GREEN PLAINS INC. 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
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ingredients and export growth opportunities. Additionally, we have taken advantage of strategic 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, which differentiates us from companies focused only on ethanol production. 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. Our adjacent businesses integrate complementary but more predictable revenue streams that diversify our operations and profitability.
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
According to the EIA, domestic ethanol production averaged 1.03 million barrels
per day in 2019, which was 1.7% lower than the 1.05 million barrels per day in
2018. Refiner and blender input volume increased 1% to 921 thousand barrels per
day for 2019, compared with 914 thousand barrels per day in 2018. Gasoline
demand increased 27 thousand barrels per day, or 0.3% in 2019.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports
through
On
The cost to produce the equivalent amount of starch found in sugar from
Year-to-date
While African Swine Fever (ASF) may have a positive impact on animal protein
demand from the
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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. Various bills have been discussed in the
Federal mandates supporting the use of renewable fuels are a significant driver
of ethanol demand in the
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
Another important factor is a waiver in the Clean Air Act, known as the
One-Pound Waiver, which allows E10 to be sold year-round, even though it exceeds
the Reid Vapor Pressure limitation of nine pounds per square inch. At the end of
The RFS II has been a driving factor in the growth of ethanol usage in
The
The
Under the RFS II, a small refinery is defined as one that processes fewer than
75,000 barrels of petroleum per day. Small refineries can petition the
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Biofuels groups have filed a lawsuit in the
In a supplemental rulemaking to the 2020 RVO rule, the
On
The
In 2017, the D.C. Circuit ruled in favor of biofuel groups against the
Government actions abroad can significantly impact the demand for
In
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Our exports also face tariffs, rate quotas, countervailing duties, and other
hurdles in the
In
On
The Tax Cuts and Jobs Act (the "Act") was signed into law on
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
The
In
On
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,
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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 2019, we continued to experience a weak ethanol margin environment. Our operating strategy, including the operating cost savings initiative, is to increase utilization rates and efficiency while reducing operating expenses to achieve improved margins. In 2019, our ethanol facilities ran at approximately 76% of our daily average capacity, largely due to the low margin environment during the year driven by higher domestic ethanol supplies resulting from weak refiner and blender input volume. We expect to run at higher average utilization rates to achieve the cost savings anticipated. Additionally, overall performance at our ethanol plants was negatively impacted by severe weather and associated flooding in areas where we transport products during the first half of 2019. The weather also drove corn prices up, negatively impacting margins.
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
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
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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
Near term industry outlook and the decline in our stock price caused a decline
in our market capitalization during the three months ended
We performed our annual goodwill assessment as of
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 a write-down of the asset.
Leases
On
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
Please refer to Note 18 - Commitments and Contingencies to the consolidated financial statements for further details on operating lease expense.
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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 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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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Components of Revenues and Expenses
Revenues. For our ethanol production segment, our revenues are derived primarily
from the sale of ethanol, distillers grains and corn oil. For our agribusiness
and energy services segment, 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 represent our primary sources of revenue. For our
food and ingredients segment, the sale of corn oil, and vinegar prior to the
sale of
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.
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.
Gain on Sale of Assets, Net. We completed the sale of the three ethanol plants
located in
Other Income (Expense). Other income (expense) includes interest earned,
interest expense and other non-operating items, including a gain of
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.
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
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The following summarizes various events that affect the comparability of our operating results for the past three years:
?March 2017 Hereford, Texas cattle feeding operation was acquired. ?May 2017 Leoti, Kansas andEckley, Colorado cattle feeding operations were acquired. ?August 2018 Sublette, Kansas andTulia, Texas cattle feeding operations were acquired.
?
plants were sold and certain storage assets of these plants
were acquired from the partnership prior to being 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, for all
periods presented 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 in all prior
periods.
?
The year ended
Segment Results
We report the financial and operating performance for the following four
operating segments: (1) ethanol production, which includes the production of
ethanol, distillers grains and corn oil, (2) agribusiness and energy services,
which includes grain handling and storage, commodity marketing and merchant
trading for company-produced and third-party ethanol, distillers grains, corn
oil, natural gas and other commodities, (3) food and ingredients, which includes
food-grade corn oil operations and included vinegar production until the sale of
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 gain on sale of assets, net recorded during 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.
