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 Total
Transformation Plan to a value-add agricultural technology company, we believe
we can further increase margin per gallon by producing additional value-added
ingredients such as Ultra-High Protein while expanding corn oil yields.
Our first FQT MSC™ Ultra-High Protein installation was completed at our
Shenandoah plant during the first quarter of 2020. Our Wood River plant began
operations in October 2021. Three additional locations are under construction
and expect to be operational by the middle to last half of 2022. 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. We began pilot scale batch operations at the CST production
facility at our York Innovation Center in the second quarter of 2021, which may
allow for the production of both food and industrial grade dextrose to target
applications in food production, renewable chemicals and synthetic biology. We
anticipate modifying one or more biorefineries to include CST production
capabilities to meet anticipated future customer demands.
In December 2020, we completed the purchase of a majority interest in FQT. 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, Ultra-High Protein, 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 0.99 million barrels
per day in 2021, which was 9% higher than the 0.91 million barrels per day in
2020. Refiner and blender input volume increased 10% to 875 thousand barrels per
day for 2021, compared with 798 thousand barrels per day in 2020. Gasoline
demand increased 0.8 million barrels per day, or 10%, in 2021 compared to the
prior year. U.S. domestic ethanol ending stocks decreased by approximately 2.1
million barrels compared to the prior year, or 9%, to 21.4 million barrels as of
December 31, 2021. As of December 31, 2021, according to Prime the Pump, there
were approximately 2,555 retail stations selling E15 in 30 states, up from 2,300
at the beginning of the year, and approximately 267 pipeline terminal locations
now offering E15 to wholesale customers.
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Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports
through November 30, 2021, were approximately 1,126 mmg, down 6% from 1,199 mmg
for the same period of 2020. Canada was the largest export destination for U.S.
ethanol accounting for 30% of domestic ethanol export volume. India, South
Korea, China, and Brazil accounted for 12%, 12%, 9% and 6%, respectively, of
U.S. ethanol exports. We currently estimate that net ethanol exports will range
from 1.2 to 1.4 billion gallons in 2022, based on historical demand from a
variety of countries and certain countries that seek to improve their air
quality and eliminate MTBE from their own fuel supplies.
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. Total ethanol exports to China in
2020 were 32 million gallons, and through November 2021 were 100 million
gallons, according to the USDA Foreign Agriculture Service.
Year-to-date U.S. distillers grains exports through November 30, 2021, were 10.7
million metric tons, or 5% higher than the same period last year, according to
the USDA Foreign Agriculture Service. Mexico, Vietnam, South Korea, Indonesia
and Turkey accounted for approximately 58% of total U.S. distillers grains
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 years, various bills and amendments
have been proposed in the House and Senate, which would eliminate the RFS
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 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 the fuel
supply, and reducing the country's dependence on foreign oil. Consumer
acceptance of FFVs and higher ethanol blends in non-FFVs 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.
The RFS sets a floor for biofuels use in the United States. When the RFS 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. As of this filing, the EPA proposed reducing the
conventional ethanol RVOs for 2020 and 2021 to reflect lower fuel demand during
the pandemic, and proposed the statutory 15 billion gallons for 2022.
According to the RFS, 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 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 the current EPA will propose a reset rulemaking,
though they have stated an intention to propose a post 2022 set rulemaking by
the end of 2021.
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 in each annual RVO based on their
percentage of total domestic transportation fuel sales. Obligated parties use
RINs to show compliance with the RFS 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 can affect
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.
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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 mandated volumes for those compliance
years by those amounts respectively, and as a result, RIN values declined
significantly. In the waning days of the Trump administration, the EPA approved
three additional SREs, reversing one denial from 2018 and granting two from
2019. A total of 88 SREs were granted under the Trump Administration, totaling
4.3 billion gallons of potential blending demand erased. The EPA, under the
current administration, reversed the three SREs issued in the final weeks of the
previous administration, and in the RVO rulemaking they proposed denying all
pending SREs. There are multiple legal challenges to how the EPA has handled
SREs and RFS rulemakings.
