775)
$
(167,689)
$
4,384
Net income from discontinued operations
-
11,539
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
Weighted average shares outstanding - basic
34,631
38,111
40,320
EPS from continuing operations - basic
$
(3.14)
$
(4.40)
$
0.11
EPS from discontinued operations - basic
-
0.02
0.28
EPS - basic
$
(3.14)
$
(4.38)
$
0.39
Diluted EPS: (2)
Net income (loss) from continuing operations (1)
$
(108,775)
$
(167,689)
$
4,384
Net income from discontinued operations
-
11,539
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
Weighted average shares outstanding - basic
34,631
38,111
40,320
Effect of dilutive convertible debt:
Effect of dilutive stock-based compensation awards
-
-
Weighted average shares outstanding - diluted
34,631
38,111
41,254
EPS from continuing operations - diluted
$
(3.14)
$
(4.40)
$
0.11
EPS from discontinued operations - diluted
-
0.02
0.28
EPS - diluted
$
(3.14)
$
(4.38)
$
0.39
Anti-dilutive weighted-average convertible debt and stock-based compensation (3)
14,089
10,560
7,283
(1)Net income (loss) from continuing operations can be recalculated from the consolidated statements of operations by taking the net income (loss) from continuing operations including noncontrolling interest less net income attributable to noncontrolling interests.
(2)The effect related to interest and amortization on convertible debt on an if converted basis has been excluded from diluted EPS for the periods presented as the inclusion of these effects would have been antidilutive.
(3)The effect related to the company’s convertible debt and certain stock-based compensation awards has been excluded from diluted EPS for the periods presented as the inclusion of these shares would have been antidilutive.
15. STOCKHOLDERS’ EQUITY
Treasury Stock
The company holds 11.8 million shares of its common stock at a cost of $131.3 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
The company’s board of directors authorized a share repurchase program of up to $200.0 million. 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 880,979 shares of common stock for approximately $11.5 million during 2020. Since inception, the company has repurchased 7,396,936 shares of common stock for approximately $92.8 million under the program.
‎
Dividends
On June 18, 2019, the company announced that its board of directors decided to suspend its future quarterly cash dividend following the June 14, 2019 dividend payment, in order to retain and redirect cash flow to the company’s Project 24 operating expense equalization plan, the deployment of high-protein technology and its stock repurchase program.
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement provides for a quarterly distribution to be paid within 45 days after the end of the quarter, provided the partnership has sufficient available cash. 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 21, 2021, the board of directors of the general partner of the partnership declared a cash distribution of $0.12 per unit on outstanding common units. The distribution is payable on February 12, 2021, to unitholders of record at the close of business on February 5, 2021.
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 Operations
Classification
Gains (losses) on cash flow hedges:
Commodity derivatives
$
5,538
$
-
$
3,648
(1)
Commodity derivatives
(2,115)
-
1,258
(2)
Total gains on cash flow hedges from continuing operations
3,423
-
4,906
(3)
Gains (losses) on cash flow hedges from discontinued operations, net of income taxes
-
38,795
(10,092)
(4)
Income tax expense
-
1,483
(5)
Amounts reclassified from accumulated other comprehensive income (loss)
$
2,566
$
38,795
$
(6,669)
(1)Revenues
(2)Costs of goods sold
(3)Income (loss) from continuing operations before income taxes and income (loss) from equity method investees
(4)Net income from discontinued operations, net of income taxes
(5)Income tax benefit
At December 31, 2020 and 2019, the company’s consolidated balance sheets reflected unrealized losses of $2.2 million and $11.1 million, net of tax, in accumulated other comprehensive loss, respectively.
16. RESTRUCTURING ACTIVITIES
In the second quarter of 2018, the company announced its portfolio optimization program 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 had 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 corporate activities, $0.7 million was recorded in the agribusiness and energy services segment, $0.4 million was recorded in the ethanol production segment. Approximately $2.7 million of the total charge was included in accrued liabilities as of December 31, 2018 and paid in full during 2019.
‎
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. A valuation allowance is recorded by the company when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The CARES Act was signed into law on March 27, 2020. The CARES Act includes several significant business tax provisions including elimination of the taxable limit for certain net operating losses (“NOL”), allowing businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior tax years, accelerating refunds of previously generated corporate AMT credits, and loosening the business interest limitation under §163(j) from 30% to 50%. The CARES Act also contains an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to COVID-19. In the second quarter of 2020, the company filed its preliminary 2019 federal income tax return, as well as a refund claim with the IRS to carry back our 2019 NOL to prior years. In the fourth quarter of 2020 the company filed its final 2019 federal income tax return and trued-up our 2019 NOL. The company recorded an income tax benefit of approximately $41.6 million related to the CARES Act including adjustments to certain valuation allowances.
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 pretax 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,
Current
$
(37,047)
$
(2,177)
$
7,758
Deferred
(13,336)
(18,881)
(24,484)
Total
(50,383)
(21,058)
(16,726)
Less: Income tax expense - discontinued operations
-
3,421
Income tax benefit - continuing operations
$
(50,383)
$
(21,316)
$
(20,147)
Differences between income tax expense from continuing operations at the statutory federal income tax rate and as presented on the consolidated statements of operations are summarized as follows (in thousands):
Year Ended December 31,
Tax expense at federal statutory rate
$
(33,698)
$
(36,317)
$
1,060
State income tax expense, net of federal benefit
(802)
(7,839)
Nondeductible compensation
Noncontrolling interests
(4,015)
(3,961)
(4,370)
Unrecognized tax benefits
(28)
15,148
R&D credits
-
(323)
(34,979)
Increase in valuation allowance
6,279
25,314
-
Disposition of subsidiary
-
(373)
(1,022)
Tax Cuts and Jobs Act impact
-
-
Stock compensation
Audit adjustments
-
-
Amended return adjustments
(19,786)
-
Other
1,016
Income tax benefit
$
(50,383)
$
(21,316)
$
(20,147)
‎
Significant components of deferred tax assets and liabilities are as follows (in thousands):
December 31,
Deferred tax assets:
Net operating loss carryforwards - Federal
$
11,670
$
27,935
Net operating loss carryforwards - State
10,875
8,788
Tax credit carryforwards - Federal
64,081
49,937
Tax credit carryforwards - State
7,369
7,750
Derivative financial instruments
-
Deferred revenue
Interest expense carryforward
6,609
5,539
Investment in partnerships
45,519
46,774
Inventory valuation
1,560
Stock-based compensation
1,439
1,347
Accrued expenses
5,351
4,325
Leases
7,958
6,993
Organizational and start-up costs
1,047
-
Other
Total
162,694
162,136
Valuation allowance
(43,336)
(33,337)
Total deferred tax assets
119,358
128,799
Deferred tax liabilities:
Convertible debt
(9,154)
(12,266)
Fixed assets
(104,364)
(107,909)
Derivative financial instruments
(724)
-
Organizational and start-up costs
-
(4,484)
Right-of-use assets
(5,116)
(4,140)
Total deferred tax liabilities
(119,358)
(128,799)
Deferred income taxes
$
-
$
-
At December 31, 2020, the company has federal R&D credits of $67.8 million which will begin to expire in 2033. The company also has $7.4 million of state credits which will expire beginning in 2021. The company has federal net operating losses of $11.7 million which do not have an expiration date.
The company increased the valuation allowance associated with its net deferred tax assets due to uncertainty that it will realize these assets in the future. The valuation allowance on deferred tax assets was recognized as a result of negative evidence, including cumulative losses in recent years, outweighing the more subjective positive evidence. Management 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 will continue to regularly assess the realizability of deferred tax assets. Changes in earnings performance and future earnings projections, among other factors, may cause the company to adjust its valuation allowance on deferred tax assets, which would impact the company’s results of operations in the period it is determined that these factors have changed.
The company’s federal income tax returns for the tax years ended December 31, 2014 and 2017 are currently under audit. The company’s federal returns for the tax years ended December 31, 2015, 2016, 2018 and 2019 are still subject to audit. A reconciliation of unrecognized tax benefits is as follows (in thousands):
Unrecognized Tax Benefits
Balance at January 1, 2020
$
51,596
Additions for prior year tax positions
Additions for current year tax positions
(54)
Balance at December 31, 2020
$
51,569
Recognition of these tax benefits would favorably impact the company’s effective tax rate. Unrecognized tax benefits of $51.6 million include $51.4 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.
As a result of delays due to the COVID-19 pandemic, the progress of our ongoing 2014 federal audit has been significantly impacted. While progress has been slow, we believe it is reasonably possible that approximately $23.0 million in unrecognized tax benefits related to R&D credits may be settled within the coming year as a result of the ongoing federal audit. In addition, the results of the current audit may cause the company to significantly increase or decrease the unrecognized tax benefits associated with R&D credits for periods not under audit. At this time, the company does not have enough information to be able to reasonably estimate the potential impact.
18. COMMITMENTS AND CONTINGENCIES
Adoption of ASC 842
On January 1, 2019, the company adopted the amended guidance in ASC 842, Leases, and all related amendments (“new lease standard”) and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The new lease standard had a material impact on the company’s consolidated balance sheets, increasing total assets and total liabilities for continuing operations by $60.2 million upon adoption. It did not have an impact on the consolidated statement of operations for the year ended December 31, 2019.
The company’s leases do not specify an implicit interest rate. Therefore, the incremental borrowing rate was used based on information available at commencement date to determine the present value of future payments.
Lease Expense
The company leases certain facilities, parcels of land, and equipment, with remaining terms ranging from less than one year to 16.9 years. The land and facility leases include renewal options. The renewal options are included in the lease term only for those sites or locations in which they are reasonably certain to be renewed. Equipment renewals are not considered reasonably certain to be exercised as they typically renew with significantly different underlying terms.
The company may sublease certain of its railcars to third parties on a short-term basis. The subleases are classified as operating leases, with the associated sublease income being recognized on a straight-line basis over the lease term.
The components of lease expense are as follows (in thousands):
Year Ended December 31,
Lease expense
Operating lease expense
$
20,771
$
20,806
Variable lease expense (1)
1,681
Total lease expense
$
22,452
$
21,630
(1)Represents amounts incurred in excess of the minimum payments required for a certain building lease and for the handling and unloading of railcars for a certain land lease, offset by railcar lease abatements provided by the lessor when railcars are out of service during periods of maintenance or upgrade.
Supplemental cash flow information related to operating leases is as follows (in thousands):
Year Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
20,864
$
21,459
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
32,713
11,176
Right-of-use assets and lease obligations derecognized due to lease modifications:
Operating leases
5,176
1,726
Supplemental balance sheet information related to operating leases is as follows:
Weighted average remaining lease term
6.2 years
6.6 years
Weighted average discount rate
4.55%
5.46%
Aggregate minimum lease payments under the operating lease agreements for future fiscal years as of December 31, 2020 are as follows (in thousands):
Year Ending December 31,
Amount
$
17,303
15,289
11,711
9,902
6,441
Thereafter
15,350
Total
75,996
Less: Present value discount
(11,545)
Lease liabilities
$
64,451
Lease Revenue
As described in Note 4 - Revenue, the majority of the partnership’s segment revenue is generated though their storage and throughput services and rail transportation services agreements with Green Plains Trade and are accounted for as lease revenue. Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases. Lease revenue associated with agreements with Green Plains Trade are eliminated upon consolidation. The remaining lease revenue is not material to the company.
Refer to Note 4 - Revenue for further discussion on lease revenue.
Commodities
As of December 31, 2020, the company had contracted future purchases of grain, corn oil, natural gas, ethanol and distillers grains, valued at approximately $302.8 million.
Legal
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, 2020, 2019 and 2018 were $1.5 million, $1.6 million and $2.0 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, 2020, the plan’s assets were $5.6 million and liabilities were $6.8 million. At December 31, 2020 and 2019, net liabilities of $1.2 million were included in other liabilities on the consolidated balance sheets, respectively.
‎
20. RELATED PARTY TRANSACTIONS
Green Plains Cattle Company LLC
The company engaged in certain related party transactions with GPCC, which was considered a related party until the fourth quarter of 2020 at which time the company’s remaining 50% interest was sold. The company provided a variety of shared services to GPCC, including accounting and finance, payroll and human resources, information technology, legal, communications and treasury activities. The company reduced selling, general and administrative expenses by $1.2 million and $0.5 million related to shared services provided for the years ended December 31, 2020 and 2019, respectively. The company had $2.2 million outstanding receivables related to the shared service agreement and expenses paid on behalf of GPCC as of December 31, 2019.
Green Plains Trade Group, a subsidiary of the company, enters into certain sale contracts with GPCC during the normal course of business. Related party revenues associated with GPCC were $8.2 million and $4.0 million for the years ended December 31, 2020 and 2019, respectively.
Mr. Ejnar Knudsen, a member of the company’s board of directors, has an indirect ownership interest in GPCC of 0.0736% by reason of his ownership in TGAM Agribusiness Fund LP. Based on the purchase price, the value of that ownership interest is approximately $0.1 million. Mr. Knudsen also is the CEO and partial owner of AGR Partners LLC (AGR) which provides investment advisory services to TGAM Agribusiness Fund LP pursuant to a sub-advisory agreement between AGR Partners LLC and Nuveen Alternative Advisors LLC, which is the investment manager for TGAM Agribusiness Fund LP.
Aircraft Leases
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. Given the limited amount of travel during fiscal year 2020, the companies have agreed to defer the monthly payment until excess carryover hours are used. As of December 31, 2020, the company has approximately 61 hours of flight time available to be used. Once used, the company agreed to pay $11,588 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, 2020, 2019 and 2018, payments related to these leases totaled $56 thousand, $129 thousand and $159 thousand, respectively. The company had no outstanding payables related to these agreements at December 31, 2020 and $17 outstanding payables related to these agreements at December 31, 2019.
21. EQUITY METHOD INVESTMENTS
Green Plains Cattle Company LLC
On September 1, 2019, the company formed a joint venture with TGAM and StepStone. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement of GPCC effective as of September 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains. After closing, GPCC was no longer consolidated in the company’s consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. GPCC results prior to its disposition are classified as discontinued operations in our current and prior period financials.
GPCC conducts the business of the joint venture, including (i) owning and operating the cattle feeding operations (as defined below), and (ii) any other activities approved by GPCC’s board of managers. GPCC continues to have the capacity to support 355,000 head of cattle and has approximately 24.1 million bushels of grain storage capacity.
The company did not consolidate any part of the assets or liabilities or operating results of its equity method investee. The company’s share of net income or loss in the investee increased or decreased, as applicable, the carrying value of the investment. With respect to GPCC, the company determined that this entity did not represent a variable interest entity and consolidation was not required. In addition, although the company had the ability to exercise significant influence over the joint venture through board representation and voting rights, all significant decisions required the consent of the other investors without regard to economic interest.
On October 1, 2020, the company sold its remaining 50% joint venture interest in GPCC to AGR, TGAM Agribusiness Fund LP and StepStone for $80.5 million in cash, plus closing adjustments. The transaction resulted in a reduction in other assets of $69.7 million as a result of removal of the equity method investment in GPCC, and a reduction in accumulated other
comprehensive income (loss) of $10.7 million as a result of the removal of the company’s share of equity method investees accumulated other comprehensive loss.
Summarized Financial Information
Our equity method investments are summarized in the following table (in thousands):
Ownership as of
Year Ended December 31,
December 31, 2020
Green Plains Cattle Company LLC (1)
0%
$
-
$
64,161
Other
Various
3,994
4,837
Total
$
3,994
$
68,998
(1)The equity method investment in GPCC is impacted by the effect of deferred gains or losses on cattle sale contracts designated in a cash flow hedge relationship. Pretax accumulated other comprehensive loss for GPCC was $16.2 million as of December 31, 2019.
Earnings from equity method investments, net of income taxes, were as follows (in thousands):
Year Ended December 31,
Green Plains Cattle Company LLC (1)
$
20,531
$
2,839
$
-
All others
(42)
(596)
Total income (loss) from equity method investments, net of income taxes
$
21,093
$
2,797
$
(596)
Distributions from equity method investments
$
27,910
$
$
-
Earnings from equity method investments, net of distributions
$
(6,817)
$
2,477
$
(596)
(1)Pretax equity method earnings of GPCC were $27.0 and $3.8 million for the years ended December 31, 2020 and 2019.
The company reports its proportional share of equity method investment income (loss) in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the consolidated balance sheet.
The following table present summarized information of GPCC.
December 31, 2020 (1)
December 31, 2019 (1)
Total revenues
$
747,824
$
370,383
Total operating expenses
693,753
362,878
Net income
$
54,071
$
7,505
(1)GPCC equity method treatment began on September 1, 2019 and ended on October 1, 2020. As such, fiscal year 2020 includes nine months of GPCC operations while fiscal year 2019 includes four months of GPCC operations.