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The selected operating segment financial information are as follows (in
thousands):
Year Ended December 31,
2019 (1) 2018 (1) 2017 (1)
Revenues:
Ethanol production:
Revenues from external customers
100 186 84
Total segment revenues 1,700,715 2,120,661 2,507,673
Agribusiness and energy services:
Revenues from external customers 708,316 735,855 632,702
Intersegment revenues 27,184 33,101 36,059
Total segment revenues 735,500 768,956 668,761
Food and ingredients:
Revenues from external customers 1,451 121,121 142,907
Intersegment revenues - - -
Total segment revenues 1,451 121,121 142,907
Partnership:
Revenues from external customers 6,856 6,481 6,277 Intersegment revenues 75,531 94,267 100,716 Total segment revenues 82,387 100,748 106,993
Revenues including intersegment activity 2,520,053 3,111,486 3,426,334 Intersegment eliminations
(102,815) (127,554) (136,859)
Revenues as reported $ 2,417,238 $ 2,983,932 $ 3,289,475 (1)Revenues include certain items which were previously considered intercompany
transactions prior to the disposition of GPCC and therefore eliminated upon
consolidation. These revenue transactions are now presented on a gross basis in
product revenues. These revenue transactions total
Year Ended December 31,
2019 (1) 2018 (1) 2017 (1)
Cost of goods sold:
Ethanol production $ 1,791,099 $ 2,118,787 $ 2,434,001
Agribusiness and energy services 696,226 717,772 614,582
Food and ingredients 1,526 94,679 109,343
Partnership - - -
Intersegment eliminations (103,904) (124,270) (136,744)
$ 2,384,947 $ 2,806,968 $ 3,021,182 (1)Cost of goods sold include certain items which were previously considered
intercompany transactions prior to the disposition of GPCC and therefore
eliminated upon consolidation. These cost of goods sold transactions are now
presented on a gross basis in cost of goods sold. These cost of goods sold
transactions total
Year Ended December 31,
2019 2018 2017
Operating income (loss):
Ethanol production $ (178,575) $ (111,823) $ (45,074)
Agribusiness and energy services 22,777 29,076 30,443
Food and ingredients (76) 14,354 17,963
Partnership 50,635 64,770 65,709
Intersegment eliminations 1,188 (3,110) (61)
Corporate activities (1) (38,519) 96,687 (45,232)
$ (142,570) $ 89,954 $ 23,748 (1)Corporate activates for fiscal year 2018 include a gain on the sale of assets
related to the sale of three ethanol plants and
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, depreciation and amortization excluding the amortization of right-of-use assets. Adjusted EBITDA includes
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adjustments related to operational results of Green Plains Cattle prior to its disposition which are recorded as discontinued operations and our proportional share of EBITDA adjustments of our equity method investees. We believe EBITDA 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,
2019 2018 2017
Net income (loss) from continuing
operations including noncontrolling $ $ $
interest (148,829) 25,195 76,633
Interest expense 40,200 87,449 83,700
Income tax benefit (21,316) (20,147) (132,061)
Depreciation and amortization (1) 72,127 98,258 103,582
EBITDA (57,818) 190,755 131,854
EBITDA adjustments related to
discontinued operations 17,703 33,897 22,516
Proportional share of EBITDA
adjustments to equity method
investees 4,974 1,128 81
Adjusted EBITDA $ (35,141) $ 225,780 $ 154,451 (1)Excludes the amortization of operating lease right-of-use assets and amortization of debt issuance costs.
The following table reconciles net income (loss) from continuing operations including noncontrolling interest to adjusted EBITDA by segment (in thousands):
Year Ended December 31,
2019 2018 2017
Adjusted EBITDA:
Ethanol production $ (114,494) $ (31,623) $ 40,069
Agribusiness and energy services 25,050 31,583 33,906
Food and ingredients (76) 21,908 27,287
Partnership 54,853 69,399 71,041
Intersegment eliminations 1,188 (3,110) (61)
Corporate activities (24,339) 102,598 (40,388)
EBITDA (57,818) 190,755 131,854
EBITDA adjustments related to
discontinued operations 17,703 33,897 22,516
Proportional share of EBITDA
adjustments to equity method
investees 4,974 1,128 81
Adjusted EBITDA $ (35,141) $ 225,780 $ 154,451 Total assets by segment are as follows (in thousands):
Year Ended December 31,
2019 2018
Total assets (1):
Ethanol production $ 884,293 $ 872,845 Agribusiness and energy services 410,400 399,633 Partnership
90,011 67,297
Corporate assets 324,280 334,236
Assets of discontinued operations - 552,459
Intersegment eliminations (10,766) (10,038)
$ 1,698,218 $ 2,216,432 (1)Asset balances by segment exclude intercompany payable and receivable balances.