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 was challenged in an action
filed in Federal District Court for the D.C. Circuit. On July 2, 2021, the
Circuit Court vacated the EPA's rule so the future of summertime, defined as
June 1 to September 15, sales of E15 to non-FFVs is uncertain. The Supreme Court
declined to hear a challenge to this ruling. As of this filing E15 is sold
year-round in approximately 30 states.
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. In December 2021, the USDA announced they would administer
another infrastructure grant program. Congress is considering legislation that
would provide for an additional $1 billion in USDA grants for biofuel
infrastructure from 2022 to 2031.
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 then 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, and in March of 2021, the USDA indicated that biofuels would
be able to apply for a portion of these funds in a forthcoming rulemaking. On
June 15, 2021, the USDA indicated that $700 million would be made available to
biofuels producers, and in December 2021, they released details for the program,
specifying that domestic biofuel producers must apply for market losses due to
COVID by February 11, 2022, with payments announced by March 12, 2022. It is not
possible to predict the amount we would receive, if any, from this program.
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 announced that it is ending,
effective December 31, 2021, the expanded guidance, which allowed for more
denaturants to be used in ethanol intended for hand sanitizer production, and
expanded the grades of ethanol for the duration of the public health crisis.
The current administration has indicated a desire to dramatically expand
electric vehicle (EV) charging stations, and initially proposed $174 billion for
EV charging infrastructure, purchase rebates, and other incentives. The
recently-enacted bipartisan infrastructure package includes $15 billion for EV
charging infrastructure, and $5 billion for electric busses and ferries.
Additionally, Congress is considering expanded EV incentives in a budget
reconciliation package, with the goal of installing 500,000 EV charging stations
and providing incentives to middle and lower income Americans to purchase EVs,
in addition to manufacturing incentives for car makers. The package would offer
consumers tax rebates of $7,500 to $12,500 for purchasing EVs, and would invest
billions in charging infrastructure. These tax incentives could reduce the
overall market for liquid fuels in the surface transportation sector and with
it, that of ethanol.
The budget reconciliation package currently being considered by Congress also
would extend the $1.00/gallon tax credits for renewable diesel and biodiesel,
which use our distillers corn oil as one of their low-carbon feedstocks. The
package would also create a $1.25 - $1.75/gallon tax incentive for the
production of sustainable aviation fuel, which could possibly utilize our
distillers corn oil or our ethanol as a feedstock. The package would also expand
tax credits for carbon capture and sequestration (CCS) and extend the time frame
for projects to qualify for this credit. The fermentation process by which we
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produce ethanol releases a nearly pure stream of carbon dioxide which has the
potential to be captured and sequestered. The package would also create a
technology-neutral clean fuel production tax credit for 2027, but this would not
be applicable for fuels that take advantage of the CCS tax credits. The package
in its current form also expands the eligibility of Master Limited Partnership
tax status to clean energy projects, including CCS and renewable fuels. There
can be no assurance, however, these provisions make it into any final
legislation.
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. According to the USDA Foreign Agricultural Service, China
purchased 32 mmg of U.S. ethanol in 2020 and through November 2021 had imported
100 mmg.
In Brazil, the Secretary of Foreign Trade had issued a tariff rate quota which
expired in December of 2020. All U.S. ethanol gallons now face a 20% tariff into
Brazil. Exports to Brazil were 186 mmg in 2020 and 63 mmg through November 2021.
Our exports also face tariffs, rate quotas, countervailing duties, and other
hurdles in the European Union, India, Peru, Colombia 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. 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 (Petroleos Mexicanos, or
Mexican Petroleum) 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 was an effort 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 multiple times due to COVID-19, but eventually lapsed in
June 2021, decreasing the maximum ethanol blend back to 5.8%.
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 USDA
Foreign Agricultural Service, exports to Canada were 334 mmg and exports to
Mexico were 41 mmg through November 2021.
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, 2021, approximately 55% of our railcar fleet was
DOT 117 compliant. We anticipate that an additional 30% of our railcar fleet
will be DOT 117 compliant by the end of 2022, 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
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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.