December 31, 2019
Balance sheet:
Current assets
$
516,324
Noncurrent assets
73,922
Current liabilities
461,534
Noncurrent liabilities
Net assets
$
128,322
‎
22. QUARTERLY FINANCIAL DATA (Unaudited)
The following table includes unaudited financial data for each of the quarters within the years ended December 31, 2020 and 2019 (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,
‎2020
September 30,
‎2020
June 30,
‎ 2020 (1)
March 31,
‎2020
Revenues
$
478,764
$
424,062
$
388,024
$
632,869
Costs and expenses (2)
513,559
438,267
407,392
687,197
Operating loss
(34,795)
(14,205)
(19,368)
(54,328)
Other expense
(10,403)
(10,154)
(9,609)
(8,268)
Income tax benefit (expense) (3)
1,922
(7,280)
11,458
44,283
Net loss from continuing operations including noncontrolling interest
(43,100)
(30,733)
(5,474)
(10,347)
Net loss attributable to Green Plains
$
(49,630)
$
(34,486)
$
(8,214)
$
(16,445)
Basic and diluted earnings per share attributable to Green Plains (3):
$
(1.43)
$
(1.00)
$
(0.24)
$
(0.47)
Three Months Ended
December 31,
‎2019
September 30,
‎2019
June 30,
‎2019
March 31,
‎2019
Revenues
$
715,677
$
632,350
$
630,570
$
438,641
Costs and expenses
730,599
674,715
677,215
477,279
Operating loss
(14,922)
(42,365)
(46,645)
(38,638)
Other expense
(2,286)
(9,694)
(10,759)
(7,633)
Income tax benefit (expense) (4)
(19,514)
12,565
15,322
12,943
Net income (loss) from continuing operations including noncontrolling interest
(34,459)
(38,850)
(42,118)
(33,402)
Net income (loss) from discontinued operations, net of income taxes
-
3,359
1,939
(4,469)
Net income (loss) attributable to Green Plains
$
(39,749)
$
(38,970)
$
(45,342)
$
(42,799)
Basic and diluted earnings per share (5):
Loss per share from continuing operations
$
(1.13)
$
(1.15)
$
(1.18)
$
(0.95)
Income (loss) per share from discontinued operations
-
0.09
0.05
(0.11)
Loss per share attributable to Green Plains
$
(1.13)
$
(1.06)
$
(1.13)
$
(1.06)
(1)During the third quarter of 2020, the company identified an immaterial issue which resulted in the overstatement of both revenues and cost of goods sold within the agribusiness and energy services segment as previously reported for the three and six months ended June 30, 2020. The second quarter revenues and cost of goods sold reflected in the quarterly financial data have been revised to correct these amounts.
(2)The fourth quarter of 2020 includes a pretax loss on sale of assets, net of $22.4 million related to the sale of the Hereford, Texas ethanol plant and a loss related to GPCC of $0.5 million. The third quarter of 2020 includes a gain of $2.0 million related to GPCC. The first quarter of 2020 includes a goodwill impairment charge of $24.1 million.
(3)The fourth quarter of 2020 includes the recognition of a $8.5 million valuation allowance which impacted income tax expense.
(4)The fourth quarter of 2019 includes the recognition of a $25.9 million valuation allowance which impacted income tax expense.
(5)Basic and diluted earnings per share are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree with the total year.
‎
23. SUBSEQUENT EVENTS
BlackRock Note Facility
On February 9, 2021, Green Plains SPE LLC, a wholly owned subsidiary of the company and a special purpose entity (the Issuer) completed a $125.0 million, 5-year mezzanine note facility with funds and accounts managed by BlackRock. The proceeds will be used initially to support the construction and deployment of Ultra-High Protein technology and production at the Obion, Tennessee and Mount Vernon, Indiana facilities.
The junior secured mezzanine notes will mature on February 9, 2026 and are secured via first lien in the membership interests and real property of Green Plains Obion LLC and Green Plains Mount Vernon LLC. The Notes accrue interest at an annual rate of 11.75%. The Issuer may elect to pay an amount in cash equal to interest accruing at a rate of 6.00% per annum plus an amount equal to interest accruing at a rate of 6.75% per annum to be paid in kind. The entire outstanding principal balance, plus any accrued and unpaid interest is due upon maturity. Pursuant to the Indenture, the Issuer is required to comply with certain financial covenants regarding minimum liquidity and a maximum aggregate loan to value. The Notes can be retired or refinanced after 42 months with no prepayment premium. The Notes are guaranteed by the Company and have certain limitations on distributions, dividends or loans to Green Plains unless there will not exist any event of default. The Indenture provides for customary events of default. Additionally, as part of the transaction, BlackRock acquired 2,000,000 warrants for Green Plains stock (each warrant equal to one share of stock) with a strike price of $22.00 per share, which expire on February 9, 2026.
Disposition of Ord Ethanol Plant
On January 25, 2021, the company entered into an Asset Purchase Agreement to sell its ethanol plant located in Ord, Nebraska to GreenAmerica Biofuels Ord LLC. The transaction involves the disposition of 65 million gallons of nameplate capacity, and is being sold for $64.0 million, plus an estimated $6.0 million of related working capital. Correspondingly, the partnership entered into an Asset Purchase Agreement to sell its storage assets located adjacent to the Ord plant to the company for $27.0 million, which will be used to pay down debt, along with the transfer of associated railcar operating leases. As part of this transaction, upon closing, the quarterly storage and throughput minimum volume commitment with Green Plains Trade will be reduced to 217.7 mmg per quarter and the storage and throughput agreement with Green Plains Trade will be extended an additional year to June 30, 2029. The transaction is anticipated to close within 45 days, subject to customary closing conditions.

---

ITEM 9A. CONTROLS AND PROCEDURES

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Info rmation.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Direc tors, Executive Officers and Corporate Governance.
Information in our Proxy Statement for the 2021 Annual Meeting of Stockholders (“Proxy Statement”) under “Corporate Governance,” “Proposal 1 - Election of Directors,” “Our Management,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated by reference.
We have adopted a code of ethics that applies to our chief executive officer, chief financial officer and all other senior financial officers. Our code of ethics is available on our website at www.gpreinc.com in the “Investors - Corporate Governance” section. Amendments or waivers are disclosed within five business days following its adoption.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
Information included in the Proxy Statement under “Corporate Governance” and “Executive Compensation” is incorporated by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information in the Proxy Statement under “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” is incorporated by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information in the Proxy Statement under “Transactions with Related Persons, Promoters and Certain Control Persons” is incorporated by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
Information in the Proxy Statement under “Independent Public Accountants” is incorporated by reference.
‎
PART IV
Item 1 5. Exhibits, Financial Statement Schedules.
(1) Financial Statements. The following consolidated financial statements and notes are filed as part of this annual report on Form 10-K.
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years-ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years-ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years-ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years-ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. All schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits. The following exhibits are incorporated by reference, filed or furnished as part of this annual report on Form 10-K.
Exhibit Index
Exhibit No.
Description of Exhibit
2.1
Membership Interest Purchase Agreement between Murphy Oil USA, Inc. and Green Plains Inc. dated October 28, 2015 (certain exhibits and disclosure schedules to this agreement have been omitted; Green Plains will furnish such exhibits and disclosure schedules to the SEC upon request) (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K dated November 12, 2015)
2.2
Asset Purchase Agreement, dated as of July 27, 2018, by and among Green Plains Cattle Company LLC, and Bartlett Cattle Company, L.P. (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed on August 1, 2018)
2.3(a)
Asset Purchase Agreement among Green Plains Bluffton LLC, Green Plains Holdings II LLC, Green Plains Inc. and Valero Renewable Fuels Company, LLC, dated October 8, 2018. (incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed on October 10, 2018). (The schedules to the Asset Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request.)
2.3(b)
Asset Purchase Agreement among Green Plains Partners LP, Green Plains Holdings LLC, Green Plains Operating Company LLC, Green Plains Ethanol Storage LLC, Green Plains Logistics LLC, Green Plains Inc., Green Plains Trade Group LLC, Green Plains Bluffton LLC and Green Plains Holdings II LLC (incorporated by reference to Exhibit 2.2 of our Current Report on Form 8-K filed on October 10, 2018). (The schedules to the Asset Purchase Agreement have been omitted. The Partnership will furnish such schedules to the SEC upon request).
2.4
Asset Purchase Agreement, dated as of April 25, 2017, by and among Green Plains Cattle Company LLC, and Cargill Cattle Feeders, LLC. (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K dated April 26, 2017)
2.5
Stock Purchase Agreement among Green Plains Inc., Green Plains II LLC and Kerry Holding Co. dated October 23, 2018. (The schedules to the Stock Purchase Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed October 25, 2018)
2.6
Securities Purchase Agreement, dated as of September 6, 2019, by and among Green Plains Inc., Green Plains Cattle Company LLC, TGAM Agribusiness Fund Holdings-B LP, and StepStone Atlantic Fund, L.P. (Certain schedules to the Securities Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed September 9, 2019)
2.7
Second Amended and Restated Limited Liability Company Agreement of Green Plains Cattle Company LLC, dated September 6, 2019 (Certain schedules to the Second Amended and Restated Limited Liability Company Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed September 9, 2019)
2.8
Securities Purchase Agreement, dated as of October 9, 2020, by and among Green Plains Inc., Green Plains Cattle Company LLC, AGR Special Opportunities Fund I, LP, TGAM Agribusiness Fund LP, and StepStone Atlantic Fund, LP (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K filed on October 13, 2020) (Certain schedules to the Securities Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request)
2.9(a)
Asset Purchase Agreement among Hereford Ethanol Partners, L.P. and Green Plains Hereford LLC, dated December 11, 2020. (The schedules to the Asset Purchase Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.)
2.9(b)
Asset Purchase Agreement, dated December 14, 2020, by and among Green Plains Partners LP, Green Plains Holdings LLC, Green Plains Operating Company LLC, Green Plains Ethanol Storage LLC, Green Plains Logistics LLC, Green Plains Inc., Green Plains Trade Group LLC and Green Plains Hereford LLC. (incorporated herein by reference to Exhibit 2.2 to the company’s Current Report on Form 8-K filed on December 15, 2020)
2.10 (a)
Asset Purchase Agreement, dated January 25, 2021, by and among Green Plains Partners LP, Green Plains Holdings LLC, Green Plains Operating Company LLC, Green Plains Ethanol Storage LLC, Green Plains Logistics LLC, Green Plains Inc., Green Plains Trade Group LLC and Green Plains Ord LLC. (incorporated herein by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K filed on January 27, 2021)
3.1(a)
Second Amended and Restated Articles of Incorporation of the company (incorporated herein by reference to Exhibit 3.1 of the company’s Current Report on Form 8-K filed October 15, 2008)
3.1(b)
Articles of Amendment to Second Amended and Restated Articles of Incorporation of Green Plains Renewable Energy, Inc. (incorporated herein by reference to Exhibit 3.1 of the company’s Current Report on Form 8-K filed May 9, 2011)
3.1(c)
Second Articles of Amendment to Second Amended and Restated Articles of Incorporation of Green Plains Renewable Energy, Inc. (incorporated herein by reference to Exhibit 3.1 of the company’s Current Report on Form 8-K filed May 16, 2014)
3.2
Third Amended and Restated Bylaws of Green Plains Inc., dated October 1, 2020 (incorporated herein by reference to Exhibit 3.1 to the company’s Current Report on Form 8-K filed on October 5, 2020)
4.1
Shareholders’ Agreement by and among Green Plains Renewable Energy, Inc., each of the investors listed on Schedule A, and each of the existing shareholders and affiliates identified on Schedule B, dated May 7, 2008 (incorporated herein by reference to Appendix F of the company’s Registration Statement on Form S-4/A filed September 4, 2008)
4.2
Indenture relating to the 4.125% Convertible Senior Notes due 2022, dated as of August 15, 2016, between Green Plains Inc. and Wilmington Trust, National Association, including the form of Global Note attached as Exhibit A thereto (incorporated herein by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed August 15, 2016)
4.3
Indenture relating to the 3.25% Convertible Senior Notes due 2019, dated as of August 14, 2018, between Green Plains Inc. and Wilmington Trust, National Association, as trustee (including therein Form of 3.25% Convertible Senior Notes Due 2019) (incorporated herein by reference to Exhibit 4.1 to the company’s Current Report on Form 8-K filed August 14, 2018)
4.4
Indenture relating to the 4.00% Convertible Senior Notes due 2024, dated as of June 21, 2019, between Green Plains Inc. and Wilmington Trust, National Association, including the form of Global Note attached as Exhibit A thereto (incorporated herein by reference to Exhibit 4.1 of the company’s Current Report on Form 8-K filed on June 21, 2019)
4.5
Description of Securities Registered Under Section 12 of the Exchange Act (incorporated herein by reference to Exhibit 4.7 of the company’s Annual Report on Form 10-K filed February 20, 2020)
*10.1
2007 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 27, 2007)
10.2
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.53 of the company’s Registration Statement on Form S-4/A filed August 1, 2008)
*10.3(a)
Employment Agreement with Todd Becker (incorporated herein by reference to Exhibit 10.54 of the company’s Registration Statement on Form S-4/A filed August 1, 2008)
*10.3(b)
Amendment No. 1 to Employment Agreement with Todd Becker, dated December 18, 2009. (incorporated herein by reference to Exhibit 10.7(b) of the company’s Annual Report on Form 10-K filed February 24, 2010)
*10.3(c)
Amendment No. 2 to Employment Agreement with Todd Becker, dated March 27, 2018 (incorporated herein by reference to Exhibit 10.52 of the company’s Quarterly Report on Form 10-Q filed on May 7, 2018)
*10.4(a)
2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K dated May 11, 2009)
*10.4(b)
Amendment No. 1 to the 2009 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 25, 2011)
*10.4(c)
Amendment No. 2 to the 2009 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 29, 2013)
*10.4(d)
Amended and Restated 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.1 of the company’s Registration Statement on Form S-8 filed June 23, 2017)
*10.4(e)
Form of Stock Option Award Agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.19(b) of the company’s Annual Report on Form 10-K filed February 24, 2010)
*10.4(f)
Form of Restricted Stock Award Agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.19(c) of the company’s Annual Report on Form 10-K/A (Amendment No. 1) filed February 25, 2010)
*10.4(g)
Amended Form of Restricted Stock Award agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.53 of the company’s Quarterly Report on Form 10-Q filed on May 7, 2018)
*10.4(h)
Form of Deferred Stock Unit Award Agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.19(d) of the company’s Annual Report on Form 10-K filed February 24, 2010)
*10.4(i)
Form of Performance Share Unit Award agreement for 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.54 of the company’s Quarterly Report on Form 10-Q filed on May 7, 2018)
*10.4(j)
2019 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 28, 2019)
*10.4(k)
Amendment No. 1 to the 2019 Equity Incentive Plan (incorporated herein by reference to Appendix A of the company’s Definitive Proxy Statement filed March 26, 2020)
10.5(a)
Second Amended and Restated Revolving Credit and Security Agreement dated April 26, 2013 by and among Green Plains Trade Group LLC and PNC Bank, National Association (as Lender and Agent) (incorporated herein by reference to Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(b)
Third Amended and Restated Revolving Credit and Security Agreement dated November 26, 2014 by and among Green Plains Trade Group LLC, the Lenders and PNC Bank, National Association (as Lender and Agent) (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed December 2, 2014)
10.5(c)
Fourth Amended and Restated Revolving Credit and Security Agreement dated July 28, 2017, among Green Plains Trade Group LLC, the Lenders and PNC Bank, National Association as Lender and Agent (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated July 31, 2017)
10.5(d)
First Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement, dated as of August 29, 2017, among Green Plains Trade Group LLC and PNC Bank, National Association, as agent, and the lenders party to the Credit and Security Agreement (incorporated herein by reference to Exhibit 10.4(a) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.5(e)
Second Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement, dated as of March 15, 2018, by and among Green Plains Trade Group LLC and PNC Bank, National Association (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q dated May 7, 2018)
10.5(f)
Third Amendment to Fourth Amended and Restated Revolving Credit and Security Agreement, dated as of November 27, 2019, by and among Green Plains Trade Group LLC and PNC Bank, National Association (incorporated herein by reference to Exhibit 10.5(f) of the company’s Annual Report on Form 10-K filed February 20, 2020)
10.5(g)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and Citibank, N.A. (incorporated herein by reference to Exhibit 10.2(b) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(h)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and BMO Harris Bank N.A. (incorporated herein by reference to Exhibit 10.2(c) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(i)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and Alostar Bank of Commerce (incorporated herein by reference to Exhibit 10.2(d) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(j)
Second Amended and Restated Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.2(a) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(k)
Revolving Credit Note dated April 26, 2013 by and among Green Plains Trade Group LLC and Bank of America (incorporated here by reference to Exhibit 10.2(e) of the company’s Quarterly Report on Form 10-Q filed May 2, 2013)
10.5(l)
ABL Intercreditor Agreement, dated as of August 29, 2017, among PNC Bank, National Association, as ABL Collateral Agent, and BNP Paribas, as Term Loan Collateral Agent, and acknowledged by Green Plains Trade Group LLC and the other ABL Grantors (incorporated herein by reference to Exhibit 10.4(b) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.5(m)
Guaranty, dated as of August 29, 2017, in favor of PNC Bank, National Association, as agent (incorporated herein by reference to Exhibit 10.4(c) to the company’s Current Report on Form 8-K dated August 29, 2017)
*10.6
Umbrella Short-Term Incentive Plan (incorporated herein by reference to Appendix A of the company’s Proxy Statement filed April 3, 2014)
*10.7
Director Compensation effective May 11, 2016 (incorporated herein by reference to Exhibit 10.4 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
*10.8
Director Compensation effective November 14, 2017 (incorporated herein by reference to Exhibit 10.9 of the company’s Annual Report on Form 10-K filed February 15, 2018)
10.9(a)
Credit Agreement dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc., BNP Paribas Securities Corp. as Lead Arranger, Rabo Agrifinance, Inc. as Syndication Agent, ABN AMRO Capital USA LLC as Documentation Agent and BNP Paribas as Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(b)
Security Agreement dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and BNP Paribas (incorporated herein by reference to Exhibit 10.2 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(c)
Promissory Note dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and Bank of Oklahoma (incorporated herein by reference to Exhibit 10.3 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(d)
Promissory Note dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and U.S. Bank National Association (incorporated herein by reference to Exhibit 10.4 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(e)
Promissory Note dated October 28, 2011 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc. and Farm Credit Bank of Texas (incorporated herein by reference to Exhibit 10.5 of the company’s Current Report on Form 8-K filed November 3, 2011)
10.9(f)