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Year Ended
Consolidated Results
Consolidated revenues decreased
Operating income decreased
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,
2019 2018
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
Cost of goods sold in the ethanol production segment decreased
Agribusiness and Energy Services Segment
Revenues in the agribusiness and energy services segment decreased
Food and Ingredients Segment
Revenues in our food and ingredients segment decreased
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Partnership Segment
Revenues generated from the partnership segment decreased
Operating income for the partnership segment decreased
Intersegment Eliminations
Intersegment eliminations of revenues decreased by
Corporate Activities
Operating income decreased by
Income Taxes
We recorded income tax benefit of
Net Income from Discontinued Operations
As previously discussed, we sold an aggregate 50% membership interest in GPCC to
TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no
longer consolidated in our consolidated financial statements and the GPCC
investment is 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
Year Ended
Consolidated Results
Consolidated revenues decreased
Operating income increased
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the effect of a lower tax rate on pre-tax income. The benefit reflected in 2017 is due to the company's recognition of tax benefits related to enactment of the Tax Cuts and Jobs Act and for the completion of a multi-year study for R&D Credits in 2017, as well as pre-tax losses at a higher tax rate.
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,
2018 2017
Ethanol sold
(thousands of gallons) 1,086,633 1,256,361
Distillers grains sold
(thousands of equivalent dried tons) 2,815 3,314
Corn oil sold
(thousands of pounds) 276,299 301,920
Corn consumed
(thousands of bushels) 377,084 437,373
Revenues in the ethanol production segment decreased
Cost of goods sold in the ethanol production segment decreased
Agribusiness and Energy Services Segment
Revenues in the agribusiness and energy services segment increased
Food and Ingredients Segment
Revenues in our food and ingredients segment decreased
Operating income decreased by
Partnership Segment
Revenues generated from the partnership segment decreased
General and administrative expenses increased
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Operating income for the partnership segment decreased
Intersegment Eliminations
Intersegment eliminations of revenues decreased by
Corporate Activities
Operating income was impacted by a decrease in operating expenses for corporate
activities of
Income Taxes
We recorded income tax benefit of
Net Income from Discontinued Operations
As previously discussed, we sold an aggregate 50% membership interest in GPCC to
TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no
longer consolidated in the company's consolidated financial statements and the
GPCC investment is accounted for using the equity method of accounting. GPCC
results for all prior periods are classified as discontinued operations. Net
income from discontinued operations increased by
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities and bank credit facilities. We fund our operating expenses and service debt primarily with operating cash flows. Capital resources for maintenance and growth expenditures are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, or issuance of senior notes or equity. Our ability to access capital markets for debt under reasonable terms depends on our financial condition, credit ratings and market conditions. We believe that our ability to obtain financing at reasonable rates and history of consistent cash flow from operating activities provide a solid foundation to meet our future liquidity and capital resource requirements.
On
Net cash used in operating activities of continuing operations was
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Additionally,
We incurred capital expenditures of
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
On
On
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
On
We believe we have sufficient working capital for our existing operations.
Furthermore, our liquidity position has improved as a result of the partial sale
of GPCC during the third quarter of 2019 and the sale of our 50% joint venture
interest in
Debt
We were in compliance with our debt covenants at
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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
On
The 4.00% notes are senior, unsecured obligations, with interest payable on
In
Ethanol Production Segment
We have small equipment financing loans, capital leases on equipment or facilities, and other forms of debt financing.
Agribusiness and Energy Services Segment
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term notes, rather than sales, and has elected the fair value option to offset
fluctuations in market prices of the inventory.
Green Plains Commodity Management has an uncommitted revolving credit facility,
which was amended in
Food and Ingredients Segment
Upon the disposition of Green Plains Cattle, the food and ingredient segment no longer has any forms of debt financing. Refer to Note 5 - Acquisitions, Dispositions and Discontinued Operations for further discussion on the disposition and discontinued operations classification.
Partnership Segment
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 or
support from
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
Payments Due By Period
Less More
than 1 than 5
Contractual Obligations Total year 1-3 years 3-5 years years
Long-term and short-term
debt obligations (1) $ 621,424 $ 320,367 $ 170,699 $ 115,668 $ 14,690
Interest and fees on debt
obligations (2) 62,646 23,933 23,044 8,987 6,682
Operating lease obligations
(3) 66,627 18,867 20,001 9,787 17,972
Other 20,683 4,154 6,231 2,431 7,867
Purchase obligations
Forward grain purchase
contracts (4) 126,950 123,994 2,039 917 -
Other commodity purchase
contracts (5) 138,989 113,854 24,591 544 -
Other 41 41 - - -
Total contractual
obligations $ 1,037,360 $ 605,210 $ 246,605 $ 138,334 $ 47,211 (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 principle 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.
(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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