We maintained an average utilization rate of approximately 77% of capacity
during 2021, compared with 71% of capacity, for the prior year. 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. From time to time, due to economic operating
conditions, 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.
Effects of Inflation
While inflation has increased modestly relative to recent years, we do not
expect it to have a material impact on our future results of operations.
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.
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
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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.
Impairment of Goodwill
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.
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 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
goodwill.
Please refer to Note 10 - Goodwill and Intangible Assets to the consolidated
financial statements for further details.
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.
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, including
industrial-grade alcohol, distillers grains, Ultra-High Protein 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 partnership segment, our
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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.
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 Ord, Nebraska in March 2021 and the sale of the ethanol plant located
in Hereford, Texas during the fourth quarter of 2020. The sale of Ord resulted
in a pretax gain of $35.9 million recorded at the corporate level. The sale of
Hereford resulted in a loss of $18.5 million recorded at the corporate level, a
loss of $3.9 million recorded at the ethanol production level and the gain on
the assignment of operating leases of $2.7 million 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, as well as a gain of $4.8
million related to the sale of our 50% interest in JGP Energy Partners LLC
during fiscal year 2019.
Income from Equity Method Investees, Net of Income Taxes. Income from equity
method investees, net of income taxes, represents our proportional share of
earnings from our equity method investees. Refer to Note 20 - 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.
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Results of Operations
Comparability
The following summarizes various events that affect the comparability of our
operating results for the past three years:
? 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.
? 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 FQT.
? March 2021 Ord, Nebraska ethanol plant was sold and certain storage
assets of this plant were acquired from the partnership prior
to being sold.
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.
A discussion regarding our financial condition and results of operations for the
year ended December 31, 2020, compared to the year ended December 31, 2019, can
be found under Item 7 in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2020, filed with the SEC on February 16, 2021.
Segment Results
We report the financial and operating performance for the following three
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, and (3) partnership, which includes fuel storage and
transportation services. Results for our previously reported food and
ingredients segment are now included in the agribusiness and energy services
segment. The food and ingredients segment had no activity in either 2021 or 2020
and minimal activity in 2019.
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. 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,
2021 2020 2019
Revenues:
Ethanol production:
Revenues from external customers $ 2,153,368 $ 1,502,481 $ 1,700,615
Intersegment revenues
- 100 100
Total segment revenues 2,153,368 1,502,581 1,700,715
Agribusiness and energy services:
Revenues from external customers 669,526 416,403 709,767
Intersegment revenues 21,958 27,468 27,184
Total segment revenues 691,484 443,871 736,951
Partnership:
Revenues from external customers 4,274 4,835 6,856
Intersegment revenues 74,178 78,510 75,531
Total segment revenues 78,452 83,345 82,387
Revenues including intersegment activity 2,923,304 2,029,797 2,520,053
Intersegment eliminations (96,136) (106,078) (102,815)
Total Revenues $ 2,827,168 $ 1,923,719 $ 2,417,238
Year Ended December 31,
2021 2020 2019
Cost of goods sold:
Ethanol production $ 2,063,283 $ 1,507,335 $ 1,791,099
Agribusiness and energy services 657,375 409,407 697,752
Partnership - - -
Intersegment eliminations (95,549) (104,579) (103,904)
$ 2,625,109 $ 1,812,163 $ 2,384,947
Year Ended December 31,
2021 2020 2019
Operating income (loss):
Ethanol production (1) $ (27,996) $ (129,618) $ (178,575)
Agribusiness and energy services 17,458 15,773 22,701
Partnership 48,672 50,437 50,635
Intersegment eliminations (587) (1,400) 1,188
Corporate activities (2) (12,039) (57,888) (38,519)
$ 25,508 $ (122,696) $ (142,570)
(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 loss on
sale of assets from the sale of the Hereford, Texas ethanol plant.
(2)Corporate activities for fiscal year 2021 include a $29.6 million net gain on
sale of assets primarily from the sale of the Ord, Nebraska ethanol plant.
Corporate activities for fiscal year 2020 include an $18.5 million loss on sale
of assets from the sale of the Hereford, Texas ethanol plant and a $1.5 million
net gain from the sale of GPCC.