First Amendment to Credit Agreement dated January 6, 2012 by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex Inc., BNP Paribas and the Required Lenders (incorporated herein by reference to Exhibit 10.26(k) of the company’s Annual Report on Form 10-K filed February 17, 2012)
10.9(g)
Second Amendment to Credit Agreement, dated October 26, 2012, by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex, Inc., BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.5 of the company’s Quarterly Report on Form 10-Q filed November 1, 2012)
10.9(h)
Third Amendment to Credit Agreement, dated August 27, 2013, by and among Green Plains Grain Company LLC, Green Plains Grain Company TN LLC, Green Plains Essex, Inc., BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed October 31, 2013)
10.9(i)
Fourth Amendment to Credit Agreement, dated August 8, 2014, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed October 30, 2014)
10.9(j)
Fifth Amendment to Credit Agreement, dated June 1, 2015, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.5 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.9(k)
Sixth Amendment to Credit Agreement, dated January 5, 2016, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.6 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.9(l)
Seventh Amendment to Credit Agreement, dated July 27, 2016, by and among Green Plains Grain Company LLC (including in its capacity as successor by merger to Green Plains Essex Inc.), Green Plains Grain Company TN LLC, BNP Paribas, as the administrative agent under the Credit Agreement, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.7 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.9(m)
Eighth Amendment to Credit Agreement, dated as of August 29, 2017, among Green Plains Grain Company and BNP Paribas, as Administrative Agent, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.3(a) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.9(n)
Ninth Amendment to Credit Agreement, dated as of June 28, 2019, among Green Plains Grain Company LLC and BNP Paribas, as Administrative Agent, and the lenders party to the Credit Agreement (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed on July 1, 2019)
10.9(o)
ABL Intercreditor Agreement, dated as of August 29, 2017, among BNP Paribas, as ABL Collateral Agent, and BNP Paribas, as Term Loan Collateral Agent, and acknowledged by Green Plains Grain Company LLC and the other ABL Grantors (incorporated herein by reference to Exhibit 10.3(b) to the company’s Current Report on Form 8-K dated August 29, 2017)
10.9(p)
Guaranty, dated as of August 29, 2017, in favor of BNP Paribas, as administrative agent (incorporated herein by reference to Exhibit 10.3(c) to the company’s Current Report on Form 8-K dated August 29, 2017)
*10.10
Employment Agreement by and between Green Plains Renewable Energy, Inc. and Patrich Simpkins dated April 1, 2012 (incorporated herein by reference to Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed May 1, 2014)
*10.11
Employment Agreement with Michelle S. Mapes (incorporated herein by reference to Exhibit 10.12 of the company’s Annual Report on Form 10-K filed February 20, 2020)
10.12
Amended and Restated Credit Agreement, dated as of August 28, 2019, by and among Green Plains Cattle Company LLC, Bank of the West and ING Capital LLC, as Joint Administrative Agents, and the lenders party to the Credit Agreement (Certain schedules to the Amended and Restated Credit Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.3 of the company’s Current Report on Form 8-K filed September 9, 2019)
10.13
Contribution, Conveyance and Assumption Agreement, dated July 1, 2015, by and among Green Plains Inc., Green Plains Obion LLC, Green Plains Trucking LLC, Green Plains Holdings LLC, Green Plains Partners LP and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.14(a)
Omnibus Agreement, dated July 1, 2015, by and among Green Plains Inc., Green Plains Holdings LLC, Green Plains Partners LP and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.14(b)
First Amendment to the Omnibus Agreement, dated January 1, 2016, by and among Green Plains Inc., Green Plains Holdings LLC, Green Plains Partners LP and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.22(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.14(c)
Second Amendment to the Omnibus Agreement, dated September 23, 2016, by and among Green Plains Inc., Green Plains Partners LP, Green Plains Holdings LLC and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated September 26, 2016)
10.14(d)
Third Amendment to the Omnibus Agreement, dated November 15, 2018, by and among Green Plains Inc., Green Plains Partners LP, Green Plains Holdings LLC and Green Plains Operating Company LLC (incorporated herein by reference to Exhibit 10.18(d) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.15(a)
Operational Services and Secondment Agreement, dated July 1, 2015, by and between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.15(b)
Amendment No. 1 to the Operational Services and Secondment Agreement, dated January 1, 2016, by and between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.23(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.15(c)
Amendment No. 2 to Operational Services and Secondment Agreement, dated September 23, 2016, between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated September 26, 2016)
10.15(d)
Amendment No. 3 to Operational Services and Secondment Agreement, dated November 15, 2018, between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.19(d) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.15(e)
Amendment No. 4 to Operational Services and Secondment Agreement, dated December 28, 2020, between Green Plains Inc. and Green Plains Holdings LLC (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed December 28, 2020)
10.16(a)
Rail Transportation Services Agreement, dated July 1, 2015, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.16(b)
Amendment No. 1 to Rail Transportation Services Agreement, dated September 1, 2015, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.1 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.16(c)
Correction to Rail Transportation Services Agreement, dated May 12, 2016, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.3 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.16(d)
Amendment No. 2 to Rail Transportation Services Agreement, dated November 30, 2016 (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated December 1, 2016)
10.16(e)
Amendment No. 3 to Rail Transportation Services Agreement, dated November 15, 2018 (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated November 15, 2018)
10.16(f)
Corrective Amendment to Rail Transportation Services Agreement, dated November 15, 2018, by and between Green Plains Logistics LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.20(f) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.16(g)
Amendment No. 4 to Rail Transportation Services Agreement, dated December 28, 2020 (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K dated December 28, 2020
10.17(a)
Ethanol Storage and Throughput Agreement, dated July 1, 2015, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.17(b)
Amendment No. 1 to the Ethanol Storage and Throughput Agreement, dated January 1, 2016, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.25(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2015)
10.17(c)
Clarifying Amendment to Ethanol Storage and Throughput Agreement, dated January 4, 2016, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.2 of the company’s Quarterly Report on Form 10-Q filed August 3, 2016)
10.17(d)
Amendment No. 2 to Ethanol Storage and Throughput Agreement, dated September 23, 2016, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K dated September 26, 2016)
10.17(e)
Amendment No. 3 to Ethanol Storage and Throughput Agreement, dated November 15, 2018, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated November 15, 2018) (The exhibits to Amendment No. 3 have been omitted. The company will furnish such schedules to the SEC upon request).
10.17(f)
Amendment No. 4 to Ethanol Storage and Throughput Agreement, dated December 28, 2020, by and between Green Plains Ethanol Storage LLC and Green Plains Trade Group LLC (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K dated December 28, 2020)
10.18(a)
Credit Agreement, dated July 1, 2015, by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.6 to the company’s Current Report on Form 8-K dated July 6, 2015)
10.18(b)
First Amendment to Credit Agreement, dated September 16, 2016 by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.22(b) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(c)
Incremental Joinder Agreement, dated October 27, 2017, among Green Plains Operating Company LLC and Bank of America, as Administrative (incorporated herein by reference to Exhibit 10.8 to the company’s Quarterly Report on Form 10-Q dated November 2, 2017)
10.18(d)
Second Amendment to Credit Agreement, dated February 16, 2018 by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.22(d) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(e)
Incremental Joinder Agreement, dated February 20, 2018, among Green Plains Operating Company LLC and Bank of America, as Administrative (incorporated herein by reference to Exhibit 10.22(e) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(f)
Third Amendment to Credit Agreement, dated October 12, 2018 by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A., and the other lenders party thereto (incorporated herein by reference to Exhibit 10.22(f) to the company’s Annual Report on Form 10-K for the year ended December 31, 2018)
10.18(g)
Consent to Credit Agreement, dated July 15, 2019, by and among Green Plains Operating Company LLC and Bank of America, as Administrative Agent (incorporated herein by reference to Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q dated August 6, 2019)
10.18(h)
Fourth Amendment to Credit Agreement, dated June 4, 2020, by and among Green Plains Operating Company LLC, as the Borrower, the subsidiaries of the Borrower identified therein, Bank of America, N.A. and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed on June 4, 2020)
10.19
Second Amendment to Term Loan Agreement, dated July 13, 2018, among Green Plains Inc. and BNP Paribas, as administrative agent and collateral agent (incorporated herein by reference to Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q dated August 2, 2018)
10.20
Partial Release of Security Interest, dated as of April 30, 2018, by and among Green Plains Inc., its subsidiaries and BNP Paribas, as collateral agent (incorporated herein by reference to Exhibit 10.3 to the company’s Quarterly Report on Form 10-Q dated May 7, 2018)
10.21(a)
Revolving Credit Facility, dated as of April 30, 2018, by and among Green Plains Commodity Management LLC and Macquarie Bank Limited (incorporated herein by reference to Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q dated May 7, 2018)
10.21(b)
Amendment to Revolving Credit Facility, dated as of June 18, 2019, by and among Green Plains Commodity Management LLC and Macquarie Bank Limited (incorporated herein by reference to Exhibit 10.24(b) of the company’s Annual Report on Form 10-K filed February 20, 2020)
10.22
Promissory Note between Green Plains Inc. and StepStone Atlantic Fund, L.P., dated September 6, 2019 (incorporated herein by reference to Exhibit 10.2 of the company’s Current Report on Form 8-K filed September 9, 2019)
10.23(a)
Loan Agreement dated September 3, 2020 by and among Green Plains Wood River LLC and Green Plains Shenandoah LLC, as the Borrowers, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(b)
Delayed Draw Term Promissory Note dated September 3, 2020 by and among Green Plains Wood River LLC and Green Plains Shenandoah LLC, as the Borrowers, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(c)
Loan Guaranty Agreement dated September 3, 2020 by and among Green Plains Inc, as the Guarantor, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(d)
Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated September 3, 2020 by and among Green Plains Wood River LLC, as the Trustor, and MetLife Real Estate Lending LLC, as the Beneficiary (incorporated herein by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.23(e)
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated September 3, 2020 by and among Green Plains Shenandoah LLC, as the Borrower, and MetLife Real Estate Lending LLC, as the Lender (incorporated herein by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K filed on September 8, 2020)
10.24(a)
Note Purchase Agreement dated February 9, 2021 by and among Green Plains SPE LLC, as the Issuer, Green Plains Inc., as Guarantor, and Purchasers signatory thereto. (The schedules to the Note Purchase Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.1 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(b)
Pledge and Security Agreement dated February 9, 2021 by and among Green Plains SPE LLC, as the Pledgor, in favor of Wilmington Trust, National Association, as Trustee. (The schedules to the Pledge and Security Agreement have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(c)
Indenture dated February 9, 2021 by Green Plains SPE LLC, as Issuer, Green Plains Inc., as Guarantor and Wilmington Trust, National Association, as Trustee. (The schedules to the Indenture have been omitted. The Company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.3 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(d)
First Priority Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement from Green Plains Mount Vernon LLC, as Mortgagor and Wilmington Trust, National Association, as Mortgagee. (incorporated herein by reference to Exhibit 10.4 to the company’s Current Report on Form 8-K filed on February 12, 2021)
10.24(e)
First Priority Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement from Green Plains Obion LLC, as Mortgagor and Wilmington Trust, National Association, as Mortgagee. (incorporated herein by reference to Exhibit 10.5 to the company’s Current Report on Form 8-K filed on February 12, 2021)
21.1
Schedule of Subsidiaries
23.1
Consent of KPMG LLP
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following information from Green Plains Inc.’s Annual Report on Form 10-K for the annual period ended December 31, 2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (iv) the Consolidated Statements of Stockholders’ Equity (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements and Financial Statement Schedule.
The cover page from Green Plains Inc. Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL
_______________________________________________________
* Represents management compensatory contracts
Item 16. Form 10-K Summary.
None.
‎
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
c
‎
‎
‎
‎
Date: February 16, 2021
GREEN PLAINS INC
(Registrant)
By: /s/ Todd A. Becker
Todd A. Becker
‎President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Todd A. Becker
President and Chief Executive Officer
February 16, 2021
Todd A. Becker
(Principal Executive Officer) and Director
/s/ G. Patrich Simpkins Jr.
Chief Financial Officer (Principal Financial
February 16, 2021
G. Patrich Simpkins Jr.
Officer and Principal Accounting Officer)
/s/ Wayne B. Hoovestol
Chairman of the Board
February 16, 2021
Wayne B. Hoovestol
/s/ Jim Anderson
Director
February 16, 2021
Jim Anderson
/s/ James F. Crowley
Director
February 16, 2021
James F. Crowley
/s/ S. Eugene Edwards
Director
February 16, 2021
S. Eugene Edwards
/s/ Gordon F. Glade
Director
February 16, 2021
Gordon F. Glade
/s/ Ejnar A. Knudsen III
Director
February 16, 2021
Ejnar A. Knudsen III
/s/ Thomas L. Manuel
Director
February 16, 2021
Thomas L. Manuel
/s/ Brian D. Peterson
Director
February 16, 2021
Brian D. Peterson
/s/ Alain Treuer
Director
February 16, 2021
Alain Treuer
/s/ Kimberly Wagner
Director
February 16, 2021
Kimberly Wagner
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
‎Green Plains Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Green Plains Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 18 to the consolidated financial statements, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASC Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MatterThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of physical delivery contracts
As discussed in Note 2 to the consolidated financial statements, the Company records physical delivery contracts that do not meet the normal purchase or sale criteria at fair value. The Company estimates a fair value based on exchange-quoted prices, adjusted as appropriate for regional location basis values, which represent differences in local markets including transportation as well as quality or grade differences. Basis values are generally determined using inputs from broker quotations or market transactions. As of December 31, 2020, the recorded balances of the Company’s derivative assets and liabilities associated with physical delivery contracts were $22.0 million and $11.0 million, respectively, and are classified as Level 2 assets and liabilities within Note 6.
We identified the assessment of the valuation of physical delivery contracts as a critical audit matter. Specifically, auditing the valuation of physical delivery contracts, which includes assumptions related to exchange-quoted prices and adjustments for regional location basis values, is complex due to the judgment involved in determining the fair value.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls related to the valuation of physical delivery contracts. To assess the valuation of physical delivery contracts, for a sample of contracts, we:
●tested the Company’s exchange-quoted price by comparing the amount used to observable market transactions
●evaluated the Company’s adjustments for regional location basis values by comparing inputs used by the Company to third-party information, including broker quotations or market transactions.
/s/ KPMG LLP
We have served as the Company’s auditor since 2009.
Omaha, Nebraska
‎February 16, 2021
‎
GRE EN PLAINS INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
ASSETS
Current assets
Cash and cash equivalents
$
233,860
$
245,977
Restricted cash
40,950
23,919
Accounts receivable, net of allowances of $143 and $166, respectively
55,568
107,183
Income taxes receivable
6,216
Inventories
269,491
252,992
Prepaid expenses and other
16,531
13,685
Derivative financial instruments
25,292
17,941
Total current assets
642,353
667,913
Property and equipment, net
801,690
827,271
Operating lease right-of-use assets
61,883
52,476
Investment in equity method investees
3,994
68,998
Other assets
68,997
81,560
Total assets
$
1,578,917
$
1,698,218
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
$
140,058
$
156,693
Accrued and other liabilities
38,471
39,384
Derivative financial instruments
20,265
8,721
Operating lease current liabilities
14,902
16,626
Short-term notes payable and other borrowings
140,808
187,812
Current maturities of long-term debt
98,052
132,555
Total current liabilities
452,556
541,791
Long-term debt
287,299
243,990
Operating lease long-term liabilities
49,549
38,314
Other liabilities
12,849
8,837
Total liabilities
802,253
832,932
Commitments and contingencies (Note 18)
Stockholders' equity
Common stock, $0.001 par value; 75,000,000 shares authorized;
‎47,470,505 and 46,964,115 shares issued, and 35,657,344
‎and 36,031,933 shares outstanding, respectively
Additional paid-in capital
740,889
734,580
Retained earnings
39,375
148,150
Accumulated other comprehensive loss
(2,172)
(11,064)
Treasury stock, 11,813,161 and 10,932,182 shares, respectively
(131,287)
(119,808)
Total Green Plains stockholders' equity
646,852
751,905
Noncontrolling interests
129,812
113,381
Total stockholders' equity
776,664
865,286
Total liabilities and stockholders' equity
$
1,578,917
$
1,698,218
See accompanying notes to the consolidated financial statements.
‎
GREE N PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
Revenues
Product revenues
$
1,918,884
$
2,410,382
$
2,977,451
Service revenues
4,835
6,856
6,481
Total revenues
1,923,719
2,417,238
2,983,932
Costs and expenses
Cost of goods sold (excluding depreciation and amortization expenses reflected below)
1,812,163
2,384,947
2,806,968
Operations and maintenance expenses
26,125
25,657
30,844
Selling, general and administrative expenses
84,932
77,077
108,259
Loss (gain) on sale of assets, net
20,860
-
(150,351)
Goodwill impairment
24,091
-
-
Depreciation and amortization expenses
78,244
72,127
98,258
Total costs and expenses
2,046,415
2,559,808
2,893,978
Operating income (loss) from continuing operations
(122,696)
(142,570)
89,954
Other income (expense)
Interest income
4,333
2,961
Interest expense
(39,993)
(40,200)
(87,449)
Other, net
5,495
Total other expense
(38,434)
(30,372)
(84,310)
Income (loss) from continuing operations before income taxes and income (loss) from equity method investees
(161,130)
(172,942)
5,644
Income tax benefit
50,383
21,316
20,147
Income (loss) from equity method investees, net of income taxes
21,093
2,797
(596)
Net income (loss) from continuing operations including noncontrolling interest
(89,654)
(148,829)
25,195
Net income from discontinued operations, net of income taxes
-
11,539
Net income (loss)
(89,654)
(148,000)
36,734
Net income attributable to noncontrolling interests
19,121
18,860
20,811
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
Earnings (loss) per share - basic and diluted
Net income (loss) from continuing operations
$
(3.14)
$
(4.40)
$
0.11
Net income from discontinued operations
-
0.02
0.28
Net income (loss) attributable to Green Plains
$
(3.14)
$
(4.38)
$
0.39
Weighted average shares outstanding:
Basic
34,631
38,111
40,320
Diluted
34,631
38,111
41,254
See accompanying notes to the consolidated financial statements.
‎
GRE EN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
Net income (loss)
$
(89,654)
$
(148,000)
$
36,734
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of $257, ($14,431) and $2,854, respectively
(768)
55,973
(6,788)
Reclassification of realized losses (gains) on derivatives, net of tax expense (benefit) of $857, $10,002 and ($2,887), respectively
(2,566)
(38,795)
6,669
Other comprehensive income (loss), net of tax
(3,334)
17,178
(119)
Share of equity method investees other comprehensive gain (loss) arising during the period, net of tax benefit (expense) of ($3,929), $3,929 and $0, respectively
12,226
(12,226)
-
Total other comprehensive income (loss), net of tax
8,892
4,952
(119)
Comprehensive income (loss)
(80,762)
(143,048)
36,615
Comprehensive income attributable to noncontrolling interests
19,121
18,860
20,811
Comprehensive income (loss) attributable to Green Plains
$
(99,883)
$
(161,908)
$
15,804
See accompanying notes to the consolidated financial statements.
‎
GRE EN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Total
Common
Additional
Accum. Other
Green Plains
Non-
Total
Stock
Paid-in
Retained
Comp. Income
Treasury Stock
Stockholders'
Control.
Stockholders'
Shares
Amount
Capital
Earnings
(Loss)
Shares
Amount
Equity
Interests
Equity
Balance, December 31, 2017
46,410
$
$
685,019
$
325,411
$
(13,110)
5,326
$
(55,184)
$
942,182
$
116,954
$
1,059,136
Reclassification of certain tax effects from other comprehensive loss (Note 1)
-
-
-
2,787
(2,787)
-
-
-
-
-
Balance, January 1, 2018
46,410
685,019
328,198
(15,897)
5,326
(55,184)
942,182
116,954
1,059,136
Net income
-
-
-
15,923
-
-
-
15,923
20,811
36,734
Cash dividends and distributions declared
-
-
-
(19,393)
-
-
-
(19,393)
(21,872)
(41,265)
Other comprehensive loss before reclassification
-
-
-
-
(6,788)
-
-
-
-
-
Amounts reclassified from accum. other comp. loss
-
-
-
-
6,669
-
-
-
-
-
Other comp. loss, net of tax
-
-
-
-
(119)
-
-
(119)
-
(119)
Repurchase of common stock
-
-
-
-
-
(2,979)
(2,979)
-
(2,979)
Modification of 3.25% convertible notes due 2019
-
-
3,480
-
-
-
-
3,480
-
3,480
Exchange of 3.25% convertible notes due 2018
-
-
-
-
-
-
-
Stock-based compensation
7,573
-
-
-
-
7,574
7,851
Stock options exercised
-
-
-
-
-
-
Balance, December 31, 2018
46,638
696,222
324,728
(16,016)
5,536
(58,162)
946,819
116,170
1,062,989
Net income (loss)
-
-
-
(166,860)
-
-
-
(166,860)
18,860
(148,000)
Cash dividends and distributions declared
-
-
-
(9,718)
-
-
-
(9,718)
(21,968)
(31,686)
Other comp. income before reclassification
-
-
-
-
55,973
-
-
-
-
-
Amounts reclassified from accum. other comp. loss
-
-
-
-
(38,795)
-
-
-
-
-
Other comprehensive income, net of tax
-
-
-
-
17,178
-
-
17,178
-
17,178
Share of equity method investees other comprehensive loss arising during the period, net of tax
-
-
-
-
(12,226)
-
-
(12,226)
-
(12,226)
Proceeds from disgorgement of shareholders short-swing profits, net of tax
-
-
5,054
-
-
-
-
5,054
-
5,054
Issuance of 4.00% convertible notes due 2024, net of tax
-
-
24,928
-
-
-
-
24,928
-
24,928
Settlements of 3.25% convertible notes due 2019, net of tax
-
-
(271)
-
-
-
-
(271)
-
(271)
Repurchase of common stock
-
-
-
-
-
5,396
(61,646)
(61,646)
-
(61,646)
Stock-based compensation
-
7,052
-
-
-
-
7,052
7,371
Stock options exercised
-
1,595
-
-
-
-
1,595
-
1,595
Balance, December 31, 2019
46,964
734,580
148,150
(11,064)
10,932
(119,808)
751,905
113,381
865,286
Net income (loss)
-
-
-
(108,775)
-
-
-
(108,775)
19,121
(89,654)
Cash dividends and distributions declared
-
-
-
-
-
-
-
-
(9,675)
(9,675)
Other comprehensive loss before reclassification
-
-
-
-
(768)
-
-
-
-
-
Amounts reclassified from accumulated other comprehensive loss
-
-
-
-
(2,566)
-
-
-
-
-
Other comprehensive income, net of tax
-
-
-
-
(3,334)
-
-
(3,334)
-
(3,334)
Share of equity method investees other comprehensive loss arising during the period, net of tax
-
-
-
-
12,226
-
-
12,226
-
12,226
Acquisition of FQT
-
-
-
-
-
-
-
-
6,667
6,667
Repurchase of common stock
-
-
-
-
-
(11,479)
(11,479)
-
(11,479)
Stock-based compensation
-
6,309
-
-
-
-
6,309
6,627
Balance, December 31, 2020
47,471
$
$
740,889
$
39,375
$
(2,172)
11,813
$
(131,287)
$
646,852
$
129,812
$
776,664
See accompanying notes to the consolidated financial statements.
‎
GREE N PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
Cash flows from operating activities:
Net income (loss) from continuing operations including noncontrolling interest
$
(89,654)
$
(148,829)
$
25,195
Net income from discontinued operations, net of income taxes
-
11,539
Net income (loss)
(89,654)
(148,000)
36,734
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
78,244
72,127
98,258
Amortization of debt issuance costs and debt discount
22,500
20,364
13,277
Loss (gain) on the disposal of assets, net
21,464
(3,680)
(150,351)
Goodwill impairment
24,091
-
-
Write-off of deferred financing fees related to extinguishment of debt
-
-
13,178
Deferred income taxes
(13,336)
(17,252)
(24,484)
Stock-based compensation
7,915
9,692
11,420
Loss (income) from equity method investees, net of income taxes
(21,093)
(2,797)
Distribution from equity method investees, net of income taxes
27,910
-
-
Other
-
-
(11,604)
Changes in operating assets and liabilities before effects of
‎business combinations and dispositions:
Accounts receivable
57,060
(21,762)
43,443
Inventories
(21,632)
50,022
26,972
Derivative financial instruments
1,274
12,420
(12,294)
Prepaid expenses and other assets
(2,105)
1,907
Accounts payable and accrued liabilities
(22,772)
(1,778)
(53,565)
Current income taxes
30,073
3,138
31,517
Other
(1,044)
(288)
4,526
Net cash provided by (used in) operating activities - continuing operations
98,895
(27,001)
29,530
Net cash provided by operating activities - discontinued operations
-
17,469
9,437
Net cash provided by (used in) operating activities
98,895
(9,532)
38,967
Cash flows from investing activities:
Purchases of property and equipment, net
(110,579)
(75,481)
(40,529)
Proceeds from sale of discontinued operations, net of cash divested
-
76,884
-
Proceeds from the sale of assets, net
39,952
3,469
671,650
Disposition of equity method investee
80,500
29,721
-
Acquisition of businesses, net of cash acquired
(21,325)
-
-
Distributions from (contribution to) equity method investees
-
(3,091)
Other investing activities
-
-
7,500
Net cash provided by (used in) investing activities - continuing operations
(11,452)
34,813
635,530
Net cash used in investing activities - discontinued operations
-
(4,169)
(128,065)
Net cash provided by (used in) investing activities
(11,452)
30,644
507,465
Cash flows from financing activities:
Proceeds from the issuance of long-term debt
33,000
157,710
83,100
Payments of principal on long-term debt
(12,987)
(45,702)
(576,389)
Proceeds from short-term borrowings
2,392,258
2,802,199
3,479,784
Payments on short-term borrowings
(2,468,485)
(2,840,505)
(3,578,629)
Payments for repurchase of common stock
(11,479)
(61,646)
(2,978)
Payments of cash dividends and distributions
(9,675)
(31,686)
(41,265)
Proceeds from disgorgement of shareholder short-swing profits
-
6,699
-
Payments of loan fees
(3,873)
(5,291)
(3,808)
Payments related to tax withholdings for stock-based compensation
(1,288)
(2,320)
(3,569)
Proceeds from exercises of stock options
-
1,595
Net cash used in financing activities - continuing operations
(82,529)
(18,947)
(643,604)
Net cash provided by (used in) financing activities - discontinued operations
-
(50,464)
103,007
Net cash used in financing activities
(82,529)
(69,411)
(540,597)
Net change in cash, cash equivalents and restricted cash
4,914
(48,299)
5,835
Cash, cash equivalents and restricted cash, beginning of period
269,896
283,284
289,667
Discontinued operations cash activity included above:
Add: Cash balance included in current assets of discontinued operations at beginning of period
-
34,911
22,693
Less: Cash balance included in current assets of discontinued operations at end of period
-
-
(34,911)
Cash, cash equivalents and restricted cash, end of period
$
274,810
$
269,896
$
283,284
Continued on the following page
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Continued from the previous page
Year Ended December 31,
Reconciliation of total cash, cash equivalents and restricted cash:
Cash and cash equivalents
$
233,860
$
245,977
$
251,683
Restricted cash
40,950
23,919
66,512
Discontinued operations cash activity included above:
Less: Cash, cash equivalents and restricted cash balance included in current assets of discontinued operations at end of period
-
-
(34,911)
Total cash, cash equivalents and restricted cash
$
274,810
$
269,896
$
283,284
Non-cash financing activity:
Settlement of NMTC transaction
$
-
$
8,100
$
-
Modification of 3.25% convertible notes due 2019, net
$
-
$
-
$
3,480
Exchange of common stock held in treasury stock for 3.25% convertible notes due 2018
$
-
$
-
$
Supplemental investing and financing activities:
Assets acquired in acquisitions, net of cash
$
42,443
$
-
$
124,525
Less: liabilities assumed
(14,451)
-
(118)
Less: noncontrolling interests assumed
(6,667)
-
-
Net assets acquired
$
21,325
$
-
$
124,407
Assets disposed of in sale
$
67,711
$
527,614
$
550,648
Less: liabilities disposed
(6,234)
(373,846)
(41,276)
Net assets disposed
$
61,477
$
153,768
$
509,372
Supplemental disclosures of cash flow:
Cash paid (refunded) for income taxes
$
(60,587)
$
$
(22,478)
Cash paid for interest of continuing operations
$
23,300
$
24,287
$
60,664
Cash paid for interest of discontinued operations
$
-
$
11,557
$
12,481
See accompanying notes to the consolidated financial statements.
‎
GRE EN PLAINS INC. AND SUBSIDIARIES
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, 2020, the company owns a 48.9% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 49.1% 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, 2020 and 2019, excluding intercompany balances, are $91.2 million and $90.0 million, respectively, and primarily consist of property and equipment, operating lease right-of-use assets and goodwill. The partnership’s consolidated total liabilities as of December 31, 2020 and 2019, excluding intercompany balances, are $151.2 million and $180.9 million, respectively, which primarily consist of current maturities of long-term debt as discussed in Note 12 - Debt and operating lease liabilities. The liabilities recognized as a result of consolidating the partnership do not represent additional claims on our general assets.
GPCC, previously a wholly owned subsidiary of Green Plains, was disposed of during the third quarter of 2019. After closing, GPCC was no longer consolidated in the company’s consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20 Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”) to be presented as discontinued operations. As such, GPCC results prior to its disposition are classified as discontinued operations in prior period consolidated financial statements.
Additionally, on October 1, 2020, pursuant to the Securities Purchase Agreement, the company sold its remaining 50% joint venture interest in GPCC to AGR, TGAM Agribusiness Fund LP and StepStone. The transaction resulted in a reduction in investment in equity method investees of $69.7 million as a result of removal of the equity method investment in GPCC, and a reduction in accumulated other comprehensive income (loss) of $10.7 million as a result of the removal of the company’s share of equity method investees accumulated other comprehensive loss. See Note 5 - Acquisitions, Dispositions and Discontinued Operations and Note 21 - Equity Method Investments for further details.
The company also owns a 90.0% interest in BioProcess Algae, a joint venture formed in 2008, as well as a majority interest in Fluid Quip Technologies, LLC with their results being consolidated in our consolidated financial statements.
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, carrying value of intangible assets, operating leases, impairment of long-lived assets and goodwill, derivative financial instruments, accounting for income taxes and assets acquired and liabilities assumed in acquisitions, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
Description of Business
The company operates within four business segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein 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, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil 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 one of the largest ethanol producers in North America. The company operates 12 ethanol plants in six 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 354 million bushels of corn and produce approximately 1.0 billion gallons of ethanol, 2.5 million tons of distillers grains and 276 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 38.1 million bushels, with 30.5 million bushels of storage capacity at the company’s ethanol plants and 7.6 million bushels of total storage capacity at its three 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-house 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 has food-grade corn oil operations which focus 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, the company also owned Fleischmann’s Vinegar, which is one of the world’s largest producers of 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, 2020, the partnership owns (i) 31 ethanol storage facilities located at or near the company’s 12 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) six 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 2,480 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 maturities of three months or less.
Restricted Cash
The company has restricted cash, which can only be used for funding letters of credit or for payment towards a credit agreement. Restricted cash also includes cash margins and securities pledged to commodity exchange clearinghouses and at times, funds in escrow related to acquisition and disposition activities. To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated balance sheets.
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 derivatives 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, 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 over time as the 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 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, and process chemicals. Corn feedstock costs include gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs, as well as reclassifications of gains and losses on cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant utilities, repairs and maintenance 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 sale contracts to attempt to minimize the effect of price changes on ethanol, grain and natural gas. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for basis 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, natural gas and crude oil. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk; however, there may be situations when these hedging activities themselves result in losses.
By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.
The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, cash flow hedge accounting treatment.
Certain qualifying derivatives related to ethanol production and agribusiness and energy services 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 and the physical transaction is completed. 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 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. Estimated fair values carried at market are based on exchange-quoted prices, adjusted as appropriate for regional location basis values which represent differences in local markets including transportation as well as quality or grade differences. Basis values are generally determined using inputs from broker quotations or other market transactions. However a portion of the value may be derived using unobservable inputs. 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. 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 receivable 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 $1.1 million and $1.2 million at December 31, 2020 and 2019, respectively.
‎
Inventories
Corn held for ethanol production, ethanol, corn oil and distillers grains inventories are recorded at the lower of average cost or net realizable value.
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 net realizable value.
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
Railroad track and equipment
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 primarily of customer relationships, intellectual property, research and development technology and licenses. These intangible assets were capitalized at fair market value and are being amortized over their estimated useful lives.
Impairment of Long-Lived Assets
The company reviews its long-lived assets, currently consisting of property and equipment, operating lease right-of-use assets, 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 our long-lived assets 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 an impairment of the asset. 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 is related to certain acquisitions within our ethanol production and partnership segments.
On January 1, 2018, the company early adopted the amended guidance in ASC 350, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amended guidance, an entity may first assess qualitative factors to determine whether it
is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).
The company is required to perform impairment tests related to goodwill annually, which it performs as of October 1, or sooner if an indicator of impairment occurs. Circumstances that may indicate impairment include a decline in the company’s future projected cash flows, a decision to suspend plant operations for an extended period of time, sustained decline in the company’s 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 goodwill and measure impairment, which include, but are not limited to, market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. 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.
Near term industry outlook due to the significant decrease in crude oil prices, lower gasoline demand, general uncertainty due to the COVID-19 outbreak and the subsequent decline in our stock price caused a decline in the company’s market capitalization during the three months ended March 31, 2020. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit and as such we evaluated our goodwill as of March 31, 2020. Significant assumptions inherent in the valuation methodologies for goodwill were employed and included, but were not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit did not exceed its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was impaired and recorded a non-cash impairment charge of $24.1 million.
The company also identified triggering events due to decreases in the partnership’s stock price and as a result, its market capitalization, and performed interim quantitative goodwill assessments as of March 31, 2020 and June 30, 2020. The company performed its annual goodwill assessment as of October 1, 2020, using a qualitative assessment. Each of the goodwill assessments resulted in no goodwill impairment.
For additional information, please refer to Note 10 - Goodwill and Intangible Assets.
Leases
On January 1, 2019, the company adopted the amended guidance in ASC 842, Leases, and all related amendments and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The standard does not require the guidance to be applied to the earliest comparative period presented in the financial statements. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The company leases certain facilities, parcels of land, and equipment. These leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the lease term. The term of the lease may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised. For leases with initial terms greater than 12 months, the company records operating lease right-of-use assets and corresponding operating lease liabilities. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The company did not incur any material short-term lease expense for the years ended December 31, 2020 or 2019.
Operating lease right-of-use assets represent the right to control an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the company’s leases do not provide an implicit rate, the incremental borrowing rate is used based on information available at commencement date to determine the present value of future payments.
The company elected to utilize a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For railcar leases, the company elected to combine the railcars within each rider and account for each rider as an individual lease.
From a lessee perspective, the company combines both the lease and non-lease components and accounts for them as one lease. Certain of the company’s railcar agreements provide for maintenance costs to be the responsibility of the company as incurred or charged by the lessor. This maintenance cost is a non-lease component that the company combines with the
monthly rental payment and accounts for the total cost as operating lease expense. In addition, the company has a land lease that contains a non-lease component for the handling and unloading services the landlord provides. The company combines the cost of services with the land lease cost and accounts for the total as operating lease expense.