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.
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The following table reconciles net loss from continuing operations including
noncontrolling interest to adjusted EBITDA (in thousands):
Year Ended December 31,
2021 2020 2019
Net loss from continuing operations
including noncontrolling interest $ (44,146) $ (89,654) $ (148,829)
Interest expense (1)
67,144 39,993 40,200
Income tax expense (benefit), net of
equity method income taxes 1,845 (43,879) (21,316)
Depreciation and amortization (2) 91,952 78,244 72,127
EBITDA 116,795 (15,296) (57,818)
EBITDA adjustments related to
discontinued operations - - 17,703
Proportional share of EBITDA
adjustments to equity method
investees 184 7,093 4,974
Loss (gain) on sale of assets, net
(3) (29,601) 20,860 (4,799)
Noncash goodwill impairment - 24,091 -
Adjusted EBITDA $ 87,378 $ 36,748 $ (39,940)
(1)Interest expense for the year ended December 31, 2021, includes a loss on
extinguishment of convertible notes of $22.1 million and a loss on settlement of
convertible notes of $9.5 million.
(2)Excludes the amortization of operating lease right-of-use assets and
amortization of debt issuance costs.
(3)Fiscal year 2019 includes gain reported in other income (expense).
The following table reconciles EBITDA by segment to adjusted EBITDA (in
thousands):
Year Ended December 31,
2021 2020 2019
Adjusted EBITDA:
Ethanol production (1) $ 55,056 $ (60,868) $ (114,494)
Agribusiness and energy services 19,716 18,430 24,974
Partnership 53,109 54,907 54,853
Intersegment eliminations (587) (1,400) 1,188
Corporate activities (2) (10,499) (26,365) (24,339)
EBITDA 116,795 (15,296) (57,818)
EBITDA adjustments related to
discontinued operations - - 17,703
Proportional share of EBITDA
adjustments to equity method
investees 184 7,093 4,974
Loss (gain) on sale of assets, net (29,601) 20,860 (4,799)
Noncash goodwill impairment
- 24,091 -
Adjusted EBITDA $ 87,378 $ 36,748 $ (39,940)(1)Fiscal year 2020 includes the goodwill impairment charge of $24.1 million and
$3.9 million loss on sale of assets from the sale of the Hereford, Texas ethanol
plant.
(2)Corporate activities for fiscal year 2021 include a $29.6 million net gain on
sale of assets primarily from the sale of the Ord, Nebraska ethanol plant.
Corporate activities for fiscal year 2020 include an $18.5 million 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.
Total assets by segment are as follows (in thousands):
Year Ended December 31,
2021 2020
Total assets (1):
Ethanol production $ 1,101,151 $ 900,963
Agribusiness and energy services 487,164 378,720
Partnership 100,349 91,205
Corporate assets 524,206 228,074
Intersegment eliminations (53,115) (20,045)
$ 2,159,755 $ 1,578,917(1)Asset balances by segment exclude intercompany balances.
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Year Ended December 31, 2021 Compared with the Year Ended December 31, 2020
Consolidated Results
Consolidated revenues increased $903.4 million in 2021, compared with 2020
primarily due to higher prices on ethanol, distillers grains and corn oil, as
well as increased trading revenues within our agribusiness and energy services
segment, slightly offset by lower volumes sold in our ethanol production
segment.
Operating income increased $148.2 million and adjusted EBITDA increased $50.6
million in 2021, compared with 2020 primarily due to increased margins on
ethanol production and the gain on sale of assets in 2021, offset by the
write-off of the goodwill in the ethanol production segment and loss on sale of
assets, net during fiscal year 2020. Interest expense increased $27.2 million in
2021, compared with 2020 primarily due to the loss upon settlement of
convertible notes of $22.1 million recorded in the first quarter of 2021 and the
$9.5 million loss upon settlement of convertible notes recorded in the second
quarter of 2021. Income tax expense was $1.8 million in 2021, compared to an
income tax benefit of $50.4 million in 2020. The income tax benefit in 2020 was
primarily due to benefits recorded related to the CARES Act.
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,
2021 2020
Ethanol sold
(thousands of gallons) 750,648 793,743
Distillers grains sold
(thousands of equivalent dried tons) 1,977 2,054
Corn oil sold
(thousands of pounds) 219,807 213,818
Corn consumed
(thousands of bushels) 259,786 275,351
Revenues in the ethanol production segment increased $650.8 million in 2021
compared with 2020 primarily due to higher prices on ethanol, distillers grains
and corn oil, offset by lower ethanol volumes sold.
Cost of goods sold in the ethanol production segment increased $555.9 million
for 2021 compared with 2020 due to higher corn and chemical costs. Operating
income increased $101.6 million and EBITDA increased $115.9 million in 2021
compared with 2020 primarily due to improved margins offset by the write-off of
the goodwill during fiscal year 2020. Depreciation and amortization expense for
the ethanol production segment was $83.0 million for 2021, compared with $68.0
million during 2020.
Agribusiness and Energy Services Segment
Revenues in the agribusiness and energy services segment increased $247.6
million, operating income increased $1.7 million and EBITDA increased $1.3
million in 2021 compared with 2020. The increase in revenues was primarily due
to an increase in ethanol, distillers grain and corn oil trading activity, as
well as higher average realized prices for ethanol. Operating income and EBITDA
increased primarily as a result of increased trading margins.
Partnership Segment
Revenues generated from the partnership segment decreased $4.9 million in 2021
compared with 2020. Railcar transportation services revenue decreased $2.3
million primarily due to a decrease in average volumetric capacity available for
use associated with the sale of the Ord assets. Storage and throughput services
revenue decreased $1.7 million primarily due to a decrease in throughput
associated with the sale of the Ord assets. Trucking and other revenue decreased
$0.6 million primarily due to a decrease in volumes transported for Green Plains
Trade. Terminal services revenue decreased $0.3 million primarily as a result of
a reduced throughput by Green Plains Trade.
?
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Operating income for the partnership segment decreased $1.8 million and EBITDA
decreased $1.8 million in 2021 compared to 2020 due to the changes in revenues
discussed above, partially offset by a decrease in operations and maintenance
expenses of $3.1 million.
Intersegment Eliminations
Intersegment eliminations of revenues decreased by $9.9 million for 2021
compared with 2020 due to decreased 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 loss decreased by $45.8 million for 2021 compared with 2020, primarily
due to the net gain on sale of assets recorded during 2021 of $29.6 million and
the net loss on sale of assets recorded during 2020 of $17.0 million.
Income Taxes
We recorded income tax expense of $1.8 million for 2021 compared to an income
tax benefit of $50.4 million in 2020. The decrease in the amount of tax benefit
was primarily due to an increase in the valuation allowance against increases in
certain deferred tax assets compared to the tax benefit recorded for the same
period in 2020 associated with the carry back of the 2019 tax NOLs to the 2014
tax year under the CARES Act of 2020, as well as the release of a previously
recorded valuation allowance against the 2019 NOL and other deferred tax assets.
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 our 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, 2021, we had $426.2 million in cash and equivalents, excluding
restricted cash, consisting of $339.5 million available to our parent company
and the remainder at our subsidiaries. Additionally, we had $134.7 million in
restricted cash and $124.9 million in marketable securities at December 31,
2021. Our marketable securities include highly liquid, fixed maturity
investments with original maturities ranging from three to twelve months. We
also had $287.8 million available under our committed revolving credit
agreements and delayed draw term loan, 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, 2021, our subsidiaries had approximately $109.2
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 was $4.2 million in 2021 compared to
$98.9 million in 2020. Operating activities compared to the prior year were
primarily affected by changes in working capital when compared to the same
period of the prior year. Net cash used in investing activities was $236.3
million in 2021, compared to $11.5 million in 2020 due primarily to the purchase
of marketable securities along with an increase in capital expenditures during
fiscal year 2021. In 2021, we have invested in marketable securities that
include highly liquid, fixed maturity investments with original maturities
ranging from three to twelve months. Net cash provided by financing activities
was $518.2 million in 2021, compared to net cash used in financing activities of
$82.5 million in 2020 primarily due to proceeds from the issuance of common
stock and debt offerings during 2021.