The partnership segment records the majority of it operating lease revenue from its storage and throughput services, rail transportation services and certain terminal services agreements with Green Plains Trade. In addition, the partnership may sublease certain of its railcars to third parties on a short-term basis. These subleases are classified as operating leases, with the associated sublease revenue recognized on a straight-line basis over the lease term.
Please refer to Note 18 - Commitments and Contingencies to the consolidated financial statements for further details on operating lease expense and revenue.
Investments in Equity Method Investees
The company accounts for investments in which the company exercises significant influence using the equity method so long as the company (i) does not control the investee and (ii) is not the primary beneficiary of the entity. The company recognizes these investments as a separate line item in the consolidated balance sheets and its proportionate share of earnings on a separate line item in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the consolidated balance sheet.
The company recognizes losses in the value of equity method investments when there is evidence of an other-than-temporary decrease in value. Evidence of a loss might include, but would not necessarily be limited to, the inability to recover the carrying amount of the investment or the inability of the equity method investee to sustain an earnings capacity that justifies the carrying amount of the investment. The current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. The company evaluates equity method investments for impairment if there is evidence an investment may be impaired. We use the nature of distribution approach to classify distributions from equity method investments on the statements of cash flows.
Discontinued Operations
In determining whether a disposal group should be presented as discontinued operations, the company makes a determination of whether such a group being disposed of comprises a component of the entity, or a group of components of the entity, that represents a strategic shift that has, or will have, a major effect on the company's operations and financial results. If these determinations are made affirmatively, the results of operations of the group being disposed of are aggregated for separate presentation apart from the continuing operations of the company for all periods presented in the consolidated financial statements. General corporate overhead is not allocated to discontinued operations.
Net income from discontinued operations, net of income taxes, relates to the operations of GPCC, which was previously a wholly owned subsidiary of Green Plains until the formation of the GPCC joint venture and partial sale during the third quarter of 2019. The assets and liabilities of GPCC have been reclassified as assets and liabilities of discontinued operations in the prior year. The company entered into a shared service agreement whereby they continued to provide certain administrative services to GPCC and received $400 thousand on a quarterly basis through December 31, 2020, at which time administrative services began to unwind as a result of the disposition of the GPCC joint venture on October 1, 2020. Associated services are not expected to be material in the future. See Note 5 - Acquisitions, Dispositions and Discontinued Operations for further details.
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, interest is capitalized in construction-in-progress.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist 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, 2020, the company adopted the amended guidance in ASC 326, Financial Instruments - Credit Losses, which replaces the current incurred loss impairment method with a method that reflects expected credit losses on financial instruments. The new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2019, and allows for early adoption. The adoption of the new guidance did not have a material impact on the company’s consolidated financial statements.
In December 2019, the FASB issued amended guidance in ASC 740, Income Taxes - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. The company is evaluating the impact of this standard on its consolidated financial statements.
In March 2020, the FASB issued amended guidance in ASC 848, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The guidance is effective upon issuance and to be applied prospectively from any date beginning March 12, 2020 through December 31, 2022. The amended guidance is not expected to have a material impact on the company’s consolidated financial statements.
In August 2020, the FASB issued amended guidance in ASC 470-20, Debt - Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity - Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity. The amended guidance simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The amended guidance also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. The amended guidance is effective for fiscal periods beginning after December 15, 2021, including interim periods within those fiscal periods. Early adoption is permitted, but no earlier than fiscal periods beginning after December 15, 2020. The amended guidance permits the use of either the modified retrospective or fully retrospective method of transition. The company intends on adopting the amended guidance on January 1, 2022 using the modified retrospective method of transition. The company is evaluating the impact of this standard on its consolidated
financial statements and anticipates it will result in an increase to long-term debt and a decrease in additional paid-in-capital as well as a reduction of non-cash interest expense related to the company’s convertible notes.
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) 31 ethanol storage facilities, located at or near the company’s 12 operational ethanol production plants, which have the ability to efficiently and effectively store and load railcars and tanker trucks with all of the ethanol produced at the company’s ethanol production plants, (ii) six 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 2,480 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 1.0 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, 2020, the company owns a 48.9% 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 49.1% limited partner interest in the partnership. 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, expiring on June 30, 2028;
10-year rail transportation services agreement, expiring on June 30, 2025;
1-year trucking transportation agreement, expiring on May 31, 2021;
Terminal services agreement for the Birmingham, Alabama unit train terminal, expiring December 31, 2022; 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 operations 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
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 tables disaggregate revenue by major source (in thousands):
Twelve Months Ended December 31, 2020
Ethanol Production
Agribusiness & Energy Services
Food & Ingredients
Partnership
Eliminations
Total
Revenues:
Revenues from contracts with customers under ASC 606:
Ethanol
$
-
$
-
$
-
$
-
$
-
$
-
Distillers grains
32,032
-
-
-
-
32,032
Corn oil
-
2,938
-
-
-
2,938
Service revenues
-
-
-
4,434
-
4,434
Other
4,306
6,423
-
-
-
10,729
Intersegment revenues
4,463
-
8,411
(12,974)
-
Total revenues from contracts with customers
36,438
13,824
-
12,845
(12,974)
50,133
Revenues from contracts accounted for as derivatives under ASC 815 (1):
Ethanol
1,150,018
287,261
-
-
-
1,437,279
Distillers grains
261,554
41,184
-
-
-
302,738
Corn oil
49,666
33,563
-
-
-
83,229
Grain
32,833
-
-
-
32,875
Other
4,863
12,201
-
-
-
17,064
Intersegment revenues
-
23,005
-
-
(23,005)
-
Total revenues from contracts accounted for as derivatives
1,466,143
430,047
-
-
(23,005)
1,873,185
Leasing revenues under ASC 842 (2)
-
-
-
70,500
(70,099)
Total Revenues
$
1,502,581
$
443,871
$
-
$
83,345
$
(106,078)
$
1,923,719
Twelve Months Ended December 31, 2019
Ethanol Production
Agribusiness & Energy Services
Food & Ingredients
Partnership
Eliminations
Total
Revenues:
Revenues from contracts with customers under ASC 606:
Ethanol
$
$
-
$
-
$
-
$
-
$
Distillers grains
70,729
-
-
-
-
70,729
Service revenues
-
-
-
6,422
-
6,422
Other
2,589
3,684
-
-
-
6,273
Intersegment revenues
-
-
7,126
(7,226)
-
Total revenues from contracts with customers
74,038
3,684
-
13,548
(7,226)
84,044
Revenues from contracts accounted for as derivatives under ASC 815 (1):
Ethanol
1,338,093
522,572
-
-
-
1,860,665
Distillers grains
228,849
42,445
-
-
-
271,294
Corn oil
50,290
28,034
1,451
-
-
79,775
Grain
63,233
-
-
-
63,408
Other
9,270
48,348
-
-
-
57,618
Intersegment revenues
-
27,184
-
-
(27,184)
-
Total revenues from contracts accounted for as derivatives
1,626,677
731,816
1,451
-
(27,184)
2,332,760
Leasing revenues under ASC 842 (2)
-
-
-
68,839
(68,405)
Total Revenues
$
1,700,715
$
735,500
$
1,451
$
82,387
$
(102,815)
$
2,417,238
‎
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
206,905
-
-
-
-
206,905
Vinegar
-
-
108,011
-
-
108,011
Service revenues
-
-
-
5,180
-
5,180
Other
5,369
3,014
-
-
-
8,383
Intersegment revenues
-
9,030
(9,240)
-
Total revenues from contracts with customers
216,263
3,038
108,011
14,210
(9,240)
332,282
Revenues from contracts accounted for as derivatives under ASC 815 (1):
Ethanol
1,618,319
418,956
-
-
-
2,037,275
Distillers grains
198,738
141,140
-
-
-
339,878
Corn oil
66,567
22,623
13,110
-
-
102,300
Grain
81,742
-
-
-
82,262
Other
20,254
68,380
-
-
-
88,634
Intersegment revenues
-
33,077
-
-
(33,077)
-
Total revenues from contracts accounted for as derivatives
1,904,398
765,918
13,110
-
(33,077)
2,650,349
Leasing revenues under ASC 840 (2)
-
-
-
86,538
(85,237)
1,301
Total Revenues
$
2,120,661
$
768,956
$
121,121
$
100,748
$
(127,554)
$
2,983,932
(1)Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC 606, where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC 606 as required by ASC 610-20, Gains and Losses from Derecognition of Nonfinancial Assets.
(2)Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases for 2020 and 2019 and ASC 840, Leases for 2018.
Major Customer
Revenues from Customer A represented 16% and 11% of total revenues for the year ended December 31, 2020 and 2019, respectively and are reported in the ethanol production segment. There were no third party customers that accounted for more than 10% of total revenues for the year ended December 31, 2018.
Payment Terms
The company has standard payment terms, which vary depending upon the nature of the services provided, with the majority falling within 10 to 30 days after transfer of control or completion of services. In instances where the timing of revenue recognition differs from the timing of invoicing, the company has determined that contracts generally do not include a significant financing component.
Contract Liabilities
The company records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of service and lease agreements. Unearned revenue from service agreements, which represents a contract liability, is recorded for fees that have been charged to the customer prior to the completion of performance obligations. Unearned revenue is generally recognized in the subsequent quarter and is not material to the company. The company expects to recognize all of the unearned revenue associated with service agreements as of December 31, 2020, in the subsequent quarter when the inventory is withdrawn from the partnership’s tank storage.
5. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS
ACQUISITIONS
Acquisition of a Majority Interest in Fluid Quip Technologies, LLC
On December 9, 2020, the company acquired a majority interest in Fluid Quip Technologies, LLC. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production of Ultra-High Protein across Green Plains facilities, as well as offer these technologies to partnering biofuel facilities. The agreement contains certain earn-out provisions to be received from the company if certain future results are met, including but not limited to, results of
implementation and execution of technology. We will record the obligation related to the earn-out provision as compensation within selling, general and administrative expenses as the earn-out becomes probable.
The purchase price allocation is based on the preliminary results of an external valuation. The purchase price and purchase price allocation are preliminary until contractual post-closing working capital adjustments and valuations are finalized. The company paid $29.1 million for its interests in Fluid Quip Technologies, of which $2.4 million settled liabilities assumed in conjunction with the acquisition, and recognized $6.7 million of noncontrolling interest as part of the FQT 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
Cash and restricted cash
$
8,911
Accounts receivable (1)
5,446
Inventory
3,037
Intangible assets
30,803
Other assets
2,059
Current liabilities (1)
(13,708)
Other long term liabilities
(743)
Total identifiable net assets
$
35,805
(1)Accounts receivable contain $3.4 million of pre-existing receivables owed by the company, and current liabilities contain $5.8 million in deferred revenues associated with services to be performed for the company. These net to $2.4 million in liabilities assumed that were effectively settled at the time of acquisition of FQT.
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 assets acquired and liabilities assumed (in thousands):
Amounts of Identifiable Assets Acquired and Liabilities Assumed
Accounts receivable
$
1,897
Inventory
104,809
Property and equipment, net
16,190
Current liabilities
(118)
Total identifiable net assets
$
122,778
The amounts above reflect the final purchase price allocation, which included working capital true-up payments by the company of $0.9 million made during 2018. After the disposition of GPCC, the assets and liabilities of the acquired feedlots were reclassified as discontinued operations. See Disposition of Equity Interest in Green Plains Cattle Company LLC and Disposition of Green Plains Cattle Company LLC described below.
DISPOSITIONS
Disposition of Hereford Ethanol Plant
On December 28, 2020, the company completed the sale of the ethanol plant located in Hereford, Texas, and certain related assets, to Hereford Ethanol Partners, L.P. for the sale price of $39.0 million, plus working capital. Correspondingly, the partnership’s ethanol storage assets located adjacent to such plants were sold to the company for $10.0 million, and certain railcar operating leases were assigned to Hereford Ethanol Partners, L.P. The divested assets were reported within the company’s ethanol production, agribusiness and energy and partnership segments. The company recorded a pretax loss on the sale of the ethanol plant of $22.4 million, of which a loss of $18.5 million was recorded within corporate activities and a loss
of $3.9 million was recorded within the ethanol production segment. Transaction fees related to the disposal were not material. The agreement contains certain earn-out provisions to be received from the buyers if certain provisions are met. The company will record any contingent amounts in the consolidated financial statements when the amount is reasonably determinable or the consideration is realized.
The asset and liabilities of the Hereford ethanol plant at closing on December 28, 2020 were as follows: (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Inventory
$
8,140
Prepaid expenses and other
Property and equipment
54,279
Operating lease right-of-use-assets
5,096
Accrued and other liabilities
(870)
Operating lease current liabilities
(977)
Operating lease long-term liabilities
(4,201)
Long-term liabilities
(186)
Total identifiable net assets disposed
$
61,477
The amounts reflected above represent working capital estimates which are considered preliminary until contractual post-closing working capital adjustments are finalized.
Disposition of Equity Interest in Green Plains Cattle Company LLC
On October 1, 2020, pursuant to the Securities Purchase Agreement, the company sold its remaining 50% joint venture interest in GPCC to AGR, TGAM Agribusiness Fund LP and StepStone (the “Buyers”) for $80.5 million in cash, plus closing adjustments. The transaction resulted in a reduction in other assets of $69.7 million as a result of the removal of the equity method investment in GPCC, and a reduction in accumulated other comprehensive income (loss) of $10.7 million as a result of the removal of the company’s share of equity method investees accumulated other comprehensive loss. Transaction fees related to the disposal were not material. There was no material gain or loss recorded as part of this transaction. The Securities Purchase Agreement contains certain earn-out provisions to be paid to or received from the Buyers if certain EBITDA thresholds are met. The company will record any contingent amounts associated with the earn-out provision in the consolidated financial statements when the amount is probable and reasonably determinable or the consideration is realized. See Note 21 - Equity Method Investments for further details.
Disposition of Fleischmann’s Vinegar
On November 27, 2018, the company and Green Plains II LLC, an indirect wholly-owned subsidiary of the company, completed the sale of Fleischmann’s Vinegar Company, Inc. to Kerry Holding Co. (“Kerry”). The company received as net consideration from Kerry $354.0 million in cash and restricted cash, excluding net working capital adjustments. The divested assets were reported within the company’s food and ingredients segment. The company recorded a pretax gain on the sale of Fleischmann’s Vinegar of $58.2 million, including offsetting related transaction costs of $7.4 million within corporate activities.
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The assets and liabilities of Fleischmann’s Vinegar at closing on November 27, 2018 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Cash
$
2,107
Accounts receivable, net
16,142
Inventory
15,167
Prepaid expenses and other
Property and equipment
64,552
Other assets
79,389
Current liabilities
(8,837)
Deferred tax liabilities
(26,617)
Total identifiable net assets
142,756
Goodwill
142,002
Net assets disposed
$
284,758
The amounts above reflect the final purchase price allocation, including a working capital payment made to and received from Kerry of $0.3 million and $0.3 million during the first and third quarters of 2019, respectively.
Disposition of Bluffton, Lakota and Riga Ethanol Plants
On November 15, 2018, the company completed the sale of 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 $323.2 million, including net working capital and other adjustments. Correspondingly, the partnership’s storage assets located adjacent to such plants were sold to Green Plains Inc. for $120.9 million. The company received as consideration from Valero approximately $323.2 million, while the partnership received as consideration from the company 8.7 million partnership units and a portion of the general partner interest equating to 0.2 million equivalent limited partner units to maintain the general partner’s 2% interest. In addition, the partnership also received additional consideration of approximately $2.7 million from Valero for the assignment of certain railcar operating leases. The divested assets were reported within the company’s ethanol production, agribusiness and energy services and partnership segments. The company recorded a pretax gain on the sale of the three ethanol plants of $92.2 million, of which $89.5 million was recorded within corporate activities 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 corporate activities and $0.5 million were recorded within the partnership segment.
The assets and liabilities of the Bluffton, Lakota and Riga ethanol plants at closing on November 15, 2018 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Inventory
$
36,812
Prepaid expenses and other
Property and equipment
184,970
Other assets
1,717
Current liabilities
(746)
Other liabilities
(4,706)
Total identifiable net assets
218,236
Goodwill
6,188
Net assets disposed
$
224,424
The amounts above reflect the final working capital true-up payments by Valero of $3.4 million received during the first quarter of 2019.
The company determined that the dispositions noted above did not meet the criteria for discontinued 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.
Disposition of Green Plains Cattle Company LLC
On September 1, 2019, the company, TGAM and StepStone formed a joint venture and entered into the LLC Agreement. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains for approximately $76.9 million in cash. There was no gain or loss recorded as part of this transaction. The LLC Agreement contains certain earn-out or bonus provisions to be paid by or received from GPCC if certain EBITDA thresholds are met. Pursuant to the bonus provision, on August 31, 2020, Green Plains earned $2.0 million which has been recorded within loss (gain) on sale of assets, net on the consolidated statements of operations for the year ended December 31, 2020.
The assets and liabilities of the GPCC at closing on September 1, 2019 were as follows (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished
Cash
$
Accounts receivable, net
17,920
Inventory
387,534
Derivative financial instruments
48,189
Property and equipment
71,678
Other assets
2,291
Current liabilities
(49,297)
Short-term notes payable and other borrowings
(38)
Current maturities of long-term debt
(324,028)
Long-term debt
(80)
Other liabilities
(403)
Total identifiable net assets disposed
$
153,768
DISCONTINUED OPERATIONS
After closing on September 1, 2019, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20. As such, GPCC results prior to its disposition are classified as discontinued operations for the years ended December 31, 2019 and 2018. Financial results of GPCC were previously recorded within the food and ingredients segment.
‎
Summarized Results of Discontinued Operations
The following table presents the results of our discontinued operations for the periods presented. GPCC was disposed of on September 1, 2019, and as such, operational results through August 31, 2019 are included in the fiscal year 2019 amounts presented below (in thousands).
Year Ended December 31,
2019 (1)
2018 (1)
Product revenues
$
638,122
$
884,072
Costs and expenses
Cost of goods sold (excluding depreciation and amortization expenses reflected below)
614,671
845,160
Selling, general and administrative expenses
5,931
7,775
Depreciation and amortization expenses
4,198
5,361
Total costs and expenses
624,800
858,296
Operating income
13,322
25,776
Other income (expense)
Interest income
Interest expense
(12,417)
(13,576)
Other, net
-
2,613
Total other expense
(12,235)
(10,816)
Income before income taxes
1,087
14,960
Income tax expense
(258)
(3,421)
Net income
$
$
11,539
(1)Product revenues, costs of goods sold and selling, general and administrative expenses include certain revenue and expense items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue and costs of goods sold transactions total $14.5 million and $24.6 million for the years ended December 31, 2019 and 2018, respectively.
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 values, which represent differences in local markets including transportation or commodity quality or grade differences.
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, 2020
Quoted Prices in
‎Active Markets for
‎Identical Assets
Significant Other
‎Observable Inputs
(Level 1)
(Level 2)
Total
Assets:
Cash and cash equivalents
$
233,860
$
-
$
233,860
Restricted cash
40,950
-
40,950
Inventories carried at market
-
77,900
77,900
Unrealized gains on derivatives
-
21,956
21,956
Other assets
Total assets measured at fair value
$
274,922
$
99,885
$
374,807
Liabilities:
Accounts payable (1)
$
-
$
19,355
$
19,355
Unrealized losses on derivatives
-
10,997
10,997
Total liabilities measured at fair value
$
-
$
30,352
$
30,352
Fair Value Measurements at December 31, 2019
Quoted Prices in
‎Active Markets for
‎Identical Assets
Significant Other
‎Observable Inputs
(Level 1)
(Level 2)
Total
Assets:
Cash and cash equivalents
$
245,977
$
-
$
245,977
Restricted cash
23,919
-
23,919
Inventories carried at market
-
73,318
73,318
Unrealized gains on derivatives
-
14,515
14,515
Other assets
-
Total assets measured at fair value
$
270,009
$
87,833
$
357,842
Liabilities:
Accounts payable (1)
$
-
$
37,294
$
37,294
Unrealized losses on derivatives
-
7,771
7,771
Total liabilities measured at fair value
$
-
$
45,065
$
45,065
(1)Accounts payable is generally stated at historical amounts with the exception of $19.4.million and $37.3 million at December 31, 2020 and 2019, 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 fair value of the company’s debt was approximately $535.9 million compared with a book value of $526.2 million at December 31, 2020. The fair value of the company’s debt approximated book value, which was $564.4 million at December 31, 2019. 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 $55.6 million and $107.2 million, respectively, at December 31, 2020 and 2019.
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, including industrial-grade alcohol, distillers grains, Ultra-High Protein 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, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil 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, excluding amounts related to discontinued operations (in thousands):
Year Ended December 31,
Revenues:
Ethanol production:
Revenues from external customers
$
1,502,481
$
1,700,615
$
2,120,475
Intersegment revenues
Total segment revenues
1,502,581
1,700,715
2,120,661
Agribusiness and energy services:
Revenues from external customers
416,403
708,316
735,855
Intersegment revenues
27,468
27,184
33,101
Total segment revenues
443,871
735,500
768,956
Food and ingredients:
Revenues from external customers
-
1,451
121,121
Intersegment revenues
-
-
-
Total segment revenues
-
1,451
121,121
Partnership:
Revenues from external customers
4,835
6,856
6,481
Intersegment revenues
78,510
75,531
94,267
Total segment revenues
83,345
82,387
100,748
Revenues including intersegment activity
2,029,797
2,520,053
3,111,486
Intersegment eliminations
(106,078)
(102,815)
(127,554)
Revenues as reported
$
1,923,719
$
2,417,238
$
2,983,932
Refer to Note 4 - Revenue, for further disaggregation of revenue by operating segment.
Year Ended December 31,
Cost of goods sold:
Ethanol production
$
1,507,335
$
1,791,099
$
2,118,787
Agribusiness and energy services
409,407
696,226
717,772
Food and ingredients
-
1,526
94,679
Partnership
-
-
-
Intersegment eliminations
(104,579)
(103,904)
(124,270)
$
1,812,163
$
2,384,947
$
2,806,968
Year Ended December 31,
Operating income (loss):
Ethanol production (1)
$
(129,618)
$
(178,575)
$
(111,823)
Agribusiness and energy services
15,773
22,777
29,076
Food and ingredients
-
(76)
14,354
Partnership
50,437
50,635
64,770
Intersegment eliminations
(1,400)
1,188
(3,110)
Corporate activities (2)
(57,888)
(38,519)
96,687
$
(122,696)
$
(142,570)
$
89,954
(1)Operating loss for the ethanol production segment for fiscal year 2020 includes a goodwill impairment charge of $24.1 million and $3.9 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant.
(2)Corporate activities for fiscal year 2020 include a goodwill impairment charge of $24.1 million, $18.5 million pretax loss on sale of assets from the sale of the Hereford, Texas ethanol plant and a $1.5 million net gain from sale of GPCC. Fiscal year 2018 includes a $150.4 million gain on the sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants, as well as Fleischmann’s Vinegar during the fourth quarter.
Year Ended December 31,
Depreciation and amortization:
Ethanol production
$
67,956
$
63,073
$
80,227
Agribusiness and energy services
2,512
2,222
2,470
Food and ingredients
-
-
7,553
Partnership
3,806
3,441
4,442
Corporate activities
3,970
3,391
3,566
$
78,244
$
72,127
$
98,258
Year Ended December 31,
Capital expenditures:
Ethanol production
$
109,970
$
72,374
$
27,322
Agribusiness and energy services
1,195
2,251
Food and ingredients
-
-
9,025
Partnership
1,268
Corporate activities
1,542
$
111,799
$
76,472
$
38,343
The following table sets forth total assets by operating segment (in thousands):
Year Ended December 31,
Total assets (1):
Ethanol production
$
852,959
$
884,293
Agribusiness and energy services
426,724
410,400
Partnership
91,205
90,011
Corporate assets
228,074
324,280
Intersegment eliminations
(20,045)
(10,766)
$
1,578,917
$
1,698,218
(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, 2020, there was no lower cost of market inventory adjustment recorded. The company recorded a $6.6 million lower of cost or market inventory adjustment reflected in cost of goods sold within the ethanol production segment as of December 31, 2019.
‎
The components of inventories are as follows (in thousands):
December 31,
Finished goods
$
89,223
$
85,975
Commodities held for sale
40,147
42,836
Raw materials
90,800
77,900
Work-in-process
13,201
13,523
Supplies and parts
36,120
32,758
$
269,491
$
252,992
9. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
December 31,
Plant equipment
$
940,363
$
911,097
Buildings and improvements
170,813
168,309
Land and improvements
86,909
92,321
Railroad track and equipment
34,637
34,404
Construction-in-progress
48,378
60,262
Computer hardware and software
20,477
19,368
Office furniture and equipment
3,797
3,716
Leasehold improvements and other
26,510
24,471
Total property and equipment
1,331,884
1,313,948
Less: accumulated depreciation and amortization
(530,194)
(486,677)
Property and equipment, net
$
801,690
$
827,271
10. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The company had two reporting units, to which goodwill was assigned. We are required to perform impairment tests related to our goodwill annually, which we perform as of October 1, or sooner if an indicator of impairment occurs. Near term industry outlook due to the significant decrease in crude oil prices, lower gasoline demand, general uncertainty due to the COVID-19 outbreak and the subsequent decline in our stock price caused a decline in the company’s market capitalization during the three months ended March 31, 2020. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill as of March 31, 2020. Significant assumptions inherent in the valuation methodologies for goodwill were employed and included, but were not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit did not exceed its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was impaired and recorded a non-cash impairment charge of $24.1 million.
During the first half of 2020, a decline in the partnership’s stock price resulted in a decrease in the partnership’s market capitalization. As such, the company determined a triggering event had occurred that required an interim impairment assessment as of March 31, 2020 and June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill impairment testing were employed and include market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the partnership’s quantitative evaluation as of March 31, 2020 and June 30, 2020, it was determined that the fair value of the partnership reporting unit substantially exceeded its carrying value, and the partnership concluded that the goodwill was not impaired. During the three months ended September 30, 2020, the company did not identify any triggering events, and as such, no impairment assessment was deemed necessary.
The company performed the annual goodwill assessment as of October 1, 2020, and given the quantitative work performed during previous quarters as described above, the partnership used a qualitative assessment, which resulted in no goodwill impairment.
‎
Changes in the carrying amount of goodwill attributable to each business segment during the years ended December 31, 2020 and 2019 were as follows (in thousands):
Ethanol
Production
Partnership
Total
Balance, December 31, 2018
$
24,091
$
10,598
$
34,689
Balance, December 31, 2019 (1)
$
24,091
$
10,598
$
34,689
Impairment charge
(24,091)
-
(24,091)
Balance, December 31, 2020 (1)
$
-
$
10,598
$
10,598
(1)The company records goodwill within other assets on the consolidated balance sheets.
Intangible Assets
The company recognized certain customer relationships, intellectual property and trade names in connection with the FQT acquisition during the fourth quarter 2020. As of December 31, 2020, the company’s intangible asset balance related to FQT was $30.6 million, which primarily consisted of $18.8 million of customer relationship and backlog assets, $10.4 million of intellectual property and $1.4 million of trade name assets, net of $0.2 million of accumulated amortization, and has a remaining 12-year weighted-average amortization period. The company recognized $0.2 million of amortization expense associated with amortization of these intangible assets during fiscal year 2020, and expects estimated amortization expense of $5.9 million, $5.1 million, $3.1 million, $2.7 million and $2.4 million, respectively for the years ended December 31, 2021, 2022, 2023, 2024 and 2025, as well as $11.4 million thereafter. The company’s intangible assets are recorded within other assets on the consolidated balance sheets.
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 of amortization expense associated with amortizing the customer relationship intangible asset during the year ended December 31, 2018.
11. DERIVATIVE FINANCIAL INSTRUMENTS
At December 31, 2020, the company’s consolidated balance sheet reflected unrealized losses of $2.2 million, net of tax, in accumulated other comprehensive loss. The company expects these items 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,
Derivative financial instruments
$
21,956
(1)
$
14,515
(2)
$
10,997
(3)
$
7,771
Other assets
-
-
-
Total
$
21,985
$
14,515
$
10,997
$
7,771
(1)At December 31, 2020, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $3.3 million, which include $2.8 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.
(2)At December 31, 2019, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $3.4 million, which include $0.1 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.
(3)At December 31, 2020, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of $9.3 million, none of which were 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 Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Location of Gain (Loss) Reclassified from
Year Ended December 31,
Accumulated Other Comprehensive Income into Income
Revenues
$
5,538
$
-
$
3,648
Cost of goods sold
(2,115)
-
1,258
Net income (loss) from discontinued operations, net of income taxes
-
48,797
(14,462)
Net gain (loss) recognized in loss before tax
$
3,423
$
48,797
$
(9,556)
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives
Gain (Loss) Recognized in
Year Ended December 31,
Other Comprehensive Income on Derivatives
Commodity Contracts
$
(1,025)
$
70,404
$
(9,642)
Location of Gain (Loss)
Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives Not Designated
Recognized in
Year Ended December 31,
as Hedging Instruments
Income on Derivatives
Commodity contracts
Revenues
$
(10,813)
$
(10,202)
$
11,565
Commodity contracts
Costs of goods sold
32,914
(2,442)
21,101
Commodity contracts
Net income (loss) from discontinued operations, net of income taxes
-
(2,470)
(3,607)
$
22,101
$
(15,114)
$
29,059
The following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):
December 31, 2020
December 31, 2019
Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included
Carrying Amount of the Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Carrying Amount of the Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Inventories
$
53,963
$
9,041
$
55,021
$
(2,808)
‎
Effect of Cash Flow and Fair Value Hedge Accounting on the Statements of Operations
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Year Ended December 31, 2020
Revenue
Cost of
‎Goods Sold
Net Income from Discontinued Operations, Net of Income Taxes
Gain (loss) on cash flow hedging relationships:
Commodity contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
$
5,538
$
(2,115)
$
-
Gain (loss) on fair value hedging relationships:
Commodity contracts:
Hedged item
-
5,098
-
Derivatives designated as hedging instruments
-
(3,752)
-
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow or fair value hedges are recorded
$
5,538
$
(769)
$
-
Location and Amount of Gain Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Year Ended December 31, 2019
Revenue
Cost of
‎Goods Sold
Net Income from Discontinued Operations, Net of Income Taxes
Gain on cash flow hedging relationships:
Commodity contracts:
Amount of gain reclassified from accumulated other comprehensive income into income
$
-
$
-
$
48,797
Gain (loss) on fair value hedging relationships:
Commodity contracts:
Hedged item
-
(844)
-
Derivatives designated as hedging instruments
-
4,254
-
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow or fair value hedges are recorded
$
-
$
3,410
$
48,797
‎
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Year Ended December 31, 2018
Revenue
Cost of
‎Goods Sold
Net Income from Discontinued Operations, Net of Income Taxes
Gain (loss) on cash flow hedging relationships:
Commodity contracts:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
$
3,648
$
1,258
$
(14,462)
Gain (loss) on fair value hedging relationships:
Commodity contracts:
Hedged item
-
13,681
-
Derivatives designated as hedging instruments
-
(12,304)
-
Total amounts of income and expense line items presented in the consolidated statement of operations in which the effects of cash flow or fair value hedges are recorded
$
3,648
$
2,635
$
(14,462)
There were no gains or losses from discontinuing cash flow or fair value hedge treatment during the years ended December 31, 2020, 2019 and 2018.
The open commodity derivative positions as of December 31, 2020, are as follows (in thousands):
December 31, 2020
Exchange Traded
Non-Exchange Traded
Derivative Instruments
Net Long & (Short) (1)
Long (2)
(Short) (2)
Unit of Measure
Commodity
Futures
(27,245)
Bushels
Corn and Soybeans
Futures
45,520
(3)
Bushels
Corn
Futures
(7,430)
(4)
Bushels
Corn
Futures
(161,070)
Gallons
Ethanol
Futures
(134,946)
(3)
Gallons
Ethanol
Futures
(14,200)
mmBTU
Natural Gas
Futures
(6,888)
(4)
mmBTU
Natural Gas
Futures
Tons
Soybean Meal
Options
Tons
Soybean Meal
Options
73,973
Pounds
Soybean Oil
Options
6,168
Bushels
Corn
Options
Gallons
Ethanol
Options
mmBTU
Natural Gas
Forwards
41,357
(302)
Bushels
Corn and Soybeans
Forwards
-
(147,432)
Gallons
Ethanol
Forwards
(343)
Tons
Distillers Grains
Forwards
(47,057)
Pounds
Corn Oil
Forwards
11,242
(931)
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 used for fair value hedges.
Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Included in revenues are net gains of $3.0 million, $12.3 million, and $23.1 million for the years ended December 31, 2020, 2019, and 2018 respectively, on energy trading contracts.
12. DEBT
The components of long-term debt are as follows (in thousands):
December 31,
Corporate:
$170.0 million convertible notes due 2022 (1)
$
156,441
$
149,256
$115.0 million convertible notes due 2024 (2)
89,125
83,497
Green Plains Partners:
$135.0 million credit facility (3)
100,000
132,100
Green Plains Wood River and Green Plains Shenandoah:
$75.0 million delayed draw loan agreement (4)
30,000
-
Other
15,936
16,512
Total book value of long-term debt
391,502
381,365
Unamortized debt issuance costs
(6,151)
(4,820)
Less: current maturities of long-term debt
(98,052)
(132,555)
Total long-term debt
$
287,299
$
243,990
(1)Includes $1.3 million and $2.0 million of unamortized debt issuance costs as of December 31, 2020 and 2019, respectively.
(2)Includes $2.2 million and $2.8 million of unamortized debt issuance costs as of December 31, 2020 and 2019, respectively.
(3)The Green Plains Partners credit facility was amended on June 4, 2020 and includes $2.3 million of unamortized debt issuance costs as of December 31, 2020. Additionally, the credit facility is included in current maturities of long-term debt on the consolidated balance sheet as of December 31, 2020 as its maturity date is December 31, 2021. See below for further discussion.
(4)On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a $75.0 million delayed draw loan agreement. The delayed draw loan includes $0.3 million of unamortized debt issuance costs as of December 31, 2020.
Scheduled long-term debt repayments, including full accretion of the $170.0 million convertible notes due 2022 and of the $115.0 million convertible notes due 2024 at maturity but excluding the effects of any debt discounts and debt issuance costs, are as follows (in thousands):
Year Ending December 31,
Amount
$
100,313
171,831
1,815
116,819
1,804
Thereafter
38,354
Total
$
430,936
The components of short-term notes payable and other borrowings are as follows (in thousands):
December 31,
Green Plains Trade:
$300.0 million revolver
$
79,251
$
138,204
Green Plains Grain:
$100.0 million revolver
38,700
40,000
$50.0 million inventory financing
-
-
Green Plains Commodity Management:
$30.0 million hedge line
21,682
9,608
Other
1,175
-
Total short-term notes payable and other borrowings
$
140,808
$
187,812
Corporate Activities
During 2019, the company issued an aggregate $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations of the company, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The 4.00% notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased. The 4.00% notes will be convertible, at the option of the holders, into consideration consisting of, at the company’s election, cash, shares of the company’s common stock, or a combination of
cash and shares of the company’s common stock until the close of business on the scheduled trading day immediately preceding the maturity date. However, before January 1, 2024, the 4.00% notes will not be convertible unless certain conditions are satisfied. The initial conversion rate is 64.1540 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $15.59 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events. In addition, the company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the company’s calling the 4.00% notes for redemption.