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 $187.3 million in 2021 primarily for
high-protein expansion projects at our biorefineries, Project 24 upgrades and
for various maintenance projects. The current projected estimate for capital
spending for 2022 is approximately $250 million to $300 million, which is
subject to review prior to the initiation of any project. The
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estimate includes additional expenditures to deploy the FQT MSC™ Ultra-High
Protein process technology, as well as expenditures for various other
maintenance projects, and is expected to be financed with cash on hand,
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, Ultra-High Protein, 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, 2021, we had $51.9 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. We did not repurchase any common stock in 2021. Since inception,
we have repurchased 7,396,936 of common stock for approximately $92.8 million
under the program.
On February 26, 2021, we filed an automatically effective shelf registration
statement on Form S-3 with the SEC, registering an indeterminate number and
amount of shares of common stock, warrants and debt securities.
We believe we have sufficient working capital for our existing operations. 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, 2021. 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
credit facilities. The administrator of LIBOR ceased the publication of the one
week and two month LIBOR settings immediately following the LIBOR publication on
December 31, 2021, and will cease the remaining USD LIBOR settings immediately
following the LIBOR publication on June 30, 2023. 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 reference rate, the SOFR, calculated using short-term
repurchase agreements backed by Treasury securities. The potential effect of any
such event on interest expense cannot yet be determined.
Corporate Activities
In March 2021, we issued $230.0 million of 2.25% convertible senior notes due in
2027, or the 2.25% notes. The 2.25% notes bear interest at a rate of 2.25% per
year, payable on March 15 and September 15 of each year, beginning September 15,
2021. The initial conversion rate is 31.6206 shares of the company's common
stock per $1,000 principal amount of 2.25% notes (equivalent to an initial
conversion price of approximately $31.62 per share of the company's common
stock), representing an approximately 37.5% premium over the offering price of
the company's common stock. The conversion rate is subject to adjustment upon
the occurrence of certain events, including but not limited to; the event of a
stock dividend or stock split; the issuance of additional rights, options and
warrants; spinoffs; the event of a cash dividend or distribution; or a tender or
exchange offering. 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 2.25% notes for
redemption. We
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may settle the 2.25% notes in cash, common stock or a combination of cash and
common stock. At December 31, 2021, the outstanding principal balance on the
2.25% notes was $230.0 million.
In June 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, including but not limited to; the event of a stock
dividend or stock split; the issuance of additional rights, options and
warrants; spinoffs; the event of a cash dividend or distribution; or a tender or
exchange offering. 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.
In May 2021, we entered into a privately negotiated agreement with certain
noteholders of the company's 4.00% notes. Under this agreement, 3,568,705 shares
of our common stock were exchanged for $51.0 million in aggregate principal
amount of the 4.00% notes. Common stock held as treasury shares were exchanged
for the 4.00% notes. At December 31, 2021, the outstanding principal balance on
the 4.00% notes was $64.0 million.
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 will be subject to adjustment upon the occurrence of
certain events, including but not limited to; the event of a stock dividend or
stock split; the issuance of additional rights, options and warrants; spinoffs;
the event of a cash dividend or distribution; or a tender or exchange offering.
We may settle the 4.125% notes in cash, common stock or a combination of cash
and common stock.
In March 2021, concurrent with the issuance of the 2.25% notes, we used
approximately $156.5 million of the net proceeds of the 2.25% notes to
repurchase approximately $135.7 million aggregate principal amount of its 4.125%
notes due 2022, in privately negotiated transactions. At December 31, 2021, the
outstanding principal balance on the 4.125% notes was $34.3 million.
Ethanol Production Segment
On February 9, 2021, Green Plains SPE LLC, a wholly-owned special purpose
subsidiary and parent of Green Plains Obion and Green Plains Mount Vernon issued
$125.0 million of junior secured mezzanine notes due 2026 with BlackRock for the
purchase of all notes issued. At December 31, 2021, the outstanding principal
balance was $125.0 million on the loan and the interest rate was 11.75%.
Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries
of the company, have a $75.0 million delayed draw loan agreement, which matures
on September 1, 2035. At December 31, 2021, the outstanding principal balance
was $30.0 million on the loan and the interest rate was 6.52%.
We also have small equipment financing loans, capital leases on equipment or
facilities, and other forms of debt financing.
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, 2021, the outstanding
principal balance was $137.2 million on the facility and the interest rate was
2.41%.
Green Plains Grain has a $100.0 million senior secured asset-based revolving
credit facility to finance working capital up to the maximum commitment based on
eligible collateral, which matures in June of 2022. This facility can be
increased by up to $75.0 million with agent approval and up to $50.0 million for
seasonal borrowings. Total commitments outstanding under the facility cannot
exceed $225.0 million. At December 31, 2021, the outstanding principal balance
was $20.0 million on the facility and the interest rate was 5.25%.
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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, 2021.
The Green Plains Grain and Green Plains Trade credit facilities will mature in
June and July, 2022 respectively, unless extended by agreement of the lenders or
replaced by another funding source. While we have not yet finalized negotiations
to replace these credit facilities, we believe it is probable that we will
source appropriate funding prior to maturity given our history of obtaining
working capital financing on reasonable commercial terms. In the unlikely
scenario that we are unable to refinance the facilities with the lenders prior
to its maturity, we will consider other financing sources.
Green Plains Commodity Management has an uncommitted $40.0 million revolving
credit facility which matures April 2023, to finance margins related to its
hedging programs. Advances are subject to variable interest rates equal to SOFR
plus 1.75%. At December 31, 2021, the outstanding principal balance was
$16.2 million on the facility and the interest rate was 1.83%.
Partnership Segment
Green Plains Partners, through a wholly owned subsidiary, has a term loan to
fund working capital, capital expenditures and other general partnership
purposes. On July 20, 2021, the partnership's prior credit facility was amended
in the Amended and Restated Credit Agreement ("Amended Credit Facility") with
BlackRock and TMI Trust Company as administrative agent. The Amended Credit
Facility decreased the total amount available to $60.0 million, extended the
maturity from December 31, 2021 to July 20, 2026, and converted the balance to a
term loan. The term loan does not require any principal payments; however, the
partnership has the option to prepay $1.5 million per quarter beginning twelve
months after the closing date. As of December 31, 2021, the term loan had a
balance of $60.0 million and an interest rate of 8.22%.
Under the terms of the Amended Credit Facility, BlackRock purchased the
outstanding balance of the existing notes from the previous lenders. Interest on
the term loan is based on 3-month LIBOR plus 8.00%, with a 0% LIBOR floor and is
payable on the 15th day of each March, June, September and December, during the
term, with the first interest payment being September 15, 2021. The Amended
Credit Facility continues to be secured by substantially all of the assets of
the partnership.
During the year ended December 31, 2021, prior to the amendment, principal
payments of $50.0 million were made on the previous credit facility, including
$19.5 million of scheduled repayments, $27.5 million related to the sale of the
storage assets located adjacent to the Ord, Nebraska ethanol plant and a $3.0
million prepayment made with excess cash.
On February 11, 2022, the Amended Credit Facility was modified to allow Green
Plains Partners and its affiliates to repurchase outstanding notes. On the same
day, the partnership purchased $1.0 million of the outstanding notes from
accounts and funds managed by BlackRock and subsequently retired the notes. As
of February 11, 2022, the term loan had a balance of $59.0 million.
Refer to Note 12 - Debt included as part of the notes to consolidated financial
statements for more information about our debt.
Contractual Obligations and Commitments
In addition to debt, our material future obligations include certain lease
agreements and contractual and purchase commitments related to commodities.
Aggregate minimum lease payments under the operating lease agreements for future
fiscal years as of December 31, 2021 totaled $75.8 million, with $19.0 million
payable in the next twelve months. As of December 31, 2021, we had contracted
future purchases of grain, natural gas, ethanol and distillers grains valued at
approximately $475.9 million. Refer to Note 17 - Commitments and Contingencies
included in the notes to consolidated financial statements for more information.
?
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