On and after July 1, 2022, and prior to the maturity date, the company may redeem all, but not less than all, of the 4.00% notes for cash if the sale price of the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal amount of the 4.00% notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change, holders of the 4.00% notes will have the right, at their option, to require the company to repurchase the 4.00% notes in cash at a price equal to 100% of the principal amount of the 4.00% notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
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 initial conversion rate is 35.7143 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including upon redemption of the 4.125% notes.
The company may redeem all, but not less than all, of the 4.125% notes at any time on or after September 1, 2020, if the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal plus any accrued and unpaid interest. Holders of the 4.125% notes have the option to require the company to repurchase the 4.125% notes in cash at a price equal to 100% of the principal plus accrued and unpaid interest when there is a fundamental change, such as change in control. If an event of default occurs, it could result in the 4.125% notes being declared due and payable.
Agribusiness and Energy Services Segment
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 a $100.0 million senior secured asset-based revolving credit facility, which matures on June 28, 2022. The credit facility finances working capital up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible cash, receivables and inventories, less miscellaneous adjustments. 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 $225.0 million. Depending on utilization, the total unused portion of the $100.0 million revolving credit facility is also subject to a commitment fee ranging from 0.375% to 0.50%.
Lenders receive a first priority lien on certain cash, inventory, accounts receivable and other assets owned by Green Plains Grain. The terms impose affirmative and negative covenants for Green Plains Grain, including maintaining minimum working capital to be the greater of (i) $18,000,000 and (ii) 18% of the sum of the then total commitment plus the aggregate
seasonal line commitments. Minimum tangible net worth is required to be greater than 21% of the sum of the then total commitment plus the aggregate seasonal line commitments. The credit facility also requires the company to maintain a maximum annual leverage of 6.00 to 1.00. Capital expenditures are limited to $8.0 million per year under the credit facility, plus equity contributions from the company and unused amounts of up to $8.0 million from the previous year. In addition, if the company has long-term indebtedness on the date of calculation of greater than $10.0 million, the credit facility requires the company to maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum long term debt capitalization of 40%.
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, 2020.
Green Plains Commodity Management has an uncommitted $30.0 million revolving credit facility, which matures April 30, 2023, is used to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBOR plus 1.75%.
Ethanol Production Segment
On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a delayed draw loan agreement with MetLife Real Estate Lending LLC. The $75.0 million delayed draw loan matures on September 1, 2035 and is secured by substantially all of the assets of the Wood River and Shenandoah facilities. The proceeds from the loan will be used to add high protein processing systems at the Wood River and Shenandoah facilities as well as other capital expenditures.
The delayed draw loan bears interest at a fixed rate of 5.02%, plus an interest rate premium of 1.5% until the loan is fully drawn, which must occur within the 18 month draw period. After the earlier of the 18 month draw period or the loan being fully drawn, the interest rate premium may be adjusted quarterly from 0.00% to 1.50% based on the leverage ratio of total funded debt to EBITDA of Wood River and Shenandoah. Principal payments of $1.5 million per year begin 24 months from the closing date. Prepayments are prohibited until September 2024. Financial covenants of the delayed draw loan agreement include a minimum loan to value ratio of 50%, a minimum fixed charge coverage ratio of 1.25x commencing on June 30, 2021, a total debt service reserve of six months of future principal and interest payments and a minimum working capital requirement at Green Plains of not less than $0.10 per gallon of nameplate capacity or $102.3 million. The loan is guaranteed by the company and has certain limitations on distributions, dividends or loans to Green Plains by Wood River and Shenandoah unless immediately after giving effect to such action, there will not exist any event of default.
The company also has small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a $135.0 million credit facility to fund working capital, capital expenditures and other general partnership purposes. The credit facility was amended on June 4, 2020, decreasing the size of the facility from $200.0 million to $135.0 million. The amended credit facility consists of a $130.0 million term loan and a $5.0 million revolver, and matures on December 31, 2021. The partnership made $30.0 million in principal payments on the term loan during fiscal year 2020 including $10.0 million related to the sale of the Hereford, Texas ethanol plant. As of December 31, 2020, no additional prepayments on the term loan were required or paid. Monthly principal payments of $2.5 million are required October 15, 2020 through April 15, 2021, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity.
In certain situations we are required to make prepayments on the outstanding principal balance on the credit facility. If at any time our cash balance exceeds $2.5 million for more than five consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. The partnership is also required to prepay outstanding principal on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment.
The term loan balance, and any advances on the revolver, are subject to a floating interest rate based on a 1.0% LIBOR floor plus 4.50% to 5.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. However, if less than $40.0 million of prepayments in excess of the scheduled monthly payments have been made prior to April 1, 2021, the term loan balance and any advances on the revolver will be subject to a floating rate based on a 1.00% Libor floor plus 5.00% to
5.75% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. The unused portion of the revolver is also subject to a commitment fee of 0.50%. The credit facility also allows for swing line loans subject to the revolver availability. Swing line loans are subject to a floating interest rate based on the Prime Rate plus 3.5% to 4.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. Under the terms of the credit facility, swing line loans must be repaid within 10 days of the date of the advance. As of December 31, 2020, the term loan had a balance of $100.0 million and an interest rate of 6.00% and there were no outstanding swing line loans.
The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the equity interests 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 any 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 and (iv) substantially all of the partnership’s real property and material leases of real property. The terms impose affirmative and negative covenants, including restrictions on 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 leverage ratio, as of the end of any fiscal quarter, of no more than 3.0x that decreases 0.25x each quarter to 1.50x by December 31, 2021, and a minimum consolidated debt service coverage ratio of 1.1x, 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 by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated debt service coverage ratio is calculated by taking the sum of the four preceding fiscal quarters’ consolidated EBITDA minus income taxes and consolidated capital expenditures for such period divided by the sum of the four preceding fiscal quarters’ consolidated interest charges plus consolidated scheduled funded debt payments for such period.
Under the amended terms of the credit facility, the partnership may make quarterly distribution payments in an aggregate amount not to exceed $0.12 per outstanding unit, so long as (i) no default has occurred and is continuing, or would result from payment of the distribution, and (ii) the partnership and its subsidiaries are in compliance with its financial covenants and remain in compliance after payment of the distribution. The credit facility is not guaranteed by the company.
The facility, which is supported by a group of financial institutions, will mature on December 31, 2021 unless extended by agreement of the lenders or replaced by another funding source. While the partnership has not yet renegotiated the credit facility or secured additional funding necessary to repay the loan, the partnership believes it is probable that it will source appropriate funding given the partnership’s consistent and stable fee-based cash flows, ongoing profitability, low debt leverage and history of obtaining financing on reasonable commercial terms. In the unlikely scenario that the partnership is unable to refinance its debt with the lenders prior to its maturity, the partnership will consider other financing sources, including but not limited to, the restructuring or issuance of new debt with a different lending group, the issuance of additional partnership units, other strategic actions to extinguish the debt, or support from the company.
In June 2013, the partnership, through a wholly owned subsidiary, Birmingham BioEnergy, was a recipient of qualified low income community investment notes in conjunction with New Markets Tax Credits financing related to the Birmingham, Alabama terminal. Two promissory notes payable of $1.9 million and $8.1 million, and a note receivable of $8.1 million, were issued in connection with this transaction. On December 31, 2019, the parties to the transaction executed certain provisions under the agreements whereby the promissory notes payable totaling $10.0 million were assigned to BlendStar in satisfaction of the $8.1 million note receivable. The partnership previously accounted for the $1.9 million promissory note payable as grant revenue, which was reflected as a reduction in the carrying value of the property and equipment at Birmingham BioEnergy and recognized in earnings as a decrease in depreciation expense over the useful life of the assets. The remaining $8.1 million promissory note payable and note receivable between Birmingham BioEnergy and BlendStar were forgiven in conjunction with the closing on December 31, 2019.
Covenant Compliance
The company was in compliance with its debt covenants as of December 31, 2020 and 2019.
Restricted Net Assets
At December 31, 2020, there were approximately $77.7 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
On May 6, 2020, the shareholders of the company approved the 2019 Equity Incentive Plan which granted an additional 1.6 million shares of common stock for stock-based compensation. All shares remaining under the 2009 Equity Incentive Plan rolled into the 2019 Equity Incentive Plan effective May 6, 2020. The 2019 Equity Inventive Plan reserves 5.7 million shares of common stock for issuance to its directors and employees. The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, 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.
Grants under the equity incentive plans may include stock options, stock awards, performance share awards or deferred stock units:
Restricted Stock Awards - Restricted stock 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.
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.
Performance Share Awards - Performance share awards may be granted to directors and employees 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.
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 could have been exercised immediately or at future vesting dates, and expired 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 and Deferred Stock Units
The non-vested restricted stock award and deferred stock unit activity for the year ended December 31, 2020, are as follows:
Non-Vested
‎Shares and
‎Deferred
‎Stock Units
Weighted-
‎Average Grant-
‎Date Fair Value
Weighted-Average
‎Remaining
‎Vesting Term
‎(in years)
Non-Vested at December 31, 2019
751,315
$
17.48
Granted
650,745
9.79
Forfeited
(21,241)
16.01
Vested
(352,080)
18.83
Non-Vested at December 31, 2020
1,028,739
$
12.18
1.7
Performance Share Awards
On March 18, 2020, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the level of achievement of certain performance goals, including the incremental value achieved from the company’s high-protein initiatives, annual production levels and return on investment (ROI). Performance shares granted in 2020 do not contain market based factors requiring a Monte Carlo valuation model. The performance shares were granted at a target of 100%, but each performance share will reduce or increase depending on results for the performance period. If the company achieves the maximum performance goals, the
maximum amount of shares available to be issued pursuant to the 2020 awards are 641,823 performance shares which represents approximately 276% of the 232,566 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual performance targets achieved at the end of the performance period.
On February 19, 2019 and March 19, 2018, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the company’s average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on the third anniversary of the grant, if the RONA and TSR criteria are achieved and the participant is then employed by the company. 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 reduce or increase depending on results for the performance period for the company's RONA, and the company’s TSR relative to that of the performance peer group. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to the 2018 and 2019 awards are 428,104 performance shares or 150% of the 285,403 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.
For performance shares which include market based factors, the company uses 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 and related valuation are illustrated in the following table:
FY 2019 Performance Awards
FY 2018 Performance Awards
Risk-free interest rate
2.45
%
2.44
%
Dividend yield
3.13
%
2.64
%
Expected volatility
41.69
%
45.11
%
Monte Carlo valuation
99.62
%
97.39
%
Closing stock price on the date of grant
$
15.34
$
18.15
The non-vested performance share award activity for the year ended December 31, 2020, is as follows:
Performance
‎Shares
Weighted-
‎Average Grant-
‎Date Fair Value
Weighted-Average
‎Remaining
‎Vesting Term
‎(in years)
Non-Vested at December 31, 2019
285,403
$
16.38
Granted
232,566
10.64
Non-Vested at December 31, 2020
517,969
$
13.80
1.8
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 not grant any stock option awards during the years ended December 31, 2020, 2019 and 2018.
‎
The activity related to the exercisable stock options for the year ended December 31, 2020, is as follows:
Shares
Weighted-
‎Average
‎Exercise Price
Weighted-Average
‎Remaining
‎Contractual Term
‎(in years)
Aggregate
‎Intrinsic Value
‎(in thousands)
Outstanding at December 31, 2019
10,000
$
16.95
0.2
$
-
Expired
(10,000)
16.95
-
-
Outstanding at December 31, 2020
-
$
-
-
$
-
Exercisable at December 31, 2020
-
$
-
-
$
-
Green Plains Partners
Green Plains Partners has a long-term incentive plan (LTIP) intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation awards to employees, consultants and directors to encourage superior performance. The LTIP reserves 2,500,000 common limited partner units for issuance in the form of options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profit 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, 2020, are as follows:
Non-Vested
‎Shares and
‎Deferred
‎Stock Units
Weighted-
‎ Average
‎ Grant-Date
‎Fair Value
Weighted-Average
‎Remaining
‎Vesting Term
‎(in years)
Non-Vested at December 31, 2019
22,856
$
14.00
Granted
47,620
6.72
Vested
(22,856)
14.00
Non-Vested at December 31, 2020
47,620
$
6.72
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, 2020, 2019 and 2018, were approximately $7.9 million, $9.7 million and $11.4 million, respectively. At December 31, 2020, there were $9.6 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 1.7 years. The potential tax benefit related to stock-based payment is approximately 24.0% 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.
The company computed diluted EPS by dividing net income on an if-converted basis, adjusted to add back net interest expense related to the convertible debt instruments, by the weighted average number of common shares outstanding during the period, adjusted to include the shares that would be issued if the convertible debt instruments were converted to common shares and the effect of any outstanding dilutive securities. In addition, due to the presentation of GPCC as discontinued operations, the company has presented basic and diluted earnings per share from both continuing operations and from discontinued operations.
‎
The basic and diluted EPS are calculated as follows (in thousands):
Year Ended December 31,
Basic EPS:
Net income (loss) from continuing operations (1)
$
(108,775)
$
(167,689)
$
4,384
Net income from discontinued operations
-
11,539
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
Weighted average shares outstanding - basic
34,631
38,111
40,320
EPS from continuing operations - basic
$
(3.14)
$
(4.40)
$
0.11
EPS from discontinued operations - basic
-
0.02
0.28
EPS - basic
$
(3.14)
$
(4.38)
$
0.39
Diluted EPS: (2)
Net income (loss) from continuing operations (1)
$
(108,775)
$
(167,689)
$
4,384
Net income from discontinued operations
-
11,539
Net income (loss) attributable to Green Plains
$
(108,775)
$
(166,860)
$
15,923
Weighted average shares outstanding - basic
34,631
38,111
40,320
Effect of dilutive convertible debt:
Effect of dilutive stock-based compensation awards
-
-
Weighted average shares outstanding - diluted
34,631
38,111
41,254
EPS from continuing operations - diluted
$
(3.14)
$
(4.40)
$
0.11
EPS from discontinued operations - diluted
-
0.02
0.28
EPS - diluted
$
(3.14)
$
(4.38)
$
0.39
Anti-dilutive weighted-average convertible debt and stock-based compensation (3)
14,089
10,560
7,283
(1)Net income (loss) from continuing operations can be recalculated from the consolidated statements of operations by taking the net income (loss) from continuing operations including noncontrolling interest less net income attributable to noncontrolling interests.
(2)The effect related to interest and amortization on convertible debt on an if converted basis has been excluded from diluted EPS for the periods presented as the inclusion of these effects would have been antidilutive.
(3)The effect related to the company’s convertible debt and certain stock-based compensation awards has been excluded from diluted EPS for the periods presented as the inclusion of these shares would have been antidilutive.
15. STOCKHOLDERS’ EQUITY
Treasury Stock
The company holds 11.8 million shares of its common stock at a cost of $131.3 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
The company’s board of directors authorized a share repurchase program of up to $200.0 million. 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 880,979 shares of common stock for approximately $11.5 million during 2020. Since inception, the company has repurchased 7,396,936 shares of common stock for approximately $92.8 million under the program.
‎
Dividends
On June 18, 2019, the company announced that its board of directors decided to suspend its future quarterly cash dividend following the June 14, 2019 dividend payment, in order to retain and redirect cash flow to the company’s Project 24 operating expense equalization plan, the deployment of high-protein technology and its stock repurchase program.
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement provides for a quarterly distribution to be paid within 45 days after the end of the quarter, provided the partnership has sufficient available cash. 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 21, 2021, the board of directors of the general partner of the partnership declared a cash distribution of $0.12 per unit on outstanding common units. The distribution is payable on February 12, 2021, to unitholders of record at the close of business on February 5, 2021.
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 Operations
Classification
Gains (losses) on cash flow hedges:
Commodity derivatives
$
5,538
$
-
$
3,648
(1)
Commodity derivatives
(2,115)
-
1,258
(2)
Total gains on cash flow hedges from continuing operations
3,423
-
4,906
(3)
Gains (losses) on cash flow hedges from discontinued operations, net of income taxes
-
38,795
(10,092)
(4)
Income tax expense
-
1,483
(5)
Amounts reclassified from accumulated other comprehensive income (loss)
$
2,566
$
38,795
$
(6,669)
(1)Revenues
(2)Costs of goods sold
(3)Income (loss) from continuing operations before income taxes and income (loss) from equity method investees
(4)Net income from discontinued operations, net of income taxes
(5)Income tax benefit
At December 31, 2020 and 2019, the company’s consolidated balance sheets reflected unrealized losses of $2.2 million and $11.1 million, net of tax, in accumulated other comprehensive loss, respectively.
16. RESTRUCTURING ACTIVITIES
In the second quarter of 2018, the company announced its portfolio optimization program 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 had 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 corporate activities, $0.7 million was recorded in the agribusiness and energy services segment, $0.4 million was recorded in the ethanol production segment. Approximately $2.7 million of the total charge was included in accrued liabilities as of December 31, 2018 and paid in full during 2019.
‎
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. A valuation allowance is recorded by the company when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The CARES Act was signed into law on March 27, 2020. The CARES Act includes several significant business tax provisions including elimination of the taxable limit for certain net operating losses (“NOL”), allowing businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior tax years, accelerating refunds of previously generated corporate AMT credits, and loosening the business interest limitation under §163(j) from 30% to 50%. The CARES Act also contains an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to COVID-19. In the second quarter of 2020, the company filed its preliminary 2019 federal income tax return, as well as a refund claim with the IRS to carry back our 2019 NOL to prior years. In the fourth quarter of 2020 the company filed its final 2019 federal income tax return and trued-up our 2019 NOL. The company recorded an income tax benefit of approximately $41.6 million related to the CARES Act including adjustments to certain valuation allowances.
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 pretax 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,
Current
$
(37,047)
$
(2,177)
$
7,758
Deferred
(13,336)
(18,881)
(24,484)
Total
(50,383)
(21,058)
(16,726)
Less: Income tax expense - discontinued operations
-
3,421
Income tax benefit - continuing operations
$
(50,383)
$
(21,316)
$
(20,147)
Differences between income tax expense from continuing operations at the statutory federal income tax rate and as presented on the consolidated statements of operations are summarized as follows (in thousands):
Year Ended December 31,
Tax expense at federal statutory rate
$
(33,698)
$
(36,317)
$
1,060
State income tax expense, net of federal benefit
(802)
(7,839)
Nondeductible compensation
Noncontrolling interests
(4,015)
(3,961)
(4,370)
Unrecognized tax benefits
(28)
15,148
R&D credits
-
(323)
(34,979)
Increase in valuation allowance
6,279
25,314
-
Disposition of subsidiary
-
(373)
(1,022)
Tax Cuts and Jobs Act impact
-
-
Stock compensation
Audit adjustments
-
-
Amended return adjustments
(19,786)
-
Other
1,016
Income tax benefit
$
(50,383)
$
(21,316)
$
(20,147)
‎
Significant components of deferred tax assets and liabilities are as follows (in thousands):
December 31,
Deferred tax assets:
Net operating loss carryforwards - Federal
$
11,670
$
27,935
Net operating loss carryforwards - State
10,875
8,788
Tax credit carryforwards - Federal
64,081
49,937
Tax credit carryforwards - State
7,369
7,750
Derivative financial instruments
-
Deferred revenue
Interest expense carryforward
6,609
5,539
Investment in partnerships
45,519
46,774
Inventory valuation
1,560
Stock-based compensation
1,439
1,347
Accrued expenses
5,351
4,325
Leases
7,958
6,993
Organizational and start-up costs
1,047
-
Other
Total
162,694
162,136
Valuation allowance
(43,336)
(33,337)
Total deferred tax assets
119,358
128,799
Deferred tax liabilities:
Convertible debt
(9,154)
(12,266)
Fixed assets
(104,364)
(107,909)
Derivative financial instruments
(724)
-
Organizational and start-up costs
-
(4,484)
Right-of-use assets
(5,116)
(4,140)
Total deferred tax liabilities
(119,358)
(128,799)
Deferred income taxes
$
-
$
-
At December 31, 2020, the company has federal R&D credits of $67.8 million which will begin to expire in 2033. The company also has $7.4 million of state credits which will expire beginning in 2021. The company has federal net operating losses of $11.7 million which do not have an expiration date.
The company increased the valuation allowance associated with its net deferred tax assets due to uncertainty that it will realize these assets in the future. The valuation allowance on deferred tax assets was recognized as a result of negative evidence, including cumulative losses in recent years, outweighing the more subjective positive evidence. Management 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 will continue to regularly assess the realizability of deferred tax assets. Changes in earnings performance and future earnings projections, among other factors, may cause the company to adjust its valuation allowance on deferred tax assets, which would impact the company’s results of operations in the period it is determined that these factors have changed.
The company’s federal income tax returns for the tax years ended December 31, 2014 and 2017 are currently under audit. The company’s federal returns for the tax years ended December 31, 2015, 2016, 2018 and 2019 are still subject to audit. A reconciliation of unrecognized tax benefits is as follows (in thousands):
Unrecognized Tax Benefits
Balance at January 1, 2020
$
51,596
Additions for prior year tax positions
Additions for current year tax positions
(54)
Balance at December 31, 2020
$
51,569
Recognition of these tax benefits would favorably impact the company’s effective tax rate. Unrecognized tax benefits of $51.6 million include $51.4 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.
As a result of delays due to the COVID-19 pandemic, the progress of our ongoing 2014 federal audit has been significantly impacted. While progress has been slow, we believe it is reasonably possible that approximately $23.0 million in unrecognized tax benefits related to R&D credits may be settled within the coming year as a result of the ongoing federal audit. In addition, the results of the current audit may cause the company to significantly increase or decrease the unrecognized tax benefits associated with R&D credits for periods not under audit. At this time, the company does not have enough information to be able to reasonably estimate the potential impact.
18. COMMITMENTS AND CONTINGENCIES
Adoption of ASC 842
On January 1, 2019, the company adopted the amended guidance in ASC 842, Leases, and all related amendments (“new lease standard”) and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The new lease standard had a material impact on the company’s consolidated balance sheets, increasing total assets and total liabilities for continuing operations by $60.2 million upon adoption. It did not have an impact on the consolidated statement of operations for the year ended December 31, 2019.
The company’s leases do not specify an implicit interest rate. Therefore, the incremental borrowing rate was used based on information available at commencement date to determine the present value of future payments.
Lease Expense
The company leases certain facilities, parcels of land, and equipment, with remaining terms ranging from less than one year to 16.9 years. The land and facility leases include renewal options. The renewal options are included in the lease term only for those sites or locations in which they are reasonably certain to be renewed. Equipment renewals are not considered reasonably certain to be exercised as they typically renew with significantly different underlying terms.
The company may sublease certain of its railcars to third parties on a short-term basis. The subleases are classified as operating leases, with the associated sublease income being recognized on a straight-line basis over the lease term.
The components of lease expense are as follows (in thousands):
Year Ended December 31,
Lease expense
Operating lease expense
$
20,771
$
20,806
Variable lease expense (1)
1,681
Total lease expense
$
22,452
$
21,630
(1)Represents amounts incurred in excess of the minimum payments required for a certain building lease and for the handling and unloading of railcars for a certain land lease, offset by railcar lease abatements provided by the lessor when railcars are out of service during periods of maintenance or upgrade.
Supplemental cash flow information related to operating leases is as follows (in thousands):
Year Ended December 31,
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
20,864
$
21,459
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
32,713
11,176
Right-of-use assets and lease obligations derecognized due to lease modifications:
Operating leases
5,176
1,726
Supplemental balance sheet information related to operating leases is as follows:
Weighted average remaining lease term
6.2 years
6.6 years
Weighted average discount rate
4.55%
5.46%
Aggregate minimum lease payments under the operating lease agreements for future fiscal years as of December 31, 2020 are as follows (in thousands):
Year Ending December 31,
Amount
$
17,303
15,289
11,711
9,902
6,441
Thereafter
15,350
Total
75,996
Less: Present value discount
(11,545)
Lease liabilities
$
64,451
Lease Revenue
As described in Note 4 - Revenue, the majority of the partnership’s segment revenue is generated though their storage and throughput services and rail transportation services agreements with Green Plains Trade and are accounted for as lease revenue. Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases. Lease revenue associated with agreements with Green Plains Trade are eliminated upon consolidation. The remaining lease revenue is not material to the company.
Refer to Note 4 - Revenue for further discussion on lease revenue.
Commodities
As of December 31, 2020, the company had contracted future purchases of grain, corn oil, natural gas, ethanol and distillers grains, valued at approximately $302.8 million.
Legal
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, 2020, 2019 and 2018 were $1.5 million, $1.6 million and $2.0 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, 2020, the plan’s assets were $5.6 million and liabilities were $6.8 million. At December 31, 2020 and 2019, net liabilities of $1.2 million were included in other liabilities on the consolidated balance sheets, respectively.
‎
20. RELATED PARTY TRANSACTIONS
Green Plains Cattle Company LLC
The company engaged in certain related party transactions with GPCC, which was considered a related party until the fourth quarter of 2020 at which time the company’s remaining 50% interest was sold. The company provided a variety of shared services to GPCC, including accounting and finance, payroll and human resources, information technology, legal, communications and treasury activities. The company reduced selling, general and administrative expenses by $1.2 million and $0.5 million related to shared services provided for the years ended December 31, 2020 and 2019, respectively. The company had $2.2 million outstanding receivables related to the shared service agreement and expenses paid on behalf of GPCC as of December 31, 2019.
Green Plains Trade Group, a subsidiary of the company, enters into certain sale contracts with GPCC during the normal course of business. Related party revenues associated with GPCC were $8.2 million and $4.0 million for the years ended December 31, 2020 and 2019, respectively.
Mr. Ejnar Knudsen, a member of the company’s board of directors, has an indirect ownership interest in GPCC of 0.0736% by reason of his ownership in TGAM Agribusiness Fund LP. Based on the purchase price, the value of that ownership interest is approximately $0.1 million. Mr. Knudsen also is the CEO and partial owner of AGR Partners LLC (AGR) which provides investment advisory services to TGAM Agribusiness Fund LP pursuant to a sub-advisory agreement between AGR Partners LLC and Nuveen Alternative Advisors LLC, which is the investment manager for TGAM Agribusiness Fund LP.
Aircraft Leases
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. Given the limited amount of travel during fiscal year 2020, the companies have agreed to defer the monthly payment until excess carryover hours are used. As of December 31, 2020, the company has approximately 61 hours of flight time available to be used. Once used, the company agreed to pay $11,588 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, 2020, 2019 and 2018, payments related to these leases totaled $56 thousand, $129 thousand and $159 thousand, respectively. The company had no outstanding payables related to these agreements at December 31, 2020 and $17 outstanding payables related to these agreements at December 31, 2019.
21. EQUITY METHOD INVESTMENTS
Green Plains Cattle Company LLC
On September 1, 2019, the company formed a joint venture with TGAM and StepStone. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement of GPCC effective as of September 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains. After closing, GPCC was no longer consolidated in the company’s consolidated financial statements and the GPCC investment was accounted for using the equity method of accounting. GPCC results prior to its disposition are classified as discontinued operations in our current and prior period financials.
GPCC conducts the business of the joint venture, including (i) owning and operating the cattle feeding operations (as defined below), and (ii) any other activities approved by GPCC’s board of managers. GPCC continues to have the capacity to support 355,000 head of cattle and has approximately 24.1 million bushels of grain storage capacity.
The company did not consolidate any part of the assets or liabilities or operating results of its equity method investee. The company’s share of net income or loss in the investee increased or decreased, as applicable, the carrying value of the investment. With respect to GPCC, the company determined that this entity did not represent a variable interest entity and consolidation was not required. In addition, although the company had the ability to exercise significant influence over the joint venture through board representation and voting rights, all significant decisions required the consent of the other investors without regard to economic interest.
On October 1, 2020, the company sold its remaining 50% joint venture interest in GPCC to AGR, TGAM Agribusiness Fund LP and StepStone for $80.5 million in cash, plus closing adjustments. The transaction resulted in a reduction in other assets of $69.7 million as a result of removal of the equity method investment in GPCC, and a reduction in accumulated other
comprehensive income (loss) of $10.7 million as a result of the removal of the company’s share of equity method investees accumulated other comprehensive loss.
Summarized Financial Information
Our equity method investments are summarized in the following table (in thousands):
Ownership as of
Year Ended December 31,
December 31, 2020
Green Plains Cattle Company LLC (1)
0%
$
-
$
64,161
Other
Various
3,994
4,837
Total
$
3,994
$
68,998
(1)The equity method investment in GPCC is impacted by the effect of deferred gains or losses on cattle sale contracts designated in a cash flow hedge relationship. Pretax accumulated other comprehensive loss for GPCC was $16.2 million as of December 31, 2019.
Earnings from equity method investments, net of income taxes, were as follows (in thousands):
Year Ended December 31,
Green Plains Cattle Company LLC (1)
$
20,531
$
2,839
$
-
All others
(42)
(596)
Total income (loss) from equity method investments, net of income taxes
$
21,093
$
2,797
$
(596)
Distributions from equity method investments
$
27,910
$
$
-
Earnings from equity method investments, net of distributions
$
(6,817)
$
2,477
$
(596)
(1)Pretax equity method earnings of GPCC were $27.0 and $3.8 million for the years ended December 31, 2020 and 2019.
The company reports its proportional share of equity method investment income (loss) in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the consolidated balance sheet.
The following table present summarized information of GPCC.
December 31, 2020 (1)
December 31, 2019 (1)
Total revenues
$
747,824
$
370,383
Total operating expenses
693,753
362,878
Net income
$
54,071
$
7,505
(1)GPCC equity method treatment began on September 1, 2019 and ended on October 1, 2020. As such, fiscal year 2020 includes nine months of GPCC operations while fiscal year 2019 includes four months of GPCC operations.
December 31, 2019
Balance sheet:
Current assets
$
516,324
Noncurrent assets
73,922
Current liabilities
461,534
Noncurrent liabilities
Net assets
$
128,322
‎
22. QUARTERLY FINANCIAL DATA (Unaudited)
The following table includes unaudited financial data for each of the quarters within the years ended December 31, 2020 and 2019 (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,
‎2020
September 30,
‎2020
June 30,
‎ 2020 (1)
March 31,
‎2020
Revenues
$
478,764
$
424,062
$
388,024
$
632,869
Costs and expenses (2)
513,559
438,267
407,392
687,197
Operating loss
(34,795)
(14,205)
(19,368)
(54,328)
Other expense
(10,403)
(10,154)
(9,609)
(8,268)
Income tax benefit (expense) (3)
1,922
(7,280)
11,458
44,283
Net loss from continuing operations including noncontrolling interest
(43,100)
(30,733)
(5,474)
(10,347)
Net loss attributable to Green Plains
$
(49,630)
$
(34,486)
$
(8,214)
$
(16,445)
Basic and diluted earnings per share attributable to Green Plains (3):
$
(1.43)
$
(1.00)
$
(0.24)
$
(0.47)
Three Months Ended
December 31,
‎2019
September 30,
‎2019
June 30,
‎2019
March 31,
‎2019
Revenues
$
715,677
$
632,350
$
630,570
$
438,641
Costs and expenses
730,599
674,715
677,215
477,279
Operating loss
(14,922)
(42,365)
(46,645)
(38,638)
Other expense
(2,286)
(9,694)
(10,759)
(7,633)
Income tax benefit (expense) (4)
(19,514)
12,565
15,322
12,943
Net income (loss) from continuing operations including noncontrolling interest
(34,459)
(38,850)
(42,118)
(33,402)
Net income (loss) from discontinued operations, net of income taxes
-
3,359
1,939
(4,469)
Net income (loss) attributable to Green Plains
$
(39,749)
$
(38,970)
$
(45,342)
$
(42,799)
Basic and diluted earnings per share (5):
Loss per share from continuing operations
$
(1.13)
$
(1.15)
$
(1.18)
$
(0.95)
Income (loss) per share from discontinued operations
-
0.09
0.05
(0.11)
Loss per share attributable to Green Plains
$
(1.13)
$
(1.06)
$
(1.13)
$
(1.06)
(1)During the third quarter of 2020, the company identified an immaterial issue which resulted in the overstatement of both revenues and cost of goods sold within the agribusiness and energy services segment as previously reported for the three and six months ended June 30, 2020. The second quarter revenues and cost of goods sold reflected in the quarterly financial data have been revised to correct these amounts.
(2)The fourth quarter of 2020 includes a pretax loss on sale of assets, net of $22.4 million related to the sale of the Hereford, Texas ethanol plant and a loss related to GPCC of $0.5 million. The third quarter of 2020 includes a gain of $2.0 million related to GPCC. The first quarter of 2020 includes a goodwill impairment charge of $24.1 million.
(3)The fourth quarter of 2020 includes the recognition of a $8.5 million valuation allowance which impacted income tax expense.
(4)The fourth quarter of 2019 includes the recognition of a $25.9 million valuation allowance which impacted income tax expense.
(5)Basic and diluted earnings per share are calculated independently for each of the quarters presented. Accordingly, the sum of the quarterly earnings per share amounts may not agree with the total year.
‎
23. SUBSEQUENT EVENTS
BlackRock Note Facility
On February 9, 2021, Green Plains SPE LLC, a wholly owned subsidiary of the company and a special purpose entity (the Issuer) completed a $125.0 million, 5-year mezzanine note facility with funds and accounts managed by BlackRock. The proceeds will be used initially to support the construction and deployment of Ultra-High Protein technology and production at the Obion, Tennessee and Mount Vernon, Indiana facilities.
The junior secured mezzanine notes will mature on February 9, 2026 and are secured via first lien in the membership interests and real property of Green Plains Obion LLC and Green Plains Mount Vernon LLC. The Notes accrue interest at an annual rate of 11.75%. The Issuer may elect to pay an amount in cash equal to interest accruing at a rate of 6.00% per annum plus an amount equal to interest accruing at a rate of 6.75% per annum to be paid in kind. The entire outstanding principal balance, plus any accrued and unpaid interest is due upon maturity. Pursuant to the Indenture, the Issuer is required to comply with certain financial covenants regarding minimum liquidity and a maximum aggregate loan to value. The Notes can be retired or refinanced after 42 months with no prepayment premium. The Notes are guaranteed by the Company and have certain limitations on distributions, dividends or loans to Green Plains unless there will not exist any event of default. The Indenture provides for customary events of default. Additionally, as part of the transaction, BlackRock acquired 2,000,000 warrants for Green Plains stock (each warrant equal to one share of stock) with a strike price of $22.00 per share, which expire on February 9, 2026.
Disposition of Ord Ethanol Plant
On January 25, 2021, the company entered into an Asset Purchase Agreement to sell its ethanol plant located in Ord, Nebraska to GreenAmerica Biofuels Ord LLC. The transaction involves the disposition of 65 million gallons of nameplate capacity, and is being sold for $64.0 million, plus an estimated $6.0 million of related working capital. Correspondingly, the partnership entered into an Asset Purchase Agreement to sell its storage assets located adjacent to the Ord plant to the company for $27.0 million, which will be used to pay down debt, along with the transfer of associated railcar operating leases. As part of this transaction, upon closing, the quarterly storage and throughput minimum volume commitment with Green Plains Trade will be reduced to 217.7 mmg per quarter and the storage and throughput agreement with Green Plains Trade will be extended an additional year to June 30, 2029. The transaction is anticipated to close within 45 days, subject to customary closing conditions.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES