SECURITIES AND EXCHANGE COMMISSION
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2020
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For the fiscal year ended December 31, 2017
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or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____ to ____ |
Commission file number 001-37363
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Commission file number 001-37363
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Enviva Partners, LP
(Exact name of registrant as specified in its charter)
| | Enviva Partners, LP |
Delaware
| | 46-4097730
(Exact name of registrant as specified in its charter) |
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| Delaware | | 46-4097730 |
| (State or other jurisdiction | | (I.R.S. Employer |
of incorporation or organization) | | Identification No.) |
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| 7200 Wisconsin Ave. | Suite 1000 | Bethesda, | MD | | 20814 |
7200 Wisconsin Ave, Suite 1000
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Bethesda, MD
| | 20814
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(Address (Address of principal executive offices)
| | (Zip code) |
(301) 657-5560
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Units Representing Limited Partner Interests | EVA | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)
, and (2) has been subject to such filing requirements for the past 90 days. Yes
☒No ☐Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes ☒No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | ☒ | | Accelerated filer ☒ | ☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | (Do not check if a
smaller reporting company)
| Emerging growth company ☒ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No ☒ The aggregate market value of the common units held by non-affiliates of the registrant as of June 30,
20172020 was approximately
$359.3$943.5 million based upon a closing price of
$27.50$36.04 per common unit as reported on the New York Stock Exchange on such date.
As of February
16, 2018, 14,445,26815, 2021, 40,023,105 common units and 11,905,138 subordinated units were outstanding.Documents Incorporated by Reference: None.
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| Documents Incorporated by Reference: |
| None |
ANNUAL REPORT ON FORM 10‑K
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CAUTIONARY STATEMENT REGARDING FORWARD‑LOOKING STATEMENTS
Certain statements and information in this Annual Report on Form 10‑K (this “Annual Report”) may constitute
“forward‑looking“forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward‑looking statements, which are generally not historical in nature. These
forward‑lookingforward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. Although management believes that these
forward‑lookingforward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our
forward‑lookingforward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the
forward‑lookingforward-looking statements include, but are not limited to, those summarized below:
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| | the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our plants or deep-water marine terminals;
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| | the prices at which we are able to sell our products;
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•the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our wood pellet production plants or deep-water marine terminals; | ·
| | failure of the Partnership’s customers, vendors and shipping partners to pay or perform their contractual obligations to the Partnership;
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•the prices at which we are able to sell our products; | ·
| | the creditworthiness of our contract counterparties;
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•our ability to successfully negotiate, complete and integrate drop-down or third-party acquisitions, including the associated contracts, or to realize the anticipated benefits of such acquisitions; | ·
| | the amount of low‑cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, operating or financial difficulties suffered by our suppliers;
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•failure of our customers, vendors and shipping partners to pay or perform their contractual obligations to us; | ·
| | changes in the price and availability of natural gas, coal or other sources of energy;
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•our inability to successfully execute our project development, expansion and construction activities on time and within budget; | ·
| | changes in prevailing economic conditions;
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•the creditworthiness of our contract counterparties; | ·
| | our inability to complete acquisitions, including acquisitions from our sponsor, or to realize the anticipated benefits of such acquisitions;
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•the amount of low-cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, disruptions in supply or operating or financial difficulties suffered by our suppliers; | ·
| | inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding;
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•changes in the price and availability of natural gas, coal or other sources of energy; | ·
| | fires, explosions or other accidents;
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•changes in prevailing economic conditions; | ·
| | changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low‑carbon energy, the forestry products industry, the international shipping industry or power generators;
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•unanticipated ground, grade or water conditions; | ·
| | changes in the regulatory treatment of biomass in core and emerging markets;
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•inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding; | ·
| | our inability to acquire or maintain necessary permits or rights for our production, transportation or terminaling operations;
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•fires, explosions or other accidents; | ·
| | changes in the price and availability of transportation;
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•changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low-carbon energy, the forestry products industry, the international shipping industry or power, heat or combined heat and power generators; | ·
| | changes in foreign currency exchange or interest rates, and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;
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•our inability to acquire or maintain necessary permits or rights for our production, transportation or terminaling operations;
•changes in the price and availability of transportation;•changes in foreign currency exchange or interest rates, and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;
•risks related to our indebtedness;
•our failure to maintain effective quality control systems at our wood pellet production plants and deep-water marine terminals, which could lead to the rejection of our products by our customers;
•changes in the quality specifications for our products that are required by our customers;
•labor disputes, unionization or similar collective actions;
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| | risks related to our indebtedness;
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•our inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets; | ·
| | our failure to maintain effective quality control systems at our production plants and deep‑water marine terminals, which could lead to the rejection of our products by our customers;
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•the effects of the exit of the United Kingdom from the European Union on our and our customers’ businesses; | ·
| | changes in the quality specifications for our products that are required by our customers;
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•our inability to borrow funds and access capital markets; and•viral contagions or pandemic diseases, such as the recent outbreak of a novel strain of coronavirus known as COVID-19. | ·
| | the effects of the anticipated exit of the United Kingdom (“Brexit”) from the European Union on our and our customers’ businesses; and
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| | our ability to borrow funds and access capital markets.
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All forward‑lookingforward-looking statements in this Annual Report are expressly qualified in their entirety by the foregoing cautionary statements.
Please read Part I, Item 1A. “Risk Factors.” Readers are cautioned not to place undue reliance on
forward‑lookingforward-looking statements and we undertake no obligation to update or revise any such statements after the date they are made, whether as a result of new information, future events or otherwise.
biomass:any organic biological material derived from living organisms whichthat stores energy from the sun.co‑fire:
co-fire: the combustion of two different types of materials at the same time. For example, biomass is sometimes fired in combination with coal in existing coal plants. cost pass‑through: pass-through mechanism:a mechanismprovision in commercial contracts that passes costs through to the purchaser. dry-bulk:describes dry-bulk commodities that are shipped in large, unpackaged amounts. metric ton:one metric ton, which is equivalent to 1,000 kilograms. One metric ton equalskilograms and 1.1023 short tons. net calorific value:the amount of usable heat energy released when a fuel is burned completely and the heat contained in the water vapor generated by the combustion process is not recovered. The European power industry typically uses net calorific value as the means of expressing fuel energy.off‑take
off-take contract:an agreement between a producerconcerning the purchase and sale of a resource and a buyer of a resource to purchase a certain volume of the producer’s future production.production of a given resource such as wood pellets.
ramp: increasing production for a period of time of increasing production following the startup of a plant or completion of a project.Riverstone:
Riverstone: Riverstone Holdings LLC. Riverstone Funds:Riverstone/Carlyle Renewable and Alternative Energy Fund II, L.P. and certain affiliated entities, collectively. stumpage:the price paid to the underlying timber resource owner for the raw material.utility‑grade
utility-grade wood pellets:wood pellets meeting minimum requirements generally specified by industrial consumers and produced and sold in sufficient quantities to satisfy industrial‑scale consumption. wood fiber:cellulosic elements that are extracted from trees and used to make various materials, including paper. In North America, wood fiber is primarily extracted from hardwood (deciduous) trees and softwood (coniferous) trees. wood pellets:energy‑dense, low‑moisture energy-dense, low-moisture and uniformly‑uniformly sized units of wood fuel produced from processing various wood resources or byproducts.
ITEM 1. BUSINESS
References
Unless otherwise stated or the context otherwise indicates, all references in this Annual Report to
the “Predecessor,“we,”
“our Predecessor,” “we,“us,” “our,”
“us” or like terms for periods prior to April 9, 2015 refer to Enviva, LP and its subsidiaries (other than Enviva Pellets Cottondale, LLC). References to the “Partnership,”
“we,” “our,” “us” or
like terms for periods on and after April 9, 2015similar expressions refer to Enviva Partners, LP,
andincluding its subsidiaries. References to “our sponsor” refer to Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC. References to “our General Partner” refer to Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP. References to “Enviva
Management”Management Company” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP,
and referencestogether with its affiliates that provide services to us, as applicable. References to “our employees” refer to the employees of Enviva
Management. ReferencesManagement Company and its affiliates who provide services to the
“First Hancock JV” and the “Second Hancock JV” refer to Enviva Wilmington Holdings, LLC and Enviva JV Development Company, LLC, respectively, which are joint ventures between our sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.).Partnership. Please read Cautionary Statement Regarding
Forward‑LookingForward-Looking Statements on page 1 and Item 1A. “Risk Factors” for information regarding certain risks inherent in our business.
We are the world’s largest supplier by production capacitya growth-oriented master limited partnership formed in 2013 that is focused on owning, operating and acquiring assets from our sponsor or third parties. We aggregate a natural resource, wood fiber, and process it into a transportable form, wood pellets. We sell a significant majority of utility‑gradeour wood pellets to major power generators. Since our entry into this business in 2010, we have executed multiple long‑term, take‑or‑pay off‑takethrough long-term, take-or-pay off-take contracts with utilitiescreditworthy customers in the United Kingdom (the “U.K.”), Europe and large scale power generators and have built and acquired the production and terminaling capacity necessary to serve them. Our existing production constitutes approximately 14% of current global utility‑grade wood pellet production capacity and the product we deliver to our customers typically comprises a material portion of their fuel supply.increasingly in Japan. We own and operate six industrial‑scale productionnine plants in the Southeastern United States that have(collectively, “our plants”) with a fully contracted combined wood pellet production capacity of 2.9approximately 5.3 million metric tons of wood pellets per year (“MTPY”). in Virginia, North Carolina, South Carolina, Georgia, Florida and Mississippi, the production of which is fully contracted through 2025. We constructed four ofexport wood pellets through our production plants using our templated design and standardized equipment. A fifth plant, our largest in terms of production capacity, has been in operation since 2008. We also own dry‑bulk, deep‑waterwholly owned dry-bulk, deep-water marine terminal assets at the Port of Chesapeake, Virginia (the “Chesapeake terminal”) and terminal assets at the Port of Wilmington, North Carolina (the “Wilmington terminal”) and from third-party deep-water marine terminals in Savannah, Georgia (the “Savannah terminal”), which reduce our storageMobile, Alabama (the “Mobile terminal”) and shiploading costs and enable us to reliably supply our customers.Panama City, Florida (the “Panama City terminal”). All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these cost‑advantagedcost-advantaged assets, the output from which is fully contracted through 2025, in a rapidly expanding industry provides us with a platform to generate stable and growing cash flowsflows. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush and slash that we anticipate will enable usare generated in a harvest.
Our strategy is to
increasefully contract the wood pellet production from our
per‑unit cash distributionsplants under long-term, take-or-pay off-take contracts with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that may include provisions that escalate the price over time
which isand provide for other margin protection. During 2020, production capacity from our
primary business objective.Wewood pellet production plants and wood pellets sourced from our affiliates and third parties were formed on November 12, 2013 asapproximately equal to the contracted volumes under our existing long-term, take-or-pay off-take contracts. Our long-term, take-or-pay off-take contracts provide for a wholly owned subsidiaryproduct sales backlog of $14.6 billion and have a total weighted-average remaining term of 12.8 years from February 1, 2021. Under our sponsor. On April 9, 2015,current product sales backlog, our plants are fully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by our sponsor contributed certain ofwere included with our Predecessor’s assetsproduct sales backlog for firm and liabilitiescontingent contracted product sales, our product sales backlog would increase to us. On May 4, 2015, we completed an initial public offering (the “IPO”) of common units representing limited partner interests in$19.9 billion and the Partnership (“common units”). Our assets and operations are organized into a single reportable segment and are all located and conducted in the United States. Please read Part II, Item 8. “Financial Statements and Supplementary Data—Notetotal weighted-average remaining term from February 1, Description of Business and Basis of Presentation” for further discussion regarding our formation and organization.
We procure wood fiber and process it into utility‑grade wood pellets at our production plants. We load the finished wood pellets into railcars, trucks and barges that are transported2021 would increase to our owned or leased deep‑water marine terminal assets, where they are received, stored and ultimately loaded onto oceangoing vessels for transport to our principally European customers.
14.0 years.
Our customers use our wood pellets as a substitute fuel for coal in dedicated biomass or co‑firedco-fired coal power plants. Wood pellets serve as a suitable “drop‑in”“drop-in” alternative to coal because of their comparable heat content, density and form. Due to the uninterruptible nature of our customers’ fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to deliver and certify the highest levels of product quality and our proven track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to our customers’ focus on the reliability of supply, they are concerned about the combustion efficiency of
the wood pellets and their safe handling. Because combustion efficiency is a function of energy density, particle size distribution, ash/inert content and moisture, our customers require that we supply wood pellets meeting minimum criteria for a variety of specifications and, in some cases, provide incentives for exceeding our contract specifications.
Industry Overview
Our product, utility‑gradeProduction Plants, Logistics and Storage Capabilities
We procure low-grade wood
pellets, is used as a substitute for coal in both dedicatedfiber and
co‑fired power generation and combined heat and power plants. It enables major power generators to profitably generate electricity in a manner that reduces the overall cost of compliance with mandatory greenhouse gas (“GHG”) emissions limits and renewable energy targets while also allowing countries to diversify their sources of electricity supply.Unlike intermittent sources of renewable generation like wind and solar power, wood pellet‑fired plants are capable of meeting baseload electricity demand and are dispatchable (that is, power output can be switched on or off or adjusted based on demand). As a result, utilities and major power generators in Europe and Asia have made and continue to make long‑term, profitable investments in power‑plant conversions and new builds of generating assets that either co‑fire wood pellets with coal or are fully dedicated wood pellet‑fired plants. Such developments help generators in European and Asian markets maintain and increase baseload generating capacity, comply with binding climate change regulations and other emissions reduction targets and increase renewable energy usage at a lower cost to consumers and taxpayers than other forms of renewable energy generation.
The capital costs required to convert a coal plant to co‑fire biomass, or to burn biomass exclusively, are a fraction of the capital costs associated with implementing offshore wind and most other renewable technologies. Furthermore, the relatively quick process of converting coal‑fired plants to biomass‑fired generation is an attractive benefit for power generators whose generation assets are no longer viable as coal plants due to the expiration of operating permits or the introduction of taxes or other restrictions on fossil fuel usage or emissions of GHGs and other pollutants.
There also continues to be significant growth in the European and Asian demand for wood pellets as the preferred fuel source and lower‑cost alternative to delivered fossil fuels for district heating loops, for heating homes and commercial buildings and for the production of process heat at industrial sites. Increasingly, wood pellets are also being sought as a raw material input for bio‑based substitutes for traditional fossil fuel‑based fuels and chemicals. As these markets further develop, there will continue to be opportunities for utility‑grade wood pellet producers to serve this growing demand.
Recent Developments
Wilmington Drop‑Down
On October 2, 2017, pursuant to the terms of a contribution agreement by and between the Partnership and the First Hancock JV (the “Wilmington Contribution Agreement”), the First Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal. We refer to this transaction as the “Wilmington Drop-Down.”
The purchase price for Wilmington was $130.0 million, which included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from revolving credit commitments and cash on hand. We accounted for the Wilmington Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to the acquisition were retrospectively recast to reflect the acquisition as if it had occurred on May 15, 2013, the date Wilmington was originally organized.
The Wilmington terminal, which is capable of receiving product by rail and truck, has the capacity to store up to 90,000 metric tons (“MT”) ofinto utility-grade wood pellets and load upthe finished wood pellets into railcars, trucks and barges for transportation to Panamax-sized vessels. It utilizes state-of-the-art handling equipmentdeep-water marine terminals, where they are received, stored and storage infrastructure designedultimately loaded onto oceangoing vessels for delivery to maintain product quality and safety with throughput capacity of up to 3.0 million MTPY of wood pellets.
Wilmington will handle up to approximately 600,000 MTPY of throughput from our wood pellet production plant located in Sampson, North Carolina (the “Sampson plant”) and is party to a long-term terminal services agreement with Enviva Pellets Greenwood, LLC, a wholly owned subsidiary of the Second Hancock JV (“Greenwood”). Wilmington will handle throughput volumes sourced from Greenwood’s wood pellet production plant located in Greenwood, South Carolina (the “Greenwood plant”). The terminal services agreement with Greenwood provides for deficiency payments to Wilmington if minimum throughput requirements are not met.
In addition, the Wilmington Contribution Agreement contemplates that Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) when the First Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirements are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV would enter into the Wilmington Hamlet TSA and the Partnership would make a final payment of $74.0 million in cash or common units to the First Hancock JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down.
Wilmington also entered into a throughput option agreement with the sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by one of the sponsor’s potential wood pellet production plants.
Senior Notes Due 2021
On November 1, 2016, we issued $300.0 million in aggregate principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasers in a private placement transaction. In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical to the Senior Notes (except that the registered notes are not subject to restrictions on transfer).
On October 10, 2017, we completed the issuance to an institutional investor in a private placement transaction of an additional $55.0 million in aggregate principal amount of Senior Notes at a price of 106.25% of par plus accrued interest from May 1, 2017. The additional Senior Notes have the same terms as our outstanding Senior Notes.
The sale of the additional Senior Notes at a purchase price of $58.4 million resulted in gross proceeds of approximately $60.0 million, after including accrued interest of $2.1 million and deducting estimated expenses of approximately $0.5 million. The net proceeds were used to repay the borrowings on our revolving credit facility that were used to fund the Wilmington Drop-Down and for general partnership purposes.
In December 2017, the holder of the additional Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical to such additional Senior Notes (except that the registered notes are not subject to restrictions on transfer). The additional Senior Notes will be treated together with the outstanding Senior Notes as a single class for all purposes under the Indenture.
Sale of the Wiggins Plant
In December 2016, we initiated a plan to sell our 110,000 MTPY production plant located in Wiggins, Mississippi and related assets (the “Wiggins plant”). We sold the Wiggins plant to a third-party buyer for a purchase price of $0.4 million on December 27, 2017, and on December 28, 2017, Enviva Pellets Wiggins, LLC (“Wiggins”), the owner of the Wiggins plant, was dissolved. We recorded a loss on the sale of $0.8 million, net, upon deconsolidation.
At‑the‑Market Offering Program
On August 8, 2016, we filed a prospectus supplement to our shelf registration filed with the U.S. Securities Exchange Act Commission (“SEC”) on June 24, 2016, for the continuous offering of up to $100.0 million of common
units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings. In August 2016, we also entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
During the years ended December 31, 2017 and 2016, we sold 71,368 and 358,593 common units, respectively, under the Equity Distribution Agreement for net proceeds of $1.9 million, net of an insignificant amount of commissions, during 2017, and net proceeds of $9.3 million, net of $0.1 million of commissions, during 2016. Accounting and other fees of approximately $0.2 million were offset against the proceeds during 2017. Deferred issuance costs of approximately $0.4 million, primarily consisting of legal, accounting and other fees, were offset against the proceeds during 2016. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of February 16, 2018, $88.6 million of common units remained available for issuance under the ATM Program.
Assets and Operations
Our Production Plants
We own and operate six industrial‑scalenine industrial-scale wood pellet production plants strategically located in the Mid‑AtlanticMid-Atlantic and the Gulf Coast regions of the United States, geographic areas in which wood fiber resources are plentiful and readily available. TheseOur plants are constructed according to a “build and copy” approach, which allows for operating efficiencies. Furthermore, our multi-plant profile and scale provide us with flexibility under our portfolio of off-take contracts that enhances the reliability of our deliveries and provides opportunities for optimization.
Our facilities are designed to operate 24 hours per day, 365 days per year, although we schedule up to 15 days of
planned maintenance for our
wood pellet production plants during each calendar year. There are no regularly required major turnarounds or overhauls.
Mid‑Atlantic Region Plants
The following table describes our four wood pellet production plants:
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| Plant Location | | Year of Acquisition or Operations Commenced | | Production (MTPY) |
| Ahoskie, North Carolina | | 2011 | | 410,000 | |
| Amory, Mississippi | | 2010 | | 115,000 | |
| Cottondale, Florida | | 2015 | | 780,000 | |
| Greenwood, South Carolina | | 2020 | | 500,000 | |
| Hamlet, North Carolina | | 2019 | | 600,000 | |
| Northampton, North Carolina (1) | | 2013 | | 750,000 | |
| Sampson, North Carolina | | 2016 | | 600,000 | |
| Southampton, Virginia (1) | | 2013 | | 760,000 | |
| Waycross, Georgia | | 2020 | | 800,000 | |
| Total | | | | 5,315,000 | |
(1)Production capacities for the Northampton and Southampton plants ininclude increased production capacity pursuant to ongoing expansion projects. After a ramp period for the Mid‑Atlantic region:expansion projects, the Northampton and Southampton plants are expected to each reach 750,000 MTPY and 760,000 MTPY, respectively, by the end of 2021.
| | | | |
| | | | Current |
| | | | Annual |
| | Operations | | Production |
Plant Location | | Commenced | | (MTPY) |
Ahoskie, North Carolina | | 2011 | | 400,000 |
Northampton, North Carolina | | 2013 | | 550,000 |
Sampson, North Carolina | | 2016 | | 545,000 |
Southampton, Virginia | | 2013 | | 550,000 |
Total | | | | 2,045,000 |
Ahoskie
We acquired the site of
the Ahoskie plant in December 2010 and constructed a dedicatedour wood pellet production plant in Ahoskie, North Carolina (the “Ahoskie plant”)
in December 2010 and constructed the Ahoskie plant there in less than one year, commencing operations in November 2011. Through an expansion completed in June 2012, we increased the plant’s production from 260,000 MTPY to 350,000 MTPY and have made further improvements to increase production to
its current capacity410,000 MTPY of
400,000 MTPY.wood pellets.
Production from the Ahoskie plant is transported by truck to our Chesapeake terminal.
Amory
We purchased a wood pellet production plant in Amory, Mississippi (the “Amory plant”) in August 2010. The Amory plant initially consisted of three pellet mills producing wood pellets at a rate of 41,500 MTPY. Through operational improvements and installation of a fourth pellet mill, the Amory plant currently produces 115,000 MTPY of wood pellets.
Production from the Amory plant is transported by barge to the Mobile terminal.
Cottondale
Our sponsor acquired a wood pellet production plant in Cottondale, Florida (the “Cottondale plant”) in January 2015 and contributed it to us in April 2015. We have undertaken several expansions and process improvements at the Cottondale plant since acquiring it from our sponsor and have increased its production capacity from 720,000 MTPY to 780,000 MTPY of wood pellets since 2016.
Wood pellets produced by the Cottondale plant are transported approximately 50 miles by short-line rail to a warehouse that currently can store up to 32,000 metric tons (“MT”) of wood pellet inventory at the Panama City terminal.
Greenwood
Our sponsor acquired a wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”) in February 2018 and contributed it to us in July 2020. Procurement and detailed engineering activities to expand the Greenwood plant’s production capacity to 600,000 MTPY are underway and we expect the expansion to be completed by year-end 2021.
Production from the Greenwood plant is transported by rail to the Wilmington terminal.
Hamlet
In April 2019, we acquired from our sponsor all of the Class B units of Enviva Wilmington Holdings, LLC (the “Hamlet JV,” and such acquisition, the “Hamlet Drop-Down”). The Hamlet JV owns a wood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”). We are the managing member of the Hamlet JV, which is partially owned by John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (collectively, where applicable, “John Hancock”). We accounted for the Hamlet JV as a consolidated subsidiary, not as a joint venture, following the Hamlet Drop-Down. For more information regarding our rights and obligations with respect to the Hamlet JV, see Note 17, Partners’ Capital—Hamlet JV.
Production from the Hamlet plant is transported by rail to our Wilmington terminal.
Our wood pellet production plant in Northampton, North Carolina (the “Northampton plant”) was constructed based on the Ahoskie plant design, utilizing the same major equipment suppliers.
TheAfter a ramp period for the expansion project, the Northampton
plant currently produces 550,000plant’s production capacity is expected to increase by 200,000 MTPY
to 750,000 MTPY by the end of
wood pellets.2021.
Production from the Northampton plant is transported by truck to our Chesapeake terminal.
Sampson
TheOur wood pellet production plant in Sampson, plant,North Carolina (the “Sampson plant”), which was built based on our templated design and which we acquired from the First Hancock JVour sponsor’s first development joint venture in December 2016, commenced operations during the fourth quarter of 2016. The Sampson plant was built based on our templated design and we believe that it will produce 545,000 MTPY of wood pellets in 2018 and reach an annual production capacity of 600,000 MTPY by 2019.
Production from the Sampson plant is transported by truck to our Wilmington terminal.
We acquired a wood pellet production plant in Southampton County, Virginia (the “Southampton plant”) from
the First Hancock JVour sponsor’s first development joint venture in December
2015 (the “Southampton Drop‑Down”).2015. The Southampton plant is a
build‑and‑copybuild-and-copy replica of our Northampton
plant and currently produces 550,000plant. After a ramp period for the expansion project, the Southampton plant’s production capacity is expected to increase by 200,000 MTPY
to 760,000 MTPY by the end of
wood pellets.2021.
Production from the Southampton plant is transported by truck to our Chesapeake terminal.
Gulf Coast Region Plants
The following table describes our two wood pellet production plants in the Gulf Coast region:
| | | | |
| | | | Current |
| | | | Annual |
| | | | Production |
Plant Location | | Acquisition Date | | (MTPY) |
Cottondale, Florida | | 2015 | | 730,000 |
Amory, Mississippi | | 2010 | | 120,000 |
Total | | | | 850,000 |
Cottondale
Our sponsor
In July 2020, we acquired
Green Circle Bio Energy, Inc., which owns a wood pellet production plant in
Cottondale, FloridaWaycross, Georgia with a production capacity of approximately 800,000 MTPY (the
“Cottondale Plant”“Waycross plant”)
, in January 2015, changed the name of this entity to Enviva Pellets Cottondale, LLC (“Cottondale”) and contributed Cottondale to us in April 2015. The Cottondale plant was commissioned in 2008 and has since undergone several expansions and process improvements. Expansion projects during 2016 and 2017 increased production from 720,000 MTPY to 730,000 MTPY..
Production from the
Cottondale plant is transported approximately 50 miles by short‑line rail to a warehouse that can store up to 32,000 MT of wood pellet inventory at a third-party deep water marine terminal located in Port Panama City, Florida (the “Panama City terminal”).Amory
We purchased a wood pellet production plant in Amory, Mississippi (the “Amory plant”) in August 2010. The Amory plant initially consisted of three pellet mills producing at a rate of 41,500 MTPY. Through basic operational improvements and installation of a fourth pellet mill, the Amory plant currently produces 120,000 MTPY.
Production from the AmoryWaycross plant is transported by bargerail to a third‑party deep‑water marine terminal in Mobile, Alabama (the “Mobile terminal”).
the Savannah terminal.Wood Fiber Procurement and Sustainability Logistics and Storage Capabilities
To‑Port Logistics and Port Infrastructure
We site our production plants tois sited in robust fiber baskets in the Southeast United States that sustainably support our growth operations with low-grade fiber. Our sites minimize wood fiber procurement and logistics costs. Our production plants are strategically located in advantaged fiber baskets and near multiple truck, rail, river and ocean transportation access points. We also have inland waterway access and rail access at our Chesapeake terminal and Wilmington terminal and the Panama City terminal. Our multi‑year fixed‑cost contracts with third‑party logistics providers allow for long‑term visibility into our to‑port logistics cost structure.
The wood pellets produced at our plants must be stored, terminaled and shipped to our principally European customers. Limited deep‑water, bulk terminaling assets exist in the Southeastern United States, and very few of them have the appropriate handling and storage infrastructure necessary for receiving, storing and loading wood pellets. In response to such scarcity, we have vertically integrated our Mid‑Atlantic operations downstream to encompass finished product logistics and storage. As a largely fixed cost and capital intensive piece of the value chain, our port infrastructure allows us to ship incremental product from our regional plants at a small fraction of the cost of our competitors. Management of port terminal infrastructure is also a key element in reducing distribution‑related costs, as it allows us to manage the arrival and loading of vessels. Additionally, we are able to improve our cost position by maintaining a dedicated berth where pellets from our Mid‑Atlantic region plants have priority and equipment with sufficient load-rate capabilities to turn around vessels within the allotted time windows.
In addition to terminaling wood pellets from our production plants, we will, on occasion, provide terminaling services for third‑ and related-party wood pellet producers as well as for owners of other dry-bulk commodities.
Port Operation in the Mid‑Atlantic Region
We acquired the Chesapeake terminal in January 2011 and converted it into a major dry‑bulk terminal. The Chesapeake terminal receives, stores and loads wood pellets for export and serves as the shipment point for products produced at our Ahoskie, Northampton and Southampton plants. The Chesapeake terminal accommodates Handysize, Supramax and Panamax‑sized vessels, and has a 200‑car rail yard adjacent to a Norfolk Southern track, a loading/unloading system that accommodates deliveries by truck, rail and barge and a highly automated conveying system. In May 2011, we erected a 157‑foot tall, 175‑foot wide storage dome that receives, stores and loads up to 45,000 MT of wood pellets. In April 2013, we placed into operation a second storage dome at the site to add an additional 45,000 MT of storage.
The Chesapeake terminal’s storage and loading capacity is more than adequate to store and facilitate the loading of the wood pellets produced from our Northampton, Southampton and Ahoskie plants, and its location decreases our customers’ transportation time and costs. Efficiently positioned near our Ahoskie, Northampton, and Southampton plants, the Chesapeake terminal delivers up to a three‑ to four‑day European shipping advantage compared to other Southern or Gulf Coast ports. In addition, because we own the Chesapeake terminal, we enjoy preferential berth access and loading, which minimizes costs of shipping and logistics without the need for excess storage. Our ownership and operation of this terminal enable us to control shipment of the production of our Mid‑Atlantic region plants that it serves.
Wood pellets produced at our Sampson plant are terminaled at our Wilmington terminal. The Wilmington terminal accommodates Handysize, Supramax and Panamax‑sized vessels, and has a receiving system that accommodates deliveries by truck and rail, a highly automated conveying system and two wood pellet storage domes with capacities of 45,000 MT each. The Wilmington terminal’s storage and loading capacity is more than adequate to store and facilitate the loading of pellets produced from our Sampson plant and its location decreases transportation time and costs through the entire supply chain. We benefit from preferential berth access and loading at our Wilmington terminal, which minimizes costs of shipping and logistics without the need for excess storage.
Port Operation in the Gulf Coast Region
Wood pellets from our Cottondale plant are transported via short‑line rail to the Panama City terminal, where we store up to 32,000 MT of wood pellet inventory in a warehouse at Port Panama City. Production from the Cottondale plant is received, stored and loaded under a long‑term warehouse service agreement with the Panama City Port Authority and a stevedoring contract, each of which runs through September 2023 and may be extended by us for an additional five-year period.
Wood pellets produced at our Amory plant are transported by barge to the Mobile terminal, where, pursuant to a throughput agreement with Cooper Marine & Timberlands (“Cooper”), we export from Cooper’s ChipCo terminal. This privately owned and maintained deep‑water, multi‑berth terminal operates 24 hours per day, seven days per week and is the fleeting and loading point for production from our Amory plant. The Amory plant is sited along a major inland waterway that makes transportation to the Mobile terminal easy and efficient, thereby reducing emissions and costs. Our ability to store our wood pellets in barges provides a capital‑light, flexible solution that accommodates the storage needs of the Amory plant.
Please read Part II, Item 8. “Financial Statements and Supplementary Data—Significant Accounting Policies—Segment and Geographic Information” for more information regarding our plants, terminals and other long‑lived assets.
Our Relationship with Our Sponsor
Our sponsor, Enviva Holdings, LP, is a majority owned subsidiary of the Riverstone Funds.
Our sponsor owns approximately 9% of our common units, all of our subordinated units and our General Partner. Our General Partner owns our incentive distribution rights, which entitles our General Partner to increasing percentages of our cash distributions above certain targets. As a result, our sponsor is incentivized to facilitate our access to accretive acquisitions and organic growth opportunities, including those pursuant to the right of first offer it granted to us in connection with our IPO.
In November 2014, Enviva Development Holdings, LLC (“Development Holdings”) entered into the First Hancock JV with Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) to acquire, develop and construct wood pellet production plants and deep-water marine terminals such as the Southampton, Sampson and Hamlet plants and the Wilmington terminal. In December 2017, Development Holdings entered into the Second Hancock JV with Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) to acquire, develop and construct wood pellet production plants and deep-water marine terminals in the Southeastern United States. Development Holdings is the managing member and Enviva Management is the operator of the Hancock JVs; together, they are responsible for managing the activities of the First Hancock JV and the Second Hancock JV (together, the “Hancock JVs”), including the development and construction of the development projects of the Hancock JVs.
Our Sponsor’s Assets and Development Projects
Hamlet Plant
The First Hancock JV has secured permits and commenced construction of the Hamlet plant, which is strategically sited in an attractive wood fiber basket and will be constructed using our “build‑and‑copy” approach, using substantially the same design and equipment as the Sampson plant. Production from the Hamlet plant, once completed, will be terminaled at the Wilmington terminal.
Greenwood Plant
As its first investment, the Second Hancock JV, through a wholly owned subsidiary, entered into an agreement to purchase the Greenwood plant. Upon closing, the Second Hancock JV intends to make investments in the Greenwood plant to improve its operational efficiency and increase its production capacity to 600,000 MTPY. The production of the
Greenwood plant initially will be sold to the Partnership under a take-or-pay off-take contract and will continue to be exported from the Partnership’s Wilmington terminal.
Other Sponsor Development Projects
In addition to the projects discussed above, the Second Hancock JV is pursuing the development of additional deep‑water marine terminals and production plants. The Second Hancock JV has executed an agreement with the Jackson County Port Authority granting the Second Hancock JV an option to build and operate a marine export terminal at the Port of Pascagoula, Mississippi, which would service new, regionally proximate production plants, including a potential production plant in Lucedale, Mississippi.
In connection with the closing of the IPO in 2015, we entered into a purchase rights agreement (the “Purchase Rights Agreement”) with our sponsor, pursuant to which our sponsor granted us a five‑year right of first offer to acquire any wood pellet production plants and associated deep‑water marine terminals that it or the Hancock JVs may develop or acquire and elect to sell. We expect to continue to pursue the acquisition of such assets from our sponsor and the Hancock JVs to the extent that they are supported by long‑term off‑take contracts with creditworthy counterparties and have long useful lives, stable cost positions and advantaged locations.
Although we expect to continue to have the opportunity to acquire assets, including those described above, from our sponsor and the Hancock JVs, there can be no assurance that our sponsor or the Hancock JVs will complete their development projects or that our sponsor will decide to sell, or compel the Hancock JVs to sell, assets or completed development projects to us. The right of first offer under the Purchase Rights Agreement expires in May 2020.
Customers
For the year ended December 31, 2017, we generated substantially all of our revenues from sales under long‑term take‑or‑pay off‑take contracts with customers outside of the United States. We seek to fully contract our production capacity through long‑term off‑take contracts and supplement such agreements with smaller contracts of intermediate or short duration to take advantage of opportunities in the market.
Depending on the specific off‑take contract, shipping terms are either Cost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”) or Free on Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping costs under CIF and CFR contracts are included in the price to the customer and, as such, are included in revenue andstructural cost of goods sold. Under FOB contracts,advantage over many other fiber baskets around the customer is directly responsible for shipping costs. We seek to enter into fixed-price shipping contracts with reputable shippers matchingworld. Although “stumpage,” the terms and volumes of our contracts for which we are responsible for arranging shipping.
We have long-term, take‑or‑pay off‑take contracts with utilities and large European power generators such as Drax Power Limited (“Drax”), Ørsted Bioenergy & Thermal Power A/S (“Ørsted,” formerly known as “DONG Energy Thermal Power A/S”), Lynemouth Power Limited (“Lynemouth Power”), Engie Energy Management SCRL (“ENGIE”), MGT Teesside Limited (“MGT”) (through two contracts with the First Hancock JV) and RWE Supply and Trading GmbH (“RWE”).
Drax Contracts. We began selling utility‑grade wood pellets pursuant to a take-or-pay off-take contract with Drax (the “First Drax Contract”) on April 1, 2013. We supplied 468,750 MTindustry term for the first delivery year and will supply 1.0 million MTPYamount of wood pellets through 2022. In connection with the Southampton Drop‑Down, the First Hancock JV assigned to us a ten‑year contract with Drax (the “Second Drax Contract”). The Second Drax Contract commenced on December 1, 2015, and we supplied 385,000 MTconsideration paid for the first delivery year, supplied 500,000 MT for the second delivery year and will supply 500,000 MTPY for years three through ten.
Ørsted Contract. In connection with the Sampson Drop‑Down, the First Hancock JV assigned to us a ten‑year take‑or‑pay off‑take contract with Ørsted. This contract commenced September 1, 2016 and provides for sales of
360,000 MTPY for the first delivery year and 420,000 MTPY for years two through ten. In the fourth quarter of 2017, the Partnership entered into an amendment to the contract with Ørsted for the supply of an incremental 200,000 MT from late 2018 through mid-2021. Ørsted’s obligations under the contract are guaranteed by its parent, Ørsted A/S.
Lynemouth Power Contract. We entered into a take‑or‑pay off‑take contract to supply wood pellets to Lynemouth Power. Lynemouth Power is converting its coal‑fired power station in the United Kingdom to a biomass fired power station. Deliveries under this contract commenced in late 2017, are expected to ramp to full supply of 800,000 MTPY of wood pellets in 2018, and will continue through the first quarter of 2027. The volumes under the Lynemouth Power Contract are denominated in U.S. Dollars, except for 160,000 MTPY that are denominated in British Pound Sterling (“GBP”).
ENGIE Contracts. We began selling 480,000 MTPY of utility‑grade wood pellets to Electrabel, a subsidiary of ENGIE, under a contract that commenced in June 2011 and continued through 2017. In May 2017 we entered into a new agreement to supply a total of 450,000 MT of wood pellets to ENGIE from mid-2017 through and including 2019. We recently entered into two additional agreements with ENGIE to sell 90,000 MT in 2018 and an aggregate 585,000 MT from 2019-2023.
EVA‑MGT Contracts. We have contracted with the First Hancock JV to supply 375,000 MTPY of wood pellets (the “EVA-MGT Contract”) to MGT Teesside Limited’s Tees Renewable Energy Plant (the “Tees REP”). The EVA‑MGT Contract commences in 2019, ramps to full supply in 2021, and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumes in 2019 and in GBP thereafter.
In connection with the Sampson Drop‑Down, we entered into a second contract with the First Hancock JV to supply an additional 95,000 MTPY of the contracted volume to the Tees REP. For more information on the EVA‑MGT Contracts, please read Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence—Agreements with Affiliates—EVA‑MGT Contracts.”
RWE Contracts. We have contracted with RWE pursuant to two confirmations under master agreements to sell 720,000 MT of wood pellets to RWE from our terminal locations and to purchase 720,000 MT of wood pellets from RWE in British Columbia during the period from January 2020 through December 2021.
We also have entered into several other contracts that have smaller off-take quantities than the contracts described above. We diversified our customer base during 2017; however, our three largest customers accounted for 93% of the Partnership’s product sales in 2017.
We refer to the structure of our contracts as “take‑or‑pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that compensate us in the case of our customer’s failure to accept all or a part of the contracted volumes or for termination by our customer. Our long-term contracts typically provide for annual inflation‑based adjustments or price escalators. Certain of our long-term contracts also contain provisions that allow us to increase or decrease the volume of product that we deliver by a percentage of the base volume of the contract, as well as cost pass‑through provisions related to stumpage, fuel or transportation costs and price adjustments for actual product specifications. In addition, certain of our long-term contracts and related arrangements provide for certain cost recovery and sharing arrangements in connection with certain changes in law or sustainability requirements as well as payments to us in the case of their termination as a result of such changes.
In addition to our long-term contracts, we also sell prompt deliveries of product to new and existing customers. On occasion, we will intermediate dislocations in the market by entering into back-to-back transactions with physical delivery. In some instances, a customer may request to cancel, defer, or accelerate a shipment. Contractually, we will seek to optimize our position by selling or purchasing the subject shipment to or from another party, including in some cases a related party, either within our contracted off‑take portfolio or as an independent transaction on the spot market. In most instances, the original customer pays us a fee, including reimbursement of any incremental costs, which is included in “Other revenue.” We also provide terminaling services for third‑party wood pellet producers as well as for owners of other bulk commodities.
Contracted Backlog
As of February 15, 2018, we had approximately $5.8 billion of product sales backlog for firm contracted product sales to major power generators compared to approximately $5.7 billion as of February 1, 2017. Backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contract. Expected future product sales revenue denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at February 15, 2018 forward rates. Please read Part II, Item 8. “Financial Statements and Supplementary Data—Derivative Instruments” for more information regarding our foreign currency forward contracts.
Our expected future product sales revenue under our contracted backlog as of February 15, 2018 is as follows (in millions):
| | | |
Period February 15, 2018 to December 31, 2018 | | $ | 523 |
Year Ended December 31, 2019 | | | 582 |
Year Ended December 31, 2020 and thereafter | | | 4,691 |
Total product sales contracted backlog | | $ | 5,796 |
Wood Fiber Procurement
Although stumpagefiber, constitutes a small portion of our total cost of delivered products, wood fiber procurement is a vital function of our business and cost‑effectivecost-effective access to wood fiber is an important factor in our pricing stability. Our raw materials are byproducts of traditional timber harvesting, principally
Wood fiber is a unique energy commodity in that, in resource basins like the tops and limbs of trees as well as other low‑value wood materials that are generated in a harvest. We procureSouthern United States where we operate, more wood fiber directlygrows each year than is harvested, meaning that the commodity is a negative depletion resource. Over the period from timber owners, loggers and other suppliers. We also opportunistically acquire industrial residuals (sawdust and shavings) and forest residuals (woodchips and slash) when they provide a cost advantage. Due1953 to 2015, the moisture contentamount of unprocessed wood, it cannot be transported economically over long distances. Therefore,timberland acreage in the specific regionalU.S. South remained stable; however, during this same period wood fiber resourceinventory stored in Southern forests increased by 108%. Between 2011, the year in which we opened our first wood pellet production plant, and 2019, forest inventory in our overall supply and demand balance dictates the underlying economicsbase increased by more than 370 million MT, or 18%.
Because wood fiber procurement. Foris approximately 50% water at the time of harvest, it has a limited economically efficient distribution radius of roughly 75 miles. The combination of consistent excess supply over demand for a commodity that is not cost-effective to transport to new demand regions means that this reason, we have electedstranded natural resource experiences structurally stable long-term pricing: during the period from 2000 to site2018, the delivered cost of fiber in North Carolina, one of our facilities in some of the most robustprimary sourcing areas, increased at a modest 1.6% compound annual growth rate with limited annual volatility.
We and
advantaged fiber baskets in the world.Ourour customers are subject to stringent requirements regarding the sustainability of the fuels they procure. In addition to our internal sustainability policies and initiatives like our Responsible Sourcing Policy, our wood fiber procurement is conducted in accordance with leading forest certification standards. Our fiber supply chains are routinely audited by independent third parties. We maintain multiple forest certifications including: Forest Stewardship Council (FSC®) Chain of Custody, FSC® Controlled Wood, Programme for the Endorsement of Forest Certification (PEFC™) Chain of Custody, Sustainable Forestry Initiative (SFI®) Fiber Sourcing and SFI® Chain of Custody. We have obtained independent third-party certification for all of our Ahoskie, Cottondale, Northampton, Sampson and Southampton plants to the applicable Sustainable Biomass Program (SBP) Standards in 2016 and 2017. We expect that our Amory plant will obtain third-party SBP certification in early 2018.
Standards.
Our wood fiber demand is complementary to, rather than in competition with, demand for
high‑gradehigh-grade wood for use by most other
forest‑relatedforest-related industries, such as lumber and furniture making. For example, improvements in the U.S. housing construction industry
typically increase the demand for
construction‑qualityconstruction-quality lumber, which in turn increases the available supply of the
low‑costlow-cost pulpwood and mill residues that
are usedwe use in wood pellet production. By using commercial thinnings and byproducts as raw materials, wood pellet production also indirectly supports other
forest‑relatedforest-related industries as well as the sustainable management of commercial forests.
We make wood pellets only with low-grade or leftover wood. Across our combined supply base, approximately 10% of the volume of harvested wood is purchased by us and other wood pellet producers, which represents an estimated 4% of the total stumpage value of harvested timber. Our sponsor has created a first-of-its kind, proprietary Track and Trace® program to track the origin and characteristics of fiber that we use, and we publish this information, providing unprecedented transparency into our fiber sourcing activities.
The wood fiber used for wood pellet production comprises predominantly pulpwood, which derives its name from its traditional useis comprised of:
•low-grade wood fiber: trees or wood that are unsuitable for or rejected by the pulpsawmilling and paper industry and includes roundwood (typically thinnings from forest management operations and the lumber industries because of small size, defects (e.g. crooked or knotty), disease, or pest infestation;
•tops and branches from sawlogs),limbs: the parts of trees that cannot be processed into lumber;
•commercial thinnings: harvests that promote the growth of higher value timber by removing weaker or deformed trees to reduce competition for water, nutrients, and sunlight; and
•mill residues: chips, sawdust and other wood residues (primarily mill residues, a byproduct of sawmilling and veneer mill operations). Our procured wood fiber consists of: | ·
| | low‑grade wood fiber: wood that is unsuitable for or rejected by the sawmilling and lumber industries because of small size, defects (e.g. crooked or knotty), disease or pest infestation;
|
| ·
| | tops and limbs: the parts of trees that cannot be processed into lumber;
|
| ·
| | commercial thinnings: harvests that promote the growth of higher value timber by removing weaker or deformed trees to reduce competition for water, nutrients and sunlight; and
|
| ·
| | mill residues: chips, sawdust and other wood industry byproducts.
|
Demand for the non‑merchantable trees,non-merchantable fiber, waste products or byproducts that we use is generally low because they have few competing uses.uses, in part because they cannot be transported cost-effectively. The tops, limbs and other low‑gradelow-grade wood fiber we purchase would otherwise generally be left on the forest floor, impeding reforestation, or burned. Wood pellet production provides a profitable use for the residues from sawmill and furniture industries and also for the trees that are thinned to make room for higher value lumber‑grade timber.support the growth of higher-value lumber-grade trees. U.S. demand for such low gradelow-grade wood fiber historically emerged from the pulp and paper industry. However, due to the decline in demand from paper and pulp, many landowners lack commercial markets for this wood fiber. Wood pellet producers help fill the gap.
As a result of the fragmented nature of tract ownership, we procure raw materials from hundreds of landowners, loggers, and timber industry participants, with no individual landowner representing a material fraction of any of our production plants’ needs. Our wood fiber is procured under a variety of arrangements, including (1) logging contracts for the thinnings, pulpwood and other unmerchandised chip‑and‑saw timber cut by a harvester,low-grade fiber, (2) in‑woodsin-woods chipping contracts where we may also provide the actual harvesting assets and (3) contracts with timber dealers. Via our internalsponsor’s proprietary Track and Trace& Trace® system, we maintain 100% traceability of the primary wood that is delivered to us directly from forests. Any supplier delivering wood to one of our plants must first share the details about the forest characteristics of the tract from which the wood is sourced with our forestry staff so we can verify that it meets our strict sustainability criteria. Our supplier contracts require a certification that the relevant tract information has been entered into our database before wood may be delivered directly from a particular tract. We summarize all such tract information periodically and publish tract‑leveltract-level details on our website. During 2017,2020, we sourced wood fiber from approximately 300363 suppliers, including brokers who source from landowners growing both hardwoods and softwoods and other suppliers. The diversity of our supply base enables us to maintain stable costs, and our facilities’ advantaged siting ensures consistent andenables us to benefit from more reliable deliveries, at a lower cost, than others in our region or industry.
Plant Operations
Our plants receive wood fiber in both stem-length and chip form. When this raw material is delivered by truck from our suppliers, it is scaled for weight, checked for quality and recorded consistent with our Track & Trace® system and Responsible Sourcing Policy requirements at the scale house at each of our plants. Each truck is then unloaded in a particular location in each respective plant’s woodyard based on the form and species (generally hardwood or softwood) of the raw material. Stem-length wood is stacked by radial or portal cranes and chips are piled, typically through automated conveyors to be reclaimed later for use. Stem-length wood is debarked prior to processing, providing fuel for each plant’s drying systems.
Following debarking, stem-length wood is size-reduced through a disc chipper, the chip product from which is co-mingled with delivered chips. The production process begins by mixing a specific formula of species and form factors of chips and metering them into a set of green hammer mills, which perform primary sizing. The now-smaller chips are fed into a green chip bin and metered into a rotary kiln drier, where drying heat is provided by a biomass and bark-fueled furnace. Dried chips are fed from the drier to the secondary sizing process island, which comprises a combination of screening and dry-hammermilling to further size-reduce the chips. This dry, further size-reduced flour or meal is stored in a dry storage silo and conveyed to ripening bins which further homogenize moisture prior to pelletizing. To the extent sawdust or other residuals are available, it is also size-reduced and combined with the processed wood fiber at this point in the process. The meal is metered into a series of pellet mills where hydraulic pressure extrudes the fiber into wood pellets. The pressure and temperature of the pelleting process activate natural lignin present in the wood which acts as a natural binder and finishes the pellet with a shiny exterior. The pellets are gravity-fed into large coolers which utilize counter-current air flow to reduce pellet temperature and moisture. Once cool, the pellets, then averaging approximately 5-7% moisture, are screened to reduce entrained dust and then conveyed to finished goods silos prior to being loaded onto trucks, railcars or barges depending on the facility.
Our larger plants are staffed by approximately 85-100 employees including operators, maintenance technicians, quality leads and area, shift and operations supervisors. Plants operate two shifts per day, with four employee teams operating either on an alternating three days on, two days off, two days on, three days off, or alternating four days on, four days off, basis, with a rotation between day shift and night shift periodically. Plant management consists of a plant manager, operations manager, maintenance manager, quality manager, human capital manager and an environmental health and safety manager, complemented by wood procurement, sustainability, accounting and engineering personnel.
Maintenance activities at the plant include planned and preventive maintenance as well as refurbishment of tools, dies, screens and hammers for key process equipment. The plants receive power from local utilities, have minimal process water requirements and limited exposure to fossil fuel volatility. The furnace burns wood in the form of bark and fuel chips as the source of heat for the dryer to evaporate moisture. Natural gas or propane is used as the energy source for emissions control equipment onsite like regenerative thermal oxidizers and a small amount of diesel is used in mobile equipment on each site. Very little waste besides office refuse leaves the plant as the by-product ash from the furnace operations is usually desirable as a fertilizer and is land-applied by local farmers.
To-Port Logistics and Port Infrastructure
Each of our plants is located near multiple truck, rail, river and ocean transportation access points. We also have inland waterway access and rail access at the Chesapeake, Wilmington, Savannah and Panama City terminals. Our multi-year fixed-cost contracts with third-party logistics providers allow for long-term visibility into our to-port logistics cost structure.
The wood pellets produced at our plants are stored, terminaled and shipped to our customers, principally in the U.K., Europe and increasingly in Japan. Limited deep-water, dry-bulk terminaling assets exist in the Southeastern United States, and very few of them have the appropriate handling and storage infrastructure necessary for receiving, storing and loading wood pellets. In response to such scarcity, we have vertically integrated our Mid-Atlantic operations downstream to encompass finished product logistics and storage. As a largely fixed cost and capital intensive piece of the value chain, we believe our port infrastructure allows us to ship incremental product from our regional plants at a fraction of the cost of our competitors. Management of port terminal infrastructure is also a key element in reducing distribution-related costs as it allows us to manage the arrival and loading of vessels. Additionally, we are able to improve our cost position by maintaining a dedicated berth where pellets from our Mid-Atlantic region plants have priority and equipment with sufficient load-rate capabilities to turn around vessels within the allotted time windows.
In addition to terminaling wood pellets from our production plants, we will, on occasion, provide terminaling services for third- and related-party wood pellet producers as well as for owners of other dry-bulk commodities.
Port Operations
We acquired the Chesapeake terminal in January 2011 and converted it into a dry-bulk terminal. The Chesapeake terminal receives, stores and loads wood pellets for export and serves as the shipment point for products produced at our Ahoskie, Northampton and Southampton plants. The Chesapeake terminal accommodates Handysize, Supramax and Panamax-sized vessels, and has a 200-car rail yard adjacent to a Norfolk Southern track, a loading/unloading system that accommodates deliveries by truck, rail and barge and a highly automated conveying system. In May 2011, we erected a 157-foot tall, 175-foot wide storage dome that receives, stores and loads up to 45,000 MT of wood pellets. In April 2013, we placed into operation a second storage dome at the site to add an additional 45,000 MT of storage.
The Chesapeake terminal’s storage and loading capacity is more than adequate to store and facilitate the loading of the wood pellets produced at our Ahoskie, Northampton and Southampton plants, and its location decreases our customers’ transportation time and costs. Efficiently positioned near our Ahoskie, Northampton and Southampton plants, the Chesapeake terminal delivers up to a three- to four-day European shipping advantage compared to other Southern or Gulf Coast ports. In addition, because we own the Chesapeake terminal, we enjoy preferential berth access and loading, which minimizes costs of shipping and logistics without the need for excess storage. Our ownership and operation of this terminal enable us to control shipment of the production of our Mid-Atlantic region plants that it serves.
Wood pellets produced at our Sampson, Hamlet and Greenwood plants are terminaled at our Wilmington terminal. The Wilmington terminal accommodates Handysize, Supramax and Panamax-sized vessels, and has a receiving system that accommodates deliveries by truck and rail, a highly automated conveying system and two wood pellet storage domes with capacities of 45,000 MT each. The Wilmington terminal’s storage and loading capacity is more than adequate to store and facilitate the loading of wood pellets produced at our Sampson, Hamlet and Greenwood plants and its location decreases transportation time and costs through the entire supply chain. We benefit from preferential berth access and loading at our Wilmington terminal, which minimizes costs of shipping and logistics without need for excess storage.
Wood pellets produced at our Amory plant are transported by barge to the Mobile terminal for storage, handling and export pursuant to a short-term services agreement. The Mobile terminal is a privately owned and maintained deep-water, multi-berth terminal that operates 24 hours per day, seven days per week and is the fleeting and loading point for production from our Amory plant. The Amory plant is sited along a major inland waterway that makes transportation to the Mobile terminal easy and efficient, thereby reducing emissions and costs. Our ability to store our wood pellets in barges provides a capital-light, flexible solution that accommodates the storage needs of the Amory plant.
Wood pellets from our Cottondale plant are transported by short‑line rail to the Panama City terminal, where we store up to 32,000 MT of wood pellet inventory in a warehouse at Port Panama City. Production from the Cottondale plant is received, stored and loaded under a long‑term terminal services agreement with the Panama City Port Authority and a stevedoring contract, each of which runs through September 2023 and may be extended by us for an additional five-year period.
Wood pellets produced by our Waycross plant are transported by rail to the Savannah terminal, which has two wood pellet storage domes with a combined storage capacity of 50,000 MT, for storage, handling and export pursuant to a lease and associated terminal services agreement that are effective through 2028.
Please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” for more information regarding our plants, terminals and other long‑lived assets.
Our Contracts
We refer to the structure of our long-term sales contracts as “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions for us to be compensated in the event of a customer’s failure to accept all or a part of the contracted volumes or for termination of a contract by a customer. Our long-term sales contracts typically provide for annual inflation-based adjustments or price escalators. Certain of our long-term sales contracts also contain provisions that allow us to increase or decrease the volume of product that we deliver by a percentage of the base annual volume, as well as cost pass-through mechanisms related to stumpage, fuel or transportation costs (including pricing fluctuations in bunker fuel) and price adjustments based on actual product specifications. In addition, many of our long-term sales contracts provide for cost recovery and sharing arrangements in connection with certain changes in law or sustainability requirements as well as payments to us in the case of their termination as a result of such changes. In order to mitigate volatility in our shipping costs, we have entered into fixed-price shipping contracts with reputable shippers to form a shipping portfolio matching the terms and volumes of our sales contracts for which we are responsible for arranging shipping.
We also have entered into several other contracts that have smaller off-take quantities than the contracts described above. We continue to diversify our customer base; however, our largest customer accounted for 40% of our product sales in 2020 and, based on our current contract backlog, our largest customer will account for 20% of our product sales in 2025.
In some cases, we may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions. We determined that we are the principal in such transactions because we control the pellets prior to transferring them to the customer and therefore we recognize the related revenue on a gross basis in product sales.
In some instances, a customer may request to cancel, defer or accelerate a shipment, in which case we seek to optimize our position by selling or purchasing the subject shipment to or from another party, including in some cases a related party, either within our contracted off‑take portfolio or as an independent transaction in the spot market. In most instances, the original customer pays us a fee, including reimbursement of any incremental costs, which is included in other revenue. Other revenue also includes certain sales and marketing, scheduling, sustainability, consultation, shipping and risk management services (collectively, the “Commercial Services”) that are outside of the scope of an existing take-or-pay off-take contract.
We also provide terminaling services for third- and related-party wood pellet producers as well as for owners of other dry-bulk commodities.
The following chart presents information relating to our and our sponsor’s long-term, take-or-pay off-take contracts:
(1) Represents the Partnership’s sales in 2020.
(2) As of February 1, 2021, excluding volumes under the contracts between long-term off-take customers and our sponsor.
(3) As of February 1, 2021, includes all volumes under the firm and contingent off-take contracts held by us and our sponsor. Although we expect to have the opportunity to acquire these contracts from our sponsor there can be no guarantee that we will acquire these, or any, contracts from our sponsor.
With our existing long-term, take-or-pay off-take contracts, all of the current production capacity of our production plants is fully contracted through 2025. As our current off-take contracts expire, we will seek to re-contract our capacity with a combination of renewals with existing customers, the assumption of additional contracts from our sponsor and the entry into contracts with new customers.
Contracted backlog
As of February 1, 2021, we had approximately $14.6 billion of product sales backlog for firm and contingent contracted product sales to our long-term off-take customers with a total weighted-average remaining term of 12.8 years. Contracted backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the contracts. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are
included in U.S. Dollars at February 1, 2021 forward rates. The contracted backlog includes forward prices including inflation, foreign currency and commodity prices. The amount also includes the effects of related foreign currency derivative contracts.
Our expected future product sales revenue under our contracted backlog as of February 1, 2021 is as follows (in millions):
| | | | | |
| Period from February 1, 2021 to December 31, 2021 | $ | 1,033 | |
| Year ending December 31, 2022 | 1,274 | |
| Year ending December 31, 2023 and thereafter | 12,284 | |
| Total product sales contracted backlog | $ | 14,591 | |
Assuming all volumes under the firm and contingent off-take contracts held by our sponsor were included with our product sales backlog for firm and contingent contracted product sales, the total weighted-average remaining term as of February 1, 2021 would increase to 14.0 years and product sales contracted backlog would increase to $19.9 billion as follows (in millions):
| | | | | |
| Period from February 1, 2021 to December 31, 2021 | $ | 1,032 | |
| Year ending December 31, 2022 | 1,325 | |
| Year ending December 31, 2023 and thereafter | 17,537 | |
| Total product sales contracted backlog | $ | 19,894 | |
Included in the product sales contracted backlog above are $2.9 billion of contingent contracts held by our sponsor.
Industry Overview
Our product, utility-grade wood pellets, is used as a substitute for coal in both dedicated and co-fired power generation and combined heat and power plants. It enables major power, heat or combined heat and power generators (“generators”) to profitably generate electricity and heat in a manner that reduces the overall cost of compliance with certain mandatory greenhouse gas (“GHG”) emissions limits and renewable energy targets while also allowing countries to diversify their sources of electricity supply.
Unlike intermittent sources of renewable generation like wind and solar power, wood pellet-fired plants are capable of meeting baseload electricity demand and are dispatchable (that is, power output can be switched on or off or adjusted based on demand). As a result, utilities and major generators in Europe, Asia and other areas have made and continue to make long-term, profitable investments in power plant conversions and new builds of generating assets that either co-fire wood pellets with coal or are fully dedicated wood pellet-fired plants. Such developments help generators maintain and increase baseload generating capacity and comply with binding climate change regulations and other emissions reduction targets.
The capital costs required to convert a coal plant to co-fire biomass, or to burn biomass exclusively, are a fraction of the capital costs associated with implementing offshore wind and most other renewable technologies. Furthermore, the relatively quick process of converting coal-fired plants to biomass-fired generation can be an attractive benefit for generators whose generation assets are no longer viable as coal plants due to the expiration of operating permits, regulatory phase-out of coal-fired power generation, the introduction of taxes or other restrictions on fossil fuel usage or emissions of GHGs and other pollutants.
There also continues to be significant growth in the European and Asian demand for wood pellets as a preferred fuel source and renewable alternative to fossil fuels for district heating loops, for heating homes and commercial buildings and for the production of process heat for industrial sites. Increasingly, wood pellets are also being sought as a raw material input for bio-based substitutes for traditional fossil fuel-based fuels and chemicals. As these markets further develop, we believe we will continue to have opportunities to serve this growing material demand beyond our current product sales backlog.
We compete with other
utility‑gradeutility-grade wood pellet producers for
long‑term, take‑or‑pay off‑takelong-term, take-or-pay off-take contracts with major power generation
customers.customers and trading houses. Competition in our industry is based on the price, quality and consistency of the wood pellets produced, the reliability of wood pellet deliveries and the producer’s ability to verify and document, through customer and
third‑partythird-party audits, that its wood pellets meet the regulatory sustainability obligations of a particular customer.
Most of the world’s current wood pellet production plants are owned by small, private companies, with few companies owning or operating multiple plants. Few companies have the scale, technical expertise or commercial infrastructure necessary to supply
utility‑gradeutility-grade wood pellets under large,
long‑term off‑takelong-term off-take contracts with
power generators.
We are the largest producer by production capacity, and consider other companies with comparable scale, technical expertise or commercial infrastructure to be our competitors, including AS Graanul Invest, Pinnacle Renewable Energy Inc., Drax Biomass Inc., Georgia Biomass, LLC, Fram Renewable Fuels, LLC, Highland Pellets LLC and Pacific BioEnergy Corporation,Corporation.
Our Relationship with Our Sponsor
The Riverstone Funds became the majority owners of our sponsor in March 2010. In 2020, following a reorganization, certain affiliates of Riverstone, Riverstone Echo Continuation Holdings, L.P. and
The Westervelt Company.Employees
Riverstone Echo Rollover Holdings, L.P. became the majority owners of our sponsor.
We are party toentered into a management servicespurchase rights agreement with Enviva Management,our sponsor pursuant to which Enviva Management providesour sponsor agreed to provide us with a right of first offer to purchase any wood pellet production plant or deep‑water marine terminal that it, its subsidiaries or any other entity that it controls, owns and proposes to sell (each, a “ROFO Asset”) for a five-year period. Pursuant to an amendment, the employees, managementterm of the purchase rights agreement was extended to May 2021 and services necessarywill automatically renew on an annual basis unless either party provides notice of termination within 60 days prior to the end of the then-current term.
We will have 30 days following receipt of notice of our sponsor entity’s intention to sell a ROFO Asset to propose an offer for the operationROFO Asset. If we submit an offer, our sponsor will negotiate with us exclusively and in good faith to enter into a letter of intent or definitive documentation for the purchase of the ROFO Asset on mutually acceptable terms. If we are unable to agree to terms within 45 days, our sponsor entity will have 150 days to enter into definitive documentation with a third party purchaser on terms that are, in the good faith judgment of our business.sponsor entity selling such ROFO Assets, superior to the most recent offer proposed by us.
We expect to continue to pursue the acquisition of such assets from our sponsor to the extent they are supported by long-term off-take contracts with creditworthy counterparties and have long useful lives, stable cost positions and advantaged locations.
Our sponsor owns approximately 34% of our common units and 100% of our General Partner. Our sponsor owns all of our incentive distribution rights, which entitle our sponsor to increasing percentages of our cash distributions above certain targets. As a result, our sponsor is incentivized to facilitate our access to accretive acquisition and organic growth opportunities, including those pursuant to the purchase rights agreement.
Our sponsor is developing and constructing certain wood pellet production and terminaling assets in the Southeastern United States. Although we expect to continue to have the opportunity to acquire assets, including from our sponsor, our sponsor may not complete their development projects, and our sponsor may not decide to sell assets or completed development projects to us.
Our Sponsor’s Assets and Development Projects
Our sponsor is constructing a wood pellet production plant in Lucedale, Mississippi and a deep-water marine terminal in Pascagoula, Mississippi. In addition, our sponsor is developing a wood pellet production plant in Epes, Alabama along with other sites in Mississippi and Alabama. Our sponsor employs a “build and copy” approach to constructing production plants and terminals, allowing synergies of December 31, 2017, Enviva Management had 652 employees. Please read Part II, Item 13. “Financial Statementscommon processes and operational knowledge. We expect to have the opportunity to acquire assets and off-take contracts from our sponsor.
Supplementary Data—Related-Party Transactions” for more information regarding our management services agreement with Enviva Management.
Environmental Matters
Our operations are subject to stringent and comprehensive federal, state and local laws and regulations governing matters including environmental protection of the environment and natural resources, occupational health and safety and the release or discharge of materials into the environment, including air emissions and wastewater discharges. Theseemissions. Such laws and regulations may (i) require acquisition, compliance with and maintenance of certainus to obtain permits, or other approvals to conduct regulated activities, (ii) impose technology requirements or standards on our operations, (iii) restrict the amounts and types of substances that may be discharged or emitted into the environment, (iv) limit or prohibit constructionavoid certain operational practices and incur costs for compliance or timbering activitiesremediation. Failure to comply with such laws may also result in sensitive areas such as wetlands or areas inhabited by endangered or threatened species, (v) govern worker health and safety aspects of operations, (vi) require measures to investigate, mitigate or remediate releases of hazardous or other substances from our operations and (vii) impose substantial liabilities, including possible fines and penalties, for unpermitted emissions or discharges from our operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations and the issuance of orders enjoining some or all of our operations in affected areas.
Moreover, the global trend in environmental regulation is towards increasingly broad and stringent requirements for activities that may affect the environment. Any changes in environmental laws and regulations or re‑interpretation of enforcement policies that result in more stringent and costly requirements could have a material adverse effect on our operations and financial position. Although we monitor environmental requirements closely and budget for the expected costs, actual future expenditures may be different from the amounts we currently anticipate spending. Moreover, certain environmental laws impose strict joint and several liability for costs to clean up and restore sites where pollutants have been disposed or otherwise spilled or released. We cannot assure you that we will not incurreleased, potentially resulting in significant costs and liabilities for remediation orof resulting damage to property, natural resources or persons as a resultpersons. Although
we believe that our competitors
will face similar environmental requirements,
other market factors may prevent us from passing on any increased costs to our customers.
AlthoughAdditionally, although we believe
that we are in substantial compliance with existing environmental laws and regulations and that continued compliance with existing requirements will not materially adversely affect us, there is no assurance that the current levels of regulation will continue in the future.
The following summarizes some of the more significant existing environmental, health and safety laws and regulations applicable to our operations, the failure to comply with which could have a material adverse impact on our capital expenditures, results of operations and financial position.
The
federal Clean Air Act, as amended (the “CAA”), and state and local laws and regulations that implement and add to CAA requirements, regulate the emission of air pollutants from our facilities. The CAA
imposesand state and local laws and regulations impose significant monitoring,
testing, recordkeeping and reporting requirements for these emissions. These laws and regulations require us to obtain
pre‑approvalpre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air
permits,permit emission limits, and in certain cases utilize specific equipment or technologies to control and measure emissions. Obtaining these permits can be both costly and time intensive and has the potential to delay
the opening of new plants or
the significant expansion of existing
plants.plants; moreover, complying with these permits, including satisfying testing requirements, can be costly and time-intensive. Failure to comply with these laws, regulations and permit requirements may cause us to face fines, penalties or injunctive orders in connection with air pollutant emissions from our operations.
The CAA requires that we obtain various construction and operating permits, including, in some cases, Title V air permits. In certain cases, the CAA requires us to incur capital expenditures to install air pollution control devices at our facilities. We are also required to control fugitive emissions from our operations and may face fines, penalties or injunctive orders in connection with fugitive emissions from our operations.fugitive emissions. We have incurred, and expect to continue to incur, substantial administrative, operating and capital expenditures to maintain compliance with CAA requirements that have been promulgated or may be promulgated or revised in the future. Climate Change and Greenhouse Gases
In response
Our operations are subject to
findings thatlimited direct regulation with respect to emissions of
carbon dioxide, methane and GHGs present an endangerment to public health and the environment,GHGs. For example, at this time, the U.S. Environmental Protection Agency (the “EPA”)
has adopted regulations under existing provisions of the CAA that require a reduction in emissions of GHGs from motor vehicles andrequires certain
stationary sources. At this time, the EPA requires biomasslarge facilities
with GHG emissions above 75,000 tons per year that are otherwise subject to CAA permitting to undergo CAA
permittingpre-construction review and obtain operating permits for their GHG emissions.
Any other legislationOur operations are also indirectly affected by regulations regarding the carbon treatment of biomass. Several jurisdictions to which we ship our product have imposed regulations on the characterization of biomass as a carbon-neutral fuel, and any change that imposes more stringent regulations on the characterization of biomass as carbon-neutral could negatively impact demand for our products or
regulations that require permitting or reporting of GHG emissions or limit such emissions from our equipment and operations or from biomass‑fired power plants operated by our customers could require us to incur
additional costs to
reduceachieve such
emissions or negativelycharacterization of our products. For more information, see our risk factor titled “Changes in the treatment of biomass could adversely impact
demand for wood pellets. Furthermore,our business.” Finally, scientists have concluded that increasing concentrations of GHGs in the earth’s atmosphere may produce climate changes that have significant physical effects, such as
sea-level rise, increased frequency and severity of storms, floods and other climatic
events.events, including forest fires. If any such effects were to occur, they could have an adverse effect on our operations.
Water Discharges
The Federal Water Pollution Control Act, as amended (the “Clean Water Act”), as well as state laws and regulations that implement, and may be more stringent than, the Clean Water Act, restrict the discharge of pollutants into waters of the United States. Any such discharge of pollutants must be performed in accordance with the terms of a permit issued by the EPA or the implementing state agency. In addition, the Clean Water Act and implementing state laws and regulations require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non‑compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. These permits generally have a term of five years. Although our facilities are presently in compliance with these requirements, changes to the terms and conditions of our permits in future renewals or new or modified regulations could require us to incur additional capital or operating expenditures, which may be material.
Pursuant to the Clean Water Act, the EPA has adopted the Discharge of Oil regulation, which requires any person in charge of an onshore facility to report any discharge of a harmful quantity of oil into U.S. navigable waters, adjoining shorelines or the contiguous zone. A harmful quantity is any quantity of discharged oil that violates state water quality standards, causes a film or sheen on the water’s surface or leaves sludge or emulsion beneath the surface. Spills from our production plants that are located along waterways or from our deep‑water marine terminal facilities may result in fines, penalties and obligations to respond to and remediate any such spills.
Spill Response and Release Reporting
Certain of our facilities are subject to federal requirements to prepare for and respond to spills or releases from tanks and other equipment located at these facilities and provide training to employees on operation, maintenance and discharge prevention procedures and the applicable pollution control laws. At such facilities, we have developed or will develop Spill Prevention, Control and Countermeasure plans to memorialize our preparation and response plans and will update them on a regular basis. From time to time, these requirements may be made more stringent and may require us to modify our operations or expand our plans accordingly. The costs of implementing any such modifications or expansion may be significant. In addition, in the event of a spill or release, we may incur fines or penalties or incur responsibility for damage to natural resources, private property or personal injury in addition to obligations to respond to and remediate any such spill or release.
Endangered Species Act
The federal Endangered Species Act, as amended (the “ESA”), restricts activities that may affect endangered and threatened species or their habitats. Although some of our facilities may be located in areas that are designated as habitats for endangered or threatened species, we believe that we are in substantial compliance with the ESA. Some of our suppliers may source materials from locations that provide habitats for species that are protected under the ESA, which may extend the time required to access those areas, or may impose conditions or restrictions on accessing those areas in a way that restricts our access to raw materials. Moreover, as a result of a settlement approved by the U.S.
District Court for the District of Columbia on September 9, 2011, the U.S. Fish and Wildlife Service is required to make a determination regarding the listing of more than 250 species by the end of the agency’s 2017 fiscal year. That process reportedly remains underway. The designation of previously unidentified endangered or threatened species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected areas, which could have an adverse impact on the availability or price of raw materials.
Coastal Area Protection and Wetlands and Navigable Waters Activity Regulations
Our terminals are located in areas that are subject to the various federal and state programs that regulate the conservation and development of coastal resources. At the federal level, the Coastal Zone Management Act (the “CZMA”) was enacted to preserve, protect, develop and, where possible, restore or enhance valuable natural coastal resources of the U.S. coastal zone. The CZMA authorizes and provides grants for state management programs to regulate land and water use and coastal development. Requirements under the CZMA may affect the siting of any new terminals and could impact the expansion of modification of existing terminal facilities. The CZMA process may result either in delays in obtaining the required authorizations to construct a new terminal or expand an existing terminal or conditions that may restrict the construction or operation of our terminals.
In addition to the CZMA, requirements under the Clean Water Act and related federal laws may result in federal or state regulators imposing conditions or restrictions on our operations or construction activities. For instance, the dredge and fill provisions of the Clean Water Act require a permit to conduct construction activities in protected waters and wetlands and prohibit unpermitted discharges of fill materials. Likewise, the Rivers and Harbors Act requires permits for the construction of certain port structures. We believe that we are in material compliance with these various requirements; however, any delays in obtaining future permits or renewals, or the inclusion of restrictive conditions in such permits, could adversely affect the cost of, or result in delays to, our operations and the construction of new, or expansion of existing, terminals.
Safety and Maintenance
We are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act, as amended (“OSHA”), and comparable state statutes, whose purpose is to protect the health and safety of workers.
We have a corporate healthOSHA regulations impose various requirements, including with respect to training, policies and
safety program that governs the way we conduct our operations at our facilities. Our employees receive OSHA training that is appropriate in light of the tasks performed at our facilitiesprocedures and
general training on our health and safety plans. Compliance with OSHA and general training is mandatory. We perform preventive and routine maintenance on all of our manufacturing and deep‑water marine terminaling systems, and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of those assets in accordance with applicable regulations.maintenance. In addition, the OSHA hazard communication standards in the Emergency Planning and Community
Right‑to‑KnowRight-to-Know Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state and local governmental authorities and citizens.
Our facilities adhere to National Fire Protection Association (NFPA) standards for combustible dust
andrequire our facilities to incorporate pollution control equipment such as cyclones, baghouses and electrostatic precipitators to minimize regulated emissions. Our
deep‑waterdeep-water marine terminals
must also adhere to Homeland Security/U.S. Coast Guard regulations regarding physical security and emergency response plans. We continually strive to maintain compliance with applicable air, solid waste and wastewater regulations; nevertheless, we cannot guarantee that serious accidents will not occur in the future.
Our business is affected to some extent by seasonal fluctuations. The cost of producing wood pellets tends to be higher in the winter months because of increases in the delivered cost of fiber typically increases with wet weather and ourdelivered raw materials, primarily due to a reduction in accessibility during cold and wet
weather conditions. Our raw materials typically have on average, higher moisture content during this period, of the year, resulting in a lower product yield. In addition, lower ambient temperatures increaseyield; moreover, the cost of drying wood fiber. Seasonality may also impactfiber increases during periods of lower ambient temperatures.
The increase in demand for power and heat during the availability and pricing of limited-scope wood pellet purchase and sale transactions. For example, colder periods typically drive increasedwinter months drives greater customer demand for wood pelletspellets. As some of our wood pellet supply to our customers is sourced from third-party purchases, we may experience higher wood pellet costs and a reduction in our gross margin during the heatingwinter months.
Human Capital
We do not have any employees. We are party to management services agreements (the “MSAs”) with Enviva Management Company, pursuant to which Enviva Management Company provides us with the employees, management and
industrial markets, which can increase pricingservices necessary for
prompt deliveries, while warmer periods typically have the
opposite effect.operation of our business. As of December 31, 2020, Enviva Management Company had 1,135 employees. We refer to the employees of Enviva Management Company as our employees in this annual report. Please read Part II, Item 13. “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related Persons—Management Services Agreement” for more information regarding our MSAs with Enviva Management Company. Principal Executive Offices
We lease office space for our
Our principal executive offices
are located at 7200 Wisconsin Avenue, Suite 1000, Bethesda, Maryland 20814.
The lease expires in June 2024. We file annual, quarterly and current reports and other documents with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operations of the Public Reference Room by calling the SEC at (800) SEC‑0330. In addition, theThe SEC maintains a website at www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC. We also make available free of charge our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q,10-Q, Current Reports on Form 8‑K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, simultaneously with or as soon as reasonably practicable after filing such materials with, or furnishing such materials to, the SEC and on or through our website, www.envivabiomass.com. The information on our website, or information about us on any other website, is not incorporated by reference into this Annual Report.
There are many factors that could have a material adverse effect on
the Partnership’sour business, financial condition, results of operations and cash available for distribution. New risks may emerge at any time and
the Partnershipwe cannot predict those risks or estimate the extent to which they may affect financial performance. Each of the risks described below could adversely impact the value of
the Partnership’sour common units.
Risks Inherent
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those described in
Our Businessthis Item 1A “Risk Factors.” These risks include the following:
•We may not have sufficient cash from operations following the establishment of cash reserves and payment of costs and expenses, including cost reimbursements to our General Partner and its affiliates, to enable us to pay quarterly distributions to our unitholders at our current distribution rate. •We will derive substantially all our revenues from six customers in 2021, five of which are in Europe. If we fail to continue to diversify our customer base, our results of operations, business and financial position and ability to pay distributions to our unitholders could be materially adversely affected.
•Changes in laws or government policies, incentives and taxes related to low-carbon and renewable energy may affect customer demand for our products.
•Challenges to or delays in the issuance of air permits, or our failure to comply with our permits, could impair our operations and ability to expand our production.
•Federal, state and local legislative and regulatory initiatives relating to forestry products and the potential for related litigation could result in increased costs and/or additional operating restrictions and delays, which could cause a decline in the demand for our products and negatively impact our business, financial condition and results of operations.
•We may be unable to complete our construction projects on time, and our construction costs could increase to levels that make the return on our investment less than expected.
•The satisfactory delivery of substantially all of our production is dependent on continuous access to infrastructure at our owned, leased and third-party-operated terminals. Loss of access to our ports of shipment and destination, including through failure of terminal equipment and port closures, could adversely affect our financial results and cash available for distribution.
•Failure to maintain effective quality control systems at our production plants and deep-water marine terminals could have a material adverse effect on our business and operations.
•Our business is subject to operating hazards and other operational risks, which may have a material adverse effect on our business and results of operations. We may also not be adequately insured against such events.
•Significant increases in the cost, or decreases in the availability, of raw materials or sourced wood pellets could result in lower revenue, operating profits and cash flows, or impede our ability to meet commitments to our customers.
•We are exposed to the credit risk of our contract counterparties, including the customers for our products, and any material nonpayment or nonperformance by our customers could adversely affect our financial results and cash available for distribution.
•The international nature of our business subjects us to a number of risks, including foreign exchange risk and unfavorable political, regulatory and tax conditions in foreign countries.
•Enviva Holdings, LP owns and controls our General Partner, which has sole responsibility for conducting our business and managing our operations. Our General Partner and its affiliates, including Enviva Holdings, LP, have conflicts of interest with us and limited duties, and they may favor their own interests to our detriment and that of our unitholders.
•The board of directors of our General Partner may modify or revoke our cash distribution policy at any time at its discretion. Our partnership agreement does not require us to pay any distributions at all.
•Our partnership agreement eliminates and replaces our General Partner’s fiduciary duties to holders of our units.
•Our partnership agreement restricts the remedies available to holders of our units for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty.
•Our sponsor has certain incentive distribution rights that reduce the amount of our cash available for distribution to our common unitholders.
•Holders of our common units have limited voting rights and are not entitled to elect our General Partner or its directors.
•We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
•The New York Stock Exchange (the “NYSE”) does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.
•Our tax treatment depends on our status as a partnership for federal income tax purposes and not being subject to a material amount of entity‑level taxation. If the Internal Revenue Service (“IRS”) were to treat us as a corporation for federal income tax purposes, or we become subject to entity‑level taxation for state tax purposes, our cash available for distribution to our unitholders would be substantially reduced.
•The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
•Even if unitholders do not receive any cash distributions from us, unitholders will be required to pay taxes on their share of our taxable income.
•Tax-exempt entities face unique tax issues from owning our common units that may result in adverse tax consequences to them.
Risks Related to Our Business
We may not have sufficient cash from operations following the establishment of cash reserves and payment of costs and expenses, including cost reimbursements to our General Partner and its affiliates, to enable us to pay quarterly distributions to our unitholders at our current distribution rate.
We may not have sufficient cash each quarter to enable us to pay quarterly distributions at our current distribution rate. The amount of cash we can distribute on our common
and subordinated units principally depends
uponon the amount of cash we generate from our operations, which fluctuates from quarter to quarter based on
the followingvarious factors, some of which are beyond our
control: | ·
| | the volume and quality of products that we are able to produce or source and sell, which could be adversely affected by, among other things, operating or technical difficulties at our plants or deep-water marine terminals;
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control, including the following: | ·
| | the prices at which we are able to sell our products;
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•the volume and quality of wood pellets that we are able to produce or source and profitably sell, which could be adversely affected by, among other things, operating or technical difficulties at our plants or terminals; | ·
| | failure of the Partnership’s customers, vendors and shipping partners to pay or perform their contractual obligations to the Partnership;
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•the prices at which we are able to sell our products; | ·
| | the creditworthiness of our contract counterparties;
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•the ability and willingness of our customers to fully perform under our off-take agreements; | ·
| | the amount of low‑cost wood fiber that we are able to procure and process, which could be adversely affected by, among other things, operating or financial difficulties suffered by our suppliers;
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•our ability to successfully negotiate, complete and integrate assets and business or to realize the anticipated benefits of such acquisitions, as well as our ability to organically expand our operations in a cost-effective manner; | ·
| | changes in the price and availability of natural gas, coal or other sources of energy;
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•the level of competition from other wood pellet producers and suppliers of competing sources of fuel for heat and power generation, as well as the price and availability of such competing sources; and | ·
| | changes in prevailing economic conditions;
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•the impact of prevailing regional economic and regulatory conditions in the areas in which we and our customers operate. | ·
| | our inability to complete acquisitions, including acquisitions from our sponsor, or to realize the anticipated benefits of such acquisitions;
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| | inclement or hazardous environmental conditions, including extreme precipitation, temperatures and flooding;
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| | fires, explosions or other accidents;
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| | changes in domestic and foreign laws and regulations (or the interpretation thereof) related to renewable or low‑carbon energy, the forestry products industry, the international shipping industry or power generators;
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| | changes in the regulatory treatment of biomass in core and emerging markets;
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| | our inability to acquire or maintain necessary permits or rights for our production, transportation or terminaling operations;
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| | changes in the price and availability of transportation;
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| | changes in foreign currency exchange or interest rates, and the failure of our hedging arrangements to effectively reduce our exposure to the risks related thereto;
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| | risks related to our indebtedness;
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| | our failure to maintain effective quality control systems at our production plants and deep‑water marine terminals, which could lead to the rejection of our products by our customers;
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| | changes in the quality specifications for our products that are required by our customers;
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| | the effects of Brexit on our and our customers’ businesses; and
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| | our ability to borrow funds and access capital markets.
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In addition, the actual amount of cash we have available for distribution depends on other factors, some of which are beyond our control, including:
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| | including the level of capital expenditures we make, fluctuations in our working capital needs, our cost of capital and ability to access the capital markets, fluctuations in interest rates, our debt service requirements and other liabilities, restrictions contained in our existing or future debt agreements and the level of capital expenditures we make; |
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| | costs associated with construction projects at our existing facilities and future construction projects;
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| | fluctuations in our working capital needs;
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| | our treatment as a pass‑through entity for U.S. federal income tax purposes;
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| | our debt service requirements and other liabilities;
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| | restrictions contained in our existing or future debt agreements; and
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| | the amount of cash reserves established by our General Partner.
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The amount of cash we have available for distribution to holders ofreserves established by our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, whichGeneral Partner.
We will
be affected by non‑cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may be unable to pay cash distributions during periods when we record net income.Substantiallyderive substantially all of our revenues currentlyfrom six customers in 2021, five of which are generated under contracts with four customers, and the loss of any of them could adversely affectlocated in Europe. If we fail to continue to diversify our business, financial condition,customer base, our results of operations, cash flowsbusiness and financial position and ability to make cash distributions. We may notpay distributions to our unitholders could be able to renew or obtain new and favorable contracts with these customers when our existing contracts expire, and we may not be able to obtain contracts with new customers, which couldmaterially adversely affect our revenues and profitability.
affected.
Our contracts with Drax, Ørsted, Lynemouth Power, MGT, RWE, Ørsted and ENGIESumitomo, five of which are located in Europe, will represent substantially all of our product sales volumes in 2018. Because we have2021; as a small number of customers,result, we face counterparty and geographic concentration risk. The ability of each of our customers to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include among other things, the overall financial condition of the counterparty, the counterparty’s access to capital, the condition of the regional and global power, heat and combined heat and power generation industry, continuing
regulatory and economic support for wood pellet‑generated power,pellets as a fuel source, spot market pricing trends and general economic conditions. In addition, in depressed market conditions, our customers may no longer need the amount of our products they have contracted for or may be able to obtain comparable products at a lower price. If economic, political, regulatory or financial market conditions in Europe deteriorate and/or our customers experience a significant downturn in their business or financial condition, they may attempt to renegotiate, reject or declare force majeure under our contracts. Should any counterparty fail to honor its obligations under a contract with us, we could sustain losses, which could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution. We may also decide to renegotiate our existing contracts on less favorable terms and/or at reduced volumes in order to preserve our relationships with our customers.
Upon the expiration of our
off‑takeoff-take contracts, our customers may decide not to recontract on terms as favorable to us as our current contracts, or at all. For example, our current customers may acquire wood pellets from other providers that offer more competitive pricing or logistics or develop their own sources of wood pellets. Some of our customers could also exit their current business or be acquired by other companies that purchase wood pellets from other providers. The demand for wood pellets or their prevailing prices at the times at which our current off‑take contracts expire may also render entry into new
long‑term off‑takelong-term-off-take contracts difficult or impossible.
Any reduction in the amount of wood pellets purchased by our customers
renegotiation of our contracts on less favorable terms, or our inability to
enter into newrenegotiate or replace our existing contracts on economically acceptable terms,
uponor our failure to successfully penetrate new markets within and outside of Europe in the
expiration of our current contractsfuture, could have a material adverse effect on our results of operations, business and financial position, as well as our ability to pay distributions to our unitholders.
Termination penalties within our
off‑takeoff-take contracts may not fully compensate us for our total economic losses.
Certain of our
off‑takeoff-take contracts provide the customer with a right of termination for various events of convenience or changes in law or policy. Although some of these contracts are subject to certain protective termination payments, the termination payments made by our customers may not fully compensate us for
losses resulting from a termination by such counterparty. In each case, welosses. We may be unable to
re‑contractre-contract our production at favorable prices or at all, and our results of operations, business and financial position, and our ability to
make cashpay distributions to our unitholders, may be materially adversely affected as a result.
We Currently, we derive substantially all of our revenues from customers in Europe. If we fail to continue to diversify our customer base geographically within and outside of Europe in the future, our results of operations, business and financial position and ability to make cashpay distributions to our unitholders could be materially adversely affected.
Substantially all of our revenues currently are derived from customers in Europe, and our revenues have been heavily dependent on developments in the European markets. If economic, political, regulatory or financial market conditions in Europe deteriorate, including as a result of weakness in European economies,
Our long-term off-take contracts with our customers may respond by suspending, delayingonly partially offset certain increases in our costs or reducing their expenditurespreclude us from taking advantage of relatively high wood pellet prices in the broader markets.
Our long-term off-take contracts typically set base prices subject to annual price escalation and other pricing adjustments for changes in certain of our underlying costs of operations, including, in some cases, for stumpage or diesel fuel. However, such cost pass-through mechanisms may attemptonly pass a portion of our total costs through to renegotiate, reject or declare force majeureour customers. If our operating costs increase significantly during the terms of our long-term off-take contracts beyond the levels of pricing and cost protection afforded to us under the terms of such contracts, our results of operations, business and financial position, and ability to pay distributions to our unitholders, could be adversely affected.
Moreover, during periods when the prevailing market price of wood pellets exceeds the prices under our contracts. long-term off-take contracts, our revenues could be significantly lower than they otherwise would have been were we not party to such contracts for substantially all our production. In addition, our current and future competitors may be in a better position than we are to take advantage of relatively high prices during such periods.
The growth of our business depends in part on locating and acquiring interests in additional wood pellet production plants and marine terminals at favorable prices.
Our business strategy includes growing our business through drop‑down and third-party acquisitions that increase our cash generated from operations and cash available for distribution on a per-unit basis. Various factors could affect the availability of attractive projects to grow our business, including:
•our sponsor’s failure to successfully penetrate markets outsidecomplete its development projects in a timely manner or at all, which could result from, among other things, permitting challenges, failure to procure requisite financing or equipment, construction difficulties or an inability to obtain off‑take contracts on acceptable terms;
•our sponsor’s failure to offer its assets for sale;
•our inability to exercise our right of Europe in the futurefirst offer with respect to any asset that our sponsor offers to us; and
•fewer accretive third‑party acquisition opportunities than we expect, which could result from, among other things, available projects having less desirable economic returns, competition, anti‑trust concerns or higher risk profiles than we believe suitable for our business plan and investment strategy.
Any of these factors could prevent us from executing our growth strategy or otherwise could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
The actions
Any acquisitions we make may reduce, rather than increase, our cash generated from operations on a per-unit basis.
We may consummate acquisitions we believe will be accretive, but result in a decrease in our cash available for distribution per unit. Any acquisition involves potential risks, some of which are beyond our control, including:
•mistaken assumptions about revenues and costs, including synergies;
•the inability to successfully integrate businesses we acquire;
•the inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
•the assumption of unknown liabilities;
•limitations on our access to indemnification from the seller;
•incorrect assumptions about the overall costs of equity or debt;
•the diversion of management’s attention to other business concerns;
•unforeseen difficulties in connection with operating newly acquired assets or in new geographic areas;
•customer or key employee losses at acquired businesses; and
•the inability to meet obligations in off‑take or other contracts associated with acquisitions.
If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of our funds and other resources to acquisitions.
Regulatory and Litigation Risks
Changes in laws or government policies, incentives and taxes related to low-carbon and renewable energy may affect customer demand for our products.
Consumers of utility-grade wood pellets currently use our products either as part of a binding obligation to generate a certain special interest groupspercentage of low-carbon energy or because they receive direct or indirect financial support or incentives to do so. Financial support is often necessary to cover the generally higher costs of wood pellets compared to conventional fossil fuels like coal. In most countries, once the government implements a tax (e.g., the U.K.’s carbon price floor tax) or a preferable tariff or specific renewable energy policy either supporting a renewable energy generator or the energy generating sector as a whole, such tax, tariff or policy is guaranteed for a specified period of time, sometimes for the investment lifetime of a generator’s project. However, governmental policies that currently support the use of biomass may adversely modify their tax, tariff or incentive regimes, and the future availability of such taxes, tariffs or incentive regimes, either in current jurisdictions beyond the prescribed timeframes or in new jurisdictions, is uncertain. Demand for wood pellets could be substantially lower than expected if government support is removed, reduced or delayed or, in the future, is insufficient to enable successful deployment of biomass power at the levels currently projected. In addition, regulatory changes such as new requirements to install additional pollution control technology could require us to curtail or amend operations to meet new greenhouse gas (“GHG”) emission limits. This may also affect demand for our products in addition to increasing our operational costs.
Biomass energy generation requires the use of biomass that is derived from acceptable sources and is demonstrably sustainable. This typically is implemented through biomass sustainability criteria, which either are a mandatory element of eligibility for financial subsidies to biomass energy generators or will become mandatory in the future. For more information, see our risk factor titled “Changes in the treatment of biomass could adversely impact our business.
Certain special interest groups that focus” As a biomass fuel supplier, the viability of our business is therefore dependent on environmental issues have expressed their opposition to the use of biomass for power generation, both publicly and directly to domestic and foreign regulators, policy makers, power generators and other industrial users of biomass. These groups are also actively lobbying, litigating and undertaking other actions domestically and abroad in an effort to increase the regulation of, reduce or eliminate the incentives and support for, or otherwise delay, interfere with or impede the production and use of biomass for power generation. Such efforts, if successful, could materially adversely affect our results of operations, business and financial condition, and our ability to make cash distributionscomply with such requirements. This may restrict the types of biomass we can use and the geographic regions from which we source our raw materials, and may require us to our unitholders.
Our exposure to risksreduce the GHG emissions associated with foreign currencyour supply and interest rate fluctuations,production processes.
Currently, some elements of the criteria with which we must comply, including rules relating to forest management practices and carbon accounting, are under revision. Certain requirements, such as
well the
hedging arrangementsregulations in place in jurisdictions from which we
source biomass, may
enter intobe beyond our ability to
mitigate those risks, could have an adverse effect on our financial condition and results of operations.We may experience foreign currency exchange and interest rate volatility in operating our business. We began to use hedging transactions in 2016 with respect to certain of our off‑take contracts whichcontrol. If different sustainability requirements are in part or in whole, denominated in British Pound Sterling (“GBP”), as well as an interest rate swap with respect to a portion of our variable rate debt, in an effort to achieve more predictable cash flow and to reduce our exposure to foreign currency exchange and interest rate fluctuations. We currently do not hedge a significant portion of our overall revenue pursuant to our off‑take contracts.
Fluctuations in foreign currency exchange rates could be material to us depending upon, among other things, the currency denominations of our off‑take contracts. In particular, we willadopted in the future, have exposure to fluctuationsdemand for our products could be materially reduced in foreign currency exchange rates between the U.S. Dollarcertain markets, and the GBP as sales under the EVA‑MGT Contract or the 95,000 MTPY contract with the First Hancock JV, which commence in 2019 and 2020, respectively, are denominated in GBP from 2020 onward and sales under the Lynemouth Power Contract, which commenced in 2017, are denominated in U.S. Dollars and GBP. Although the use of hedging transactions limits our downside risk, their use may also limit future revenues.
In addition, there may be instances in which costs and revenue will not be matched with respect to currency denomination. As a result, to the extent that existing and future off‑take contracts are not denominated in U.S. Dollars, it is possible that increasing portions of revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.
Our hedging transactions involve cost and risk and may not be effective at mitigating our exposure to fluctuations in foreign currency exchange and interest rates. Risks inherent in our hedging transactions include the risk that counterparties to derivative contracts may be unable to perform their obligations and the risk that the terms of such instruments will not be legally enforceable. Likewise, our hedging activities may be ineffective or may not offset more than a portion of the financial impact resulting from foreign currency exchange or interest rates fluctuations, which could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
unitholders, may be materially adversely affected.
Challenges to or delays in the issuance of air permits,
or our failure to comply with our permits, could impair our
operations and ability to expand
our production.
Our
pellet production facilitiesplants are subject to the requirements of the
CAAClean Air Act and must either receive minor source permits from the states in which they are located or a major source permit, which is subject to the approval of the EPA. In general, our facilities are eligible for minor source permits following the application of pollution control technologies. However,
should we
be subjectcould experience substantial delays with respect to
obtaining such permits, including as a result of any challenges to the issuance of our permits
we could experience substantial delays in the issuance of our permits,or other factors, which could impair our ability to
operate our wood pellet production plants or expand our production capacity. In addition, any new air permits we receive could require that we incur additional expenses to install emissions control technologies,
or limit
our operations
and impede our ability to satisfy emission
limitations.Changes in laws limitations and/or government policies, incentives and taxes implemented to support increased generation of or otherwise regulate low‑carbon and renewable energy may affect customer demand for our products.
Consumers of utility‑grade wood pellets currently use our products either as part of a binding obligation to generate a certain percentage of low‑carbon energy or because they receive direct or indirect financial support or incentives to do so. Financial support is often necessary to cover the generally higher costs of wood pellets compared to conventional fossil fuels like coal. In most countries, once the government implements a tax (e.g., the United Kingdom’s carbon price floor tax) or a preferable tariff or a specific renewable energy policy either supporting a renewable energy generator or the energy generating sector as a whole, such tax, tariff or policy is guaranteed for a specified period of time, sometimes for the investment lifetime of any electricity generator’s project. However, governmental policies that
currently support the use of biomass may modify their tax, tariff or incentive regimes, and the future availability of such taxes, tariffs or policies, either in current jurisdictions beyond the prescribed timeframes or in new jurisdictions, is uncertain. Demand for wood pellets could be substantially lower than expected if government support is reduced or delayed or, in the future, is insufficient to enable successful deployment of biomass power to the levels currently projected. In addition, regulatory changes such as newstringent testing requirements to install additional pollution control technology or curtail operationsdemonstrate compliance therewith. Failure to meet new GHG emission limits may also affect demand for our products.
In Europe, the European Union’s Renewable Energy Directive (“RED”) requires that it fulfill 20% of its energy demand from renewable sources by 2020. Under the current RED framework, biofuels are subject to a set of sustainability criteria that must be met in order to qualify as renewable fuels. The European Union is currently in the process of finalizing a second Renewable Energy Directive (“RED II”) that seeks to increase the renewable energy goal to 27% of energy demand by 2030. Under the RED II proposal, qualifying biofuels would be subject to new sustainabilitysuch requirements including a requirement that biofuel feedstocks be harvested from areas with increasing carbon stocks. The finalization of these requirements could cause us to incur additional compliance costs. Moreover, there can be no guarantee that the final version of RED II will be favorable to biomass producers in the United States. Finally, any actions the European Union takes to regulate biofuels may influence future regulatory actions in other countries where our customers are located. In the event that RED II limits or otherwise constrains our ability to export our product to the European Union or has other adverse consequences, it could have a material adverse effect on our results of operations and financial condition.
In the United States, on October 16, 2017, the EPA proposed a rule to repeal the Clean Power Plan (the “CPP”), the Obama Administration’s rule establishing carbon pollution standards for existing power plants. Under the proposal, the CPP—which is currently subject to a judicial stay issued by the U.S. Supreme Court—would be repealed. The current repeal proposal suggests that the EPA has yet to determine when or whether it might promulgate new GHG emissions standards for existing power plants. At this time, it is not clear what impact the repeal of the CPP and any future rulemaking will have on the demand for biomass in the United States. Also, almost half of U.S. states, either individually or through multi‑state regional initiatives, have begun to address GHG emissions, primarily through the planned development of GHG emission inventories and/or regional GHG cap‑and‑trade programs. Although neither the U.S. Congress nor the states in which our facilities are located have adopted such legislation at this time, they may do so in the future. The adoption of a different approach to the treatment of biogenic carbon in the United States could be treated as precedential by European regulators and impact the regulatory treatment of our product in our primary markets.
Moreover, many nations have agreed to limit emissions of GHGs pursuant to the United Nations Framework Convention on Climate Change and more recently, in December 2015, 195 countries met in Paris, France to approve a landmark climate accord. On November 4, 2016, the Paris Agreement entered into force, potentially providing additional incentives for participating countries to reduce their GHG emissions. While the Trump Administration has signaled its intent to withdraw from the Paris Agreement, substantially all of our current customers are located in countries that have agreed to be bound by the Paris Agreement. Although it is not possible at this time to accurately estimate how potential future laws or regulations addressing GHG emissions would impact our business, any such future laws or implementing regulations could require us to incur increased operating or maintenance costs, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
The international nature of our business subjects us to a number of risks, including foreign exchange risk and unfavorable political, regulatory and tax conditions in foreign countries.
Substantially all of our current product sales are to customers that operate outside of the United States. As a result, we face certain risks inherent in maintaining international operations that include, but are not limited to, the following:
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| | foreign exchange movements, which may make it more difficult for our customers to make payments denominated in U.S. Dollars or exert pricing pressure on new contracts compared to competitors that source in a weaker currency;
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| | restrictions on foreign trade and investment, including currency exchange controls imposed by or in other countries; and
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| | trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make our products less competitive in some countries.
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Our business in foreign countries requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, on our ability to succeed under differing legal, regulatory, economic, social and political conditions. There can be no assurance, however, that we will be able to develop, implement and maintain policies and strategies that will be effective in each location where our customers operate. Any of the foregoing factors could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
Federal, state and local legislative and regulatory initiatives relating to forestry products and the potential for related litigation could result in increased costs
and/or additional operating restrictions
orand delays,
for our suppliers and customers, respectively, which could cause a decline in the demand for our products and negatively impact our business, financial condition and results of operations.
Currently, our
Our raw materials are byproducts of traditional timber
management and harvesting, principally
low-value wood materials such as thinnings and the tops and limbs of trees
as well as other low‑value wood materials that are generated in a harvest and industrial residuals (chips, sawdust and other wood industry byproducts). Commercial forestry is regulated by complex regulatory frameworks at
each of the federal, state and local levels. Among other federal laws, the Clean Water Act and the Endangered Species Act have been applied to commercial forestry operations through agency regulations and court decisions, as well as through the delegation to states to implement and monitor compliance with such laws. State forestry laws, as well as land-use regulations and zoning ordinances at the local level, are also used to manage forests in the Southeastern United States, as well as other regions from which we may need to source raw materials in the future. Any new or modified laws or regulations at any of these levels could have the effect of reducing forestry operations in areas where we procure our raw materials and consequently may prevent us from purchasing raw materials in an economic manner, or at all. In addition, future regulation of, or litigation concerning, the use of timberlands, the protection of endangered species, the promotion of forest biodiversity and the response to and prevention of wildfires, as well as litigation, campaigns or other measures advanced by
environmental activistspecial interest groups, could also reduce the availability of the raw materials required for our operations.
The enactment
Changes in the treatment of derivatives legislationbiomass could adversely impact our business.
Multiple regulatory agencies, including in jurisdictions where we sell our products, have
an adverse effect on our abilitynoted that biomass can support a transition away from fossil fuels and towards a more sustainable energy sector. However, when poorly managed, use of biomass can be related to
use derivative instrumentsland conversion, biodiversity and GHG emissions. Therefore, various rules have been issued to
reduceregulate the
effect of foreign currency, interest rate, and other riskssustainability claims associated with
the use of biomass, which in turn may require us to adopt certain practices in our
business.The Dodd‑Frank Wall Street Reformoperations.
For example, the European Union has promulgated directives on renewable energy that, among other things, establish targets for renewable energy supply and
Consumer Protection Act (“Dodd‑Frank Act”) enacted on July 21, 2010, established federal oversightestablish certain sustainability requirements for biomass, including requirements related to carbon stocks and
regulation overland use. If the
derivatives markets and entities, such as us, that participatewood pellets we produce do not conform to these or future requirements, our customers would not be able to count energy generated therefrom towards these renewable energy goals, which could decrease demand for our products. Biomass has been under additional regulatory scrutiny in
such markets. The Dodd‑Frank Act requires the Commodities Futures Trading Commission (“CFTC”) and the SECrecent years to
promulgate rules and regulations implementing the Dodd‑Frank Act.develop standards to safeguard against adverse environmental effects from its use. Although
the CFTC has finalizedregulators continue to consider biomass harvested with certain
regulations, others remainpractices to be
finalized or implemented and it is not possible at this time to predict when this will be accomplished.The CFTC has designatedsustainable, certain special interest rate swaps and credit default swaps for mandatory clearing and the associated rules also require us, in connection with covered derivative activities, to comply with clearing and trade‑execution requirements or take steps to qualify for an exemption to such requirements. We do not utilize credit default swaps and we qualify for, and expect to continue to qualify for, the end‑user exception from the mandatory clearing requirements for swaps entered to hedge our interest rate risks. Pursuant to the Dodd‑Frank Act, however, the CFTC or federal banking regulators may require the posting of collateral with respect to uncleared interest rate derivative transactions.
Certain banking regulators and the CFTCgroups that focus on environmental issues have recently adopted final rules establishing minimum margin requirements for uncleared swaps. Although we qualify for the end‑user exception from such margin requirements for swaps entered into to hedge our commercial risks, the application of such requirements to other market participants, such
as swap dealers, may changeopposition to the costuse of biomass, both publicly and availabilitydirectly, to domestic and foreign regulators, policy makers, power, heat or combined heat and power generators (“generators”) and other industrial users of the swaps that we use for hedging. Moreover, if any of our swaps do not qualify for the commercial end‑user exception, we may be requiredbiomass. These groups are also actively lobbying, litigating and undertaking other actions domestically and abroad in an effort to post additional cash margin or collateral, which could impact our liquidity and reduce our ability to use cash for capital expenditures or other partnership purposes.
The full impact of the Dodd‑Frank Act and related regulatory requirements upon our business will not be known until the regulations are implemented and the market for derivatives contracts has adjusted. The Dodd‑Frank Act and regulations could significantly increase the costregulation of, derivative contracts, materially alterreduce or eliminate the terms of derivative contracts, reduceincentives and support for, or otherwise delay, interfere with or impede the availability of derivatives to protect against risks we encounter, or reduce our ability to monetize or restructure our existing derivative contracts. If we reduce ourproduction and use of derivatives as a result of the Dodd‑Frank Act and regulations implementing the Dodd‑Frank Act our results of operations may become more volatile and our cash flows may be less predictable, which could materially adversely affect our ability to planbiomass for and fund capital expenditures.
In addition, the European Union and other non‑U.S. jurisdictions are implementing regulations with respector by generators. For example, several commenters to the derivatives market. ToEU’s proposed sustainable finance criteria for climate change mitigation and adaptation have encouraged the extent we transact with counterparties in foreign jurisdictions, we may become subjectEU not to such regulations. At this time,classify the impactuse of such regulations on us is uncertain.
The vote by the United Kingdom to leave the European Unionforest-related biomass as sustainable. Such efforts, if successful, could materially adversely affect our results of operations, business and financial positioncondition and our ability to make cash distributions.
In March 2017, the Prime Minister of the United Kingdom (“U.K.”) formally notified the European Counsel of the commencement of the process by which the United Kingdom will exit (“Brexit”) from the European Union under Article 50 of the Treaty of the European Union. This notification began a two-year period pursuantpay distributions to which the U.K. and the remaining European Union Member States will negotiate a withdrawal agreement. The United Kingdom is scheduled to withdraw from the European Union in March 2019.
We have take‑or‑pay off‑take contracts with utilities and large power generators in the United Kingdom and in other European markets. For the year ended December 31, 2017, approximately 66% of our product sales were derived from contracts with customers in the United Kingdom and 34% of our product sales were derived from contracts with customers in other European markets.
Brexit may create uncertainty with respect to the legal and regulatory requirements to which we and our customers in the United Kingdomunitholders.
Our operations are subject to stringent environmental and lead to divergent nationaloccupational health and safety laws and regulations asthat may expose us to significant costs and liabilities.
Our operations are subject to stringent federal, regional, state and local environmental, health and safety laws and regulations. These laws and regulations govern environmental protection, occupational health and safety, the
United Kingdom government determines which European Unionrelease or discharge of materials into the environment, air emissions, wastewater discharges, the investigation and remediation of contaminated sites and allocation of liability for cleanup of such sites. These laws
to replaceand regulations may restrict or
replicate. The absence of precedent for an exit of a European Member State from the European Union means that it is unclear how the access of United Kingdom businesses to the European Union Single Market and how the legal and regulatory environments in the United Kingdom and the European Union could be impacted by Brexit, and ultimately how Brexit could impact our business
in many ways, including by requiring us to acquire permits or
thatother approvals to conduct regulated activities, limiting our air emissions or wastewater discharges or requiring us to install costly equipment to control, reduce or treat such emissions or discharges and impacting our ability to modify or expand our operations. We may be required to make significant capital and operating expenditures to comply with these laws and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of investigatory or remedial obligations, suspension or revocation of permits and the issuance of orders limiting or prohibiting some or all of our
customers.The consequencesoperations. Adoption of Brexit, together with what may be protracted negotiations around the terms of Brexit, could also introduce significant uncertainties into global financial marketsnew or modified environmental laws and adversely impact the markets in which we and our customers operate. For example, prolonged exchange rate volatility or weakness of the local currencies of our customers relative to the U.S. Dollarregulations may impair the purchasing poweroperation of our customersbusiness, delay or prevent expansion of existing facilities or construction of new facilities and cause themotherwise result in increased costs and liabilities, which may be material.
The actions of certain special interest groups could adversely impact our business.
Certain special interest groups that focus on environmental issues have expressed their opposition to default on paymentthe use of biomass, both publicly and directly to domestic and foreign regulators, policy makers, power, heat or seek modificationcombined heat and power generators (“generators”) and other industrial users of biomass. These groups are also actively lobbying, litigating and undertaking other actions domestically and abroad in an effort to increase the termsregulation of, our off‑take contracts. The impactsreduce or eliminate the incentives and support for, or otherwise delay, interfere with or impede the production and use of Brexit may alsobiomass for or by generators. Such efforts, if successful, could materially adversely affect our results of operations, business and financial condition, and our ability to re‑negotiatepay distributions to our existing contractsunitholders.
Our net-zero goals, including our failure to achieve them, could adversely affect our business.
We recently announced our intention to become carbon-neutral in our operations by 2030 and to publicly report our progress against these goals. Our estimates concerning the timing and cost of implementing our goals are subject to risks and uncertainties, some of which are outside of our control. We also may face greater scrutiny as a result of our announcement and publication of our progress, and our failure to achieve our voluntary net-zero goals could lead to adverse press coverage or other public attention.
Operational Risks
We may be unable to complete our construction projects on terms acceptabletime, and our construction costs could increase to uslevels that make the return on our investment less than expected.
Historically, we typically have acquired wood pellet production plants, marine export terminals and other assets that had already commenced commercial operations. In response to the increasing demand for our product, we have begun undertaking expansion projects at some of our plants to increase their production capacity or make other improvements.
We may face delays or unexpected developments in completing our current or future construction projects, including as
a result of our failure to timely obtain the equipment, services or access to infrastructure necessary for the operation of our projects at budgeted costs, maintain all necessary rights to land access and use and/or obtain and/or maintain environmental and other permits or approvals. These circumstances could prevent our construction projects from commencing operations or from meeting our original expectations concerning timing, operational performance, the capital expenditures necessary for their completion and the returns they
expire or enterwill achieve. Our inability to complete and transition our construction projects into
new contracts with new or existing customers.These uncertainties surrounding Brexitfinancially successful operating projects on time and risks associated with the commencement of Brexitwithin budget could have a material adverse effect on our results of operations, business and financial position, as well as our ability to pay distributions to our unitholders.
The viabilitysatisfactory delivery of substantially all of our customers’ businesses may also affect demand for our products and the results of our business and operations.
The viability of our customers’ businessesproduction is dependent on continuous access to infrastructure at our owned, leased and third-party-operated terminals. Loss of access to our ports of shipment and destination, including through failure of terminal equipment and port closures, could adversely affect our financial results and cash available for distribution.
Substantially all of our production is dependent on infrastructure at our owned, leased and third-party-operated ports. Should we suffer a catastrophic failure of the equipment at these ports or otherwise experience port closures, including for security or weather-related reasons, we could be unable to fulfill off‑take obligations or incur substantial additional transportation costs, which would reduce our cash flow. Moreover, we rely on various ports of destination, as well as third parties who provide stevedoring or other services at our ports of shipment and destination or from whom we charter oceangoing vessels and crews, to transport our product to our customers. Loss of access to these ports for any reason, or failure of such third-party service providers to uphold their contractual obligations, may impact our ability to compete in their respective electricityfulfill our obligations under our off-take contracts, cause interruptions to our shipping schedule and heat markets. Our customers’ competitiveness is a functioncause us to incur substantial additional transportation or other costs, all of among other things, the market price of electricity, the market price of competing fuels (e.g. coal and natural gas), the relative cost of carbon and the costs of generating heat or electricity using other renewable energy technologies. Changes in the values of the inputs and outputs of our customers’ businesses, or of the businesses of their competitors,which could have a material adverse effect on our customersbusiness, financial condition and as a result,results of operations.
Failure to maintain effective quality control systems at our production plants and deep-water marine terminals could have a material adverse effect on our business and operations.
Our customers require a reliable supply of wood pellets that meet stringent product specifications. We have built our operations and assets to consistently deliver and certify the highest levels of product quality and performance, which is critical to the success of our business and depends significantly on the effectiveness of our quality control systems, including the design and efficacy of our quality control systems, the success of our quality training program and our ability to ensure that our employees and contract counterparties adhere to our quality control policies and guidelines. Moreover, any significant failure or deterioration of our quality control systems could impact our ability to deliver product that meets our customers’ specifications and, in turn, could lead to rejection of our product by our customers, which could have a material adverse effect on our business, financial condition and results of operations.
Our business is subject to operating hazards and other operational risks, which may have a material adverse effect on our business and results of operations. We may also not be adequately insured against such events.
Our business could be materially adversely affected by operating hazards and other risks to our operations. We produce a combustible product that may under certain circumstances present a risk of fires and explosions or other hazards. Moreover, severe weather, such as floods, earthquakes, hurricanes or other natural disasters, climatic phenomena, such as drought, and other catastrophic events, such as plant or shipping disasters, could impact our operations by causing damage to our facilities and equipment, affecting our ability to deliver our product to our customers and impacting our customers’ ability to take delivery of our products. Such events may also adversely affect the ability of our suppliers or service providers to provide us with the raw materials or services we require or the ability to load, transport and unload our product.
In addition, the scientific community has concluded that severe weather will increase in frequency and intensity as result of increasing concentrations of GHGs in the Earth’s atmosphere, and that climate change will have significant physical effects, including sea-level rise, increased frequency and severity of hurricanes and other storms, flooding, drought and forest fires. We and our suppliers operate in coastal and wooded areas in geographic regions that are susceptible to such climate impacts.
We maintain insurance policies to mitigate against certain risks related to our business, in types and amounts that we believe are reasonable depending on the circumstances surrounding each identified risk; however, we may not be fully insured against all operating hazards and other operational risks incident to our business. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates, if at all. As a result of market conditions and certain claims we may make under our insurance policies, premiums and deductibles for certain of our insurance policies could escalate. In some instances, insurance could become unavailable or available only for reduced amounts of coverage or at unreasonable rates. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
We may be required to make substantial capital expenditures to maintain and improve our facilities.
Although we currently use a portion of our cash reserves and cash generated from our operations to maintain, develop and improve our assets and facilities, such investment may, over time, be insufficient to preserve the operating profile required for us to meet our planned profitability or meet the evolving quality and product specifications demanded by our customers. Moreover, our current and future construction and other capital projects may be capital-intensive or suffer cost-overruns. Accordingly, if we exceed our budgeted capital expenditures and/or additional capital expenditures become necessary in the future and we are unable to execute our construction, maintenance or improvement programs successfully, within budget, and
in a timely manner, our results of operations, business and financial position, and our ability to pay distributions to our
unitholders.The growth of our business depends in part upon locating and acquiring interests in additional production plants and deep‑water marine terminals at favorable prices.
unitholders, may be materially adversely affected.
Our business strategy includes growing ourand operating results are subject to seasonal fluctuations.
Our business
through drop‑down and third‑party acquisitions that increase our cash generated from operations and cash available for distribution on a per unit basis. Various factors could affectis affected by seasonal fluctuations. The cost of producing wood pellets tends to be higher in the
availabilitywinter months because of
attractive projects to grow our business, including: | ·
| | our sponsor’s failure to complete its or the Hancock JVs’ development projects in a timely manner or at all, which could result from, among other things, permitting challenges, failure to procure the requisite financing or equipment, construction difficulties or an inability to obtain an off‑take contract on acceptable terms;
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| | our sponsor’s failure to offer its assets or the assets of the Hancock JVs for sale;
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| | our failure or inability to exercise our right of first offer with respect to any asset that our sponsor offers, or compels the Hancock JVs to offer, to us; and
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| | fewer third‑party acquisition opportunities than we expect, which could result from, among other things, available projects having less desirable economic returns, competition, anti‑trust concerns or higher risk profiles than we believe suitable for our business plan and investment strategy.
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Any of these factors could prevent us from executing our growth strategy or otherwise could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
Any acquisitions we make may reduce, rather than increase, our cash generated from operations on a per unit basis.
We may consummate acquisitions that we believe will be accretive, but result in a decrease in our cash available for distribution per unit. Any acquisition involves potential risks, some of which are beyond our control, including, among other things:
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| | mistaken assumptions about revenues and costs, including synergies;
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| | the inability to successfully integrate the businesses we acquire;
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| | the inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;
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| | the assumption of unknown liabilities;
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| | limitations on rights to indemnity from the seller;
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| | mistaken assumptions about the overall costs of equity or debt;
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| | the diversion of management’s attention to other business concerns;
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| | unforeseen difficulties in connection with operating in new product areas or new geographic areas;
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| | customer or key employee losses at the acquired businesses; and
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| | the inability to meet the obligations in off‑take contracts associated with acquired production plants.
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If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of our funds and other resources.
If there are significant increases in the cost of delivered raw materials, primarily due to a reduction in accessibility during cold and wet weather conditions. Our raw materials typically have higher moisture content during this period, resulting in a lower product yield; moreover, the cost of drying wood fiber increases during periods of lower ambient temperatures.
The increase in demand for power and heat during the winter months drives greater customer demand for wood pellets. As some of our wood pellet supply to our customers are sourced from third-party purchases, we may experience higher wood pellet costs and a reduction in our gross margin during the winter months. These seasonal fluctuations could have an adverse effect on our business, financial condition and results of operations and cause comparisons of operating measures between consecutive quarters to not be as meaningful as comparisons between longer reporting periods.
Market and Credit Risks
Significant increases in the cost, or decreases in the availability, of raw materials or
our suppliers suffer from operating or financial difficulties, wesourced wood pellets could
generateresult in lower revenue, operating profits and cash flows, or
loseimpede our ability to meet commitments to our customers.
We purchase wood fiber from
third‑partythird-party landowners and other suppliers for use at our
production plants. Our reliance on third parties to secure wood fiber exposes us to potential price volatility and unavailability of such raw materials, and the associated costs may exceed our ability to pass through such price increases under our contracts with our customers. Further, delays or disruptions in obtaining wood fiber may result from a number of factors affecting our suppliers, including extreme weather, production or delivery disruptions, inadequate logging capacity, labor disputes, impaired financial condition of a particular supplier, the inability of suppliers to comply with regulatory or sustainability requirements or decreased availability of raw materials. In addition, other companies, whether or not in our industry, could procure wood fiber within our procurement areas and adversely change regional market dynamics, resulting in insufficient quantities of raw material or higher prices. Any of these events could increase our operating costs or prevent us from meeting our commitments to our customers, and thereby could have a material adverse effect on our results of operations, business and financial position, and our ability to
makepay distributions to our unitholders.
Any interruption or delay in the supply of wood fiber, or our inability to obtain wood fiber at acceptable prices in a timely manner, could impair our ability to meet the demands of our customers and expand our operations, which could have a material adverse effect on our results of operations, business and financial position, and our ability to
makepay distributions to our unitholders.
In addition to our production, we purchase wood pellets produced by other suppliers to fulfill our obligations under our portfolio of long-term off-take contracts or take advantage of market dislocations on an opportunistic basis. Any reliance on other wood pellet producers exposes us to the risk that such suppliers will fail to satisfy their obligations to us pursuant to the associated off-take contracts, including by failing to timely meet quality specifications and volume requirements. Any such failure could increase our costs or prevent us from meeting our commitments to our customers, and thereby could have an adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
We are exposed to the credit risk of our contract counterparties, including the customers for our products, and any material nonpayment or nonperformance by our customers could adversely affect our financial results and cash available for distribution.
We are subject to the risk of loss resulting from nonpayment or nonperformance by our contract counterparties, including our long-term off-take customers
whose operations are concentrated in the European power generation industry.and suppliers. Our credit procedures and policies may not be adequate to fully eliminate counterparty credit risk. If we fail to adequately assess the creditworthiness of existing or future customers or
suppliers, or if their creditworthiness deteriorates unexpectedly, any resulting
unremedied nonpayment or nonperformance by them could have
a materialan adverse
effectimpact on our results of operations, business and financial position, and our ability to
make cashpay distributions to our unitholders.
The satisfactory delivery
Impacts to the cost or availability of
substantially all of our production is dependent upon continuous access totransportation and other infrastructure
at our owned, leased and third‑party-operated ports. Loss of access to our ports of shipment and destination, including through failure of port equipment and port closures, could
adversely affect our financial results and cash available for distribution.A significant portion of our total production is loaded for shipment utilizing automated conveyor and ship loading equipment at the Port of Chesapeake, Port of Wilmington, and Port Panama City, and substantially all of our
production is dependent upon infrastructure at our owned and third‑party operated ports. Should we suffer a catastrophic failure of the equipment at these ports or otherwise experience port closures, including for security or weather‑related reasons, we could be unable to fulfill off‑take obligations or incur substantial additional transportation costs, which would reduce our cash flow. Moreover, we rely on various ports of destination, as well as third parties who provide stevedoringrevenues.
Disruptions to or
other services at our ports of shipment and destination or from whom we charter oceangoing vessels and crews, to transport our product to our customers. Loss of access to these ports for any reason, or failure of such third‑party service providers to uphold their contractual obligations, may impact our ability to fulfill off‑take obligations, cause interruptions to our shipping schedule, and/or cause us to incur substantial additional transportation or other costs, all of which could have a material adverse effect on our business, financial condition and results of operations.Fluctuationsincreases in transportation costs and the availability or reliability of shipping, rail or truck transportation could reduce revenues by causing us to reduce our production or by impairing our ability to deliver products to our customers or the ability of our customers to take delivery of our products.
Disruptionscost of local or regional transportation services and other forms of infrastructure, such as electricity, due to shortages of vessels, barges, railcars or trucks, weather‑relatedweather-related problems, flooding, drought, accidents, mechanical difficulties, bankruptcy, strikes, lockouts, bottlenecks or other events could increase our costs, temporarily impair
our ability to deliver products to our customers and might, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our products.
In addition, persistent disruptions in
marine transportationour access to infrastructure may force us to halt production as we reach storage capacity at our
deep‑water marine terminals.facilities. Accordingly, if the
primary transportation services we use to transport our products are disrupted, and we are unable to find alternative transportation providers, it could have a material adverse effect on our results of operations, business and financial position, and our ability to
make cashpay distributions to our unitholders.
Our long‑term off‑take contracts with our customers may only partially offset certain increases in our costs or preclude us from taking advantage of relatively high wood prices.
Our long-term off‑take contracts typically set base prices subject to annual price escalation and other pricing adjustments for changes in certain of our underlying costs of operations, including, in some cases, for stumpage or shipping fuel. However, such cost pass‑through mechanisms may only pass a portion of our total costs through to our customers. If our operating costs increase significantly during the terms of our long-term off‑take contracts beyond the levels of pricing and cost protection afforded to us under the terms of such contracts, our results of operations, business and financial position, and ability to make cash distributions to our unitholders could be materially adversely affected.
Moreover, during periods when the price of wood pellets exceeds the prices under our long-term off-take contracts, our revenues could be significantly lower than they otherwise could have been were we not party to such contracts for substantially all of our production. In addition, our current and future competitors may be in a better position than we are to take advantage of relatively high prices during such periods.
We may be required to make substantial capital expenditures to maintain and improve our facilities.
Although we currently use a portion of our cash reserves and cash generated from our operations to maintain, develop and improve our assets and facilities, such investment may, over time, be insufficient to preserve the operating profile required for us to meet our planned profitability or meet the evolving quality and product specifications demanded by our customers. Accordingly, if additional capital expenditures become necessary in the future and we are unable to execute our maintenance or improvement programs successfully and in a timely manner, our results of operations, business and financial position, and our ability to make cash distributions to our unitholders, may be materially adversely affected.
We compete with other wood pellet producers and, if growth in domestic and global demand for wood pellets meets or exceeds management’s expectations, the competition within our industry may grow significantly.
We compete with other wood pellet production companies for the customers to whom we sell our products. Other current producers of utility‑grade wood pellets include AS Graanul Invest, Pinnacle Renewable Energy Inc., Drax Biomass Inc.,
Georgia Biomass, LLC, Fram Renewable Fuels, LLC, Highland Pellets LLC
and Pacific BioEnergy
Corporation and The Westervelt Company.Corporation. Competition in our industry is based on price, consistency and quality of product, site location, distribution and logistics capabilities, customer service, creditworthiness and reliability of supply. Some of our competitors may have greater financial and other resources than we do, may develop technology superior to ours or may have production plants
that are sited in more advantageous locations from a
transportlogistics, procurement or other cost perspective.
In addition, we expect global demand for solid biomass to increase significantly in the coming years. This demand growth may lead to a significant increase in the production levels of our existing competitors and may incentivize new, well‑capitalized competitors to enter the industry, both of which could reduce the demand and the prices we are able to obtain under future off‑take contracts. Significant price decreases or reduced demand could have a material adverse effect on our results of operations, business and financial position, and our ability to pay distributions to our unitholders.
For our products to be acceptable to our customers, they must comply with stringent sustainability requirements, which may continue to develop and change.
Biomass energy generation requires the use of biomass that is derived from acceptable sources and is demonstrably sustainable. This typically is implemented through biomass sustainability criteria, which either are a mandatory element of eligibility for financial subsidies to biomass energy generators or will become mandatory in the future. As a biomass fuel supplier, the viability of our business is therefore dependent upon our ability to comply with such requirements. This may restrict the types of biomass we can use and the geographic regions from which we source our raw materials, and may require us to reduce the GHG emissions associated with our supply and production processes. Currently, some elements of the criteria with which we will have to comply, including rules relating to forest management practices, are not yet finalized. If more stringent sustainability requirements are adopted in the future, demand for our products could be materially reduced in certain markets, and our results of operations, business and financial position, and our ability to make cash distributions to our unitholders, may be materially adversely affected as a result.
Financial Risks
Our level of indebtedness may increase,
and reducethereby reducing our financial flexibility.
As of December 31,
2017,2020, our total debt was
$401.0$926.0 million, which primarily consisted of
$352.2$746.9 million outstanding under
the Senior Notes and $43.6 million outstanding under the Senior Secured Credit Facilities.our 6.5% senior unsecured notes due 2026. In the future, we may incur additional indebtedness in order to make acquisitions or to develop our properties. Our level of indebtedness could affect our operations in several ways, including the following:
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| | a significant portion of our cash flows could be used to service our indebtedness;
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| | the covenants contained in the agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments;
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•a significant portion of our cash flows could be used to service our indebtedness; | ·
| | our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry;
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•the covenants contained in the agreements governing our outstanding indebtedness may limit our ability to borrow additional funds, dispose of assets, pay distributions and make certain investments; | ·
| | a high level of debt would increase our vulnerability to general adverse economic and industry conditions;
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•our debt covenants may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry; | ·
| | a high level of debt may place us at a competitive disadvantage compared to our competitors that may be less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; and
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•a high level of debt may place us at a competitive disadvantage compared to our competitors that may be less leveraged and therefore may be able to take advantage of opportunities that our indebtedness would prevent us from pursuing; and
•a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions or general partnership or other purposes. | ·
| | a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, general partnership or other purposes.
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In addition, revolving borrowings under the Senior Secured Credit Facilitiesour senior secured revolving credit facility bear, and potentially other credit facilities we or our subsidiaries may enter into in the future will bear, interest at variable rates. If market interest rates increase, such variable‑rate debt will create higher debt service requirements, which could adversely affect our cash flow.
In addition to our debt service obligations, our operations require substantial expenditures on a continuing basis. Our ability to make scheduled debt payments, to refinance our obligations with respect to our indebtedness and to fund capital and non‑capital expenditures necessary to maintain the condition of our operating assets and properties, as well as to provide capacity for the growth of our business, depends on our financial and operating performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt, and future working capital borrowings or
debt or equity financing may not be available to pay or refinance such debt.
An increase in the price or a significant interruption in the supply
Our
production plants use a substantial amount of electricity. The priceexposure to risks associated with foreign currency and
supply of electricity are unpredictable and can fluctuate significantly based on international, political and economic circumstances,interest rate fluctuations, as well as
other events outside our control, such as changes in supply and demand duethe hedging arrangements we may enter into to
weather conditions, regional production patterns and environmental concerns. In addition, potential climate change regulations or carbon or emissions taxes could result in higher production costs for electricity, which may be passed on to us in whole or in part. A significant increase in the price of electricity or an extended interruption in the supply of electricity to our production plants could have a material adverse effect on our results of operations, cash flows and ability to make cash distributions.Changes in the price of diesel fuel may adversely affect our results of operations.
Diesel fuel costs generally fluctuate with world crude oil prices, and accordingly are subject to political, economic and market factors that are outside of our control. Our operations are dependent on rolling stock and trucks, and diesel fuel costs are a significant component of the operating expense of these vehicles. In addition, diesel fuel is consumed by our wood suppliers in the harvesting and transport of our raw material and is therefore a component of the delivered cost we pay for wood fiber. It is also consumed by the handling equipment at our plants. Some of our off‑take contracts contain mechanisms that are intended to reduce the impact that changes in the price of diesel fuel would have on us, but these mechanisms may not be effective. Accordingly, changes in diesel fuel pricesmitigate those risks, could have an adverse effect on our financial condition and results of operations.
We may experience foreign currency exchange and interest rate volatility in our business. We began to use hedging transactions in 2016 with respect to certain of our off-take contracts which are, in part or in whole, denominated in foreign currencies, and are party to interest rate swaps with respect to a portion of our variable rate debt, in an effort to achieve more predictable cash flow and to reduce our exposure to foreign currency exchange and interest rate fluctuations.
In addition, there may be instances in which costs and revenue will not be matched with respect to currency denomination. As a result, to the extent that existing and future off-take contracts are not denominated in U.S. Dollars, it is possible that increasing portions of our revenue, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations.
Our hedging transactions involve cost and risk and may not be effective at mitigating our exposure to fluctuations in foreign currency exchange and interest rates. Although the use of hedging transactions limits our downside risk, their use may also limit future revenues. Risks inherent in our hedging transactions include the risk that counterparties to hedging contracts may be unable to perform their obligations and the risk that the terms of such contracts will not be legally enforceable. Likewise, our hedging activities may be ineffective or may not fully offset the financial impact of foreign currency exchange or interest rates fluctuations, which could have an adverse impact on our results of operations,
cash flowsbusiness and
financial position, and our ability to
make cash distributions.pay distributions to our unitholders.
General Risk Factors
Our business may suffer if we lose, or are unable to attract and retain, key personnel.
We depend to a large extent on the services of our senior management team and other key personnel. Members of our senior management and other key employees collectively have extensive expertise in designing, building and operating wood pellet production plants
or marine terminals, negotiating long‑term
off‑takeoff-take contracts and managing businesses such as ours. Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individuals or the failure to attract additional personnel, as needed, could have a material adverse effect on our operations and could lead to higher labor costs or
the use of less‑reliance on less qualified personnel. In addition, if any of our executives or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers,
know‑howknow-how and key personnel. Our success is dependent on our ability to continue to attract, employ and retain highly skilled personnel.
Failure
The international nature of our business subjects us to maintain effective quality control systems ata number of risks, including foreign exchange risk and unfavorable political, regulatory and tax conditions in foreign countries.
Substantially all of our production plantscurrent product sales are to customers that operate outside of the United States. As a result, we face certain risks inherent in maintaining international operations that include foreign exchange movements, restrictions on foreign trade and deep‑water marine terminalsinvestment, including currency exchange controls imposed by or in other countries and trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make our products less competitive in some countries.
Labor strikes or work stoppages by our employees could harm our business.
Unionization activities could occur among non-union employees. If union employees strike, participate in a work stoppage or slowdown or engage in other forms of labor strike, it could lead to disruptions in our business, increases in our operating costs and constraints on our operating flexibility. Strikes, work stoppages or an inability to negotiate future collective bargaining agreements on commercially reasonable terms could have a material adverse effect on our business,
results of operations, financial condition and
operations.Our customers require a reliable supplycash flows.
Uncertainty relating to the London Inter-bank Offered Rate (“LIBOR”) calculation process and potential phasing out of wood pelletsLIBOR in 2023 may adversely affect our current or future debt obligations, including our senior secured revolving credit facility.
On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that meet stringent product specifications. Wethe FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, which was extended through June 2023 for U.S. dollar LIBOR values. At this time, it is not possible to predict what such phase out, alternative reference rates or other reforms, if they occur, will have builton the amount of interest paid on, or the market value of, our operations and assets to consistently deliver and certify the highest levels of product quality and performance,
current or future debt obligations, including our senior secured revolving credit facility.
which is critical toThe departure of the successU.K. from the EU could adversely affect our results of our business. These factors depend significantly on the effectiveness of our quality control systems which, in turn, depends on a number of factors. These include the designoperations, business and efficacy of our quality control systems, the success of our quality training programfinancial position and our ability to ensure that our employees and third‑party contractors adherepay distributions to our quality control policiesunitholders.
The U.K. formally withdrew from the EU in January 2020 under Article 50 of the Treaty of the European Union and guidelines. Any significant failure or deteriorationwas subject to a transition period until the end of our quality control systems could impact our ability2020. During this period, there has been no fundamental change to deliver product that meets our customers’ specificationsU.K.-EU relations, except for the withdrawal of U.K. memberships from EU political institutions. The transition period ceased on December 31, 2020 and as of January 31, 2021 U.K.-EU relations will be determined by a new agreement.
We have take-or-pay off-take contracts with utilities and large generators in the U.K. and in turn, could lead to rejectionother European markets. For the year ended December 31, 2020, approximately 68% of our product bysales were derived from contracts with customers in the U.K. and 28% of our product sales were derived from contracts with customers which could havein other European markets.
The lack of precedent for an exit of a
material adverse effect on our business, financial condition,European Member State from the EU means that it is unclear how the access of U.K. businesses to the EU Single Market and
results of operations.how the legal and regulatory environments in the U.K. and the EU will be impacted.
Our business is subject to operating hazardscybersecurity risks.
As is typical of modern businesses, we are reliant on the continuous and
other operationaluninterrupted operation of our information technology (“IT”) systems. User access and security of our sites and IT systems can be critical elements of our operations, as are cloud security and protection against cybersecurity incidents. Any IT failure pertaining to availability, access or system security could potentially result in disruption of our activities and personnel, and could adversely affect our reputation, operations or financial performance. Potential risks
which may haveto our IT systems could include unauthorized attempts to extract business-sensitive, confidential or personal information, denial of access, extortion, corruption of information, or disruption of business processes. A cybersecurity incident resulting in a
material adverse effect onsecurity breach or failure to identify a security threat could disrupt our business and
resultscould result in the loss of
operation. We may also not be adequately insured against such events.Our business could be adversely affected by operating hazards and other risks to our operations. We produce a combustible product that may under certain circumstances present a risk of fires and explosionssensitive, confidential information or other hazards. Severe weather, suchassets, as floods, earthquakes, hurricaneswell as litigation, regulatory enforcement, violation of privacy or other natural disasters, climatic phenomena, such as drought, and other catastrophic events, such as plant or shipping disasters, could impact our operations by causing damage to our facilities and equipment, affecting our ability to deliver our product to our customers and impacting our customers’ ability to take delivery of our products. Such events may also adversely affect the ability of our suppliers to provide us with the raw materials we require or the ability of vessels to load, transport and unload our product.
We maintain insurance policies to mitigate against certain risks related to our business, in types and amounts that we believe are reasonable depending on the circumstances surrounding each identified risk; however, we may not be fully insured against all operating hazards and other operational risks incident to our business. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates, if at all. As a result of market conditions and certain claims we may make under our insurance policies, premiums and deductibles for certain of our insurance policies could escalate. In some instances, insurance could become unavailable or available only for reduced amounts of coverage or at unreasonable rates. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
Our operations are subject to stringent environmental and occupational health and safetysecurities laws and regulations, that may expose us to significant costs and liabilities.
Our operations are subject to stringent federal, regional, state and local environmental, health and safety laws and regulations. These laws and regulations govern environmental protection, occupational health and safety, the release or discharge of materials into the environment, air emissions, wastewater discharges, the investigation and remediation costs, all of contaminated sites and allocation of liability for cleanup of such sites. These laws and regulations may restrict orwhich could materially impact our business in many ways, including by requiring us to acquire permitsreputation, operations or other approvals to conduct regulated activities; limiting our air emissions or wastewater discharges or requiring us to install costly equipment to control, reduce or treat such emissions or discharges; imposing requirements on the handling or disposal of wastes; impacting our ability to modify or expand our operations (for example, by limiting or prohibiting construction and operating activities in environmentally sensitive areas); and imposing health and safety requirements for worker protection. We may be required to make significant capital and operating expenditures to comply with these laws and regulations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of investigatory or remedial obligations, suspension or revocation of permits and the issuance of orders limiting or prohibiting some or all of our operations. Adoption of new or modified environmental laws and regulations may impair the operation of our business, delay or prevent expansion of existing facilities or construction of new facilities and otherwise result in increased costs and liabilities, which may be material.
Our business and operating results are subject to seasonal fluctuations.
Our business is affected to some extent by seasonal fluctuations. The cost of producing wood pellets tends to be higher in colder periods because the delivered cost of fiber typically increases with wet weather and our raw materials have, on average, higher moisture content during such period, resulting in a lower product yield. In addition, lower ambient temperatures increase the cost of drying wood fiber. Seasonality may also impact the availability and pricing of
financial performance. limited-scope wood pellet purchase and sale transactions. For example, colder periods typically drive increased demand for wood pellets in the heating and industrial markets, which can increase pricing for prompt deliveries, while warmer periods typically have the opposite effect. While our contracts generally call for ratable deliveries throughout the year, we are party to one contract that calls for a higher percentage of deliveries during the first and fourth calendar quarters. These seasonal fluctuations could have an adverse effect on our business, financial condition and results of operations and cause comparisons of operating measures between consecutive quarters may not be as meaningful as comparisons between longer reporting periods.
A terrorist attack or armed conflict could harm our business.
Terrorist activities and armed conflicts could adversely affect the U.S. and global economies and could prevent us from meeting financial and other obligations or prevent our customers from meeting their obligations to us. We could experience loss of business, delays or defaults in payments from customers or disruptions of fuel supplies and markets, including if domestic and global
power generators are direct targets or indirect casualties of an act of terror or war. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect our results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies.
Risks Related to Our Partnership Structure
Enviva Holdings, LP owns and controls our General Partner, which has sole responsibility for conducting our business and managing our operations. Our General Partner and its affiliates, including Enviva Holdings, LP, have conflicts of interest with us and limited duties, and they may favor their own interests to our detriment and that of our unitholders.
Enviva Holdings, LP, owns and controls our General Partner and appoints all of the directors of our General Partner. Although our General Partner has a duty to manage us in a manner that it believes is not adverse to our interest, the executive officers and directors of our General Partner have a fiduciary duty to manage our General Partner in a manner beneficial to our sponsor. Therefore, conflicts of interest may arise between our sponsor or any of its affiliates, including our General Partner, on the one hand, and us or any of our unitholders, on the other hand. In resolving these conflicts of interest, our General Partner may favor its own interests and the interests of its affiliates over the interests of our common unitholders. These conflicts
may include the
following situations, among others: | ·
| | our General Partner is allowed to take into account the interests of parties other than us, such as our sponsor, in exercising certain rights under our partnership agreement;
|
following: | ·
| | neither our partnership agreement nor any other agreement requires our sponsor to pursue a business strategy that favors us;
|
•our General Partner is allowed to take into account the interests of parties other than us, such as our sponsor, in exercising certain rights under our partnership agreement; | ·
| | our partnership agreement eliminates and replaces the fiduciary duties that would otherwise be owed by our General Partner with contractual standards governing its duties, limits our General Partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such eliminations and limitations, might constitute breaches of fiduciary duty;
|
•neither our partnership agreement nor any other agreement requires our sponsor to pursue a business strategy that favors us; | ·
| | except in limited circumstances, our General Partner has the power and authority to conduct our business without unitholder approval;
|
| ·
| | our General Partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders;
|
| ·
| | our General Partner determines the amount and timing of any cash expenditure and whether an expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital
|
•our partnership agreement eliminates and replaces the fiduciary duties that would otherwise be owed by our General Partner with contractual standards governing its duties, limits our General Partner’s liabilities and restricts the remedies available to our unitholders for actions that, without such eliminations and limitations, might constitute breaches of fiduciary duty;
expenditure, which does not reduce operating surplus. This determination can affect the amount of cash from operating surplus that is distributed to our unitholders which, in turn, may affect the ability of the subordinated units to convert into common units;
|
•except in limited circumstances, our General Partner has the power and authority to conduct our business without unitholder approval; | ·
| | our General Partner may cause us to borrow funds in order to permit the payment of cash distributions;
|
•our General Partner determines the amount and timing of asset purchases and sales, borrowings, issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders; | ·
| | our partnership agreement permits us to distribute up to $39.3 million as operating surplus, even if it is generated from asset sales, borrowings other than working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or the incentive distribution rights;
|
•our General Partner determines the amount and timing of any cash expenditure and whether an expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash from operating surplus that is distributed to our common unitholders relative to our sponsor as the holder of our incentive distribution rights; | ·
| | our General Partner determines which costs incurred by it and its affiliates are reimbursable by us;
|
•our General Partner may cause us to borrow funds in order to permit the payment of cash distributions; | ·
| | our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf;
|
•our partnership agreement permits us to distribute up to $39.3 million as operating surplus, even if it is generated from asset sales, borrowings other than working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions to holders of our incentive distribution rights; | ·
| | our General Partner intends to limit its liability regarding our contractual and other obligations;
|
•our General Partner determines which costs incurred by it and its affiliates are reimbursable by us, including through the MSAs; | ·
| | our General Partner may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units;
|
•our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf; | ·
| | our General Partner controls the enforcement of obligations that it and its affiliates owe to us;
|
•our General Partner intends to limit its liability regarding our contractual and other obligations; | ·
| | our General Partner decides whether to retain separate counsel, accountants or others to perform services for us; and
|
•our General Partner may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units; | ·
| | our General Partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our General Partner’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our General Partner or the unitholders. This election may result in lower distributions to the common unitholders in certain situations.
|
•our General Partner controls the enforcement of obligations that it and its affiliates owe to us;•our General Partner decides whether to retain separate counsel, accountants or others to perform services for us; and
•our General Partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our sponsor’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our General Partner or the unitholders. This election may result in lower distributions to the common unitholders in certain situations.
In addition, we may compete directly with our sponsor and entities in which it has an interest for acquisition opportunities and potentially will compete with these entities for new business or extensions of the existing services provided by us.
The board of directors of our General Partner may modify or revoke our cash distribution policy at any time at its discretion. Our partnership agreement does not require us to pay any distributions at all.
Pursuant to our cash distribution policy, we intend to distribute quarterly at least $0.4125 per unit on all of our units to the extent we have sufficient cash after the establishment of cash reserves and the payment of our expenses, including payments to our General Partner and its affiliates. However, the board may change
suchour cash distribution policy at any time at its discretion and could elect not to pay distributions for one or more quarters. Please read Part II, Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Cash Distribution Policy.”
In addition, our partnership agreement does not require us to pay any distributions at all. Accordingly, investors are cautioned not to place undue reliance on the permanence of such a policy in making an investment decision. Any modification or revocation of our cash distribution policy could substantially reduce or eliminate the amounts of distributions to our unitholders. The amount of distributions we make, if any, and the decision to make any distribution at all will be determined by the board of directors of our General Partner, whose interests may differ from those of our common unitholders. Our General Partner has limited duties to our unitholders, which may permit it to favor its own interests or the interests of our sponsor to the detriment of our common unitholders.
Our General Partner limits its liability regarding our obligations.
Our General Partner limits its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets, and not against our General Partner or its assets. Our General Partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our General Partner.
Our partnership agreement provides that any action taken by our General Partner to limit its liability is not a breach of our General Partner’s duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our General Partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.
We intend to distribute a significant portion of our cash available for distribution to our partners, which could limit our ability to grow and make acquisitions.
We intend to distribute most of our cash available for distribution, which
maycould cause our growth to proceed at a slower pace than that of businesses that reinvest their cash to expand ongoing operations. To the extent we issue additional units,
whether in connection with
any acquisitions,
or expansion capital expenditures
or otherwise, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may impact the cash that we have available to distribute to our unitholders.
Our partnership agreement eliminates and replaces our General Partner’s fiduciary duties to holders of our units.
Our partnership agreement contains provisions that eliminate and replace the fiduciary standards to which our General Partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner, or otherwise free of fiduciary duties to us and our unitholders. This entitles our General Partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our General Partner may make in its individual capacity include:
| ·
| | how to allocate business opportunities among us and its affiliates;
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| ·
| | whether to exercise its call right;
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•how to allocate business opportunities among us and its affiliates; | ·
| | whether to seek approval of the resolutions of a conflict of interest by the conflicts committee of the board of directors of our General Partner;
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•whether to exercise its call right; | ·
| | how to exercise its voting rights with respect to the units it owns;
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•whether to seek approval of the resolution of a conflict of interest by the conflicts committee of the board of directors of our General Partner; | ·
| | whether to exercise its registration rights;
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•how to exercise its voting rights with respect to the units it owns; | ·
| | whether to elect to reset target distribution levels; and
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•whether to exercise its registration rights; | ·
| | whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement.
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•whether to elect to reset target distribution levels; and•whether or not to consent to any merger or consolidation of the Partnership or amendment to the partnership agreement.
Limited partners who own common units are treated as having consented to the provisions in the partnership agreement, including the provisions discussed above.
Our partnership agreement restricts the remedies available to holders of our units for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:
| ·
| | whenever our General Partner makes a determination or takes, or declines to take, any other action in its capacity as our General Partner, our General Partner is generally required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any higher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;
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| ·
| | our General Partner and its officers and directors will not be liable for monetary damages or otherwise to us or our limited partners resulting from any act or omission unless there has been a final and non‑appealable judgment entered by a court of competent jurisdiction determining that such losses or liabilities were the result of conduct in which our General Partner or its officers or directors engaged in bad faith, meaning that they believed that the decision was adverse to the interest of the partnership or, with respect to any criminal conduct, with knowledge that such conduct was unlawful; and
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•whenever our General Partner makes a determination or takes, or declines to take, any other action in its capacity as our General Partner, our General Partner is generally required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any higher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity; | ·
| | our General Partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:
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•our General Partner and its officers and directors will not be liable for monetary damages or otherwise to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that such losses or liabilities were the result of conduct in which our General Partner or its officers or directors engaged in bad faith, meaning that they believed that the decision was adverse to our interest or, with respect to any criminal conduct, with knowledge that such conduct was unlawful; and | (1)
| | approved by the conflicts committee of the board of directors of our General Partner, although our General Partner is not obligated to seek such approval; or
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| (2)
| | approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner and its affiliates.
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•our General Partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:(1) approved by the conflicts committee of the board of directors of our General Partner, although our General Partner is not obligated to seek such approval; or
(2) approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner and its affiliates.
In connection with a situation involving a transaction with an affiliate or a conflict of interest, other than one where our General Partner is permitted to act in its sole discretion, any determination by our General Partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of
us or of any limited partner,
or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our sponsor and other affiliates of our General Partner may compete with us.
Our partnership agreement provides that our General Partner is restricted from engaging in any business activities other than acting as our General Partner, engaging in those activities incidental to its ownership interest in us and providing management, advisory and administrative services to its affiliates or to other persons. However, affiliates of our General Partner, including our sponsor, are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us. In addition, our sponsor may compete with us for investment opportunities and may own an interest in entities that compete with us.
Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to our General Partner or any of its affiliates, including its executive officers and directors and our sponsor. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our General Partner and result in less than favorable treatment of us and our unitholders.
The holder or holders of our incentive distribution rights may elect to cause us to issue common units to it in connection with a resetting of the incentive distribution without the approval of our unitholders. This election may result in lower distributions to our common unitholders in certain situations.
The holder or holders of a majority of our incentive distribution rights (currently our
General Partner)sponsor) have the right, at any time when
there are no subordinated units outstanding and we have made cash distributions in excess of the then‑applicable third target distribution for each of the prior four consecutive fiscal quarters, to reset the initial target distribution levels at higher levels based on our cash distribution levels at the time of the exercise of the reset election. Following a reset election, a baseline distribution amount will be calculated equal to an amount equal to the prior cash distribution per common unit for the fiscal quarter immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.
In addition, in connection with a reset election, the holders of our incentive distribution rights would receive a number of newly issued common units based on the value of cash distributions paid in respect of the incentive distribution rights in the quarter preceding the reset election.
We anticipate that our
General Partnersponsor would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per unit without such conversion. However, our
General Partnersponsor may transfer the incentive distribution rights at any time. It is possible that our
General Partnersponsor or a transferee could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time when the holders of the incentive distribution rights expect that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, the holders of the incentive distribution rights may be experiencing, or may expect to experience, declines in the cash distributions they receive related to the incentive distribution rights and may therefore desire to be issued our common units, which are entitled to specified priorities with respect to our distributions and which therefore may be more advantageous for them to own in lieu of the right to receive incentive distribution payments based on target distribution levels that are less certain to be achieved. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued new common units to the holders of the incentive distribution rights in connection with resetting the target distribution levels.
Our
general partnersponsor has certain incentive distribution rights that reduce the amount of our cash available for distribution to our common unitholders.
Our
General Partnersponsor currently holds incentive distribution rights that entitle it to receive an increasing percentage
(15 percent, 25 percent(15%, 25% and
50 percent)50%) of the cash that we distribute to our common unitholders from available cash after the minimum quarterly distribution and certain target distribution levels have been achieved. The maximum distribution right for our
General Partnersponsor to receive
50 percent50% of any distributions paid to our common unitholders does not include any distributions that our
General Partner or its affiliatessponsor may receive on common units
that they own.it owns. Effective as of our quarterly cash distribution in the fourth quarter of 2017, our
General Partnersponsor was at the top tier of the incentive distribution rights scale. Given that a higher percentage of our cash flows is allocated to our
general partnersponsor due to these incentive distribution rights, it may be more difficult for us to increase the amount of distributions to our unitholders and our cost of capital may be higher, making investments, capital expenditures and acquisitions, and therefore, future growth, by us potentially more costly, and in some cases, potentially prohibitively so.
Holders of our common units have limited voting rights and are not entitled to elect our General Partner or its
directors, which could reduce the price at which our common units will trade.directors.
Compared to the holders of common stock in a corporation, unitholders have limited voting rights and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders have no right on an annual or ongoing basis to elect our General Partner or its board of directors. The board of directors of our General Partner, including the independent directors, is chosen entirely by our sponsor, as a result of it owning our General Partner, and not by our unitholders. Unlike publicly traded corporations, we do not hold annual meetings of our unitholders to elect directors or consider other matters routinely addressed at annual meetings of stockholders of corporations.
As a result of these limitations, the price at which the common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price.
Even if holders of our common units are dissatisfied, they cannot currently remove our General Partner without our sponsor’s consent.
If our unitholders are dissatisfied with the performance of our General Partner, they have limited ability to remove our General Partner. Unitholders are currently unable to remove our General Partner without our sponsor’s consent because our sponsor and its affiliates own sufficient units to be able to prevent its removal. The vote of the holders of at least 66
2/3% 2/3% of all outstanding common and subordinated units voting together as a single class is required to remove our General Partner. As of February 16, 2018,14, 2021, our sponsor owned approximately 50%34% of our common and subordinated units, taken together. In addition, any vote to removeunits. This condition would enable our General Partner during the subordination period must provide for the election of a successor General Partner by the holders of a majority of the common units and a majority of the subordinated units, voting as separate classes. Both of these conditions provide our sponsor the ability to prevent the removal of our General Partner.Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our General Partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our General Partner, cannot vote on any matter.
Our general partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
Our General Partner may transfer its general partner interest to a third party without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of the owner of our General Partner to transfer its membership interests in our General Partner to a third party. The new owner of our General Partner would then be in a position to replace the board of directors and executive officers of our General Partner with its own designees and thereby exert significant control over the decisions taken by the board of directors and executive officers of our General Partner. This effectively permits a “change of control” without the vote or consent of the unitholders.
The incentive distribution rights may be transferred to a third party without unitholder consent.
Our
General Partnersponsor may transfer the incentive distribution rights to a third party at any time without the consent of our unitholders. If our
General Partnersponsor transfers the incentive distribution rights to a third party, our
General Partnersponsor would not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time. For example, a transfer of incentive distribution rights by our
General Partnersponsor could reduce the likelihood of our sponsor accepting offers made by us relating to assets owned by our sponsor, as it would have less of an economic incentive to grow our business, which
in turn would impact our ability to grow our asset base.
Our General Partner has a call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our General Partner and its affiliates own more than 80% of the common units, our General Partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per‑unit price paid by our General Partner or any of its affiliates for common units during the 90‑day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our General Partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the call right. There is no restriction in our partnership agreement that prevents our General Partner from causing us to issue additional common units and then exercising its call right. If our General Partner exercised its call right, the effect would be to take us private and, if the units were subsequently deregistered, we would no longer be subject to the reporting requirements of the Exchange Act.
We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests we may issue at any time without the approval of our unitholders. The issuance of additional common units or other equity interests of equal or senior rank will have the following effects:
| ·
| | our existing unitholders’ proportionate ownership interest in us will decrease;
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| ·
| | the amount of cash available for distribution on each unit may decrease;
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•our existing unitholders’ proportionate ownership interest in us will decrease; | ·
| | because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
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•the amount of cash available for distribution on each unit may decrease; | ·
| | the ratio of taxable income to distributions may increase;
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•the ratio of taxable income to distributions may increase; | ·
| | the relative voting strength of each previously outstanding unit may be diminished; and
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•the relative voting strength of each previously outstanding unit may be diminished; and | ·
| | the market price of the common units may decline.
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•the market price of the common units may decline.There are no limitations in our partnership agreement on our ability to issue units ranking senior to the common units.
In accordance with Delaware law and the provisions of our partnership agreement, we may issue additional partnership interests that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of units of senior rank may
(i)(1) reduce or eliminate the amount of cash available for distribution to our common unitholders;
(ii)(2) diminish the relative voting strength of the total common units outstanding as a class; or
(iii)(3) subordinate the claims of the common unitholders to our assets in the event of our liquidation.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by our sponsor or other large holders.
All of the subordinated units will convert into common units on a one‑for‑one basis at the end of the subordination period, which is expected to occur in May 2018.
Our sponsor
has registration rights with respect to theowns approximately 34% of our common
units it currently holds and the common units it will hold upon conversion of the subordinated units. Sales by our sponsor or other large holders of a substantial number of our common units in the public markets, or the perception that such sales might occur, could have a material adverse effect on the price of our common units or could impair our ability to obtain capital through an offering of equity securities.
Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our General Partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our General Partner, cannot vote on any matter.
Cost reimbursements due to our General Partner and its affiliates for services provided to us or on our behalf will reduce cash available for distribution to our unitholders. The amount and timing of such reimbursements will be determined by our General Partner.
Under our management services agreement with Enviva Management (the “MSA”),the MSAs, we are obligated to reimburse Enviva Managementour sponsor for all direct or indirect costs and expenses incurred by, or chargeable to, Enviva Managementour sponsor in connection with its provision of services necessary for the operation of our business. If the MSAMSAs were
terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA,MSAs, our partnership agreement would require us to reimburse our General Partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our General Partner and its affiliates may be reimbursed. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. Our partnership agreement provides that our General Partner determines the expenses that are allocable to us. The reimbursement of expenses and payment of fees, if any, to our General Partner and its affiliates will reduce the amount of cash available for distribution to our unitholders.
The price of our common units may fluctuate significantly and unitholders could lose all or part of their investment.
The market price of our common units may be influenced by many factors, some of which are beyond our control,
including: | ·
| | our quarterly distributions;
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including our results of operations and financial condition, the amount of our quarterly distributions, changes in accounting standards, policies, guidance, interpretations or principles, general economic conditions, the failure of securities analysts to | ·
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cover our common units or changes in financial estimates by analysts, future sales of our common units and the other factors described in these “Risk Factors.” | ·
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Unitholders may have liability to repay distributions.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17‑607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to
the limited partnershipus for the distribution amount. Liabilities to partners on account of their partnership interests and liabilities that are non‑recourse to
the partnershipus are not counted for purposes of determining whether a distribution is permitted.
For as long as we are an emerging growth company, we will not be required to comply with certain disclosure requirements that apply to other public companies.
For as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404 of the Sarbanes‑Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports. We will remain an emerging growth company for up to five years, although we will lose that status earlier if we have more than $1.0 billion of revenues in a fiscal year, have more than $700.0 million in market value of our common units held by non‑affiliates, or issue more than $1.0 billion of non‑convertible debt over a three‑year period.
To the extent that we rely on any of the exemptions available to emerging growth companies, our unitholders will receive less information about our executive compensation and internal control over financial reporting than issuers
that are not emerging growth companies. If some investors find our common units to be less attractive as a result, there may be a less active trading market for our common units and our trading price may be more volatile.
The New York Stock Exchange (the “NYSE”) does not require a publicly traded partnership like us to comply with certain of its corporate governance requirements.
Our common units are listed on the NYSE. Because we are a publicly traded partnership, the NYSE does not require us to have a majority of independent directors on our General Partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements. Please read Part III, Item 10. “Directors, Executive Officers and Corporate Governance—Director Independence.”
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes and not being subject to a material amount of entity‑level taxation. If the Internal Revenue Service
(“IRS”) were to treat us as a corporation for federal income tax purposes, or we become subject to entity‑level taxation for state tax purposes, our cash available for distribution to our unitholders would be substantially reduced.The anticipated after‑tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for federal income tax purposes.
Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based
uponon our current operations
and current Treasury Regulations, we believe we satisfy the qualifying income requirement. We have requested and obtained a favorable private letter ruling from the IRS to the effect that, based on facts presented in the private letter ruling request, our income from processing timber feedstocks into pellets and transporting, storing, marketing and distributing such timber feedstocks and wood pellets constitute “qualifying income” within the meaning of Section 7704 of the Internal Revenue Code of 1986 (the “Code”). However, no ruling has been,
orand we expect none will be, requested regarding our treatment as a partnership for U.S. federal income tax purposes. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate. Distributions to our unitholders would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to our unitholders. Because a tax would be imposed
uponon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after‑tax return to the unitholders, likely causing a substantial reduction in the value of our common units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity‑level taxation for U.S. federal, state
or local or foreign income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law or interpretation on us. At the state level, several states have been evaluating ways to subject partnerships to entity‑level taxation through the imposition of state income, franchise or other forms of taxation. Specifically, we currently own assets and conduct business in Mississippi, North Carolina, Florida,
Virginia, Georgia and
Virginia,South Carolina, each of which imposes a margin or franchise tax. In the future, we may expand our operations. Imposition of a similar tax on us in other jurisdictions that we may expand to could substantially reduce our cash available for distribution to our unitholders.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any
time. From time to time, membersMembers of Congress proposehave frequently proposed and considerconsidered substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships. Although there is no current legislative proposal a prior legislative proposal would have eliminatedto eliminate the qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.
In addition, on January 24, 2017, final regulations regarding which activities give rise to qualifying income within the meaning of Section 7704 of the Code (the “Final Regulations”) were published in the Federal Register. The Final Regulations are effective as of January 19, 2017purposes, current and apply to taxable years beginning on or after January 19, 2017 and, consistent with our private letter ruling, the Final Regulations generally treat income from the production, transportation and marketing of wood pellets as qualifying income. However, there can be no assurance that thereformer legislative proposals would not be further changes to the Treasury Department’s interpretation ofhave eliminated the qualifying income rulesexception for publicly traded partnerships relying on qualifying income from fossil fuel activities. In addition, the Treasury Department has issued, and in a mannerthe future may issue, regulations interpreting those laws that could impact our ability toaffect publicly traded partnerships. We believe we qualify as a partnership for U.S. federal income tax purposes.
Anypurposes under current regulations.
However, any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any
suchsimilar or future legislative changes could
increase our entity-level tax burden and negatively impact the value of an investment in our common units. You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our common units.
If the IRS were to contest the federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce cash available for distribution to our unitholders.
We have requested and obtained a favorable private letter ruling from the IRS to the effect that, based on facts presented in the private letter ruling request, our income from processing timber feedstocks into pellets and transporting, storing, marketing and distributing such timber feedstocks and wood pellets will constitute “qualifying income” within the meaning of Section 7704 of the
Internal Revenue Code. However, no ruling has been,
orand we expect none will be, requested regarding our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us, in which case we may require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest) or, if we are required to bear such payments, our cash available for distribution to our unitholders might be substantially reduced.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our General Partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised information statement to each unitholder and former unitholder with respect to an audited and adjusted return, which statement reports the items adjusted and certain other amounts. Although our General Partner may elect to have our unitholders and former unitholders take such audit adjustment into account
and pay any resulting taxes (including applicable penalties and interest) in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and interest, we may require our unitholders and former unitholders to reimburse us for such taxes (including any applicable penalties or interest) or, if we are required to bear such payments, our cash available for distribution to our unitholders might be substantially reduced. These rules are not applicable for tax years beginning on or prior to December 31, 2017.
Even if unitholders do not receive any cash distributions from us, unitholders will be required to pay taxes on their share of our taxable income.
Unitholders are required to pay federal income taxes and, in some cases, state and local income taxes, on unitholders’ share of our taxable income, whether or not they receive cash distributions from us. For example, if we sell assets and use the proceeds to repay existing debt or fund capital expenditures, you may be allocated taxable income and gain resulting from the sale, and our cash available for distribution would not increase. Similarly, taking advantage of opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result in “cancellation of indebtedness income” being allocated to our unitholders as taxable income without any increase in our cash available for
distribution. Unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax due from them with respect to that income.
A tax gain or loss on the disposition of our common units could be more or less than unitholders expect.
If unitholders sell their common units, they will recognize a gain or loss equal to the difference between the amount realized and their tax basis in those common units. Because distributions in excess of unitholders’ allocable share of our net taxable income decrease their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the units unitholders sell will, in effect, become taxable income to our unitholders if they sell such units at a price greater than their tax basis in those units, even if the price they receive is less than their original cost. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if they sell their units, unitholders may incur a tax liability in excess of the amount of cash they receive from the sale.
Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. Thus, you may recognize both ordinary income and capital loss from the sale of your units if the amount realized on a sale of your units is less than your adjusted basis in the units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the taxable period in which you sell your units, you may recognize ordinary income from our allocations of income and gain to you prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale of units.
Tax‑exempt
Tax-exempt entities face unique tax issues from owning our common units that may result in adverse tax consequences to them.
Investment in
our common units by
tax‑exempttax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them.
Further, with respect to taxable years beginning after December 31, 2017, a tax-exempt entity with more than one unrelated trade or business (including by attribution from investment in a partnership such as ours that is engaged in one or more unrelated trade or business) is required to compute the unrelated business taxable income of such tax-exempt entity separately with respect to each such trade or business (including for purposes of determining any net operating loss deduction). As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa. Any tax‑exempt entity should consult
theirits tax advisor before investing in our common units.
Unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
Historically, we have been entitled to a full deduction for interest paid or accrued on indebtedness properly allocable to our trade or business during our taxable year. However,
subject to certain exceptions in the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act, discussed below),under the Tax Cuts and Jobs Act signed into law in December 2017, for taxable years beginning after December 31, 2017, our deduction for “business interest” is limited to the sum of our business interest income and 30% of our “adjusted taxable income.” For the purposes of this limitation, our adjusted taxable income is computed without regard to any business interest expense or business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization or depletion.
As a result, we expect that a substantial portion of our business interest deduction may be limited.For the 2020 taxable year, the CARES Act generally increases the 30% adjusted taxable income limitation to 50%. For purposes of determining the 50% adjusted taxable income limitation, partnerships may substitute their 2020 adjusted taxable income with their 2019 adjusted taxable income, which may result in a greater business interest expense deduction. In addition, unitholders may treat 50% of any excess business interest allocated to them in 2019 as deductible in the 2020 taxable year without regard to the 2020 business interest expense limitation. The remaining 50% of such unitholder’s excess business interest is carried forward and subject to the same limitations as other taxable years. Non-U.S. Unitholders will be subject to U.S. taxes and withholding with respect to their income and gain from owning our units.
Non-U.S. unitholders are generally taxed and subject to income tax filing requirements by the United States on income effectively connected with a U.S. trade or
business (“effectively connected income”).business. Income allocated to our unitholders and any gain from the sale of our units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a non-U.S. unitholder will be subject to withholding at the highest applicable effective tax rate and a non-U.S. unitholder who sells or otherwise disposes of a unit will also be subject to U.S. federal income tax on the gain realized from the sale or disposition of such unit.
The Tax Cuts and Jobs Act imposes a withholding obligation of 10% of
Moreover, the amount realized upon a non-U.S. unitholder’s sale or exchangetransferee of an interest in a partnership that is engaged in a U.S. trade or business. However, duebusiness is generally required to challengeswithhold 10% of administeringthe amount realized by the transferor unless the transferor certifies that it is not a foreign person. While the determination of a partner’s amount realized generally includes any decrease of a partner’s share of the partnership’s liabilities, recently issued Treasury regulations provide that the “amount realized” on a transfer of an interest in a publicly traded partnership, such as our common units, will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and thus will be determined without regard to any decrease in that partner’s share of a publicly traded partnership’s liabilities. The Treasury regulations further provide that withholding obligation applicableon a transfer of an
interest in a publicly traded partnership will not be imposed on a transfer that occurs prior to
open market trading and other complications, the IRS has temporarily suspended the application of this withholding rule to open market transfersJanuary 1, 2022. For a transfer of interests in
a publicly traded
partnerships pending promulgation of regulationspartnership that is effected through a broker on or
other guidance that resolvesafter January 1, 2022, the
challenges. Itobligation to withhold is
not clear if or when such regulations or other guidance will be issued. Non-U.S.imposed on the transferor’s broker. Prospective foreign unitholders should consult
atheir tax
advisor before investingadvisors regarding the impact of these rules on an investment in our common units.
We treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units, we have adopted certain methods for allocating depreciation and amortization deductions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to the use of those methods could adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to their tax returns.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based
uponon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based
uponon the ownership of our units on the first day of each month (the “Allocation Date”), instead of on the basis of the date a particular unit is transferred. Similarly, we generally allocate certain deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of
the general partner,our General Partner, any other extraordinary item of income, gain, loss or deduction based
uponon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
A unitholder whose units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of units) may be considered as having disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and may recognize gain or loss from the disposition.
Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a unitholder whose units are the subject of a securities loan may be considered as having disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a
securities loan are urged to consult a tax advisor to determine whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.
We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, which could adversely affect the value of the common units.
In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets. Although we may, from time to time, consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the timing or amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
Our unitholders will likely be subject to state and local taxes and income tax return filing requirements in jurisdictions where they do not live as a result of investing in our common units.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in
which we conduct business or own property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements.
We currently own assets in multiple states. Many of these states currently impose a personal income tax on individuals, corporations and other entities. As we make acquisitions or expand our business, we may own assets or conduct business in additional states that impose a personal income tax. It is our unitholders’ responsibility to file all U.S. federal, foreign, state and local tax
returns.returns and pay any resulting taxes due in these jurisdictions. Unitholders should consult with their own tax advisors regarding the filing of such tax returns, the payment of such taxes, and the deductibility of any such taxes paid.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Information regarding our properties is contained in Part I, Item 1. “Business” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 3. LEGAL PROCEEDINGS
During
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the fourth quarternormal course of 2016,business, we re‑purchased a shipment of wood pellets from one customer and subsequently sold it to a different customer in a back‑to‑back transaction. Smoldering was observed onboard the vessel carrying the shipment, which resulted in damage to a portion of the shipment and one of the vessel’s five cargo holds (the “Shipping Event”). The disponent owner of the vessel (the “Shipowner”) had directly or indirectly chartered the vessel from certain other parties (collectively, the “Head Owners”) and in turn contracted with Cottondale as the charterer of the vessel. Following the mutual appointment of arbitrators in connection with the Shipping Event, on June 8, 2017, the Shipowner submitted claims against Cottondale (the “Claims”) alleging damages of approximately $11.8 million (calculated using exchange rates as of December 31, 2017), together with other unquantified losses and damages. The Claims providedo not believe that the Shipowner would seek indemnification and other damages from Cottondale to the extent
that the Shipowner is unsuccessful in its defense of claims raised by the Head Owners against it for damages arising in connection with the Shipping Event.
Although it is reasonably possible that the Shipping Event may result in additional costs and liabilities for our account, responsibility for such costs and liabilities incurred in connection with the Shipping Event is disputed among the various parties involved. If any such costs and liabilities ultimately are allocated to us, a portion may be recovered under insurance. We believe we have meritorious defenses to the Claims, but we are generally unablea party to predict the timingany litigation that will have a material adverse impact on our financial condition or outcomeresults of any claims or proceedings, including the Claims, associated with the Shipping Event, or any insurance recoveries in respect thereof. Consequently, we are unable to provide an estimate of the amount or range of possible loss.
operations.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common units representing limited partner interests in the Partnership (“common units”) are traded on the New York Stock Exchange (“NYSE”) under the symbol “EVA.” The following tables set forth the range of high and low sales prices per unit for our common units, as reported by the NYSE, and the quarterly cash distributions for the indicated periods:
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| | Price Range | | Cash | | | | |
Year Ended December 31, 2017: | | High | | Low | | Distributions | | Record Date | | Payment Date |
Fourth Quarter | | $ | 31.95 | | $ | 26.73 | | $ | 0.620 | | February 15, 2018 | | February 28, 2018 |
Third Quarter | | $ | 30.30 | | $ | 27.18 | | $ | 0.615 | | November 15, 2017 | | November 29, 2017 |
Second Quarter | | $ | 30.60 | | $ | 26.33 | | $ | 0.570 | | August 15, 2017 | | August 29, 2017 |
First Quarter | | $ | 29.98 | | $ | 24.60 | | $ | 0.555 | | May 18, 2017 | | May 30, 2017 |
| | | | | | | | | | | | | |
| | Price Range | | Cash | | | | |
Year Ended December 31, 2016: | | High | | Low | | Distributions | | Record Date | | Payment Date |
Fourth Quarter | | $ | 29.85 | | $ | 24.45 | | $ | 0.535 | | February 15, 2017 | | February 28, 2017 |
Third Quarter | | $ | 28.40 | | $ | 21.02 | | $ | 0.530 | | November 14, 2016 | | November 29, 2016 |
Second Quarter | | $ | 24.86 | | $ | 19.31 | | $ | 0.525 | | August 15, 2016 | | August 29, 2016 |
First Quarter | | $ | 22.60 | | $ | 13.73 | | $ | 0.510 | | May 16, 2016 | | May 27, 2016 |
As of February 16, 2018,15, 2021, there were 14,445,26840,023,105 common units outstanding held by threeseven unitholders of record. Because many of our common units are held by brokers and other institutions on behalf of unitholders, we are unable to estimate the total number of unitholders represented by these unitholders of record. As of February 16, 2018, we also had 11,905,138 subordinated units outstanding. There is no established public market in which the subordinated units are traded. As of February 16, 2018,15, 2021, our sponsor held approximately 9%34% of the common units and all of the subordinated units.
Our partnership agreement provides that our General Partner will make a determination as to whether to make a distribution, but our partnership agreement does not require us to pay distributions at any time or in any amount. Instead, the board of directors of our General Partner adopted a cash distribution policy that sets forth our General Partner’s intention with respect to the distributions to be made to unitholders. Pursuant to our cash distribution policy, within 60 days after the end of each quarter, we intend to distribute to the holders of common
and subordinated units on a quarterly basis at least the minimum quarterly distribution of $0.4125 per unit, or $1.65 on an annualized basis, to the extent we have sufficient cash after establishment of cash reserves and payment of fees and expenses, including payments to our General Partner and its affiliates.
The board of directors of our General Partner may change the foregoing distribution policy at any time and from time to time, and even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our General Partner. Our partnership agreement does not contain a requirement for us to pay distributions to our unitholders, and there is no guarantee that we will pay any specific distribution level, or any distribution, on the units in any quarter. However, our partnership agreement does contain provisions intended to motivate our General Partner to make steady, increasing and sustainable distributions over time.
Please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Revolving Credit Facilities”Facility” for a discussion of the provisions included in our senior secured revolving credit facility that may restrict our ability to make distributions.
Subordination Period
Our partnership agreement provides that, during the subordination period, holders ofpay distributions to our common units have the right to receive distributions from operating surplus (as defined in our partnership agreement) each quarter in an amount equal to $0.4125 per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions from operating surplus may be made to holders of the subordinated units. These units are deemed “subordinated” because for a period of time, referred to as the subordination period, the subordinated units will not be entitled to receive any distributions from operating surplus until the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. Furthermore, no arrearages will be paid on the subordinated units. We expect the subordination period to expire in May 2018, at which time all of the subordinated units will convert into common units on a one‑for‑one basis.
unitholders.
General Partner Interest and Incentive Distribution Rights
Our General Partner owns a
non‑economicnon-economic general partner interest in us, which does not entitle it to receive cash distributions.
However, our General PartnerOur sponsor owns the incentive distribution rights and may in the future own common units or other equity interests in us and will be entitled to receive distributions on any such interests.
Incentive distribution rights represent the right to receive increasing percentages (15.0%, 25.0% and 50.0%) of quarterly distributions from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our
General Partnersponsor currently holds
all of the incentive distribution rights, but may transfer these rights separately from
itsthe general partner interest.
Unregistered Sales of Securities
On December 14, 2016, a joint venture between our sponsor and Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (the “First Hancock JV”) contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (the “Sampson Drop‑Down”). In connection with the Sampson Drop‑Down, we issued a total of 1,098,415 common units at a value of $27.31 per unit, or $30.0 million of common units, to John Hancock Life Insurance Company of New York and John Hancock Life Insurance Company (U.S.A.), each an affiliate of the First Hancock JV, in reliance upon the exemption from the registration requirements in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). For more information on the Sampson Drop‑Down, please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sampson Drop‑Down.”
On December 11, 2015, the First Hancock JV contributed to Enviva, LP all the issued and outstanding limited liability company interests in Enviva Pellets Southampton, LLC. In connection with the Southampton Drop‑Down, we issued 942,023 common units valued at $15.0 million, to a wholly owned subsidiary of our sponsor in reliance upon the exemption from the registration requirements in Section 4(a)(2) of the Securities Act. For more information on the Southampton Drop‑Down, please read Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Southampton Drop‑Down.”
Securities Authorized for Issuance under Equity Compensation Plans
Please read Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding our equity compensation plans.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents our selected historical financial data, for the periods and as of the dates indicated, for us and our Predecessor.
The financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in our Predecessor and Enviva GP, LLC as if the contributions occurred at the beginning of the periods presented, the contribution of Enviva Cottondale Acquisition II, LLC as if the contribution occurred on January 5, 2015, which is the date on which our sponsor acquired Green Circle Bio Energy, Inc. (“Green Circle”), which owned the Cottondale plant, the contribution of Enviva Pellets Southampton, LLC (“Southampton”) as if it occurred on April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV, and the contribution of Enviva Pellets Sampson, LLC (“Sampson”) and Enviva Port of Wilmington, LLC (“Wilmington”) as if they had occurred on May 15, 2013, the date Sampson and Wilmington were originally organized.
The selected statement of operations and statements of cash flow data for the years ended December 31, 2017, 2016 and 2015 and the balance sheet data as of December 31, 2017 and 2016 are derived from our audited consolidated financial statements included in Item 8 of this Annual Report.
| | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | | 2016 | | 2015 | | 2014 | | 2013 |
| | 2017 | | (Recast) | | (Recast) | | (Recast) | | (Recast) |
| | | | | | | | (Predecessor) | | (Predecessor) |
| | (in thousands, except per metric ton and operating data and per unit data) |
Statement of Operations Data: | | | | | | | | | | | | | | | |
Product sales | | $ | 522,250 | | $ | 444,489 | | $ | 450,980 | | $ | 286,641 | | $ | 176,051 |
Other revenue (1) | | | 20,971 | | | 19,787 | | | 6,394 | | | 3,495 | | | 3,836 |
Net revenue | | | 543,221 | | | 464,276 | | | 457,374 | | | 290,136 | | | 179,887 |
Costs of goods sold, excluding depreciation and amortization (1) | | | 419,616 | | | 357,418 | | | 365,061 | | | 251,058 | | | 152,720 |
Loss on disposal of assets | | | 4,899 | | | 2,386 | | | 2,081 | | | 340 | | | 223 |
Depreciation and amortization | | | 39,904 | | | 27,700 | | | 30,692 | | | 18,971 | | | 11,827 |
Total cost of goods sold | | | 464,419 | | | 387,504 | | | 397,834 | | | 270,369 | | | 164,770 |
Gross margin | | | 78,802 | | | 76,772 | | | 59,540 | | | 19,767 | | | 15,117 |
General and administrative expenses (1) | | | 30,107 | | | 33,098 | | | 23,922 | | | 16,958 | | | 16,150 |
Disposal and impairment of assets held for sale | | | 827 | | | 9,991 | | | — | | | — | | | — |
Total general and administrative | | | 30,934 | | | 43,089 | | | 23,922 | | | 16,958 | | | 16,150 |
Income (loss) from operations | | | 47,868 | | | 33,683 | | | 35,618 | | | 2,809 | | | (1,033) |
Other income (expense): | | | | | | | | | | | | | | | |
Interest expense | | | (31,744) | | | (15,643) | | | (10,558) | | | (8,724) | | | (5,460) |
Related-party interest expense | | | — | | | (578) | | | (1,154) | | | — | | | — |
Early retirement of debt obligation | | | — | | | (4,438) | | | (4,699) | | | (73) | | | — |
Other income | | | (1,751) | | | 439 | | | 979 | | | 22 | | | 1,019 |
Total other expense, net | | | (33,495) | | | (20,220) | | | (15,432) | | | (8,775) | | | (4,441) |
Income (loss) before income tax expense | | | 14,373 | | | 13,463 | | | 20,186 | | | (5,966) | | | (5,474) |
Income tax expense | | | — | | | — | | | 2,623 | | | 15 | | | 23 |
Net income (loss) | | | 14,373 | | | 13,463 | | | 17,563 | | | (5,981) | | | (5,497) |
Less net loss attributable to noncontrolling partners’ interests | | | 3,140 | | | 5,804 | | | 2,859 | | | 304 | | | 58 |
Net income (loss) attributable to Enviva Partners, LP | | $ | 17,513 | | $ | 19,267 | | $ | 20,422 | | $ | (5,677) | | $ | (5,439) |
Less: Predecessor (loss) income to May 4, 2015 (prior to IPO) | | $ | — | | $ | — | | | (2,132) | | | 264 | | | (5,439) |
Less: Pre-acquisition income from April 10, 2015 to December 10, 2015 from operations of Enviva Pellets Southampton, LLC Drop-Down allocated to General Partner | | | — | | | — | | | 6,264 | | | — | | | — |
Less: Pre-acquisition loss from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | | | — | | | (3,231) | | | (1,815) | | | (3,440) | | | — |
Less: Pre-acquisition loss from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | | | (3,049) | | | (2,110) | | | (937) | | | (2,501) | | | — |
Enviva Partners, LP partners’ interest in net income | | $ | 20,562 | | $ | 24,608 | | $ | 19,042 | | $ | — | | $ | — |
Net income per limited partner common unit: | | | | | | | | | | | | | | | |
Basic | | $ | 0.65 | | $ | 0.95 | | $ | 0.80 | | | | | | |
Diluted | | $ | 0.61 | | $ | 0.91 | | $ | 0.79 | | | | | | |
Net income per limited partner subordinated unit: | | | | | | | | | | | | | | | |
Basic | | $ | 0.65 | | $ | 0.93 | | $ | 0.80 | | | | | | |
Diluted | | $ | 0.65 | | $ | 0.93 | | $ | 0.79 | | | | | | |
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | | 2016 | | 2015 | | 2014 | | 2013 |
| | 2017 | | (Recast) | | (Recast) | | (Recast) | | (Recast) |
| | | | | | | | (Predecessor) | | (Predecessor) |
| | (in thousands, except per metric ton and operating data and per unit data) |
Statement of Cash Flow Data: | | |
Net cash provided by (used in): | | | | | | | | | | | | | | | |
Operating activities | | $ | 87,095 | | $ | 55,804 | | $ | 65,857 | | $ | 28,992 | | $ | (7,557) |
Investing activities | | | (28,601) | | | (111,124) | | | (103,490) | | | (17,174) | | | (115,799) |
Financing activities | | | (58,436) | | | 53,658 | | | 39,173 | | | (14,789) | | | 115,235 |
Other Financial Data: | | | | | | | | | | | | | | | |
Adjusted EBITDA(1) | | $ | 102,381 | | $ | 79,291 | | $ | 71,710 | | $ | 22,182 | | $ | 12,101 |
Adjusted gross margin per metric ton(1) | | $ | 45.38 | | $ | 45.55 | | $ | 38.89 | | $ | 25.91 | | $ | 29.18 |
Maintenance capital expenditures(2) | | | 4,353 | | | 5,187 | | | 4,359 | | | 515 | | | — |
Distributable cash flow(1) | | | 67,731 | | | 59,775 | | | 57,245 | | | 14,964 | | | 7,650 |
Operating Data: | | | | | | | | | | | | | | | |
Total metric tons sold | | | 2,724 | | | 2,346 | | | 2,374 | | | 1,508 | | | 931 |
Balance Sheet Data (at period end): | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 524 | | $ | 466 | | $ | 2,128 | | $ | 592 | | $ | 3,558 |
Total assets | | | 760,111 | | | 801,376 | | | 688,209 | | | 388,395 | | | 395,018 |
Long-term debt and capital lease obligations (including current portion) | | | 401,017 | | | 351,080 | | | 207,632 | | | 90,481 | | | 95,539 |
Total liabilities | | | 549,742 | | | 424,514 | | | 266,539 | | | 110,781 | | | 123,607 |
Partners’ capital | | | 210,369 | | | 376,862 | | | 421,670 | | | 277,614 | | | 271,411 |
| (1)
| | For more information, please read “—Non‑GAAP Financial Measures” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—How We Evaluate Our Operations.”
|
| (2)
| | Maintenance capital expenditures are cash expenditures made to maintain our long‑term operating capacity or net income.
|
Non‑GAAP Financial Measures
Adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non‑GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non‑GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non‑GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted gross margin per metric ton, adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP.
Our definitions of these non‑GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Adjusted Gross Margin per Metric Ton
We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals and depreciation and amortization included in cost of goods sold. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue‑generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our production plants and the production and distribution of wood pellets.
Adjusted EBITDA
We view adjusted EBITDA as an important indicator of our financial performance. We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, non‑cash unit compensation expense, asset impairments and disposals, changes in the fair value of derivative instruments and certain items of income or loss that we characterize as unrepresentative of our ongoing operations. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures and interest expense net of amortization of debt issuance costs, debt premium and original issue discount. We use distributable cash flow as a performance metric to compare the cash‑generating performance of the Partnership from period to period and to compare the cash‑generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. We do not rely on distributable cash flow as a liquidity measure.
The following tables present a reconciliation of each of adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow to the most directly comparable GAAP financial measure for each of the periods indicated.
| | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | | 2016 | | 2015 | | 2014 | | 2013 |
| | 2017 | | (Recast) | | (Recast) | | (Recast) | | (Recast) |
| | | | | | | | | | (Predecessor) | | (Predecessor) |
| | (in thousands, except per metric ton) | | | |
Reconciliation of gross margin to adjusted gross margin per metric ton: | | | | | | | | | | | | | | | |
Metric tons sold | | | 2,724 | | | 2,346 | | | 2,374 | | | 1,508 | | | 931 |
Gross margin | | $ | 78,802 | | $ | 76,772 | | $ | 59,540 | | $ | 19,767 | | $ | 15,117 |
Loss on disposal of assets | | | 4,899 | | | 2,386 | | | 2,081 | | | 340 | | | 223 |
Depreciation and amortization | | | 39,904 | | | 27,700 | | | 30,692 | | | 18,971 | | | 11,827 |
Adjusted gross margin | | $ | 123,605 | | $ | 106,858 | | $ | 92,313 | | $ | 39,078 | | $ | 27,167 |
Adjusted gross margin per metric ton | | $ | 45.38 | | $ | 45.55 | | $ | 38.89 | | $ | 25.91 | | $ | 29.18 |
| | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | | 2016 | | 2015 | | 2014 | | 2013 |
| | 2017 | | (Recast) | | (Recast) | | (Recast) | | (Recast) |
| | | | | | | | | (Predecessor) | | (Predecessor) |
| | | | | (in thousands) | | | |
Reconciliation of adjusted EBITDA and distributable cash flow to net income: | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 14,373 | | $ | 13,463 | | | 17,563 | | $ | (5,981) | | $ | (5,497) |
Add: | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 40,361 | | | 27,735 | | | 30,738 | | | 19,009 | | | 11,887 |
Interest expense | | | 31,744 | | | 16,221 | | | 11,712 | | | 8,724 | | | 5,460 |
Early retirement of debt obligation | | | — | | | 4,438 | | | 4,699 | | | 73 | | | — |
Purchase accounting adjustment to inventory | | | — | | | — | | | 697 | | | — | | | — |
Non-cash unit compensation expense | | | 5,014 | | | 4,230 | | | 704 | | | 2 | | | 5 |
Income tax expense | | | — | | | — | | | 2,623 | | | 15 | | | 23 |
Asset impairments and disposals | | | 5,726 | | | 12,377 | (1) | | 2,081 | | | 340 | | | 223 |
Changes in the fair value of derivative instruments | | | 1,565 | | | — | | | — | | | — | | | — |
Transaction expenses | | | 3,598 | | | 827 | | | 893 | | | — | | | — |
Adjusted EBITDA | | $ | 102,381 | | $ | 79,291 | | $ | 71,710 | | $ | 22,182 | | $ | 12,101 |
Less: | | | | | | | | | | | | | | | |
Interest expense, net of amortization of debt issuance costs, debt premium and original issue discount | | | 30,297 | | | 14,329 | | | 10,106 | | | 6,703 | | | 4,451 |
Maintenance capital expenditures | | | 4,353 | | | 5,187 | | | 4,359 | | | 515 | | | — |
Distributable cash flow attributable to Enviva Partners, LP | | $ | 67,731 | | $ | 59,775 | | $ | 57,245 | | $ | 14,964 | | $ | 7,650 |
Less: Distributable cash flow attributable to incentive distribution rights | | | 3,398 | | | 1,077 | | | — | | | — | | | — |
Distributable cash flow attributable to Enviva Partners, LP limited partners | | $ | 64,333 | | $ | 58,698 | | $ | 57,245 | | $ | 14,964 | | $ | 7,650 |
| (1)
| | In December 2016, we initiated a plan to sell the Wiggins plant. The carrying amount of the assets held for sale exceeded the estimated fair value of the Wiggins plant, which resulted in a $10.0 million non‑cash impairment charge to earnings. In December 2017, we sold the Wiggins plant for $0.4 million and recorded a loss on the sale $0.8 million, net, upon deconsolidation.
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our historical performance, financial condition and future prospects should be read in conjunction with Part I, Item 1. “Business” and the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data.”
References in this Annual Report to the “Predecessor,” “our Predecessor,” “we,” “our,” “us” or like terms for periods prior to April 9, 2015 refer to Enviva, LP and its subsidiaries (other than Enviva Pellets Cottondale, LLC). References to the “Partnership,” “we,” “our,” “us” or like terms for periods on and after April 9, 2015similar expressions refer to Enviva Partners, LP, andincluding its subsidiaries. References to “our sponsor” refer to Enviva Holdings, LP, and, where applicable, its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC. References to “our General Partner” refer to Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP. References to “Enviva Management”Management Company” refer to Enviva Management Company, LLC, a wholly owned subsidiary of Enviva Holdings, LP, and referencestogether with its affiliates that provide services to us. References to “our employees” refer to the employees of Enviva Management. ReferencesManagement Company and its affiliates who provide services to the “First Hancock JV” and the “Second Hancock JV” refer to Enviva Wilmington Holdings, LLC and Enviva JV Development Company, LLC, respectively, which are joint ventures between our sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.).Partnership. Please read Cautionary Statement Regarding Forward‑Looking Statements on page 1 and Part 1, Item 1A. “Risk Factors” for information regarding certain risks inherent in our business.
Basis of Presentation
The following
For a discussion of our historical performanceresults of operations for the years ended December 31, 2019 and financial condition is derived2018, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission on February 26, 2020.
Basis of Presentation
In April 2019, we acquired from our audited consolidated financial statements and the audited financial statements of our Predecessor and Enviva Pellets Cottondale, LLC (“Cottondale”). On April 9, 2015, we, the Predecessor and our sponsor executed a series of transactions that were accounted for as common control transactions (the “Reorganization”). On April 9, 2015, our sponsor contributed some, but not all of our Predecessor’s assetsthe Class B units of Enviva Wilmington Holdings, LLC (the “Hamlet JV,” and liabilities to us. Specifically, our sponsor’s interest in Enviva Pellets Southampton, LLC (“Southampton”) was excluded fromsuch acquisition, the April 9, 2015 contribution as it was conveyed to the First Hancock“Hamlet Drop-Down”). The Hamlet JV a consolidated entity of the sponsor, on April 9, 2015. Our sponsor contributed its interest in Cottondale, which owns a wood pellet production plant in Cottondale, FloridaHamlet, North Carolina (the “Cottondale“Hamlet plant”), to us on April 9, 2015.On December 11, 2015, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Southampton together with an off‑take contract and a related third-party shipping contract for total consideration of $131.0 million pursuant to the terms of a contribution agreement between the Partnership and the First Hancock JV (the “Southampton Drop‑Down”).
On December 14, 2016, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million (the “Sampson Drop‑Down”). The Sampson Drop‑Down also included two off‑take contracts and related third‑party shipping contracts.
On October 2, 2017, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”) for total consideration of $130.0 million (the “Wilmington Drop‑Down”).
The consolidated financial statements for periods prior to our initial public offering (“the IPO”) include the results of our Predecessor and its subsidiaries and include all revenues, costs, assets and liabilities attributed to our Predecessor after the elimination of all intercompany accounts and transactions. The consolidated financial statements for the period after the IPO pertain to our operations. Our consolidated financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in our Predecessor and Enviva GP, LLC as if the contributions had occurred at the beginning of the periods presented, the contribution of Enviva Cottondale Acquisition II, LLC (“Acquisition II”) as if the contribution had occurred on January 5, 2015, which is the date on which our sponsor
acquired Green Circle Bio Energy, Inc. (“Green Circle”), which owned the Cottondale plant, the Southampton Drop‑Down as if it occurred on April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV and the Sampson Drop‑Down and the Wilmington Drop-Down as if they had occurred on May 15, 2013, the date Sampson and Wilmington were originally organized. Entities contributed by or distributed to our sponsor or the First Hancock JV are considered entities under common control and are recorded at historical cost.
Business Overview
We are the world’s largest suppliermanaging member of the Hamlet JV, which is partially owned by production capacityJohn Hancock Life Insurance Company (U.S.A.) and certain of utility‑gradeits affiliates (collectively, where applicable, “John Hancock”). We accounted for the Hamlet JV as a consolidated subsidiary, not as a joint venture, following the Hamlet Drop-Down. For more information regarding our rights and obligations with respect to the Hamlet JV, see Note 17, Partners’ Capital-Hamlet JV.
Business Overview
We are a Delaware limited partnership formed in 2013 to aggregate a natural resource, wood fiber and process it into a transportable form, wood pellets. We sell a significant majority of our wood pellets
to major power generators.through long-term, take-or-pay off-take contracts with creditworthy customers in the United Kingdom, Europe and increasingly in Japan. We own and operate
six industrial‑scale productionnine plants
in the Southeastern United States that have(collectively, “our plants”) with a combined
wood pellet production capacity of
2.9approximately 5.3 million
MTPY.metric tons (“MT”) of wood pellets per year (“MTPY”) in Virginia, North Carolina, South Carolina, Georgia, Florida and Mississippi, the production of which is fully contracted through 2025. We
also own dry‑bulk, deep‑waterexport wood pellets through our wholly owned dry-bulk, deep-water marine terminal
assets at the Port of Chesapeake,
Virginia (the “Chesapeake terminal”) and
terminal assets at the Port of Wilmington, North Carolina (the “Wilmington
terminal”) and from third-party deep-water marine terminals in Savannah, Georgia (the “Savannah terminal”), Mobile, Alabama (the “Mobile terminal”) and Panama City, Florida (the “Panama City terminal”). All of our facilities are located in geographic regions with low input costs and favorable transportation logistics. Owning these
cost‑advantagedcost-advantaged assets, the output from which is fully contracted
through 2025, in a rapidly expanding industry provides us with a platform to generate stable and growing cash
flowsflows. Our plants are sited in robust fiber baskets providing stable pricing for the low-grade fiber used to produce wood pellets. Our raw materials are byproducts of traditional timber harvesting, principally low-value wood materials, such as trees generally not suited for sawmilling or other manufactured forest products, and tree tops and limbs, understory, brush and slash that
should enable us to increase our per‑unit cash distributions over time, which is our primary business objective. Forare generated in a
more complete description of our business, please read Part I, Item 1. “Business.”harvest.
Our
sales strategy is to fully contract the
wood pellet production from our plants under long-term, take-or-pay off-take contracts with a diversified and creditworthy customer base. Our long-term off-take contracts typically provide for fixed-price deliveries that may include provisions that escalate the price over time and provide for other margin protection. During 2020, production capacity
offrom our wood pellet production plants and wood pellets sourced from our affiliates and third parties were approximately equal to the
Partnership. During 2017, contracted volumes under our existing
off‑take contracts are approximately equal to the full production capacity of our production plants.long-term, take-or-pay off-take contracts. Our off‑takelong-term, take-or-pay off-take contracts provide for a product sales backlog of 2.9 million metric tons (“MT”) of wood pellets in 2018$14.6 billion and have a total weighted-average remaining term of 9.512.8 years from February 15, 2018.1, 2021. Under our current product sales backlog, our plants are fully contracted through 2025. Assuming all volumes under the firm and contingent long-term off-take contracts held by our sponsor were included with our product sales backlog for firm and contingent contracted product sales, our product sales backlog would increase to $19.9 billion and the total weighted-average remaining term from February 1, 2021 would increase to 14.0 years.
Our customers use our wood pellets as a substitute fuel for coal in dedicated biomass or co-fired coal power plants. Wood pellets serve as a suitable “drop-in” alternative to coal because of their comparable heat content, density and form. Due to the
uninterruptible nature of our customers’ fuel consumption, our customers require a reliable supply of wood pellets that meet stringent product specifications. We
intendhave built our operations and assets to
continue expandingdeliver and certify the highest levels of product quality and our
business by taking advantageproven track record of reliable deliveries enables us to charge premium prices for this certainty. In addition to our customers’ focus on the reliability of supply, they are concerned about the combustion efficiency of the
growing demandwood pellets and their safe handling. Because combustion efficiency is a function of energy density, particle size distribution, ash/inert content and moisture, our customers require that we supply wood pellets meeting minimum criteria for
a variety of specifications and, in some cases, provide incentives for exceeding our
product that is driven by the conversion of coal‑fired power generation and combined heat and power plants to co‑fired or dedicated biomass‑fired plants, principally in Europe and, increasingly, in South Korea and Japan.contract specifications.
Recent Developments
Wilmington Drop‑Down
Georgia Biomass Acquisition
On October 2, 2017, pursuant to the terms of a contribution agreement between the Partnership and the First Hancock JV (the “Wilmington Contribution Agreement”), the First Hancock JV sold to the PartnershipJuly 31, 2020, we acquired all of the issued and outstanding limited liability company interests in Wilmington,Georgia Biomass Holding LLC, a Georgia limited liability company (“Georgia Biomass”) and the indirect owner of a wood pellet production plant located in Waycross, Georgia (the “Waycross plant”), for total consideration of $164.0 million in cash, after accounting for certain adjustments (the “Georgia Biomass Acquisition”). The Waycross plant has been in operation since 2011 and has a production capacity of 800,000 MTPY. The Waycross plant terminals its production at a two-dome pellet export terminal with a storage capacity of 50,000 MT at the Port of Savannah, Georgia pursuant to a lease and associated terminal services agreement effective through 2028. Approximately 500,000 MTPY of the Waycross plant’s production is contracted under separate agreements to one of our existing customers through 2024. In August 2020, Georgia Biomass converted to a limited liability company organized under the laws of the State of Delaware under the name Enviva Pellets Waycross Holdings Sub, LLC (“Waycross”).
Greenwood Drop-Down
On July 1, 2020, we acquired from our sponsor all of the limited liability company interests in Enviva Pellets Greenwood Holdings II, LLC (“Greenwood Holdings II”), the indirect owner of Enviva Pellets Greenwood, LLC, which owns
the Wilmington terminal.Thea wood pellet production plant in Greenwood, South Carolina (the “Greenwood plant”), for a purchase price of $129.7 million, after accounting for Wilmingtoncertain adjustments and assumption of a $40.0 million, third-party promissory note bearing interest at 2.5% per year that we assumed at closing (such transaction, the “Greenwood Drop-Down”). The Greenwood Drop-Down was $130.0 million, which included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from revolving credit commitments and cash on hand. We accounted for the Wilmington Drop-Down as a combination ofasset acquisition between entities under common control at historical cost in a manner similar to a poolingand accounted for on the carryover basis of interests.accounting. Accordingly, the consolidated financial statements for the periods prior to the acquisition were retrospectively recast toperiod beginning July 1, 2020 reflect the acquisition as if it had occurred on May 15, 2013,acquisition.
On the date
Wilmington was originally organized.of and in connection with the Greenwood Drop-Down, our sponsor assigned five biomass off-take contracts to us (collectively, the “Associated Off-Take Contracts”). The Wilmington terminal, whichAssociated Off-Take Contracts call for aggregate annual deliveries of 1.4 million MTPY and mature between 2031 and 2041. Our sponsor also assigned to us fixed-rate shipping contracts with aggregate annual shipping volume of 1.4 million MTPY. The Associated Off-Take Contracts were assigned to fully contract wood pellets produced by the Greenwood plant and Waycross plant. The shipping contracts were assigned to facilitate transportation of those produced wood pellets.
The Greenwood plant current production capacity is capable of receiving product by rail and truck, has the capacity to store up to 90,000 MT500,000 MTPY of wood pellets and load uptransports its production via rail service to Panamax-sized vessels. It utilizes state-of-the-art handling equipment and storage infrastructure designedour terminal assets at the Port of Wilmington, North Carolina. We expect to maintain product quality and safetyinvest a total of $28.0 million to expand the Greenwood plant’s production capacity to 600,000 MTPY. We expect to complete the expansion, which is currently underway, by year-end 2021.
Greenwood Make-Whole Agreement
On the date of the Greenwood Drop-Down, we entered into a make-whole agreement with
throughput capacityour sponsor, pursuant to which our sponsor agreed to reimburse us for any construction costs incurred for the planned expansion of
up to 3.0 million MTPYthe Greenwood plant in excess of
wood pellets.Wilmington will handle up to approximately 600,000 MTPY$28.0 million.
Greenwood Management Services Fee Waiver
On the date of throughput from the Sampson plant and is party to a long-term terminal servicesGreenwood Drop-Down, we entered into an agreement with Enviva Pellets Greenwood, LLC, a wholly owned subsidiaryManagement Company pursuant to which (1) an aggregate of approximately $37.0 million in management services and other fees that otherwise would be owed by us under our management services agreement (“MSA”) with Enviva Management Company will be waived with respect to the period from the closing of the Second Hancock JV (“Greenwood”Greenwood Drop-Down through the fourth quarter of 2021 and (2) Enviva Management Company will continue to waive certain management services and other fees during 2022 unless and until the Greenwood plant’s production volumes equal or exceed 50,000 MT in any calendar month, in each case, to provide cash flow support to us during the planned expansion of the Greenwood plant. During the year ended December 31, 2020, $18.0 million of MSA fees were waived, of which $9.9 million was included in cost of goods sold and $8.1 million was included in related-party management services fees in general and administrative expenses.
Tack-On Notes Issuance
On July 15, 2020, we issued an additional $150.0 million in aggregate principal amount of our 6.5% senior unsecured notes due January 15, 2026 (the “2026 Notes ”) at an offering price of 103.75% of the principal amount, which implied an effective yield to maturity of approximately 5.7%. We received net proceeds of approximately $153.6 million from the offering after deducting discounts and commissions and offering costs.
Private Placement of Common Units
On June 18, 2020, we entered into a Common Unit Purchase Agreement (the “Unit Purchase Agreement”) with certain investors to sell 6,153,846 common units in a private placement at a price of $32.50 per common unit for gross proceeds of $200.0 million (the “Private Placement”). Wilmington will handle throughput volumes sourcedWe used the net proceeds of $190.8 million from Greenwood’sthe Private Placement to fund a portion of the consideration for each of the Greenwood Drop-Down and the Georgia Biomass Acquisition.
Pursuant to the Unit Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the investors in connection with the closing of the Private Placement, pursuant to which we agreed to file and maintain a registration statement (the “Shelf Registration Statement”) with respect to the resale of the common units on the terms set forth therein. The Registration Rights Agreement also provides certain investors with customary piggyback registration rights. On July 10, 2020, we filed the Shelf Registration Statement and on July 20, 2020, the Shelf Registration Statement was declared effective.
Financing Activities
Our net proceeds of $190.8 million from the Private Placement and the net proceeds of the tack-on offering of the 2026 Notes of $153.6 million were used primarily to pay for the $129.7 million purchase price for the Greenwood Drop-Down, and to pay $164.8 million of the purchase price for the Georgia Biomass Acquisition.
Mid-Atlantic Expansions
During 2019, we started construction to increase the aggregate wood pellet production plant locatedcapacity of our plants in Greenwood, SouthNorthampton, North Carolina (the “Greenwood“Northampton plant”), and Southampton, Virginia (the “Southampton plant”) (together, the “Mid-Atlantic Expansions”) by approximately 400,000 MTPY. In 2021, we completed the construction of the Mid-Atlantic Expansions and are in the process of ramping the expansions. As of December 31, 2020, we have paid approximately $120.0 million, and expect to pay approximately $10.0 million during 2021, in connection with the expansions.
Commitment to Achieve Carbon-Neutral Operations
Consistent with our mission to displace coal, grow more trees and fight climate change, we and our sponsor recently announced our commitment to become “net-zero” in GHG emissions from our operations by 2030. The product we manufacture helps reduce the lifecycle GHG emissions of our customers, but we believe we must also do our part within our operations to mitigate the impacts of climate change. We expect to accomplish neutrality with respect to our Scope 1 emissions (i.e., direct emissions from our manufacturing) by improving energy efficiency and adopting lower-carbon processes, as well as through investment in carbon offsets. We also plan to neutralize our Scope 2 emissions (i.e., indirect emissions from energy we purchase) by using 100% renewable energy by 2030 through the purchase of renewable electricity and/or onsite generation where practicable. Moreover, we will seek to proactively engage with our suppliers, transportation partners and other stakeholders to drive innovative improvements in our supply chain to reduce our Scope 3 emissions (i.e., indirect emissions in our value chain). We intend to report our Scopes 1, 2 and 3 emissions annually and fully meet the requirements of CDP (formerly known as the Carbon Disclosure Project) by 2022. Although it is difficult to project the incremental cost to our operations in 2030, we do not expect any material impact to our financial performance as a result of our efforts to achieve “net-zero” in GHG emissions from our operations.
Outbreak of the Novel Coronavirus
The terminal services agreementoutbreak of a novel strain of coronavirus (“COVID-19”) has significantly adversely impacted global markets and continues to present global public health and economic challenges. Although the full impact of COVID-19 is unknown and rapidly evolving, to date, our operations have not been materially impacted by the outbreak.
We have taken prescriptive safety measures including social distancing, hygienic policies and procedures and other steps recommended by the Centers for Disease Control and Prevention (the “CDC”), and adopted the CDC’s risk management approach, since the beginning of the outbreak, and have established risk levels based on the degree to which the virus has spread in a given community and the nature of the work performed at that location. Within our field operations, we have continued operations largely as normal with
Greenwood provides for deficiency paymentsthe additional precautionary measures; however, we continue to
Wilmington if minimum throughput requirements are not met.
on a daily basis and have prioritized putting the right plans, procedures and measures in place to mitigate the risk of exposure and infection and the related impacts to our business.
We specifically designed our operations and logistics systems with flexibility and redundancies so they are capable of effectively responding to unforeseen events. We operate a portfolio of nine wood pellet production plants geographically dispersed across the Southeast U.S. We export our product from a portfolio of five bulk terminals and transport it to our customers under long-term, fixed-price shipping contracts with multiple shipping partners. These operations currently are unaffected by COVID-19.
In addition,March 2020, the Wilmington Contribution Agreement contemplatesUnited States declared the COVID-19 pandemic a national emergency, and several states and municipalities, including states in which we own assets or conduct business, have declared public health emergencies and taken extraordinary actions in response, including issuing “stay-at-home” orders and similar mandates (“Orders”) for many businesses to curtail or cease normal operations. To date, we have not been materially impacted by the Orders, which exempt or exclude businesses that Wilmington will enter into ahave been designated essential critical infrastructure, such as ours, from various restrictions they impose.
As of December 31, 2020, we had liquidity, which included cash on hand and availability under our $350.0 million revolving credit facility of $229.7 million, and we have no debt maturities until 2023. Our wood pellet production capacity is committed under long-term, terminal services agreement (the “Wilmington Hamlet TSA”)take-or-pay off-take contracts with fixed pricing and fixed volumes that are not impacted by the market prices of crude oil, natural gas, power or heat. Furthermore, most of our current deliveries are to Europe, where they fuel grid-critical base load, dispatchable generation facilities that provide power and heat required for local communities to navigate through their own COVID-19 responses. As of December 31, 2020, each of our customers is in compliance with their agreements with us, including payment terms.
We do, however, remain vigilant about the unfolding global crisis and continue to monitor and manage the potential health, safety, business and other risks associated with the FirstCOVID-19 pandemic. Nonetheless, we have not experienced these issues in any significant way to date, and we have plans that we believe would mitigate their potential impact if we were to face such issues in the future.
Factors Impacting Comparability of Our Financial Results
Greenwood Drop-Down
The Greenwood Drop-Down was an asset acquisition between entities under common control and accounted for on the carryover basis of accounting. Accordingly, the consolidated financial statements for the period beginning July 1, 2020 reflect the acquisition. For more information regarding the Greenwood Acquisition, see Note 1, Description of Business and Basis of Presentation-Basis of Presentation-Enviva Pellets Greenwood and Note 3, Transactions Between Entities Under Common Control.
Georgia Biomass Acquisition
The Georgia Biomass Acquisition was recorded as a business combination and accounted for using the acquisition method. Assets acquired and liabilities assumed were recognized at fair value on the acquisition date of July 31, 2020, and the difference between the fair value of consideration transferred, which excludes acquisition-related costs, and the fair values of the identified net assets acquired, was recognized as goodwill. For more information regarding the Georgia Biomass Acquisition, see Note 1, Description of Business and Basis of Presentation-Georgia Biomass Holding LLC and Note 4, Acquisition.
Private Placement of Common Units
In June 2020, we issued 6,153,846 common units in a private placement offering for net proceeds of approximately $190.8 million, net of $9.2 million of issuance costs.
Hamlet Drop-Down
On April 2, 2019, we acquired from our sponsor all of the Class B units of Enviva Wilmington Holdings, LLC (the “Hamlet JV,” and such acquisition, the “Hamlet Drop-Down”). We are the managing member of the Hamlet JV, which is partially owned by John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (collectively, where applicable, “John Hancock”).
The Hamlet JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and loadowns a wood pellets from the First Hancock JV’s proposedpellet production plant in Hamlet, North Carolina (the “Hamlet plant”) whenand has a firm 15-year take-or-pay off-take contract to supply a customer with nearly 1.0 million MTPY of wood pellets following a ramp period through 2034. Prior to the First HancockHamlet Drop-Down, we already had off-take contracts with the Hamlet JV completes constructionto supply 470,000 MTPY of the volumes to be delivered pursuant to the 1.0 million MTPY contract; consequently, we acquired 500,000 MTPY in
incremental product sales volumes in connection with the Hamlet Drop-Down. The Hamlet plant became operational during the second quarter of 2019.
We accounted for the Hamlet JV as a consolidated subsidiary, not as a joint venture, following the Hamlet Drop-Down on April 2, 2019. We included all accounts of the Hamlet plant. The WilmingtonJV in our consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in the Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirementsJV. We are not met. Pursuantgenerally unrestricted in managing the assets and cash flows of the Hamlet JV; however, certain decisions, such as those relating to the Wilmington Contribution Agreement, following noticeissuance and redemption of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV would enter into the Wilmington Hamlet TSA and the Partnership would make a final payment of $74.0 million in cash or common units representing limited partnershipequity interests in the Partnership (“common units”) to the First HancockHamlet JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down.Wilmington also entered into a throughput option agreement with the sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by oneguarantees of indebtedness and fundamental changes, including mergers and acquisitions, asset sales and liquidation and dissolution of the sponsor’s potential wood pellet production plants.
SeniorHamlet JV, require the approval of the members of the Hamlet JV. For more information regarding the Hamlet Drop-Down, see Note 1,
Description of Business and Basis of Presentation-Basis of Presentation-Enviva Wilmington, Holdings, LLC and Note 15, Related-Party Transactions-Drop-Down Agreements-Hamlet Drop-Down. 2026 Notes
Due 2021On November 1, 2016,
During December 2019, we issued
$300.0$600.0 million in
aggregate principal amount of
8.5% senior unsecured notes due November 1, 2021 (the “Senior Notes”) to eligible purchasersthe 2026 Notes in
a private
placement transaction. In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that the registered notes are not subject to restrictions on transfer).On October 10, 2017, we completed the issuance to an institutional investor in a private placement transaction of an additional $55.0 million in aggregate principal amount of Senior Notes at a price of 106.25% of par plus accrued interest from May 1, 2017. The additional Senior Notes have the same terms as our outstanding Senior Notes. The sale of the additional Senior Notes at a purchase price of $58.4 million resulted in gross proceeds of approximately $60.0 million after including accrued interest of $2.1 million and deducting estimated expenses of approximately $0.5 million. The net proceeds were used to repay the borrowings on our revolving credit facility that were used to fund the Wilmington Drop-Down and for general partnership purposes.
In December 2017, the holder of 100% of the additional Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the additional Senior Notes (except that the registered notes are not subject to restrictions on transfer). The additional Senior Notes will be treated together with the outstanding Senior Notes as a single class for all purposes under the Indenture.
Sale of the Wiggins Plant
In December 2016, we initiated a plan to sell our 110,000 MTPY production plant located in Wiggins, Mississippi and related assets (the “Wiggins plant”). We sold the Wiggins plant to a third-party buyer for a purchase price of $0.4 million on December 27, 2017, and on December 28, 2017, Enviva Pellets Wiggins, LLC (“Wiggins”), the owner of the Wiggins plant, was dissolved. We recorded a loss on the sale of $0.8 million, net, upon deconsolidation.
At‑the‑Market Offering Program
On August 8, 2016, we filed a prospectus supplement to our shelf registration filed with the U.S. Securities Exchange Act Commission (“SEC”) on June 24, 2016, for the continuous offering of up to $100.0 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings. In August 2016, we also entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
During the years ended December 31, 2017 and 2016, we sold 71,368 and 358,593, respectively, under the Equity Distribution Agreement for net proceeds of $1.9 million, net of an insignificant amount of commissions, during 2017, and net proceeds of $9.3 million, net of $0.1 million of commissions, during 2016. Accounting and other fees of approximately $0.2 million were offset against the proceeds during 2017. Deferred issuance costs of approximately $0.4 million, primarily consisting of legal, accounting and other fees, were offset against the proceeds during 2016. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of February 16, 2018, $88.6 million of common units remained available for issuance under the ATM Program.
How We Evaluate Our Operations
Adjusted Gross Margin per Metric Ton
We use adjusted gross margin per metric ton to measure our financial performance. We define adjusted gross margin as gross margin excluding asset disposals and depreciation and amortization included in cost of goods sold. We believe adjusted gross margin per metric ton is a meaningful measure because it compares our revenue‑generating activities to our operating costs for a view of profitability and performance on a per metric ton basis. Adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our production plants and the production and distribution of wood pellets.
Adjusted EBITDA
We view adjusted EBITDA as an important indicator of our financial performance. We define adjusted EBITDA as net income or loss excluding depreciation and amortization, interest expense, income tax expense, early retirement of debt obligations, non‑cash unit compensation expense, asset impairments and disposals, changes in the fair value of derivative instruments and certain items of income or loss that we characterize as unrepresentative of our ongoing operations. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, such as investors, commercial banks and research analysts, to assess the financial performance of our assets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures and interest expense net of amortization of debt issuance costs, debt premium and original issue discounts. We use distributable cash flow as a performance metric to compare the cash‑generating performance of the Partnership from period to period and to compare the cash‑generating performance for specific periods to the cash distributions (if any) that are expected to be paid to our unitholders. We do not rely on distributable cash flow as a liquidity measure.
Non‑GAAP Financial Measures
Adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted in the United States (“GAAP”). We believe that the presentation of these non‑GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations. Our non‑GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measures. Each of these non‑GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider adjusted gross margin per metric ton, adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP.
Our definitions of these non‑GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Please read Part II, Item 6. “Selected Financial Data—Non‑GAAP Financial Measures” for a reconciliation of each of adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow to the most directly comparable GAAP financial measure.
Factors Impacting Comparability of Our Financial Results
Our future results of operations and cash flows may not be comparable to our historical consolidated results of operations and cash flows, principally for the following reasons:
Our sponsor contributed its interest in Wilmington to us on October 2, 2017.Our consolidated financial statements have been retroactively recast to reflect the contribution of our sponsor’s interest in Wilmington as if the contribution had occurred on May 15, 2013, the date Wilmington was originally organized. The recast amounts for the years ended December 31, 2017, 2016 and 2015 primarily include general and administrative expenses associated with terminal development costs incurred during the construction of the Wilmington terminal. We do not expect to incur these costs going forward as the terminal began operations during the fourth quarter of 2016. The amount paid in excess of historical cost is recorded as a deemed dividend to the General Partner.
We increased our production capacity with the Sampson Drop-Down and began deliveries under a new long‑term off‑take contract in December 2016. In connection with the Sampson Drop‑Down, the First Hancock JV assigned to us a ten‑year, take‑or‑pay off‑take contract with Ørsted (the “Ørsted Contract”). The Ørsted Contract commenced on September 1, 2016 and provides for sales of 360,000 MTPY for the first delivery year and 420,000 MTPY for years two through ten. In the fourth quarter of 2017, we entered into an amendment to the Ørsted Contract for the supply of an incremental 200,000 MT from late 2018 through mid-2021. Ørsted’s obligations under the Ørsted Contract are guaranteed by its parent, Ørsted A/S.The Ørsted Contract, accompanied by our increased production capacity from the Sampson plant, will have a material effect on our product sales and resulting gross margin.
We issued $300.0 million in aggregate principal amount of senior unsecured notes in a private placement to eligible purchasers.On November 1, 2016, we and Enviva Partners Finance Corp., a wholly owned subsidiary of the Partnership formed on October 3, 2016 for the purpose of being the co‑issuer of the notes, issued $300.0 million in aggregate principal amount of Senior Notes to eligible purchasers in a private placementplacements under Rule 144A and Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), which resulted in. We received gross proceeds of approximately $601.8 million from the offerings and net proceeds of $293.6approximately $595.8 million after deducting estimated expensescommissions and underwriting discounts of $6.4 million. On December 14, 2016, a portion ofexpenses. We used the net proceeds from the Senior Notes Offering, together with cash on hand and the issuanceofferings (1) to redeem our existing $355.0 million principal amount of 1,098,415 unregistered common units at a value of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company (U.S.A.), funded the consideration payable for the Sampson Drop‑Down. The remainder8.5% senior unsecured notes due 2021, including payment of the net proceeds from the Senior Notes Offering was usedrelated redemption premium, (2) to repay certain outstanding term loan indebtednessborrowings under our Senior Secured Credit Facilities. senior secured revolving credit facility, including payment of the related accrued interest and (3) for general partnership purposes. Interest payments are due semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2020.
As
a result, our consolidated financial statements reflect the outstanding debt and interest expense associated with the Senior Notes.Wediscussed above in “Recent Developments,” we issued $55.0an additional $150.0 million in aggregate principal amount of senior unsecured notes2026 Notes in July 2020.
How We Generate Revenue
Overview
We primarily earn revenue by supplying wood pellets to our customers under off‑take contracts, the majority of which are long-term in nature. Our off-take contracts are considered “take-or-pay” because they include a
private placementfirm obligation of the customer to
eligible purchasers. On October 10, 2017,take a fixed quantity of product at a stated price and provisions that require that we completedbe compensated in the issuancecase of a customer’s failure to an institutional investoraccept all or a part of the contracted volumes or termination of a contract by a customer. Each of our long-term off-take contracts defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per MT for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, and are subject to adjustments which may include annual inflation-based adjustments or price escalators, price adjustments for product specifications, as well as, in some instances, price adjustments due to changes in underlying indices. In addition to sales of our product under these long-term off-take contracts, we routinely sell wood pellets under shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our off-take contracts is a private placement transactionbilaterally negotiated agreement, our revenue over the duration of an additional $55.0 million in aggregate principal amountsuch contracts does not generally follow observable current market pricing trends. Our performance obligations under these contracts include the delivery of Senior Notes. The additional Senior Notes have the same terms as our outstanding Senior Notes. The additional Senior Notes will be treated together with the Senior Noteswood pellets, which are aggregated into MT. We account for each MT as a single class for all purposes underperformance obligation. Our revenue from the Indenture.The sale of the additional Senior Notes at a purchase price of $58.4 million resulted in gross proceeds of approximately $60.0 million, after including accrued interest of $2.1 million and deducting estimated expenses of approximately $0.5 million. The proceeds were used to repay borrowings on our revolving credit facility, which were used to fund the Wilmington Drop-Down, and for general partnership purposes.
In December 2017, the holder of 100%wood pellets we produce is recognized upon satisfaction of the additional Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respectsperformance obligation when control transfers to the additional Senior Notes (except thatcustomer at the registered notes are not subject to restrictions on transfer).
We repaidtime of loading wood pellets onto a portion of the Original Credit Facilities and increased the capacity of our revolving credit facility. On April 9, 2015, we entered into a credit agreement (the “Credit Agreement”) providing for a $199.5 million aggregate principal amount of senior secured credit facilities (the “Original Credit Facilities”). We entered into an
ship. assumption agreement on December 11, 2015, providing for $36.5 million of incremental term loan borrowings (the “Incremental Term Borrowings” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. In October 2016, we entered into a second amendment to the Credit Agreement (the “Second Amendment”), which became effective upon the closing of the Sampson Drop‑Down. Upon the consummation of the Sampson Drop‑Down, a portion of the net proceeds from the Senior Notes Offering, together with cash on hand, was used to repay in full the outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and to repay a portion of the outstanding principal and accrued interest on the Tranche A‑1 and Tranche A‑3 borrowings under the Senior Secured Credit Facilities. Following the consummation of the Sampson Drop‑Down and repayment of a portion of the Senior Secured Credit Facilities, the limit under our revolving credit commitments was increased from $25.0 million to $100.0 million pursuant to the Second Amendment.
Revenue and costs for deliveries to customers can vary significantly between periods depending upon the mix of customers and specific shipment and reimbursement for expenses, including the then‑current cost of fuel.Depending on the specific off‑takeoff-take contract, shipping terms under our long-term contracts are either Cost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”) or Free onOn Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping costs under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are accrued and included in the price to the customer and, as such, are included in revenue and cost of goods sold.customer. Under FOB contracts, the customer is directly responsible for shipping costs.
In some cases, we may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions (“purchase and sale transactions”). We
have entered into fixed-price shipping contracts with reputable shippers matchingtypically are the
terms and volumes of our contracts for whichprincipal in such transactions because we
are responsible for arranging shipping.How We Generate Revenue
Overview
We primarily earn revenue by supplyingcontrol the wood pellets prior to our customers under off‑take contracts, the majority of the commitments under which are long term in nature. We refer to the structure of our contracts as “take‑or‑pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensure we will be compensated in case a customer fails to accept all or a part of the contracted volumes or terminates the contract. Each contract defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per MT for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, subject to annual inflation‑based adjustments and price escalators, as well as, in some instances, price adjustments for product specifications and changes in underlying costs. In addition to sales of our product under these long‑term, take‑or‑pay contracts, we routinely sell wood pellets under shorter‑term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our contracts is a bilaterally negotiated agreement, our revenue over the duration of these contracts does not generally follow spot market pricing trends. Our revenue from the sale of wood pellets is recognized when the goods are shipped, title and risk of loss passes to the customer, the sales price to the customer is fixed and determinable, and collectability is reasonably assured.
Depending on the specific off‑take contract, shipping terms are either CIF, CFR or FOB. Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping costs under CIF and CFR contracts are included in the pricetransferring them to the customer and as such, are included intherefore recognize related revenue and cost of goods sold. Under FOB contracts, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timing and size of shipments during the year, can result in material fluctuations in our revenue recognized between periods but generally have little impact on a gross margin.
The majority of the wood pellets we supply to our customers is produced at our production plants, the sales of which are included in “Product Sales.” We also fulfill our contractual commitments and take advantage of dislocations in market supply and demand by purchasing from and selling to third‑party market participants, including, in some
cases, our customers. In these back‑to‑back transactions where titleOther Revenue
Other revenue includes fees from customers related to cancellations, deferrals or accelerations of shipments and riskthe Commercial Services.
We recognize third- and related-party terminal services revenue ratably over the contract term. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of
lossthe terminal services we perform. The consideration is generally fixed for minimum quantities and services above-minimum quantities are
immediately transferred to the ultimate purchaser, revenue is recorded net of costs paid to the third‑party supplier. This revenue is included in “Other revenue.”In some instances,generally billed based on a customer may request to cancel, defer, or accelerate a shipment. Contractually, we will seek to optimize our position by selling or purchasing the subject shipment to or from another party, including in some cases a related party, either within our contracted off‑take portfolio or as an independent transaction on the spot market. In most instances, the original customer pays us a fee, including reimbursement of any incremental costs, which is included in “Other revenue.”
per-MT rate.
As of February
15, 2018,1, 2021, we had approximately
$5.8$14.6 billion of product sales backlog for firm
and contingent contracted product sales to
power generatorsour long-term off-take customers and have a total weighted-average remaining term of 12.8 years compared to approximately
$5.7$10.6 billion
and a total weighted-average remaining term of 11.4 years as of February 1,
2017. Backlog2020. Contracted backlog represents the revenue to be recognized under existing contracts assuming deliveries occur as specified in the
contract.contracts. Contracted future product sales denominated in foreign currencies, excluding revenue hedged with foreign currency forward contracts, are included in U.S. Dollars at February 1,
20182021 forward rates.
The contracted backlog includes forward prices including inflation, foreign currency and commodity prices. The amount also includes the effects of related foreign currency derivative contracts. Please read Part II, Item 8. “Financial Statements and Supplementary Data—Derivative Instruments” for more information regarding our foreign currency forward contracts.
Our expected future product sales revenue under our contracted backlog as of February 15, 20181, 2021 is as follows (in millions):
| | | |
Period from February 15, 2018 to December 31, 2018 | | $ | 523 |
Year ending December 31, 2019 | | | 582 |
Year ending December 31, 2020 and thereafter | | | 4,691 |
Total product sales contracted backlog | | $ | 5,796 |
| | | | | |
| Period from February 1, 2021 to December 31, 2021 | $ | 1,033 | |
| Year ending December 31, 2022 | 1,274 | |
| Year ending December 31, 2023 and thereafter | 12,284 | |
| Total product sales contracted backlog | $ | 14,591 | |
Assuming all volumes under the firm and contingent off-take contracts held by our sponsor were included with our product sales contracted backlog for firm and contingent contracted product sales, the total weighted-average remaining term as of February 1, 2021 would increase to 14.0 years and product sales contracted backlog would increase to $19.9 billion as follows (in millions):
| | | | | |
| Period from February 1, 2021 to December 31, 2021 | $ | 1,032 | |
| Year ending December 31, 2022 | 1,325 | |
| Year ending December 31, 2023 and thereafter | 17,537 | |
| Total product sales contracted backlog | $ | 19,894 | |
Included in the product sales contracted backlog above are $2.9 billion of contingent contracts held by our sponsor.
Costs of Conducting Our Business
Cost of goods sold includes the costs to produce and deliver our wood pellets to
customers.customers, reimbursable shipping-related costs associated with specific off-take contracts with CIF or CFR shipping terms and costs associated with purchase and sale transactions. The
principalprimary expenses incurred to produce and deliver our wood pellets consist of raw material, production and distribution costs.
We have strategically located our plants in the
SoutheasternMid-Atlantic and Gulf Coast regions of the United States,
a region with plentifulgeographic areas in which wood fiber
resources.sources are plentiful and readily available. We
have short-term and long-term contracts to manage the supply of raw materials into our
plants through a mixture of short‑term and long‑term contracts.plants. Delivered wood fiber costs include stumpage as well as harvesting, transportation and, in some cases, size reduction services provided by our suppliers. The majority of our product volumes are sold under off-take contracts that include cost
pass‑throughpass-through mechanisms to mitigate increases in raw material and distribution costs.
Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off‑takeoff-take contracts include price escalators that mitigate inflationary pressure
on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from
our sponsorthird- and
third‑partyrelated-party wood pellet producers.
Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our deep-water terminals have allowed for the efficient and cost‑effectivecost-effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long‑term, fixed‑pricelong-term, fixed-price shipping contracts with reputable shippers matching the terms and volumes of our off‑takeoff-take contracts pursuant to which we are responsible for arranging shipping. Certain of our off‑takeoff-take contracts include
pricing adjustments for volatility in fuel prices, which allow us to pass the majority of the fuel price riskprice-risk associated with shipping through to our customers.
Additionally, as deliveries
Costs associated with purchase and sale transactions are
made, we amortize the purchase priceincluded in cost of
acquired customer contracts that were recorded as intangible assets during the applicable contract term.goods sold.
Raw material, production and distribution costs associated with delivering our wood pellets to our owned and leased marine terminals and
related-third- and
third‑partyrelated-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the
facilities.production plants. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping our wood pellets to our customers
and amortization of favorable acquired customer contracts are expensed as incurred. Our inventory is recorded using the first-in, first-out method (“FIFO”)
, which requires the use of judgment and estimates.. Given the nature of our inventory, the calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
Recoveries from customers for certain costs incurred at the discharge port under our off-take contracts are not considered a part of the transaction price, and therefore are excluded from product sales and included as an offset to cost of goods sold.
General and Administrative Expenses
We and our General Partner are party to
a Management Services Agreement (the “MSA”) with Enviva Management.the MSAs. Under the
MSA,MSAs, direct or indirect internal or
third‑partythird-party expenses incurred are either directly identifiable or allocated to us.
Enviva ManagementOur sponsor estimates the percentage of employee salaries and related benefits,
third‑partythird-party costs, office rent and expenses and any other overhead costs to be provided to us. Each month,
Enviva Managementour sponsor allocates the actual costs
accumulated in the financial accounting systemincurred using these estimates.
Enviva ManagementOur sponsor also charges us for any directly identifiable costs such as goods or services provided at our request. We believe
Enviva Management’sour sponsor’s assumptions and allocations have been made on a reasonable basis and are the best estimate of the costs that we would have incurred on a
stand‑alonestand-alone basis.
How We Evaluate Our consolidatedOperations
Adjusted Net Income
We define adjusted net income as net income excluding interest expense associated with incremental borrowings related to a fire that occurred in February 2018 at the Chesapeake terminal (the “Chesapeake Incident”) and Hurricanes Florence and Michael (the “Hurricane Events”), early retirement of debt obligation and acquisition and integration costs, adjusting for the effect of certain sales and marketing, scheduling, sustainability, consultation, shipping, and risk management services (collectively, “Commercial Services”), and including certain non-cash waivers of fees for management services provided to us by our sponsor (collectively, “MSA Fee Waivers”). We believe that adjusted net income enhances investors’ ability to compare the past financial performance of our underlying operations with our current performance separate from certain items of gain or loss that we characterize as unrepresentative of our ongoing operations.
Adjusted Gross Margin and Adjusted Gross Margin per Metric Ton
We define adjusted gross margin as gross margin excluding asset impairment and disposals, depreciation and amortization, changes in unrealized derivative instruments related to hedged items included in gross margin, non-cash unit compensation expenses and acquisition and integration costs, adjusting for the effect of Commercial Services and including MSA Fee Waivers. We define adjusted gross margin per metric ton as adjusted gross margin per metric ton of wood pellets sold. We believe adjusted gross margin and adjusted gross margin per metric ton are meaningful measures because they compare our revenue-generating activities to our operating costs for a view of profitability and performance on a total-dollar and a per-metric ton basis. Adjusted gross margin and adjusted gross margin per metric ton will primarily be affected by our ability to meet targeted production volumes and to control direct and indirect costs associated with procurement and delivery of wood fiber to our wood pellet production plants and our production and distribution of wood pellets.
Adjusted EBITDA
We define adjusted EBITDA as net income excluding depreciation and amortization, interest expense, income tax expense (benefit), early retirement of debt obligation, non-cash unit compensation expense, asset impairments and disposals, changes in unrealized derivative instruments related to hedged items included in gross margin and other income and expense,and acquisition and integration costs, adjusting for the effect of Commercial Services, and including MSA Fee Waivers. Adjusted EBITDA is a supplemental measure used by our management and other users of our financial statements, have been recastsuch as investors, commercial banks and research analysts, to reflectassess the contributionfinancial performance of our sponsor’sassets without regard to financing methods or capital structure.
Distributable Cash Flow
We define distributable cash flow as adjusted EBITDA less maintenance capital expenditures, cash income tax expenses and interest in Wilmingtonexpense net of amortization of debt issuance costs, debt premium, original issue discounts, interest expense associated with the redemption of the $355.0 million of aggregate principal amount of 6.5% senior unsecured notes due 2021 (the “2021 Notes”) and the impact from incremental borrowings related to the Chesapeake Incident and Hurricane Events. We use distributable cash flow as ifa performance metric to compare our cash-generating performance from period to period and to compare the contribution had occurred on May 15, 2013,cash-generating performance for specific periods to the date Wilmington was originally organized.cash distributions (if any) that are expected to be paid to our unitholders. We do not develop plants or ports withinrely on distributable cash flow as a liquidity measure.
Limitations of Non-GAAP Financial Measures
Adjusted net income, adjusted gross margin, adjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with accounting principles generally accepted in the PartnershipUnited States (“GAAP”). We believe that the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition and therefore we doresults of operations. Our non-GAAP financial measures should not incur startup and commissioning costs or overhead costs related to construction activities. Priorbe considered as alternatives to the consummationmost directly comparable GAAP financial measures. Each of these non-GAAP financial measures has important limitations as an analytical tool because they exclude some, but not all, items that affect the Wilmington Drop‑Down, Wilmington incurred generalmost directly comparable GAAP financial measures. You should not consider adjusted net income, adjusted gross margin, adjusted gross margin per metric ton, adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP.
Our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Please see below for a reconciliation of each of adjusted net income, adjusted gross margin and
administrative costs relatedadjusted gross margin per metric ton, adjusted EBITDA and distributable cash flow to
development activities which included startup and commissioning activities prior to beginning production as well as incremental overhead costs related to construction activities. We do not expect to incur these costs going forward.the most directly comparable GAAP financial measure.
Year Ended December 31, 20172020 Compared to Year Ended December 31, 20162019 | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 |
| (in thousands) |
| Product sales | $ | 830,528 | | | $ | 674,251 | | | $ | 156,277 | |
Other revenue (1) | 44,551 | | | 10,142 | | | 34,409 | |
| Net revenue | 875,079 | | | 684,393 | | | 190,686 | |
Cost of goods sold(1) | 684,863 | | | 549,701 | | | 135,162 | |
| Loss on disposal of assets | 6,978 | | | 3,103 | | | 3,875 | |
| Depreciation and amortization | 76,115 | | | 50,521 | | | 25,594 | |
| Total cost of goods sold | 767,956 | | | 603,325 | | | 164,631 | |
| Gross margin | 107,123 | | | 81,068 | | | 26,055 | |
| General and administrative expenses | 12,800 | | | 6,932 | | | 5,868 | |
| Related-party management services agreement fee | 32,545 | | | 29,457 | | | 3,088 | |
| Total general and administrative expenses | 45,345 | | | 36,389 | | | 8,956 | |
| Income from operations | 61,778 | | | 44,679 | | | 17,099 | |
| Interest expense | (44,902) | | | (39,344) | | | (5,558) | |
| Early retirement of debt obligation | — | | | (9,042) | | | 9,042 | |
| Other income | 273 | | | 764 | | | (491) | |
| Net income (loss) before income tax expense | 17,149 | | | (2,943) | | | 20,092 | |
| Income tax expense | 69 | | | — | | | 69 | |
| Net income (loss) | $ | 17,080 | | | $ | (2,943) | | | $ | 20,023 | |
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 15, Related-Party Transactions” |
| | | | | | | | | |
| | | | |
| | Year Ended | | |
| | December 31, | | |
| | 2017 | | 2016 (Recast) | | Change |
| | (in thousands) |
Product sales | | $ | 522,250 | | $ | 444,489 | | $ | 77,761 |
Other revenue (1) | | | 20,971 | | | 19,787 | | | 1,184 |
Net revenue | | | 543,221 | | | 464,276 | | | 78,945 |
Cost of goods sold, excluding depreciation and amortization (1) | | | 419,616 | | | 357,418 | | | 62,198 |
Loss on disposal of assets | | | 4,899 | | | 2,386 | | | 2,513 |
Depreciation and amortization | | | 39,904 | | | 27,700 | | | 12,204 |
Total cost of goods sold | | | 464,419 | | | 387,504 | | | 76,915 |
Gross margin | | | 78,802 | | | 76,772 | | | 2,030 |
General and administrative expenses (1) | | | 30,107 | | | 33,098 | | | (2,991) |
Disposal and impairment of assets held for sale | | | 827 | | | 9,991 | | | (9,164) |
Total general and administrative | | | 30,934 | | | 43,089 | | | (12,155) |
Income from operations | | | 47,868 | | | 33,683 | | | 14,185 |
Interest expense | | | (31,744) | | | (15,643) | | | (16,101) |
Related-party interest expense | | | — | | | (578) | | | 578 |
Early retirement of debt obligation | | | — | | | (4,438) | | | 4,438 |
Other (expense) income | | | (1,751) | | | 439 | | | (2,190) |
Net income | | | 14,373 | | | 13,463 | | | 910 |
Less net loss attributable to noncontrolling partners’ interests | | | 3,140 | | | 5,804 | | | (2,664) |
Net income attributable to Enviva Partners, LP | | $ | 17,513 | | $ | 19,267 | | $ | (1,754) |
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions | | | | | | | | | |
Product sales
Revenue related to product sales
(eitherfor wood pellets produced
or procured by us
or procured from a third party) increased to
$522.3$830.5 million in
20172020 from
$444.5$674.3 million in
2016.2019. The
$77.8$156.3 million,
or 23%, increase was
largelyprimarily attributable to
greatera 22% increase in product sales volumes
primarily relating to tons sold underfor the
contract acquired in connection with the Sampson Drop-Down. In 2017, we sold 2,724,000 MT of wood pelletsyear ended December 31, 2020 as compared to
2,346,000 in 2016, a 16% increase.Other revenue
the year ended December 31, 2019.
Other revenue for the year ended December 31, 2020 included $32.5 million in payments to us for adjusting deliveries under our take-or-pay off-take contracts, which otherwise would have been included in product sales. Other revenue also included $4.1 million from the Commercial Services during the year ended December 31, 2020. The $32.5 million and $4.1 million in other revenue was recognized under a breakage model based on when the pellets would have been loaded.
Cost of goods sold
Total cost of goods sold increased to
$21.0$768.0 million for the year ended December 31,
2017 compared to $19.82020 from $603.3 million for the year ended December 31,
2016.2019, an increase of $164.6 million, or 27%. The
$1.2 million increase was primarily attributable to a
$2.8 million22% increase in
related-party terminal services assales volumes and a
result of4% increase in depreciation and amortization expense, mainly associated with the
Wilmington Drop-Down. Other revenue includes sales of wood pellets sourced from third-party pellet producers and delivered to our customers. In these back-to-back transactions, title and risk of loss immediately transfersrecent acquisitions, during the year ended December 31, 2020 compared to the
ultimate purchasers; accordingly, such transactions are presented on a net basis. Other revenue also includes revenue derived from terminal services.Cost of goods sold
Cost of goods sold increased to $464.4year ended December 31, 2019.
Gross margin
Gross margin was $107.1 million for the year ended December 31,
2017 from $387.52020 as compared to $81.1 million for the year ended December 31,
2016.2019, an increase of $26.1 million, or 32%. The
$76.9$26.1 million increase
in gross margin was
primarilyprincipally attributable to
ana 22% increase in
product sales volumes,
primarily offset by increases in depreciation and
depreciation expense. In 2017, there was approximately $12.6 million of incremental depreciation expense, related to machinery and equipment at the Sampson plant and Wilmington terminal. Loss on disposal of assets
We incurred $4.9 million and $2.4 million ofamortization expense associated with the disposal of assetsrecent acquisitions, during the yearsyear ended December 31, 2017 and 2016, respectively, which was primarily attributable2020 as compared to the disposal of assets replaced in connection with growth and maintenance capital projects at two of our plants.
Gross margin
We earned gross margin of $78.8 million and $76.8 million for the yearsyear ended December 31, 2017 and 2016, respectively. The2019.
Adjusted gross margin increase of $2.0 million was primarily attributable to the following: | ·
| | A $14.2 million increase in gross margin due to higher sales volumes. Our wood pellet sales volumes increased by approximately 378,000 MT during 2017 as compared to 2016, representing a 16% increase, which is principally attributable to sales under the contract acquired in connection with the Sampson Drop-Down.
|
| ·
| | A $1.4 million increase in gross margin during 2017 as compared to 2016 due primarily to lower raw material costs during 2017 as compared to 2016.
|
| ·
| | A $0.8 million increase in gross margin due to lower amortization costs as acquired contracts reach the end of their respective contract terms.
|
Offsetting the above was:
| ·
| | An increase in depreciation expense during 2017, which decreased gross margin by $13.0 million as compared to 2016. The increase in depreciation expense primarily related to machinery and equipment at the Sampson plant and Wilmington terminal.
|
| ·
| | An increase of $2.5 million in loss on the disposal of assets during 2017, which is primarily attributable to the disposal of assets replaced in connections with growth and maintenance capital projects at our wood pellet production plants.
|
| ·
| | A $0.4 million decrease in gross margin due to the mix of customer and shipping contracts during 2017 as compared to 2016.
|
Adjustedand adjusted gross margin per metric ton
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | Change |
| (in thousands, except per metric ton) |
| Reconciliation of gross margin to adjusted gross margin and adjusted gross margin per metric ton: | | | | | |
| Gross margin | 107,123 | | | 81,068 | | | 26,055 | |
| Asset impairments and disposals | 6,978 | | | 3,103 | | | 3,875 | |
| Non-cash unit compensation expense | 2,024 | | | — | | | 2,024 | |
| Depreciation and amortization | 76,115 | | | 50,521 | | | 25,594 | |
| Changes in unrealized derivative instruments | 4,328 | | | 4,588 | | | (260) | |
| MSA Fee Waivers | 10,913 | | | 5,000 | | | 5,913 | |
| Acquisition and integration costs and other | 1,510 | | | 3,211 | | | (1,701) | |
| Commercial Services | (4,139) | | | 4,139 | | | (8,278) | |
| Adjusted gross margin | 204,852 | | | 151,630 | | | 53,222 | |
| Metric tons sold | 4,332 | | | 3,564 | | | 768 | |
| Adjusted gross margin per metric ton | $ | 47.29 | | | $ | 42.54 | | | $ | 4.74 | |
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2017 | | 2016 (Recast) | | Change |
| | (in thousands except per metric ton) |
Metric tons sold | | | 2,724 | | | 2,346 | | | 378 |
Gross margin | | $ | 78,802 | | $ | 76,772 | | $ | 2,030 |
Loss on disposal of assets | | | 4,899 | | | 2,386 | | | 2,513 |
Depreciation and amortization | | | 39,904 | | | 27,700 | | | 12,204 |
Adjusted gross margin | | $ | 123,605 | | $ | 106,858 | | $ | 16,747 |
Adjusted gross margin per metric ton | | $ | 45.38 | | $ | 45.55 | | $ | (0.17) |
We earned an adjusted gross margin of $123.6$204.9 million, or $45.38$47.29 per metric ton,MT, for the year ended December 31, 2017 and an adjusted gross margin of $106.92020 compared to $151.6 million, or $45.55$42.54 per metric ton,MT, for the year ended December 31, 2016.2019. The factors impactingincrease in adjusted gross margin are detailedwas primarily due to factors discussed above under the heading “Gross margin.”
Adjusted gross margin for the year ended December 31, 2019 excludes $4.3 million of incremental costs, which are unrepresentative of our ongoing operations, in connection with our evaluation of a third-party wood pellet production plant we considered purchasing (the “Potential Target”). When we commenced our review, the Potential Target had recently returned to operations following an extended shutdown during a bankruptcy proceeding with the intent of demonstrating favorable operations prior to proceeding to an auction sale process; however, the Potential Target had not yet established a logistics chain through a viable export terminal, given that the terminal through which the plant historically had exported was not operational at the time and was not reasonably certain to become operational in the future. Accordingly, as part of our diligence of the Potential Target, we developed an alternative logistics chain to bring the Potential Target’s wood pellets to market and began purchasing the production of the Potential Target for a trial period. The incremental costs associated with the establishment and evaluation of this new logistics chain primarily consist of barge, freight, trucking, storage and shiploading services. We have completed our evaluation of the alternative logistics chain and, therefore, do not expect to incur additional costs of this nature in the future.
During the quarter ended December 31, 2019, we received a non-refundable payment of $5.6 million from a customer in consideration for our performance during the quarter of certain sales and marketing, scheduling, sustainability, consultation, shipping and risk management services (collectively, “Commercial Services”) that were outside of the scope of our existing take-or-pay off-take contract. The customer had requested the Commercial Services, among other things, in order to avoid its exposure to market price volatility associated with its anticipated failure to take required deliveries of certain wood pellet volumes during the fourth quarter of 2019 and first half of 2020 pursuant to the off-take contract. The Commercial Services had a value to the customer of $5.6 million. We included the entire non-refundable payment of $5.6 million in our publicly stated guidance for 2019 in our press release issued October 30, 2019.Under GAAP, we recognized $1.5 million of the $5.6 million payment as revenue during the fourth quarter of 2019, under the breakage model of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), and recorded the remaining $4.1 million as deferred revenue as of December 31, 2019, which was recognized as revenue during the first six months of 2020 in accordance with the original product sales schedule under the off-take contract. For presentation of our non-GAAP measures, we included the $4.1 million in adjusted net income, adjusted gross margin, adjusted gross margin per MT and adjusted EBITDA for the year ended December 31, 2019 as such amount relates to our performance of certain Commercial Services, which we completed and for which we were compensated in 2019. The $4.1 million increased adjusted net income, adjusted gross margin per MT and adjusted EBITDA for the year ended December 31, 2019 and decreased such measures by an equal amount during the first six months of 2020.
General and administrative expenses
General
Total general and administrative expenses were
$30.1$45.3 million for the year ended December 31,
20172020 and
$33.1$36.4 million for the year ended December 31,
2016. During the year ended December 31, 2017,2019. The $9.0 million increase in total general and administrative expenses
included allocated expenses of $14.6 million that were incurred under the MSA, $0.2 million related to development activities prior to the Wilmington Drop-Down, $6.7 million of direct expenses, $5.0 million of non‑cash unit compensation expenseis primarily associated with
unit‑based awardsincreased acquisition and
$3.5 million related to acquisition transaction expenses. During the year ended December 31, 2016, we incurred $14.2 million under the MSA, $2.4 million and $7.0 million related to development activities prior to the Wilmington Drop-Down and the Sampson Drop‑Down, respectively, $4.5 million of direct expenses, $4.2 million of non‑cash unit compensation expense associated with unit‑based awards, and $0.8 million of expenses related to acquisition transaction expenses.Disposal and impairment of assets held for sale
During the year ended December 31, 2017, we recorded a loss on the sale of $0.8 million, net, upon deconsolidation of the Wiggins plant. For more information, please read “—Recent Developments—Sale of Wiggins Plant” above. During the year ended December 31, 2016, we incurred a $10.0 million non-cash impairment charge related to the sale of the Wiggins plant.
integration costs.
We incurred
$31.7$44.9 million of interest expense during the year ended December 31,
20172020 and
$15.6$39.3 million during the year ended December 31,
2016.2019. The increase in interest expense from the prior year was primarily attributable to
ouran increase in
long‑term debt outstanding. Please read “—Senior Notes Due 2021” below.Related-party interest expense
On December 11, 2015, under our Senior Secured Credit Facilities, we obtained incremental borrowings in the amount of $36.5 million and Enviva FiberCo, LLC,as a wholly owned subsidiaryresult of our sponsor (“FiberCo”), became a lender with the purchase of $15.0 million aggregate principal amount of the incremental borrowings. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. During 2016, we incurred $0.4 million of related-party interest expense associated with this related-party debt. We did not incur related‑party interest expense during 2017. Please read “—Senior Secured Credit Facilities” below.
Early retirement of debt obligation
We incurred a $4.4 million chargeacquisitions during the year ended December 31, 20162020 compared to the year ended December 31, 2019.
Early retirement of debt obligation
In 2019, we redeemed all $355.0 million of aggregate principal amount of 2021 Notes and recognized a $9.0 million loss in early retirement of debt obligation consisting of a $7.5 million debt redemption premium and $1.5 million for the
partial write‑offwrite-off of
unamortized debt issuance costs,
and original issue discount
associated with the existing Senior Secured Credit Facilities.and premium. The amounts were amortized over the term of the
debt2021 Notes and were expensed
onin December
14, 20162019 when we repaid
$158.1$355.0 million
outstanding underof aggregate principal amount of the
existing Senior Secured Credit Facilities.Other (expense)2021 Notes.
Income Tax
We incurred $0.1 million of income
Certain cash flow hedges tax expense during the year ended December 31, 2020 related to foreign currency exchange risk previously designated as hedges ceased to qualify for hedge accounting treatment and we discontinued hedge accounting for such hedge transactions on December 31, 2017. A $1.6 million loss includedan entity acquired in accumulated other comprehensivethe Georgia Biomass Acquisition.
Adjusted net income was reclassified to other expense. | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | Change |
| (in thousands) |
| Reconciliation of net income (loss) to adjusted net income: | | | | | |
| Net income (loss) | $ | 17,080 | | | $ | (2,943) | | | $ | 20,023 | |
| Acquisition and integration costs and other | 7,407 | | | 4,411 | | | 2,996 | |
| MSA Fee Waivers | 23,400 | | | 22,600 | | | 800 | |
| Interest expense from incremental borrowings related to Chesapeake Incident and Hurricane Events | 2,211 | | | 1,705 | | | 506 | |
| Early retirement of debt obligation | — | | | 9,042 | | | (9,042) | |
| Commercial Services | (4,139) | | | 4,139 | | | (8,278) | |
| Adjusted net income | $ | 45,959 | | | $ | 38,954 | | | $ | 7,005 | |
Adjusted EBITDA
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2017 | | 2016 (Recast) | | Change |
| | (in thousands) |
Reconciliation of adjusted EBITDA to net income: | | | | | | | | | |
Net income | | $ | 14,373 | | $ | 13,463 | | $ | 910 |
Add: | | | | | | | | | |
Depreciation and amortization | | | 40,361 | | | 27,735 | | | 12,626 |
Interest expense | | | 31,744 | | | 16,221 | | | 15,523 |
Early retirement of debt obligation | | | — | | | 4,438 | | | (4,438) |
Non-cash unit compensation expense | | | 5,014 | | | 4,230 | | | 784 |
Asset impairments and disposals | | | 5,726 | | | 12,377 | | | (6,651) |
Changes in the fair value of derivative instruments | | | 1,565 | | | — | | | 1,565 |
Transaction expenses | | | 3,598 | | | 827 | | | 2,771 |
Adjusted EBITDA | | $ | 102,381 | | $ | 79,291 | | $ | 23,090 |
We generated adjusted EBITDAnet income of $102.4$46.0 million for the year ended December 31, 20172020 compared to $79.3$39.0 million for the year ended December 31, 2016.2019. The $23.1 million increase in net income and adjusted EBITDAnet income for the year ended December 31, 2020 was attributable to the $16.7 million increase in adjusted gross margin described above and a decrease in general and administrative expenses primarily attributable to the $2.4 million and $7.0factors described below under the heading “Adjusted EBITDA,” offset by approximately $6.5 million of development activities relatedacquisition and integration costs and approximately $23.0 million of incremental depreciation, amortization and interest expenses mainly associated with the recent acquisitions, as well as changes in certain non-cash expenses.
Adjusted EBITDA | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | |
| 2020 | | 2019 | | Change |
| (in thousands) |
| Reconciliation of net income (loss) to adjusted EBITDA: | | | | | |
| Net income (loss) | $ | 17,080 | | | $ | (2,943) | | | $ | 20,023 | |
| Add: | | | | | |
| Depreciation and amortization | 77,471 | | | 51,581 | | | 25,890 | |
| Interest expense | 44,902 | | | 39,344 | | | 5,558 | |
| Early retirement of debt obligation | — | | | 9,042 | | | (9,042) | |
| Non-cash unit compensation expense | 12,798 | | | 5,410 | | | 7,388 | |
| Income tax expense | 69 | | | — | | | 69 | |
| Asset impairments and disposals | 6,978 | | | 3,103 | | | 3,875 | |
| Changes in unrealized derivative instruments | 4,328 | | | 4,588 | | | (260) | |
| MSA Fee Waivers | 23,400 | | | 22,600 | | | 800 | |
| Acquisition and integration costs and other | 7,407 | | | 4,411 | | | 2,996 | |
| Commercial Services | (4,139) | | | 4,139 | | | (8,278) | |
| Adjusted EBITDA | $ | 190,294 | | | $ | 141,275 | | | $ | 49,019 | |
We generated adjusted EBITDA of $190.3 million for the year ended December 31, 2020 compared to $141.3 million for the year ended December 31, 2019. The $49.0 million increase was primarily attributable to the
Wilmington terminal and Sampson plant, respectively, incurred during 2016.factors described above under the heading “Adjusted gross margin per metric ton.”
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2017 | | 2016 (Recast) | | Change |
| | (in thousands) |
Adjusted EBITDA | | $ | 102,381 | | $ | 79,291 | | $ | 23,090 |
Less: | | | | | | | | | |
Interest expense, net of amortization of debt issuance costs, debt premium and original issue discount | | | 30,297 | | | 14,329 | | | 15,968 |
Maintenance capital expenditures | | | 4,353 | | | 5,187 | | | (834) |
Distributable cash flow attributable to Enviva Partners, LP | | | 67,731 | | | 59,775 | | | 7,956 |
Less: Distributable cash flow attributable to incentive distribution rights | | | 3,398 | | | 1,077 | | | 2,321 |
Distributable cash flow attributable to Enviva Partners, LP limited partners | | $ | 64,333 | | $ | 58,698 | | $ | 5,635 |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | Change |
| (in thousands) |
| Adjusted EBITDA | $ | 190,294 | | | $ | 141,275 | | | $ | 49,019 | |
| Less: | | | | | |
| Interest expense, net of amortization of debt issuance costs, debt premium, original issue discount, interest expense on the redemption of the 2021 Notes in 2019, and impact from incremental borrowings related to Chesapeake Incident and Hurricane Events | 40,786 | | | 35,893 | | | 4,893 | |
| Maintenance capital expenditures | 7,952 | | | 6,922 | | | 1,030 | |
| Distributable cash flow attributable to Enviva Partners, LP | 141,556 | | | 98,460 | | | 43,096 | |
| Less: Distributable cash flow attributable to incentive distribution rights | 26,917 | | | 11,439 | | | 15,478 | |
| Distributable cash flow attributable to Enviva Partners, LP limited partners | $ | 114,639 | | | $ | 87,021 | | | $ | 27,618 | |
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 (Recast) | | 2015 (Recast) | | Change |
| | (in thousands) |
Product sales | | $ | 444,489 | | $ | 450,980 | | $ | (6,491) |
Other revenue (1) | | | 19,787 | | | 6,394 | | | 13,393 |
Net revenue | | | 464,276 | | | 457,374 | | | 6,902 |
Cost of goods sold, excluding depreciation and amortization (1) | | | 357,418 | | | 365,061 | | | (7,643) |
Loss on disposal of assets | | | 2,386 | | | 2,081 | | | 305 |
Depreciation and amortization | | | 27,700 | | | 30,692 | | | (2,992) |
Total cost of goods sold | | | 387,504 | | | 397,834 | | | (10,330) |
Gross margin | | | 76,772 | | | 59,540 | | | 17,232 |
General and administrative expenses (1) | | | 33,098 | | | 23,922 | | | 9,176 |
Impairment of assets held for sale | | | 9,991 | | | — | | | 9,991 |
Total general and administrative expenses | | | 43,089 | | | 23,922 | | | 19,167 |
Income from operations | | | 33,683 | | | 35,618 | | | (1,935) |
Interest expense | | | (15,643) | | | (10,558) | | | (5,085) |
Related-party interest expense | | | (578) | | | (1,154) | | | 576 |
Early retirement of debt obligation | | | (4,438) | | | (4,699) | | | 261 |
Other income (expense) | | | 439 | | | 979 | | | (540) |
Net income (loss) before income tax expense | | | 13,463 | | | 20,186 | | | (6,723) |
Income tax expense | | | — | | | 2,623 | | | (2,623) |
Net income | | | 13,463 | | | 17,563 | | | (4,100) |
Less net loss attributable to noncontrolling partners’ interests | | | 5,804 | | | 2,859 | | | 2,945 |
Net income attributable to Enviva Partners, LP | | $ | 19,267 | | $ | 20,422 | | $ | (1,155) |
(1) See Part II, Item 8. “Financial Statements and Supplementary Data—Note 13, Related-Party Transactions | | | | | | | | | |
Product sales
Revenue related to product sales (either produced by us or procured from a third party) were largely consistent for the year ended December 31, 2016 as compared to the year ended December 31, 2015.
Other revenue
Other revenue increased to $19.8 million for the year ended December 31, 2016 compared to $6.4 million for the year ended December 31, 2015. The $13.4 million increase was primarily attributable to the following:
| ·
| | A $7.2 million increase in fees received from third‑party pellet producers who had committed to purchase shipments of wood pellets from us on a short‑term basis to meet volume, quality or sustainability commitments under their customer contracts. The third‑party pellet producers cancelled shipments in return for make‑whole payments.
|
| ·
| | A $4.4 million increase in fees earned for modifications to scheduled shipments as well as shipments purchased from and sold to third‑party market participants, including, in some cases, our customers. These back‑to‑back transactions, in which title and risk of loss immediately transferred to the ultimate purchasers, are presented on a net basis.
|
| ·
| | A $1.7 million increase for a payment received from a third‑party supplier as a result of its decision to terminate a short‑term wood pellet supply agreement.
|
Cost of goods sold
Cost of goods sold decreased to $387.5 million for the year ended December 31, 2016 from $397.8 million for the year ended December 31, 2015. The $10.3 million decrease was primarily attributable to lower raw material and production costs and lower amortization expense as acquired customer contracts reach the end of their respective contract terms.
Gross margin
We earned gross margin of $76.8 million and $59.5 million for the years ended December 31, 2016 and 2015, respectively. The gross margin increase of $17.2 million was primarily attributable to the following:
| ·
| | A $13.4 million increase in Other revenues as described above.
|
| ·
| | The favorable cost position of our wood pellets, excluding production from our Sampson plant, during the year ended December 31, 2016 as compared to the year ended December 31, 2015 increased gross margin by $4.9 million. The cost improvements primarily related to increased plant utilization, lower raw material costs and lower fuel costs that reduced our to‑port logistics costs for all plants during 2016 as compared to 2015.
|
| ·
| | A $3.0 million decrease in depreciation and amortization expense during the year ended December 31, 2016 as compared to the year ended December 31, 2015 attributable to lower amortization expense as acquired customer contracts reach the end of their respective contract terms.
|
Offsetting the above was:
| ·
| | A $1.8 million decrease in estimated incremental costs to deliver a shipment that we purchased back from a customer and sold to another customer during the fourth quarter of 2016.
|
| ·
| | A $2.1 million decrease in gross margin due to the cost position of our Sampson plant during its first months of production.
|
Adjusted gross margin per metric ton
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 (Recast) | | 2015 (Recast) | | Change |
| | (in thousands except per metric ton) |
Metric tons sold | | | 2,346 | | | 2,374 | | | (28) |
Gross margin | | $ | 76,772 | | $ | 59,540 | | $ | 17,232 |
Loss on disposal of assets | | | 2,386 | | | 2,081 | | | 305 |
Depreciation and amortization | | | 27,700 | | | 30,692 | | | (2,992) |
Adjusted gross margin | | $ | 106,858 | | $ | 92,313 | | $ | 14,545 |
Adjusted gross margin per metric ton | | $ | 45.55 | | $ | 38.89 | | $ | 6.66 |
We earned an adjusted gross margin of $106.9 million, or $45.55 per metric ton, for the year ended December 31, 2016 and an adjusted gross margin of $92.3 million, or $38.89 per metric ton, for the year ended December 31, 2015. The factors impacting adjusted gross margin are detailed above under the heading “Gross margin.”
General and administrative expenses
General and administrative expenses were $33.1 million for the year ended December 31, 2016 and $23.9 million for the year ended December 31, 2015. During the year ended December 31, 2016, general and administrative expenses included allocated expenses of $14.2 million that were incurred under the MSA, $2.4 and $7.0 million related to development activities prior to the Wilmington Drop-Down and the Sampson Drop‑Down,
respectively, $4.5 million of direct expenses, $4.2 million of non‑cash unit compensation expense associated with unit‑based awards and $0.8 million related to acquisition transaction expenses. During the year ended December 31, 2015, we incurred $16.2 million under the MSA, $0.6 million and $1.6 million related to development activities prior to the Wilmington Drop-Down and Sampson Drop‑Down, respectively, $3.6 million of direct expenses, $0.7 million of compensation expense associated with unit‑based awards, $0.4 million of accounting, legal and other expenses related to our Reorganization activities and $0.9 million of expenses related to acquisition transaction expenses.
Impairment of assets held for sale
During the year ended December 31, 2016, we incurred a $10.0 million non‑cash impairment charge related to the sale of the Wiggins plant.
Interest expense
We incurred $15.6 million of interest expense during the year ended December 31, 2016 and $10.6 million during the year ended December 31, 2015. On November 1, 2016, the proceeds from the Senior Notes were deposited into an escrow account pending completion of the Sampson Drop‑Down. On December 14, 2016, a portion of the proceeds, together with cash on hand, were used to repay a portion of the Senior Secured Credit Facilities. As a result, we incurred interest expense on both the Senior Notes and the Senior Secured Credit Facilities during the escrow period. Please read “—Senior Notes Due 2021” below.
Related-party interest expense
We incurred $0.6 million of related-party interest expense during the year ended December 31, 2016 and $1.2 million of related-party interest expense during the year ended December 31, 2015. On December 11, 2015, under our Senior Secured Credit Facilities, we obtained incremental borrowings in the amount of $36.5 million. FiberCo became a lender with the purchase of $15.0 million aggregate principal amount of the incremental borrowing advances. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. During the year ended December 31, 2016, we incurred $0.4 million of related-party interest expense associated with this related-party debt.
In connection with the January 5, 2015 acquisition of Cottondale (formerly owned by Green Circle), the sponsor made a term advance of $36.7 million to Cottondale under a revolving note and advanced Acquisition II $50.0 million under a note payable. Cottondale repaid $4.8 million of the outstanding principal of the term advance in March 2015. As a result of the sponsor’s contribution of Acquisition II, which owned Cottondale, to the Partnership on April 9, 2015, we recorded $81.9 million of outstanding principal and $0.9 million of accrued interest related to the term advance and note payable. In connection with the closing of the IPO on May 4, 2015, we repaid the term advance and note payable outstanding principal of $81.9 million and accrued interest of $1.1 million to the sponsor. We incurred $1.1 million of related-party interest expense for the term advance and note payable for the year ended December 31, 2015.
Early retirement of debt obligation
We incurred a $4.4 million charge during the year ended December 31, 2016 for the partial write‑off of debt issuance costs and original issue discount associated with the existing Senior Secured Credit Facilities. The amounts were amortized over the term of the debt and were expensed on December 14, 2016 when we repaid $158.1 million outstanding under the existing Senior Secured Credit Facility.
We incurred a $4.7 million charge during the year ended December 31, 2015 for the write‑off of debt issuance costs and original issue discount associated with the $120.0 million aggregate principal amount of senior secured credit facilities (the “Prior Senior Secured Credit Facilities”). The amounts were amortized over the term of the debt and were expensed on April 9, 2015 when we repaid all amounts outstanding under the Prior Senior Secured Credit Facilities.
Income tax expense
During the year ended December 31, 2016, we incurred no income tax expense. During the year ended December 31, 2015, we incurred income tax expense of $2.7 million related to the separate activity of the Cottondale plant from the date of acquisition on January 5, 2015 through April 8, 2015. During this period, Green Circle was a corporate subsidiary of the predecessor entity of Acquisition II. Green Circle, which is now Cottondale, and Acquisition II were each treated as corporations for federal income tax purposes until April 7, 2015 and April 8, 2015, respectively. Prior to the contribution of Acquisition II to us on April 9, 2015, the financial results of the predecessor entity of each of Acquisition II and Green Circle were included in the consolidated federal income tax return of the tax paying entity, Acquisition I.
Adjusted EBITDA
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 (Recast) | | 2015 (Recast) | | Change |
| | (in thousands) |
Reconciliation of adjusted EBITDA to net income: | | | | | | | | | |
Net income | | $ | 13,463 | | $ | 17,563 | | $ | (4,100) |
Add: | | | | | | | | | |
Depreciation and amortization | | | 27,735 | | | 30,738 | | | (3,003) |
Interest expense | | | 16,221 | | | 11,712 | | | 4,509 |
Early retirement of debt obligation | | | 4,438 | | | 4,699 | | | (261) |
Purchase accounting adjustment to inventory | | | — | | | 697 | | | (697) |
Non-cash unit compensation expense | | | 4,230 | | | 704 | | | 3,526 |
Income tax expense | | | — | | | 2,623 | | | (2,623) |
Asset impairments and disposals | | | 12,377 | | | 2,081 | | | 10,296 |
Transaction expenses | | | 827 | | | 893 | | | (66) |
Adjusted EBITDA | | $ | 79,291 | | $ | 71,710 | | $ | 7,581 |
We generated adjusted EBITDA of $79.3 million for the year ended December 31, 2016 compared to $71.7 million for the year ended December 31, 2015. The $7.6 million improvement in adjusted EBITDA was primarily attributable to the $14.5 million increase in adjusted gross margin discussed in further detail above. Offsetting the increase to adjusted gross margin was a $7.3 million increase in general and administrative expenses related to development activities prior to the Wilmington Drop-Down and the Sampson Drop‑Down as discussed above under “—General and administrative expenses.”
Distributable cash flow
The following is a reconciliation of adjusted EBITDA to distributable cash flow:
| | | | | | | | | |
| | Year Ended December 31, | | |
| | 2016 (Recast) | | 2015 (Recast) | | Change |
| | (in thousands) |
Adjusted EBITDA | | $ | 79,291 | | $ | 71,710 | | $ | 7,581 |
Less: | | | | | | | | | |
Interest expense, net of amortization of debt issuance costs, debt premium costs and original issue discount | | | 14,329 | | | 10,106 | | | 4,223 |
Maintenance capital expenditures | | | 5,187 | | | 4,359 | | | 828 |
Distributable cash flow to Enviva Partners, LP limited partners | | | 59,775 | | | 57,245 | | | 2,530 |
Less: Distributable cash flow attributable to incentive distribution rights | | | 1,077 | | | — | | | 1,077 |
Distributable cash flow attributable to Enviva Partners, LP limited partners | | $ | 58,698 | | $ | 57,245 | | $ | 1,453 |
Liquidity and Capital Resources
Our
principal liquidity requirements for 2017 were to fund working capital, service our debt, maintain cash reserves, finance growth and maintenance capital expenditures, pay distributions and fund a portion of the Wilmington Drop‑Down. We met our liquidity needs in 2017 with a combination of funds generated through operations, net proceeds from the sales of our additional Senior Notes, borrowings under our revolving credit commitments and proceeds from the sales of common units under our ATM Program.Our principal liquidity requirements for the year ended December 31, 2016 were to fund working capital, service our debt, maintain cash reserves, finance growth and maintenance capital expenditures, pay distributions and fund a portion of the Sampson Drop‑Down. We met our liquidity needs in 2016 with a combination of funds generated through operations, net proceeds from the Senior Notes Offering, borrowings under our revolving credit commitments and proceeds from the sales of common units under our ATM Program.
We expect ourprimary sources of liquidity to include cash and cash equivalent balances, cash generated from operations, borrowings under our revolving credit commitments and, from time to time, debt and equity offerings, including under our ATM Program. We operate in a capital‑intensive industry, and ourofferings. Our primary liquidity needsrequirements are to fund working capital, service our debt, maintain cash reserves, finance plant acquisitions and plant expansion projects, finance maintenance capital expenditures and pay distributions. We believe cash on hand, cash generated from our operations and the availability of our revolving credit commitments will be sufficient to meet the short‑term working capital requirements of our business.primary liquidity requirements. However, future capital expenditures, such as expenditures made in relation to plant acquisitions and/or plant expansion projects, and other cash requirements could be higher than we currently expect as a result of various factors. For example, COVID-19 has disrupted debt and equity capital markets and could restrict our access to, or increase the cost of capital from,
public financing activities. Additionally, our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control.
Our minimum quarterly distribution is $0.4125 per common and subordinated unit per quarter, which equates to approximately $10.9 million per quarter, or approximately $43.4 million per year, based on the number of common and subordinated units outstanding as of February 16, 2018, to
Cash Distributions
To the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses. Because it isexpenses, we intend to pay to holders of our intent to distributecommon units cash distributions of at least the minimum quarterly distribution of $0.4125 per common unit per quarter, which equates to approximately $16.5 million per quarter, or approximately $66.0 million per year, based on the number of common units outstanding as of February 15, 2021.
Capital Requirements
We operate in a capital-intensive industry, which requires significant investments to maintain and upgrade existing capital. Our capital requirements primarily have consisted, and we anticipate will continue to consist, of the following:
•Maintenance capital expenditures, which are cash expenditures incurred to maintain our long-term operating income or operating capacity. These expenditures typically include certain system integrity, compliance and safety improvements; and
•Growth capital expenditures, which are cash expenditures we expect will increase our operating income or operating capacity over the long term. Growth capital expenditures include acquisitions or construction of new capital assets or capital improvements such as additions to or improvements on our existing capital assets as well as projects intended to extend the useful life of assets.
The classification of capital expenditures as either maintenance or growth is made at the individual asset level during our budgeting process and as we approve, execute and monitor our capital spending.
In 2021, we completed the construction of the Mid-Atlantic Expansions. As of December 31, 2020, we have paid approximately $120.0 million and expect to pay approximately $10.0 million during 2021.
We expect to invest a total of $28.0 million to expand the Greenwood plant’s production capacity to 600,000 MTPY. We expect to complete the expansion, which is currently underway, by year-end 2021.
We have commenced a series of projects (the “Multi-Plant Expansions”) at our Sampson plant, Hamlet plant and Cottondale plant, subject to receiving the necessary permits. We expect to invest approximately $50.0 million to de-bottleneck manufacturing processes, eliminate certain costs and increase production capacity. We expect to complete the Multi-Plant Expansions by the end of 2022.
As part of the planned expansion projects or otherwise as part of our ordinary system improvements, we will continue to invest in the purchase and installation of emissions control equipment, such as regenerative thermal oxidizers, cyclones and baghouses at our existing plants, where required for environmental compliance or as part of our environmental leadership strategy. The expenditure amounts mentioned above for the Mid-Atlantic Expansions, the Greenwood plant expansion and the Multi-Plant Expansions include the investment in emissions control equipment.
Our financing strategy is to fund acquisitions, drop-downs and major expansion projects with 50% equity and 50% debt.
Long-Term Debt
2026 Notes
On December 9 and December 12, 2019, Enviva Partners, LP, with its wholly owned subsidiary Enviva Partners Finance Corp., issued $550.0 million and $50.0 million, respectively, of the 2026 Notes in private placements under Rule 144A and Regulation S of the Securities Act of 1933, as amended, for a total combined aggregate principal amount outstanding of $600.0 million maturing in 2026. We received gross proceeds of approximately $601.8 million from the offerings and net proceeds of approximately $595.8 million after deducting commissions and expenses. We used the net proceeds from the offerings to (1) redeem our existing $355.0 million principal amount of 8.5% senior unsecured 2021 Notes, including payment of the related redemption premium, (2) repay borrowings under our senior secured revolving credit facility, including payment of the related accrued interest and (3) for general partnership purposes. Interest payments are due semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2020.
In July 2020, we issued an additional $150.0 million aggregate principal amount of the 2026 Notes at an offering price of 103.75% of the principal amount (the “Additional Notes”). We received net proceeds of approximately $153.6 million from the Additional Notes offering after deducting discounts and commissions. We used the net proceeds from the Additional Notes
offering to fund a portion of the cash consideration for the Greenwood Drop-Down and Georgia Biomass Acquisition, to repay borrowings under our revolving credit facility and for general partnership purposes.
We may redeem all or a portion of the 2026 Notes at any time at the applicable redemption price, plus accrued and unpaid interest, if any (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), and, in some cases, plus a make-whole premium.
We were in compliance with the covenants and restrictions associated with, and no events of default existed under, the indenture governing the 2026 Notes as of December 31, 2020. The 2026 Notes are guaranteed jointly and severally on a senior unsecured basis by our existing subsidiaries (excluding Enviva Partners Finance Corp.) that guarantee certain of our indebtedness and may be guaranteed by certain future restricted subsidiaries. For additional information on our senior secured credit facility, see Note 14, Long-Term Debt and Finance Lease Obligations.
2021 Notes
On December 9, 2019, we redeemed all $355.0 million of aggregate principal amount of 6.5% senior unsecured notes due 2021 (the “2021 Notes”) and recognized a $9.0 million loss on the early retirement of debt obligation consisting of a $7.5 million debt redemption premium and $1.5 million for the write-off of unamortized debt issuance costs, original issue discount and premium. The amounts were amortized over the term of the 2021 Notes and were expensed in December 2019 when we repaid $355.0 million of aggregate principal amount of the 2021 Notes. The redemption of the 2021 Notes was funded from a portion of the net proceeds from the issuance of the 2026 Notes.
Senior Secured Revolving Credit Facility
We have a $350.0 million senior secured revolving credit facility that matures on October 18, 2023.
Borrowings under the revolving credit commitments thereunder bear interest, at our option, at either a Eurodollar rate or at a base rate, in each case, plus an applicable margin. The applicable margin will fluctuate between 1.75% per annum and 3.00% per annum, in the case of Eurodollar rate borrowings, or between 0.75% per annum and 2.00% per annum, in the case of base rate loans, in each case, based on our Total Leverage Ratio (as defined in our credit agreement) at such time, with 25 basis point increases or decreases for each 0.50 increase or decrease in our Total Leverage Ratio from 2.75:1:00 to 4.75:1:00.
We are required to pay a commitment fee on the daily unused amount under the revolving credit commitments at a rate between 0.25% and 0.50% per annum.
The credit agreement contains certain covenants, restrictions and events of default. We are required to maintain (1) a maximum Total Leverage Ratio at or below 4.75 to 1.00 (or 5.00 to 1.00 during a Material Transaction Period and (2) a minimum Interest Coverage Ratio (as defined in our credit agreement) of not less than 2.25 to 1.00.
As of December 31, 2020, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the credit agreement governing our senior secured revolving credit facility. Our obligations under the senior secured revolving credit facility are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our assets; however, the senior secured revolving credit facility is not guaranteed by the Hamlet JV or secured by liens on its assets. For additional information on our senior secured revolving credit facility, see Note 14, Long-Term Debt and Finance Lease Obligations.
Seller Note
In connection with the Greenwood Drop-Down, we became a party to, and a guarantor of, a promissory note (the “Seller Note”) with a remaining principal balance of $40.0 million, which was initially recorded at its carrying value of $36.9 million. The Seller Note matures in February 2023 and has an interest rate of 2.5% per annum. Principal and related interest payments are due annually through February 2022 and quarterly thereafter.
Shelf Registration - Equity Interests in the Partnership
We filed a shelf registration statement on Form S-3 with the SEC on June 21, 2019 to allow us, from time to time, in one or more offerings, to offer and sell (1) common units onrepresenting limited partner interests in Enviva Partners, LP and (2) preferred units representing equity interests in Enviva Partners, LP. The aggregate initial offering price of all securities sold by us under the effective shelf registration statement may not exceed $500.0 million.
On June 18, 2020, we entered into a quarterly basis, we expect that we will rely upon external financing sources, including bank borrowings andCommon Unit Purchase Agreement (the “Unit Purchase Agreement”) with certain investors to sell 6,153,846 common units in a private placement at a price of $32.50 per common unit for gross proceeds of
$200.0 million (the “Private Placement”). We used the
issuancenet proceeds of
debt and equity securities,$190.8 million from the Private Placement to fund
future acquisitions and expansions.Non‑Cash Working Capital
Non‑cash working capital isa portion of the amount by which current assets, excluding cash, exceed current liabilities and is a measureconsideration for each of our ability to pay our liabilities as they become due. Our non‑cash working capital was $34.6 million at December 31, 2017 and $45.9 million at December 31, 2016. The primary components of changes in non‑cash working capital were the following:
Accounts receivable, net and related-party receivables
Accounts receivable, net and related-party receivables decreased non‑cash working capital by $1.3 million during the year ended December 31, 2017 as compared to December 31, 2016. The decrease in accounts receivable was primarily attributable to the number of shipments from our own production plants and shipments purchased and sold during December 2017. Related-party receivables at December 31, 2017 included $4.9 million due from the First Hancock JV related to the SampsonGreenwood Drop-Down and the Wilmington Drop‑Down.
Inventories
Our inventories consist of raw materials, work‑in‑process, consumable tooling and finished goods. Inventories decreased to $23.5 million at December 31, 2017 from $29.9 million at December 31, 2016. The decrease in inventory was attributable to a $5.5 million decrease in finished goods inventory dueGeorgia Biomass Acquisition.
Pursuant to the timing, volumeUnit Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the investors in connection with the closing of the Private Placement, pursuant to which we agreed to file and sizemaintain a registration statement (the “Shelf Registration Statement”) with respect to the resale of product shipmentsthe common units on the terms set forth therein. The Registration Rights Agreement also provides certain investors with customary piggyback registration rights. On July 10, 2020, we filed the Shelf Registration Statement and a $3.2 million decrease in raw material inventorieson July 20, 2020, the Shelf Registration Statement was declared effective.
At-the-Market Offering Program
Pursuant to support the reliability of our planned production
levels. The decrease in inventory was partially offset by a $2.3 million increase in consumable tooling and spare parts inventory.
Assets held for sale
Assets held for sale decreased $3.0 million at December 31, 2017. At Decemberan equity distribution agreement dated August 8, 2016, we initiatedmay offer and sell common units from time to time through a plangroup of managers, subject to sell the Wiggins plantterms and reflected $3.0 million as the carryingconditions set forth in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
We did not sell any units under the
assets heldATM Program during 2020. As of February 15, 2021, $88.4 million remained available for
sale. We soldissuance under the
Wiggins plant to a third-party buyer on December 27, 2017, and on December 28, 2017, Wiggins was dissolved and deconsolidated.Accounts payable, related-party payables, accrued liabilities and related-party accrued liabilities
The decrease in accounts payable, related-party payables, accrued liabilities and related-party accrued liabilities at December 31, 2017 as compared to December 31, 2016 increased non‑cash working capital by $3.1 million and was primarily attributable to a decrease in shipping and trading sales liabilities due to timing and volume of product shipments. Related-party payables at December 31, 2017 included $19.6 million related to the MSA, compared to $10.9 million related to the MSA at December 31, 2016. The increase is attributable to the timing of payments at year end.
Current portion of interest payable
An increase in the current portion of interest payable at December 31, 2017 compared to December 31, 2016 decreased non-cash working capital by $0.6 million. The current portion of interest payable is primarily related to
accrued interest on our Senior Notes. Please read “—Senior Notes Due 2021” below.
Current portion of long-term debt and capital lease obligations
An increase in the current portion of long-term debt and capital lease obligations at December 31, 2017 compared to December 31, 2016 decreased non-cash working capital by $2.0 million due to payments related to the Senior Secured Credit Facilities.
ATM Program.
The following table sets forth a summary of our net cash flows from operating, investing and financing activities for the years ended December 31, 2017, 20162020 and 2015:2019:
| | | | | | | | | | |
| | Year Ended December 31, | | | | | | | | | | |
| | 2017 | | 2016 (Recast) | | 2015 (Recast) | | Year Ended December 31, |
| | | | | | | 2020 | | 2019 |
| | (in thousands) | (in thousands) |
Net cash provided by operating activities | | $ | 87,095 | | $ | 55,804 | | $ | 65,857 | Net cash provided by operating activities | $ | 119,335 | | | $ | 53,860 | |
Net cash used in investing activities | | | (28,601) | | | (111,124) | | | (103,490) | Net cash used in investing activities | (396,805) | | | (177,483) | |
Net cash (used in) provided by financing activities | | | (58,436) | | | 53,658 | | | 39,173 | |
Net increase (decrease) in cash and cash equivalents | | $ | 58 | | $ | (1,662) | | $ | 1,540 | |
| Net cash provided by financing activities | | Net cash provided by financing activities | 278,421 | | | 130,216 | |
| Net increase in cash, cash equivalents and restricted cash | | Net increase in cash, cash equivalents and restricted cash | $ | 951 | | | $ | 6,593 | |
Cash Provided by Operating Activities
Net cash provided by operating activities was
$87.1 million, $55.8$119.3 million and
$65.9$53.9 million for the years ended December 31,
2017, 20162020 and
2015,2019, respectively. The
changes were primarily attributable$65.5 million increase in cash provided by operating activities during the year ended December 31, 2020 compared to the
following: | ·
| | A $30.5 million favorable change in operating assets and liabilities during the year ended 2017 compared to 2016 primarily attributable to a decrease in accounts receivable, net, related-party receivables and inventories. The favorable change was partially offset by a decrease in accounts payable, related-party
|
payables and accrued liabilities. The change was primarily attributable to the timing, volume and size of product shipments.
|
| ·
| | A $14.9 million unfavorable change in operating assets and liabilities during the year ended 2016 compared to 2015 primarily attributable to an increase in accounts receivable, net. The accounts receivable, net, increase was due to the number of shipments from our own production plants and shipments purchased and sold during December 2016 combined with partially loaded shipments at the end of 2016 for which title and risk of loss had passed to the customer. The increase in accounts receivable, net, was partially offset by an increase in accrued expenses primarily attributable to the aforementioned shipments and purchase and sale transactions.
|
Cash Used in Investing Activities
Net cash used in investing activities was
$28.6 million, $111.1$396.8 million and
$103.5$177.5 million for the years ended December 31,
2017, 20162020 and
2015,2019, respectively. The
$219.3 million increase in cash used in investing activities
from the year ended December 31, 2016 and 2015 related primarily to the construction of the Sampson plant and Wilmington terminal. Of the $28.7 million used for property, plant and equipment during the year ended December 31,
2017, approximately $5.72020 compared to the year ended December 31, 2019 was primarily due to a total of net cash paid of $292.9 million
relatedin relation to
projects intendedthe Greenwood Drop-Down and the Georgia Biomass Acquisition, offset by a $74.7 million cash payment in relation to
increase the
production capacity of our plants and $4.4 million was used to maintain our equipment and machinery. OfHamlet Drop-Down in the
remaining amount in 2017, $10.2 million was used for the construction of the Sampson plant and $8.4 million was used for the construction of the Wilmington terminal.year ended December 31, 2019.
Cash
(Used in) Provided by Financing Activities
Net cash
(used in) provided by financing activities was
$(58.4) million, $53.7$278.4 million and
$39.2$130.2 million for the years ended December 31,
2017, 20162020 and
2015,2019, respectively.
Net cash usedThe $148.2 million increase in
financing activities during the year ended December 31, 2017 related primarily to distributions paid to our unitholders of $64.3 million, distributions to our sponsor of $55.9 million related to the Wilmington Drop-Down and $83.0 million of repayments, net, on our debt and capital lease obligations. The net cash used in financing activities was partially offset by proceeds of $60.0 million from the additional Senior Notes and $72.0 million of borrowings under our revolving credit commitments.Net cash provided by financing activities during the year ended December 31, 2016 related primarily to proceeds from the Partnership's Senior Notes offering and the Sampson Drop-Down. Net proceeds of $293.6 million from our Senior Notes were used to repay debt, including $158.1 million due under the Senior Secured Credit Facilities and to distribute $139.6 million to our sponsor related to the Sampson Drop-Down.
Net cash provided by financing activities during the year ended December 31, 2015 related primarily to borrowings under our Senior Secured Credit Facilities of $230.1 million and IPO proceeds of $215.1 million. Also contributing to net cash provided by financing activities were capital contributions made by the First Hancock JV priorin 2020, as compared to the Wilmington Drop-Down2019, is primarily attributable to a net increase of $107.1 million in proceeds from debt issuances and the Sampson Drop-Downdebt issuance costs net of $43.6 million and $62.0 million, respectively. These amounts were partially offset by $199.6 millionrepayment of repayments, net, to our debt and capital lease obligations, $297.2a $93.7 million in distributions to our sponsor and the payment of cash distributions to unitholders of $16.9 million.
Senior Notes Due 2021
On November 1, 2016, we and our wholly owned subsidiary, Enviva Partners Finance Corp. (together, the “Issuers”), Wilmington Trust, National Association, as trustee, and the guarantors thereto entered into an indenture, as amended or supplemented (the “Indenture”), pursuant to which we issued $300.0 million in aggregate principal amount of Senior Notes to eligible purchasers (the “Senior Notes Offering”) in a private placement under the Securities Act, which resultedincrease in net proceeds from common unit issuances offset by increases of $293.6 million after deducting expenses and underwriting discounts of $6.4 million. On December 14, 2016, a portion of the net proceeds from the Senior Notes, together with cash on hand and the issuance of $30.0$37.6 million in common units to the First Hancock JV, funded thecash distributions and $15.6 million in deferred consideration payable in connection with the Sampson Drop‑Down. The remainderfor drop-down transactions.
Contractual Obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Contractual Obligations | | Total | | 2021 | | 2022-2023 | | 2024-2025 | | 2026 and
Beyond |
| | (in thousands) |
| Long-term debt (1) | | $ | 910,000 | | | $ | 2,500 | | | $ | 157,500 | | | $ | — | | | $ | 750,000 | |
| Finance leases (2) | | 19,603 | | | 8,828 | | | 7,043 | | | 1,351 | | | 2,381 | |
| Other long-term debt (3) | | 2,000 | | | 2,000 | | | — | | | — | | | — | |
| Operating leases (4) | | 98,501 | | | 6,726 | | | 12,831 | | | 12,374 | | | 66,570 | |
| Interest payments (5) | | 261,602 | | | 54,086 | | | 105,652 | | | 97,653 | | | 4,211 | |
| Purchase obligations (6) | | 9,748 | | | 9,748 | | | — | | | — | | | — | |
| Shipping commitments (7) | | 1,381,991 | | | 117,875 | | | 230,582 | | | 214,475 | | | 819,059 | |
| Other purchase commitments (8) | | 524,763 | | | 142,383 | | | 232,514 | | | 124,855 | | | 25,011 | |
| | $ | 3,208,208 | | | $ | 344,146 | | | $ | 746,122 | | | $ | 450,708 | | | $ | 1,667,232 | |
____________________________________________ (1)Long-term debt as of December 31, 2017. The Senior
Notes are guaranteed jointly(1) $746.9 million of outstanding indebtedness, net of unamortized discount, premium and severally, on a senior unsecured basis by substantially all of our existing subsidiaries and our future restricted subsidiaries that guarantee certain of our indebtedness. In August 2017, holders of 100% of the Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that such registered notes are not subject to restrictions on transfer).
On October 10, 2017, pursuant to the Indenture, the Issuers issued and sold an additional $55.0 million in aggregate principal amount of the Senior Notes to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, 2017. The additional Senior Notes were issued pursuant to the Indenture and have the same terms as the Senior Notes. The sale of the additional Senior Notes resulted in gross proceeds to the Issuers of approximately $60.0 million. The proceeds were used to repay borrowings under the Partnership’s revolving credit commitments under the Senior Secured Credit Facilities, which were used to fund the Wilmington Drop-Down, and for general partnership purposes.
In December 2017, the Additional Notes Purchaser tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that the registered notes are not subject to restrictions on transfer). The additional Senior Notes will be treated together with the Senior Notes as a single class for all purposes under the Indenture. We recorded $0.9 million in issue discounts and costs and $3.4 million in premiums associated with thedebt issuance of the additional Senior Notes, which have been recorded as a net addition to long-term debt and capital lease obligations.
Senior Secured Credit Facilities
On April 9, 2015, we entered into the Credit Agreement providing for the Original Credit Facilities. The Original Credit Facilities consisted of (i) $99.5$3.1 million aggregate principal amount of Tranche A‑1 borrowings, (ii) $75.0 million aggregate principal amount of Tranche A‑2 borrowings and (iii) up to $25.0 million aggregate principal amount of revolving credit commitments. We are also able to request loans under incremental facilities under the Credit Agreement on the terms and conditions and in the maximum aggregate principal amounts set forth therein, provided that lenders provide commitments to make loans under such incremental facilities.
On December 11, 2015, we entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for the Incremental Term Borrowings under the Credit Agreement. The Incremental Term Borrowings consist of (i) $10.0 million aggregate principal amount of Tranche A‑3 borrowings and (ii) $26.5 million aggregate principal amount of Tranche A‑4 borrowings.
On December 11, 2015, FiberCo became a lender pursuant to the Credit Agreement with a purchase of $15.0 million aggregate principal amount of the Tranche A-4 borrowings, net of a 1.0% lender fee. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0 and $0.4 million as interest expense related to this indebtedness during the three and nine months ended September 30, 2016, respectively.
On October 17, 2016, we entered into the Second Amendment. The Second Amendment provided for an increase in the revolving credit commitments under our Senior Secured Credit Facilities from $25.0 million to $100.0 million upon the consummation of the Sampson Drop‑Down, the repayment of outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings and the receipt of certain associated deliverables.
On December 14, 2016, proceeds from the Senior Notes were used to repay all outstanding indebtedness, including accrued interest, in the amount of $74.7 million for Tranche A‑2 and $26.5 million for Tranche A‑4 under the Senior Secured Credit Facilities and to repay a portion of the outstanding indebtedness, including accrued interest, in the amount of $53.6 million for Tranche A‑1 and $5.1 million for Tranche A‑3, under the Senior Secured Credit Facilities. For the year ended December 31, 2017, the Partnership recorded a $4.4 million loss on early retirement of debt obligations related to the repayments.
The Senior Secured Credit Facilities mature in April 2020. Borrowingsborrowings under the Senior Secured Credit Facilities bear interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin. Principal and interest are payable quarterly.
We had $4.0 million outstanding under the letter ofsenior secured credit facility and (3) $37.6 million of outstanding indebtedness, net of unamortized discount of $2.4 million, related to the Seller Note.
(2)Finance leases are related to machinery, equipment and other assets included in property, plant and equipment.
(3)Other long-term debt consists of a note payable held by Enviva Pellets Amory, LLC (“Amory”), a wholly owned subsidiary of the Partnership.
(4)Operating leases are related to real estate, machinery, equipment and other assets with an initial term of longer than 12 months.
(5)Cash obligations for interest expense reflect, as of December 31, 2017. The letter2020, interest payments related to (1) the 2026 Notes, (2) borrowings under our senior secured credit facility, (3) the Seller Note, (4) other long-term debt and (5) finance leases.
(6)At December 31, 2020, we had $9.7 million of credit was issued in connection with a contract between uspurchase obligations, which consisted of commitments for the purchase of materials, supplies and a third party,the engagement of services for the operation of our facilities to be used in the ordinarynormal course of business. The amounts presented in the table do not include items already recorded in accounts payable or accrued liabilities at December 31, 2020.
(7)In order to mitigate volatility in our shipping costs, we have entered into fixed-price shipping contracts with reputable shippers matching the terms and volumes of certain of our off‑take contracts for which we are responsible for arranging shipping. Our contracts with shippers include provisions as to the minimum amount requiredof MTPY to be secured withshipped and may also stipulate the letternumber of credit undershipments. Pursuant to these contracts, the contract may be adjusted or cancelledterms of which extend to up to 15 years, charges are based on a fixed‑price per MT and, in most cases, there are adjustment provisions for increases in the specific third‑party contract terms.price of fuel or for other distribution-related costs. The amount outstandingprice per MT may also vary depending on the loading port and the discharge port. Our shippers commit their resources based on our planned shipments and we would likely be liable for a portion of their expenses if we deviated from our communicated plans. As of December 31, 2020, we estimate our obligations related to these shipping contracts to be approximately $1.4 billion through 2039. These amounts will be offset by the related sales transactions in the same period, which are not included in the table above.
(8)Purchase and other commitments consist primarily of commitments under certain wood fiber and wood pellet purchases, handling and terminal and stevedoring service contracts. Some of our suppliers and service providers commit resources based on our planned purchases and require minimum levels of commitments. The wood pellet supply agreements for the purchase of 1,080,000 MT of wood pellets from British Columbia are fully offset by an agreement to sell 1,080,000 MT of wood pellets to the same counterparty from our terminal locations. The amounts in the table represent an estimate of the costs we would incur under these contracts as of December 31, 2017 is subject2020. Many of our contracts are requirement contracts and currently do not represent a firm commitment to automatic extensions through the termination date of the letter of credit facility. The letter of credit ispurchase from our suppliers; therefore, they are not cash collateralized, and there are no unreimbursed drawings under the letter of credit as of December 31, 2017. On January 11, 2018, the letter of credit was cancelled as it was no longer contractually required.The Credit Agreement contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on our ability to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates, (viii) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. An event of default could resultreflected in the acceleration of our obligation to repay our borrowings andtable above. Under these contracts, we may cause a net settlement of our derivative instruments with the respective counterparties. We will be restricted from making distributions if an event of default exists under the Credit Agreement or if the interest coverage ratio (determined as the ratio of consolidated EBITDA, as defined in the Credit Agreement, to consolidated interest expense, determined quarterly) is less than 2.25:1.00 at such time.
Pursuant to the Credit Agreement, we are required to maintain, as of the last day of each fiscal quarter, a ratio of total debt to consolidated EBITDA (“Total Leverage Ratio”), as defined in the Credit Agreement, of not more than a maximum ratio, initially set at 4.25:1.00 and stepping down to 3.75:1.00 during the term of the Credit Agreement; provided that the maximum permitted Total Leverage Ratio will be increased by 0.50:1.00liable for the period fromcosts incurred on services rendered until termination and the consummationcosts of certain qualifying acquisitions through the endany supplies on hand.
Off‑Balance Sheet Arrangements
As of December 31,
2017, our Total Leverage Ratio was 3.67:1.00, as calculated in accordance with the Credit Agreement, which was less than the maximum ratio of 4.75:1.00. As of December 31, 2017, we were in compliance with all covenants and restrictions associated with, and no events of default existed under, the Credit Agreement. Our obligations under the Credit Agreement are guaranteed by certain of our subsidiaries and secured by liens on substantially all of our and their assets.At‑the‑Market Offering Program
On August 8, 2016, we filed a prospectus supplement to our shelf registration filed with the SEC on June 24, 2016, for the registration of the continuous offering of up to $100.0 million of common units, in amounts, at prices, and on terms to be determined by market conditions and other factors at the time of our offerings. In August 2016, we also entered into the Equity Distribution Agreement with certain managers pursuant to which we may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million.
During the year ended December 31, 2017, we sold 71,368 common units under the Equity Distribution Agreement for net proceeds of $1.9 million, net of an insignificant amount of commissions. Accounting and other fees of approximately $0.2 million were offset against the proceeds during 2017. Net proceeds from sales under the ATM Program were used for general partnership purposes. As of February 16, 2018, $88.6 million remained available for issuance under the ATM Program.
Contractual Obligations
The following table presents our contractual obligations and other commitments as of December 31, 2017: | | | | | | | | | | | | | | | |
| | | | | | | | | | 2023 and |
Contractual Obligations | | Total | | 2018 | | 2019 - 2020 | | 2021 - 2022 | | Beyond |
| | (in thousands) |
Long-term debt(1) | | $ | 399,756 | | $ | 4,927 | | $ | 39,829 | | $ | 355,000 | | $ | — |
Other loans and capital leases | | | 5,158 | | | 3,283 | | | 1,382 | | | 493 | | | — |
Operating leases | | | 76,087 | | | 3,737 | | | 5,567 | | | 5,258 | | | 61,525 |
Interest expense(2) | | | 123,794 | | | 33,171 | | | 64,430 | | | 26,193 | | | — |
Purchase obligations(3) | | | 3,514 | | | 3,514 | | | — | | | — | | | — |
Shipping commitments (4) | | | 443,584 | | | 58,690 | | | 115,194 | | | 117,479 | | | 152,221 |
Other purchase commitments(5) | | | 202,971 | | | 31,034 | | | 74,371 | | | 90,992 | | | 6,574 |
| | $ | 1,254,864 | | $ | 138,356 | | $ | 300,773 | | $ | 595,415 | | $ | 220,320 |
| | | | | | | | | | | | | | | |
| (1)
| | Our long‑term debt as of December 31, 2017 consisted of $352.2 million of outstanding indebtedness, increased by a premium of $3.2 million and offset by an unamortized discount and debt issuance costs of $6.0 million, under our Senior Notes, and $43.6 million of outstanding indebtedness, offset by an unamortized discount and debt issuance costs of $1.1 million, under our Senior Secured Credit Facilities.
|
| (2)
| | The cash obligations for interest expense reflect, as of December 31, 2017, (i) interest expense related to $355.0 million of Senior Notes bearing interest at 8.50%, $43.0 million of Tranche A‑1 advances and $4.75 million of Tranche A‑3 advances bearing interest at a Eurodollar rate (with a 1.00% floor) plus an applicable margin, adjusted for the Partnership’s pay‑fixed, receive‑variable interest rate swap, and (ii) interest expense related to the Amory Note, which bears interest at a rate of 6.0%.
|
| (3)
| | At December 31, 2017, we had $3.5 million of purchase obligations which consisted of commitments for the purchase of materials, supplies and the engagement of services for the operation of our plants and facilities to be used in the normal course of business. The amounts presented in the table do not include items already recorded in accounts payable or accrued liabilities at December 31, 2017.
|
| (4)
| | In order to mitigate volatility in our shipping costs, we have entered into fixed‑price shipping contracts with reputable shippers matching the terms and volumes of certain of our off‑take contracts for which we are responsible for arranging shipping. Our contracts with shippers include provisions as to the minimum amount of metric tons per year to be shipped and may also stipulate the number of shipments. Pursuant to these contracts, the terms extend to up to fifteen years, charges are based on a fixed‑price per metric ton and, in some cases, there are adjustment provisions for increases in the price of fuel or for other distribution‑related costs. The price per metric ton may also vary depending on the loading port and the discharge port. Our shippers commit their resources based on our planned shipments, and we would likely be liable for a portion of their expenses if we deviated from our communicated plans. As of December 31, 2017, we estimate our obligations related to these shipping contracts to be approximately $444.0 million through 2026. These amounts will be offset by the related sales transactions in the same period, which are not included in the table above.
|
| (5)
| | Purchase and other commitments consist primarily of commitments under certain wood fiber and wood pellet purchases, handling and terminal and stevedoring service contracts. Some of our suppliers and service providers commit resources based on our planned purchases and require minimum levels of commitments. One supply agreement for the purchase of 720,000 MT of wood pellets from British Columbia is fully offset by an agreement to sell 720,000 MT of wood pellets to the same counterparty from our terminal locations. The amounts in the table represent an estimate of the costs we would incur under these contracts as of December 31, 2017. Many of our contracts are requirement contracts and currently do not represent a firm commitment to purchase from our suppliers; therefore, they are not reflected in the table above. Under these contracts, we may be liable for the costs incurred on services rendered until termination and the costs of any supplies on hand.
|
Off‑Balance Sheet Arrangements
As of December 31, 2017,2020, we did not have any off‑balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S‑K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or a variable interest in unconsolidated entities.
Recently Issued Accounting Pronouncements
See Part II, Item 8. “Financial Statements and Supplementary Data—Note 3,2, “Significant Accounting Policies —RecentPolicies—Recently Adopted Accounting Standards and PendingRecently Issued Accounting PronouncementsStandards not yet Adopted,” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for a description of recently issued and adopted accounting pronouncements. Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
Listed below are
For accounting policies and estimates that we believe are critical to our consolidated financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, which we believe are critical toplease see the understanding of our operations.Revenue Recognition
We primarily earn revenue by supplying wood pelletsfollowing disclosures within the Notes to our customers under off‑take contracts, the majority of the commitments under which are long‑term in nature. We refer to the structure of our contracts as “take‑or‑pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that ensure we will be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or for termination by a customer. Each contract defines the annual volume of wood pellets that a customer is required to purchase and we are required to sell, the fixed price per metric ton for product satisfying a base net calorific value and other technical specifications. These prices are fixed for the entire term, subject to annual inflation‑based adjustments and price escalators, as well as, in some instances, price adjustments for product specifications and changes in underlying costs. In addition to sales of our product under these long‑term, take‑or‑pay contracts, we routinely sell wood pellets under shorter‑term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of our contracts is a bilaterally negotiated agreement, our revenue over the duration of these contracts does not generally follow spot market pricing trends. Our revenue from the sale of wood pellets is recognized when the goods are shipped, title and risk of loss passes to the customer, the sales price to the customer is fixed and determinable, and collectability is reasonably assured.
Depending on the specific off‑take contract, shipping terms are either CIF, CFR or FOB. Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping costs under CIF and CFR contracts areConsolidated Financial Statements included in the price to the customerPart II, Item 8. of this Annual Report on Form 10-K: Note 2,
Significant Accounting Policies, specifically about “Business Combinations”, “Inventories”, “Revenue Recognition”, “Cost of Goods Sold”, and as such, are included in revenue“Property, Plant and cost of goods sold. Under FOB contracts, the customer is directly responsible for shipping costs. Our customer shipping terms, as well as the timingEquipment”, and size of shipments during the year, can result in material fluctuations in our revenue recognition between periods but generally have little impact on gross margin.Note 4, “Acquisition”.
In some cases, we may purchase shipments of product from a third‑party supplier and resell them in back‑to‑back transactions that immediately transfer title and risk of loss to the ultimate purchaser. Thus, the revenue from these transactions is recorded net of costs paid to the third‑party supplier. We record this revenue as “Other revenue.”
In instances when a customer requests the cancellation, deferral or acceleration of a shipment, the customer may pay a fee, including reimbursement of any incremental costs incurred by us, which is included in “Other revenue.”
Other revenue also includes third- and related-party terminal services fees.
Cost of Goods Sold
Cost of goods sold includes the costs to produce and deliver our wood pellets to customers. The principal expenses incurred to produce and deliver our wood pellets consist of raw material, production and distribution costs.
We have strategically located our plants in the Southeastern United States, a region with plentiful wood fiber resources. We manage the supply of raw materials into our plants primarily through short‑term contracts. Delivered wood fiber costs include stumpage as well as harvesting, transportation and, in some cases, size reduction services provided by our suppliers. The majority of our product volumes are sold under long-term off-take contracts that include cost pass‑through mechanisms to mitigate increases in raw material and distribution costs.
Production costs at our production plants consist of labor, energy, tooling, repairs and maintenance and plant overhead costs. Production costs also include depreciation expense associated with the use of our plants and equipment and any gain or loss on disposal of associated assets. Some of our off‑take contracts include price escalators that mitigate inflationary pressure on certain components of our production costs. In addition to the wood pellets that we produce at our owned and operated production plants, we selectively purchase additional quantities of wood pellets from third‑party wood pellet producers.
Distribution costs include all transportation costs from our plants to our port locations, any storage or handling costs while the product remains at port and shipping costs related to the delivery of our product from our port locations to our customers. Both the strategic location of our plants and our ownership or control of our marine terminals has allowed for the efficient and cost‑effective transportation of our wood pellets. We seek to mitigate shipping risk by entering into long‑term, fixed‑price shipping contracts with reputable shippers matching the terms and volumes of our off‑take contracts pursuant to which we are responsible for arranging shipping. Certain of our off‑take contracts include pricing adjustments for volatility in fuel prices, which allows us to pass the majority of the fuel price risk associated with shipping through to our customers under those contracts.
Additionally, as deliveries are made, we amortize the purchase price of acquired customer contracts that were recorded as intangible assets during the applicable contract term.
Raw material, production and distribution costs associated with delivering our wood pellets to our owned and leased marine terminals and related- and third‑party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the facilities. These costs are reflected in cost of goods sold when inventory is sold. Distribution costs associated with shipping our wood pellets to our customers and amortization of favorable acquired customer contracts are expensed as incurred. Our inventory is recorded using FIFO, which requires the use of judgment and estimates. Given the nature of our inventory, the calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, which includes the fair values of assets acquired. Equipment under capital leases is stated at the present value of minimum lease payments. Useful lives of assets are based on historical experience and are adjusted when changes in the expected physical life of the asset, its planned use,
technological advances or other factors show that a different life would be more appropriate. Changes in useful lives are recognized prospectively.
Depreciation is calculated using the straight‑line method based on the estimated useful lives of the related assets. Plant and equipment held under capital leases are amortized on a straight‑line basis over the shorter of the lease term or estimated useful life of the asset.
Construction in progress primarily represents expenditures for the development and expansion of facilities. Capitalized interest cost and all direct costs, which include equipment and engineering costs related to the development and expansion of facilities, are capitalized as construction in progress. Depreciation is not recognized for amounts in construction in progress.
Normal repairs and maintenance costs are expensed as incurred. Amounts incurred that extend an asset’s useful life, increase its productivity or add production capacity are capitalized. Direct costs, such as outside labor, materials, internal payroll and benefits costs incurred during the construction of a new plant are capitalized; indirect costs are not capitalized. Repairs and maintenance costs were $21.4 million, $15.9 million and $12.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Asset Impairment Assessments
Long‑Lived Assets
Long‑lived assets, such as property, plant and equipment and amortizable intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that a long‑lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to such asset or asset group’s carrying value. If the carrying value of the long‑lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third‑party independent appraisals, as considered necessary.
In December 2016, the Partnership recorded an impairment of $10.0 million related to the fixed assets at the Wiggins plant. For more information, please read “—Recent Developments—Sale of the Enviva Wiggins Plant” above. The Partnership did not record any impairments for the years ended December 31, 2015 and 2014 (see Part II, Item 8. “Financial Statements and Supplementary Data—Note 10, Goodwill and Other Intangible Assets). [Bill: why do we use numbers here. We don’t for other items above]
|
Goodwill
Goodwill represents the purchase price paid for acquired businesses in excess of the identifiable acquired assets and assumed liabilities. Goodwill is not amortized, but is tested for impairment annually on December 1 and whenever an event occurs or circumstances change such that it is more likely than not that the fair value of the reporting unit is less than its carrying amounts. At December 31, 2017 and 2016, the Partnership identified one reporting unit that corresponded to the Partnership’s one segment and selected the fourth fiscal quarter to perform its annual goodwill impairment test.
The Partnership first performs a qualitative assessment to determine whether it is necessary to perform quantitative testing. If this initial qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is more than its carrying value, goodwill is not considered impaired and the Partnership is not required to perform the two‑step impairment test. Qualitative factors considered in this assessment include (i) macroeconomic conditions, (ii) past, current and projected future financial performance, (iii) industry and market considerations, (iv) changes in the costs of raw materials, fuel and labor and (v) entity‑specific factors such as changes in management or customer base.
If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, the Partnership will perform a two‑step impairment test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill.
For the years ended December 31, 2017 and 2016, the Partnership applied the qualitative test and determined that it was more likely than not that the estimated fair value of the reporting unit substantially exceeded the related carrying value, and, accordingly, was not required to apply the two‑step impairment test. The Partnership did not record any goodwill impairment for the years ended December 31, 2017 and 2016 (see Note 10, Goodwill and Other Intangible Assets).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and prices. Historically, our risks have been predominantly related to potential changes in the fair value of our
long‑termlong-term debt due to fluctuations in applicable market interest rates. Our market risk exposure is expected to be limited to risks that arise in the normal course of business, as we do not engage in speculative, non‑operating transactions, nor do we use financial instruments or derivative instruments for trading purposes.
At December 31,
2017,2020, our total debt had a carrying value of
$401.0$906.4 million and fair value of
$423.4$959.3 million.
Although we seek to mitigate
a portion of our interest rate risk through interest rate swaps,
(as discussed below), we are exposed to fluctuations in interest rates on borrowings under
the Senior Secured Credit Facilities.our senior secured revolving credit facility. Borrowings under the
Senior Secured Credit Facilitiessenior secured revolving credit facility bear interest, at our option, at either a base rate plus an applicable margin or at a Eurodollar rate
(with a 1.00% floor for term loan borrowings) plus an applicable margin.
The applicable margin is (i) for Tranche A‑1 and Tranche A‑3 base rate borrowings, 2.95% through April 2018 and 2.80% thereafter, (ii) for Tranche A‑1 and Tranche A‑3 Eurodollar rate borrowings, 3.95% through April 2018 and 3.80% thereafter, (iii) for revolving facility base rate borrowings, 3.25%, and (iv) for revolving facility Eurodollar rate borrowings, 4.25%. We repaid in full the outstanding principal and accrued interest on the Tranche A‑2 and Tranche A‑4 borrowings upon the consummation of the Sampson Drop‑Down. As of December 31, 2017, $43.6 million, net of unamortized discount of $1.1 million, of Tranche A‑1 and Tranche A‑3 borrowings remained outstanding under our Senior Secured Credit Facilities.
In September 2016, we entered into a pay‑fixed, receive‑variable interest rate swap agreement to fix our exposure to fluctuations in London Interbank Offered Rate-based interest rates (the “interest rate swap”). The interest rate swap commenced on September 30, 2016 and expires concurrently with the maturity of the Senior Secured Credit Facilities in April 2020. We elected to discontinue hedge accounting as of December 14, 2016 following repayment of a portion of our outstanding indebtedness under the Senior Secured Credit Facilities, and subsequently re-designated the interest rate swap for the remaining portion of such indebtedness during the year ended December 31, 2017.
We enter into derivative instruments to manage cash flow. We do not enter into derivative instruments for speculative or trading purposes.
During the year ended December 31, 2020, we entered into pay-fixed, receive-variable interest rate swaps that expire in September 2021 and October 2021 to hedge interest rate risk associated with variable rate borrowings under our senior secured revolving credit facility. The interest rate swaps are not designated and accounted for as cash flow hedges. The counterparty to our interest rate swap
agreement is aagreements are major financial
institution. As a result, we have no significant interest rate risk on our Tranche A‑1 and Tranche A‑3 borrowings as of December 31, 2017.institutions.
There can be no assurance that our interest rate risk‑managementrisk-management practices, if any, will eliminate or substantially reduce risks associated with fluctuating interest rates. For more information, please read Part I, Item 1A “Risk Factors—Our exposure to risks associated with foreign currency and interest rate fluctuations, as well the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.” Substantially all of our revenue was from long‑term, take‑or‑pay off‑takelong-term, take-or-pay off-take contracts with threefour customers for the years ended December 31, 20172020, 2019 and 2015, and two customers for2018. During the year ended December 31, 2016. Most2020, most of our customers arewere major power generators in Europe. This concentration of counterparties operating in a single industry and geographic area may increase our overallresults in an exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, political, regulatory or other conditions. If a customer defaults or if any of our contracts expire in accordance with their terms, and we are unable to renew or replace these contracts, our gross margin and cash flows and our ability to make cash distributions to our unitholders may be adversely affected. Although we have entered into hedging arrangements in order to minimize our exposure to fluctuations in foreign currency exchange and interest rates, our derivatives also expose us to credit risk to the extent that counterparties may be unable to meet the terms of our hedging agreements. For more information, please read Part I, Item 1A “Risk Factors—Our exposure to risks associated with foreign currency and interest rate fluctuations, as well the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operationsand —SubstantiallyWe will derive substantially all of our revenues currentlyfrom six customers in 2021, five of which are generated under contracts with four customers, and the loss of any of them could adversely affectin Europe. If we fail to continue to diversify our business, financial condition,customer base, our results of operations, cash flowsbusiness and financial position and ability to make cash distributions. We may notpay distributions to our unitholders could be able to renew or obtain new and favorable contracts with these customers when our existing contracts expire, which couldmaterially adversely affect our revenues and profitability.” affected.
Foreign Currency Exchange Risk
We primarily are exposed to fluctuations in foreign currency exchange rates related to contracts pursuant to which deliveries of wood pellets will be settled in British Pound Sterling (“GBP”). Deliveries under the Lynemouth Contract began in late 2017 and deliveries under the EVA-MGT Contract and the 95,000 MTPY contract with the First Hancock JV begin in 2019.foreign currency. We have entered into forward contracts and purchased options to hedge a portion of our forecasted revenue for these customer contracts. We have
As of December 31, 2020, we had notional amounts of 143.6 million GBP and 13.0 million Euro (“EUR”) under foreign currency forward contracts and 51.6 million GBP under foreign currency option contracts that expire between 2021 and 2024. As of December 31, 2020, we had no EUR option contracts outstanding.
Historically, we designated and accounted for
the forward contracts and purchased options as cash flow hedges of anticipated
GBP-denominatedforeign currency denominated revenue and, therefore, the effective portion of the changes in fair value on these instruments
will bewas recorded as a component of accumulated other comprehensive income in partners’ capital and
will bewas reclassified to revenue in the consolidated statements of
incomeoperations in the same period in which the underlying revenue transactions
occur.occurred. During
December 2017,the third quarter of 2018, we
determined that certain transactions were no longer probable of occurring within the forecasted time period. We discontinuedelected to discontinue hedge accounting
for all designated foreign currency cash flow hedges and,
as a
$1.6 million loss included in other comprehensive income related to these hedging relationships was reclassified to other expense on the consolidated statements of income.As of December 31, 2017,result, we had notional amounts of 46.5 million GBP underno unrealized loss (gain) associated with foreign currency forward contracts and 34.1 million GBP under foreign currency purchased
options
that expire between 2018 and 2022.in accumulated other comprehensive income. At December 31,
2017, the2020 and 2019, no unrealized
lossamounts associated with foreign currency forward contracts and foreign currency purchased options
of approximately $2.1 million and $1.2 million, respectively, arewere included in other comprehensive income.
We do not utilize foreign exchange contracts for speculative or trading purposes. The counterparties to our foreign exchange contracts are major financial institutions. There can be no assurance that our hedging arrangements or other foreign exchange rate risk‑managementrisk-management practices, if any, will eliminate or substantially reduce risks associated with our exposure to fluctuating foreign exchange rates. For more information, please read Part I, Item 1A “Risk Factors—Our exposure to risks associated with foreign currency and interest rate fluctuations, as well the hedging arrangements we may enter into to mitigate those risks, could have an adverse effect on our financial condition and results of operations.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
The
To the Unitholders and
the Board of Directors
of Enviva Partners, LP:
LP
Opinion on the
Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Enviva Partners, LP and subsidiaries (the
“Partnership”)Partnership) as of December 31,
20172020 and
2016, and2019, the related consolidated statements of
income,operations, comprehensive
(loss) income, changes in partners’ capital and cash flows for each of the
two years in the
three‑year period ended December 31,
2017,2020, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership
as ofat December 31,
20172020 and
2016,2019, and the results of its operations and
its cash flows for each of the
two years in the
three‑year period ended December 31,
2017,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Partnership changed its method of accounting for leases in 2019.
These
consolidated financial statements are the responsibility of the
management of the Partnership’s
management.General Partner. Our responsibility is to express an opinion on
these consolidatedthe Partnership’s financial statements based on our
audits.audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by the General Partner’s management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| | | | | | | | |
| | Related Party Transactions |
| Description of the Matter | | The Partnership engages, in the ordinary course of business, in related party transactions with Enviva Holdings LP, and certain of its subsidiaries. Each of these entities is a related party. As discussed in Note 3 and 15 to the consolidated financial statements, the Partnership has entered into a number of transactions with these related parties, including but not limited to agreements for operations, general administrative, management, and other services, as well as an acquisition of the Greenwood plant. Especially challenging auditor judgment was involved in assessing the completeness and accuracy of related party transactions and assessing the sufficiency of the disclosures due to the complexity of the Partnership’s legal structure. Enviva Holdings, LP is involved in many aspects of the Partnership’s business, including expenses allocated and charged to the Partnership from Enviva Holdings, LP for services provided under the Management Service Agreements. |
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over related party transactions. For example, we tested controls over management’s identification of related parties, review of the related party transactions listing for completeness, and review for completeness and accuracy of the related party disclosures. Our audit procedures included, among others, reading public filings and external news for information related to transactions between the Partnership and related parties. In addition, we inspected the Partnership’s minutes from meetings of the Board of Directors and related Committees. We inspected the Partnership’s organization chart throughout the year to obtain an understanding of the legal structure and confirmed our understanding based on inquiries with legal counsel. We also inspected the Partnership’s directors and officers questionnaires, and read material agreements between the Partnership and related parties. We tested all material transactions between related parties based on our review of the related agreements in order to identify the appropriate classification. We inquired with executive officers, key members of management, and the Audit Committee of the Board of Directors regarding related party transactions to understand the nature of the relationship and the business purpose of the transaction. Additionally, we assessed the adequacy and completeness of the Partnerships’ related party disclosures. |
| | |
| | Completeness of Revenue from Off-Take Contracts |
| Description of the Matter | | As discussed in Note 1 to the consolidated financial statements, the Partnership primarily earns revenue through long-term take-or-pay contracts that include a defined volume of wood pellets that the customer is required to purchase on an annual basis. Revenue on these contracts is recognized when control transfers to the customer at the time of loading wood pellets onto a ship. Auditing the measurement of revenue at year-end required especially challenging auditor judgment and more extensive audit procedures, including the use of specialists, due to the complexity of determining the quantity of wood pellets transferred to the customer at the end of the year. |
| | |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over revenue cut-off for off-take contracts. For example, we tested controls over management’s review of third-party survey results at year-end, and managements rollforward of pellets. Our audit procedures included, among others, evaluating the work of management’s third-party specialist to survey all partially loaded ships at year end to assist in determining the amount of pellets transferred to customers at the end of year. We also performed observations of finished goods held by the Company at or near year-end, and tested management’s rollforward of pellets. We also performed analytical procedures over year-end revenue cut off, made inquiries of employees outside of the accounting department to corroborate the completeness of the vessels being loaded at year-end and inspected a sample of shipping and receiving documentation to test that pellets shipped near year-end were recognized in the appropriate period based on the date of shipment. |
| | | | | | | | |
| | Valuation of acquired intangible assets and liabilities |
| Description of the Matter | | During 2020, the Partnership completed its business combination of Georgia Biomass Holding LLC for $163 million, as disclosed in Note 4 to the consolidated financial statements. As part of the transaction, the Partnership acquired certain off-take contracts and a shipping contract which were recognized at fair value as intangible assets and liabilities of $5.7 million and $7.4 million, respectively. |
| | |
| How We Addressed the Matter in Our Audit | | Auditing the Partnership's determination of fair value for the intangible assets and liabilities was especially complex due to the significant estimation uncertainty in the Partnership’s determination of the fair value of the identified intangible assets and liabilities. The significant estimation uncertainty was primarily due to the limited market data related to the market value of the acquired contracts, due to the limited pricing sources available for comparable utility-grade wood pellets and shipping agreements. The Partnership used an income method to measure the intangible assets and liabilities. The significant assumption used to estimate the fair value of the intangible assets and liabilities is the market rate for similar contracts. We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the valuation of acquired contracts. For example, we tested controls over the estimation process supporting the recognition and measurement of the contract assets and liabilities. We also tested management’s review controls over the significant assumption used in the valuation models. To test the estimated fair value of the intangible assets and liabilities, we performed audit procedures that included, among others, evaluating the Partnership's selection of the valuation methodology, evaluating the methods and significant assumption used by the Partnership’s valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the significant assumption and estimates. For example, we compared the significant assumption to current industry, market trends, and other recently negotiated contracts. We involved our valuation specialists to assist with our evaluation of the methodology used by the Partnership and to perform a sensitivity analysis over the significant assumption.
|
/s/ Ernst & Young LLP
We have served as the Partnership’s auditor since 2019.
Tysons, Virginia
February 25, 2021
Report of Independent Registered Public Accounting Firm
To Unitholders and Board of Directors
Enviva Partners, LP:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, changes in partners’ capital, and cash flows of Enviva Partners, LP and subsidiaries (the Partnership) for the year ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the Partnership’s results of operations and cash flows for the year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Partnership is not required to have, nor were we engaged to perform, anOur audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
We
have served as the
Partnership’sCompany’s auditor
sincefrom 2010
to 2019.
McLean, Virginia
February 22, 2018
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
20172020 and
20162019
(In thousands, except number of units) | | | | | | | |
| | | | | 2016 |
| | | 2017 | | (Recast) |
| | | | | |
Assets | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | | $ | 524 | | $ | 466 |
Accounts receivable, net of allowance for doubtful accounts of $0 as of December 31, 2017 and $24 as of December 31, 2016 | | | | 79,185 | | | 77,868 |
Related-party receivables | | | | 5,412 | | | 8,056 |
Inventories | | | | 23,536 | | | 29,936 |
Assets held for sale | | | | — | | | 3,044 |
Prepaid expenses and other current assets | | | | 1,006 | | | 1,979 |
Total current assets | | | | 109,663 | | | 121,349 |
| | | | | | | |
Property, plant and equipment, net of accumulated depreciation of $117.1 million as of December 31, 2017 and $80.8 million as of December 31, 2016 | | | | 562,330 | | | 590,916 |
Intangible assets, net of accumulated amortization of $10.3 million as of December 31, 2017 and $9.1 million as of December 31, 2016 | | | | 109 | | | 1,371 |
Goodwill | | | | 85,615 | | | 85,615 |
Other long-term assets | | | | 2,394 | | | 2,125 |
Total assets | | | $ | 760,111 | | $ | 801,376 |
| | | | | | | |
Liabilities and Partners’ Capital | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | | $ | 7,554 | | $ | 9,993 |
Related-party payables | | | | 26,398 | | | 11,472 |
Accrued and other current liabilities | | | | 29,363 | | | 44,531 |
Related-party accrued liabilities | | | | — | | | 382 |
Current portion of interest payable | | | | 5,029 | | | 4,414 |
Current portion of long-term debt and capital lease obligations | | | | 6,186 | | | 4,165 |
Total current liabilities | | | | 74,530 | | | 74,957 |
Long-term debt and capital lease obligations | | | | 394,831 | | | 346,915 |
Related-party long-term payable | | | | 74,000 | | | — |
Long-term interest payable | | | | 890 | | | 770 |
Other long-term liabilities | | | | 5,491 | | | 1,872 |
Total liabilities | | | | 549,742 | | | 424,514 |
Commitments and contingencies | | | | | | | |
| | | | | | | |
Partners’ capital: | | | | | | | |
Limited partners: | | | | | | | |
Common unitholders—public (13,073,439 and 12,980,623 units issued and outstanding at December 31, 2017 and December 31, 2016, respectively) | | | | 224,027 | | | 239,902 |
Common unitholder—sponsor (1,347,161 units issued and outstanding at December 31, 2017 and December 31, 2016) | | | | 16,050 | | | 18,197 |
Subordinated unitholder—sponsor (11,905,138 units issued and outstanding at December 31, 2017 and December 31, 2016) | | | | 101,901 | | | 120,872 |
General partner (no outstanding units) | | | | (128,569) | | | (40,713) |
Accumulated other comprehensive (loss) income | | | | (3,040) | | | 595 |
Total Enviva Partners, LP partners’ capital | | | | 210,369 | | | 338,853 |
Noncontrolling partners’ interests | | | | — | | | 38,009 |
Total partners’ capital | | | | 210,369 | | | 376,862 |
Total liabilities and partners’ capital | | | $ | 760,111 | | $ | 801,376 |
| | | | | | | | | | | |
| 2020 | | 2019 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 10,004 | | | $ | 9,053 | |
| Accounts receivable | 124,212 | | | 72,421 | |
| Related-party receivables, net | 2,414 | | | 0 | |
| Inventories | 42,364 | | | 32,998 | |
| Prepaid expenses and other current assets | 16,457 | | | 5,617 | |
| Total current assets | 195,451 | | | 120,089 | |
| Property, plant and equipment, net | 1,071,819 | | | 751,780 | |
| Operating lease right-of-use assets | 51,434 | | | 32,830 | |
| Goodwill | 99,660 | | | 85,615 | |
| Other long-term assets | 11,248 | | | 4,504 | |
| Total assets | $ | 1,429,612 | | | $ | 994,818 | |
| Liabilities and Partners’ Capital | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 15,208 | | | $ | 18,985 | |
| Related-party payables, net | 0 | | | 304 | |
| Deferred consideration for drop-downs due to related-party | 0 | | | 40,000 | |
| Accrued and other current liabilities | 108,976 | | | 59,066 | |
| Current portion of interest payable | 24,642 | | | 3,427 | |
| Current portion of long-term debt and finance lease obligations | 13,328 | | | 6,590 | |
| Total current liabilities | 162,154 | | | 128,372 | |
| Long-term debt and finance lease obligations | 912,721 | | | 596,430 | |
| Long-term operating lease liabilities | 50,074 | | | 33,469 | |
| Deferred tax liabilities, net | 13,217 | | | 0 | |
| Other long-term liabilities | 15,419 | | | 3,971 | |
| Total liabilities | 1,153,585 | | | 762,242 | |
| Commitments and contingencies | 0 | | 0 |
| Partners’ capital: | | | |
| Limited partners: | | | |
| Common unitholders—public (26,209,862 and 19,870,436 units issued and outstanding at December 31, 2020 and 2019, respectively) | 424,825 | | | 300,184 | |
| Common unitholder—sponsor (13,586,375 units issued and outstanding at December 31, 2020 and 2019) | 41,816 | | | 82,300 | |
| General partner (0 outstanding units) | (142,404) | | | (101,739) | |
| Accumulated other comprehensive (loss) income | (18) | | | 23 | |
| Total Enviva Partners, LP partners’ capital | 324,219 | | | 280,768 | |
| Noncontrolling interest | (48,192) | | | (48,192) | |
| Total partners' capital | 276,027 | | | 232,576 | |
| Total liabilities and partners’ capital | $ | 1,429,612 | | | $ | 994,818 | |
See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of
IncomeOperations
Years ended December 31,
2017, 20162020, 2019 and
20152018
(In thousands, except per unit amounts) | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Product sales | $ | 830,528 | | | $ | 674,251 | | | $ | 564,010 | |
Other revenue (1) | 44,551 | | | 10,142 | | | 9,731 | |
| Net revenue | 875,079 | | | 684,393 | | | 573,741 | |
Cost of goods sold (1) | 684,863 | | | 549,701 | | | 461,735 | |
| Loss on disposal of assets | 6,978 | | | 3,103 | | | 2,386 | |
| Depreciation and amortization | 76,115 | | | 50,521 | | | 40,179 | |
| Total cost of goods sold | 767,956 | | | 603,325 | | | 504,300 | |
| Gross margin | 107,123 | | | 81,068 | | | 69,441 | |
| General and administrative expenses | 12,800 | | | 6,932 | | | 5,879 | |
| Related-party management services agreement fee | 32,545 | | | 29,457 | | | 21,762 | |
| Total general and administrative expenses | 45,345 | | | 36,389 | | | 27,641 | |
| Income from operations | 61,778 | | | 44,679 | | | 41,800 | |
| Other (expense) income: | | | | | |
| Interest expense | (44,902) | | | (39,344) | | | (36,471) | |
| Early retirement of debt obligation | 0 | | | (9,042) | | | (751) | |
| Other income, net | 273 | | | 764 | | | 2,374 | |
| Total other expense, net | (44,629) | | | (47,622) | | | (34,848) | |
| Net income (loss) before income tax expense | 17,149 | | | (2,943) | | | 6,952 | |
| Income tax expense | 69 | | | 0 | | | 0 | |
| Net income (loss) | $ | 17,080 | | | $ | (2,943) | | | $ | 6,952 | |
| Net (loss) income per limited partner common unit: | | | | | |
| Basic and diluted | $ | (0.36) | | | $ | (0.54) | | | $ | 0.04 | |
| | | | | |
| Net income per limited partner subordinated unit: | | | | | |
| Basic and diluted | $ | 0 | | | $ | 0 | | | $ | 0.04 | |
| | | | | |
| Weighted-average number of limited partner units outstanding: | | | | | |
| Common—basic | 36,813 | | | 31,791 | | | 21,533 | |
| Common—diluted | 36,813 | | | 31,791 | | | 22,553 | |
| Subordinated—basic and diluted | 0 | | | 0 | | | 4,893 | |
| | | | | |
| Distributions declared per limited partner unit | $ | 3.0000 | | | $ | 2.6500 | | | $ | 2.5300 | |
| | | | | |
(1) See Note 15, Related-Party Transactions | | | | | |
| | | | | | | | | |
| | | | | 2016 | | 2015 |
| | 2017 | | (Recast) | | (Recast) |
| | | | | | | | |
Product sales | | $ | 522,250 | | $ | 444,489 | | $ | 450,980 |
Other revenue (1) | | | 20,971 | | | 19,787 | | | 6,394 |
Net revenue | | | 543,221 | | | 464,276 | | | 457,374 |
Cost of goods sold, excluding depreciation and amortization (1) | | | 419,616 | | | 357,418 | | | 365,061 |
Loss on disposal of assets | | | 4,899 | | | 2,386 | | | 2,081 |
Depreciation and amortization | | | 39,904 | | | 27,700 | | | 30,692 |
Total cost of goods sold | | | 464,419 | | | 387,504 | | | 397,834 |
Gross margin | | | 78,802 | | | 76,772 | | | 59,540 |
General and administrative expenses (1) | | | 30,107 | | | 33,098 | | | 23,922 |
Disposal and impairment of assets held for sale | | | 827 | | | 9,991 | | | — |
Total general and administrative expenses | | | 30,934 | | | 43,089 | | | 23,922 |
Income from operations | | | 47,868 | | | 33,683 | | | 35,618 |
Other income (expense): | | | | | | | | | |
Interest expense | | | (31,744) | | | (15,643) | | | (10,558) |
Related-party interest expense | | | — | | | (578) | | | (1,154) |
Early retirement of debt obligation | | | — | | | (4,438) | | | (4,699) |
Other (expense) income | | | (1,751) | | | 439 | | | 979 |
Total other expense, net | | | (33,495) | | | (20,220) | | | (15,432) |
Income before income tax expense | | | 14,373 | | | 13,463 | | | 20,186 |
Income tax expense | | | — | | | — | | | 2,623 |
Net income | | | 14,373 | | | 13,463 | | | 17,563 |
Less net loss attributable to noncontrolling partners’ interests | | | 3,140 | | | 5,804 | | | 2,859 |
Net income attributable to Enviva Partners, LP | | $ | 17,513 | | $ | 19,267 | | $ | 20,422 |
Less: Predecessor loss to May 4, 2015 (prior to IPO) | | $ | — | | $ | — | | $ | (2,132) |
Less: Pre-acquisition income from April 10, 2015 to December 10, 2015 from operations of Enviva Pellets Southampton, LLC Drop-Down allocated to General Partner | | | — | | | — | | | 6,264 |
Less: Pre-acquisition loss from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | | | — | | | (3,231) | | | (1,815) |
Less: Pre-acquisition loss from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | | | (3,049) | | | (2,110) | | | (937) |
Enviva Partners, LP limited partners’ interest in net income | | $ | 20,562 | | $ | 24,608 | | $ | 19,042 |
Net income per limited partner common unit: | | | | | | | | | |
Basic | | $ | 0.65 | | $ | 0.95 | | $ | 0.80 |
Diluted | | $ | 0.61 | | $ | 0.91 | | $ | 0.79 |
Net income per limited partner subordinated unit: | | | | | | | | | |
Basic | | $ | 0.65 | | $ | 0.93 | | $ | 0.80 |
Diluted | | $ | 0.65 | | $ | 0.93 | | $ | 0.79 |
Weighted-average number of limited partner units outstanding: | | | | | | | | | |
Common—basic | | | 14,403 | | | 13,002 | | | 11,988 |
Common—diluted | | | 15,351 | | | 13,559 | | | 12,258 |
Subordinated—basic and diluted | | | 11,905 | | | 11,905 | | | 11,905 |
| | | | | | | | | |
(1) See Note 13, Related-Party Transactions | | | | | | | | | |
See accompanying notes to consolidated financial statements.
1
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Loss)
Years ended December 31,
2017, 2016, 20152020, 2019 and 2018
(In thousands) | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Net income (loss) | $ | 17,080 | | | $ | (2,943) | | | $ | 6,952 | |
| Other comprehensive income (loss), net of tax of $0: | | | | | |
| Net unrealized (losses) gains on cash flow hedges | 0 | | | (146) | | | 5,655 | |
| Reclassification of net gains on cash flow hedges realized into net income (loss) | (22) | | | (288) | | | (2,178) | |
| Currency translation adjustment | (19) | | | 0 | | | 2 | |
| Total other comprehensive (loss) income | (41) | | | (434) | | | 3,479 | |
| Total comprehensive income (loss) | $ | 17,039 | | | $ | (3,377) | | | $ | 10,431 | |
| | | | | | | | | |
| | | | | 2016 | | 2015 |
| | 2017 | | (Recast) | | (Recast) |
| | | | | | | | |
Net income | | $ | 14,373 | | $ | 13,463 | | $ | 17,563 |
Other comprehensive loss: | | | | | | | | | |
Net unrealized losses on cash flow hedges | | | (5,463) | | | (246) | | | — |
Reclassification of net losses realized into net income | | | 1,828 | | | — | | | — |
Total other comprehensive loss | | | (3,635) | | | (246) | | | — |
Total comprehensive income | | | 10,738 | | | 13,217 | | | 17,563 |
Less: | | | | | | | | | |
Predecessor loss prior to IPO | | | — | | | — | | | (2,132) |
Pre-acquisition income from April 10, 2015 to December 10, 2015 from operations of Enviva Pellets Southampton, LLC Drop-Down allocated to General Partner | | | — | | | — | | | 6,264 |
Pre-acquisition loss from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | | | — | | | (3,231) | | | (1,815) |
Pre-acquisition loss from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | | | (3,049) | | | (2,110) | | | (937) |
Total comprehensive income subsequent to IPO, Enviva Pellets Southampton, LLC Drop-Down, Enviva Pellets Sampson, LLC Drop-Down and Enviva Port of Wilmington, LLC Drop-Down | | | 13,787 | | | 18,558 | | | 16,183 |
Less: | | | | | | | | | |
Comprehensive loss attributable to noncontrolling partners’ interests | | | (3,140) | | | (5,804) | | | (2,859) |
Comprehensive income attributable to Enviva Partners, LP partners | | $ | 16,927 | | $ | 24,362 | | $ | 19,042 |
See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Changes in Partners’ Capital
Years ended December 31,
2017, 20162020, 2019 and
20152018
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Limited Partners’ Capital | | | | | | | | | |
| | | | | | | Common | | Common | | Subordinated | | Accumulated | | | | |
| | | | | General | | Units— | | Units— | | Units— | | Other | | Non- | | Total |
| | Net Parent | | Partner | | Public | | Sponsor | | Sponsor | | Comprehensive | | controlling | | Partners' |
| | Investment | | Interest | | Units | | Amount | | Units | | Amount | | Units | | Amount | | Income | | Interests | | Capital |
Partners' capital December 31, 2014 (Recast) | | | 271,495 | | | (1,661) | | — | | | — | | — | | | — | | — | | | — | | | — | | | 7,780 | | | 277,614 |
Contribution of Enviva Cottondale Acquisition II, LLC | | | 132,765 | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | 132,765 |
Expenses incurred by sponsor | | | 3,088 | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | 3,088 |
Net proceeds from IPO, net of deferred IPO costs | | | — | | | — | | 11,500 | | | 208,911 | | — | | | — | | — | | | — | | | — | | | — | | | 208,911 |
Distribution to sponsor associated with IPO | | | (176,702) | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (176,702) |
Allocation of net Parent investment to sponsor | | | (228,514) | | | — | | — | | | — | | 405 | | | 7,518 | | 11,905 | | | 220,996 | | | — | | | — | | | — |
Distribution to sponsor associated with Enviva Pellets Southampton, LLC Drop-Down | | | — | | | (46,637) | | — | | | — | | — | | | (3,015) | | — | | | (88,681) | | | — | | | — | | | (138,333) |
Issuance of units associated with Enviva Pellets Southampton, LLC Drop-Down | | | — | | | — | | — | | | — | | 942 | | | 15,000 | | — | | | — | | | — | | | — | | | 15,000 |
Issuance of units through Long-Term Incentive Plan | | | — | | | — | | 3 | | | 42 | | — | | | — | | — | | | — | | | — | | | — | | | 42 |
Distributions to unitholders and distribution equivalent rights | | | — | | | — | | — | | | (8,287) | | — | | | (285) | | — | | | (8,369) | | | — | | | — | | | (16,941) |
Non-cash Management Services Agreement expenses | | | — | | | — | | — | | | 662 | | — | | | — | | — | | | — | | | — | | | — | | | 662 |
Contribution of Enviva Pellets Sampson, LLC | | | — | | | 35,433 | | — | | | — | | — | | | — | | — | | | — | | | — | | | 36,267 | | | 71,700 |
Contribution of Enviva Port of Wilmington, LLC | | | — | | | 12,997 | | — | | | — | | — | | | — | | — | | | — | | | — | | | 13,304 | | | 26,301 |
Net (loss) income | | | (2,132) | | | 3,512 | | — | | | 9,160 | | — | | | 401 | | — | | | 9,481 | | | — | | | (2,859) | | | 17,563 |
Balance as of December 31, 2015 (Recast) | | | — | | | 3,644 | | 11,503 | | | 210,488 | | 1,347 | | | 19,619 | | 11,905 | | | 133,427 | | | — | | | 54,492 | | | 421,670 |
Cash distributions | | | — | | | (716) | | — | | | (24,779) | | — | | | (2,729) | | — | | | (24,107) | | | — | | | — | | | (52,331) |
Issuance of units associated with Enviva Pellets Sampson, LLC Drop-Down | | | — | | | — | | 1,098 | | | 30,000 | | — | | | — | | — | | | — | | | — | | | — | | | 30,000 |
Issuance of units through Long-Term Incentive Plan | | | — | | | — | | 21 | | | 411 | | — | | | — | | — | | | — | | | — | | | — | | | 411 |
Issuance of common units, net | | | — | | | — | | 359 | | | 8,929 | | — | | | — | | — | | | — | | | — | | | — | | | 8,929 |
Non-cash Management Services Agreement expenses | | | — | | | — | | — | | | 3,820 | | — | | | — | | — | | | — | | | — | | | — | | | 3,820 |
Contribution of Enviva Pellets Sampson, LLC | | | — | | | 95,391 | | — | | | — | | — | | | — | | — | | | — | | | — | | | (33,759) | | | 61,632 |
Distribution to sponsor | | | — | | | (138,505) | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (138,505) |
Excess consideration over Enviva Pellets Sampson, LLC net assets | | | — | | | (18,534) | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (18,534) |
Contribution of Enviva Port of Wilmington, LLC | | | — | | | 22,632 | | — | | | — | | — | | | — | | — | | | — | | | — | | | 23,080 | | | 45,712 |
Other comprehensive loss | | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | 595 | | | — | | | 595 |
Net (loss) income | | | — | | | (4,625) | | — | | | 11,033 | | — | | | 1,307 | | — | | | 11,552 | | | — | | | (5,804) | | | 13,463 |
Partners’ capital, December 31, 2016 (Recast) | | | — | | | (40,713) | | 12,981 | | | 239,902 | | 1,347 | | | 18,197 | | 11,905 | | | 120,872 | | | 595 | | | 38,009 | | | 376,862 |
Distributions to unitholders, distribution equivalent and incentive distribution rights | | | — | | | (2,630) | | — | | | (31,533) | | — | | | (3,065) | | — | | | (27,084) | | | — | | | — | | | (64,312) |
Issuance of units through Long-Term Incentive Plan | | | — | | | — | | 21 | | | 503 | | — | | | — | | — | | | — | | | — | | | — | | | 503 |
Issuance of common units, net | | | — | | | — | | 71 | | | 1,744 | | — | | | — | | — | | | — | | | — | | | — | | | 1,744 |
Non-cash Management Services Agreement expenses | | | — | | | 441 | | — | | | 4,511 | | — | | | — | | — | | | — | | | — | | | — | | | 4,952 |
Other comprehensive loss | | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | (3,635) | | | — | | | (3,635) |
Excess consideration over Enviva Pellets Sampson, LLC net assets | | | — | | | (744) | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (744) |
Contribution of Enviva Port of Wilmington, LLC Drop-Down | | | — | | | 29,513 | | — | | | — | | — | | | — | | — | | | — | | | — | | | (32,270) | | | (2,757) |
Enviva Port of Wilmington, LLC net assets | | | — | | | (73,335) | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (73,335) |
Excess consideration over Enviva Port of Wilmington, LLC net Assets | | | — | | | (40,683) | | — | | | — | | — | | | — | | — | | | — | | | — | | | — | | | (40,683) |
Enviva Pellets Wiggins, LLC dissolution | | | — | | | — | | — | | | — | | — | | | — | | — | | | — | | | — | | | (2,599) | | | (2,599) |
Net (loss) income | | | — | | | (418) | | — | | | 8,900 | | — | | | 918 | | — | | | 8,113 | | | — | | | (3,140) | | | 14,373 |
Partners’ capital, December 31, 2017 | | $ | — | | $ | (128,569) | | 13,073 | | $ | 224,027 | | 1,347 | | $ | 16,050 | | 11,905 | | $ | 101,901 | | $ | (3,040) | | $ | — | | $ | 210,369 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Limited Partners’ Capital | | | | | | |
| General Partner Interest | | Common
Units—
Public | | Common
Units—
Sponsor | | Subordinated
Units—
Sponsor | | Accumulated Other Comprehensive Income (loss) | | Non- controlling Interests | | Total Partners Capital |
| | Units | | Amount | | Units | | Amount | | Units | | Amount | | | |
| Partners’ capital, December 31, 2017 | $ | (128,569) | | | 13,073 | | | $ | 224,027 | | | 1,347 | | | $ | 16,050 | | | 11,905 | | | $ | 101,901 | | | $ | (3,040) | | | $ | 0 | | | $ | 210,369 | |
| Distributions to unitholders, distribution equivalent and incentive distribution rights | (5,326) | | | — | | | (38,241) | | | — | | | (15,845) | | | — | | | (14,822) | | | — | | | — | | | (74,234) | |
| Issuance of units through Long-Term Incentive Plan | (5,675) | | | 227 | | | 511 | | | (82) | | | (1,301) | | | — | | | — | | | — | | | — | | | (6,465) | |
| Issuance of common units, net | — | | | 8 | | | 241 | | | — | | | — | | | — | | | — | | | — | | | — | | | 241 | |
| Sale of common units | — | | | 1,265 | | | 13,335 | | | (1,265) | | | (13,335) | | | — | | | — | | | — | | | — | | | — | |
| Conversion of subordinated units to common units | — | | | — | | | — | | | 11,905 | | | 78,504 | | | (11,905) | | | (78,504) | | | — | | | — | | | — | |
| Non-cash Management Services Agreement expenses | 557 | | | — | | | 5,817 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,374 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,479 | | | — | | | 3,479 | |
| Net income (loss) | 5,326 | | | — | | | 1,922 | | | — | | | 8,279 | | | — | | | (8,575) | | | — | | | — | | | 6,952 | |
| Partners’ capital, December 31, 2018 | (133,687) | | | 14,573 | | | 207,612 | | | 11,905 | | | 72,352 | | | 0 | | | 0 | | | 439 | | | 0 | | | 146,716 | |
| Excess consideration over Enviva Wilmington Holdings, LLC net assets and initial recognition of its noncontrolling interest | 5,422 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (48,192) | | | (42,770) | |
| Distributions to unitholders, distribution equivalent and incentive distribution rights | (9,821) | | | — | | | (51,906) | | | — | | | (34,452) | | | — | | | — | | | — | | | — | | | (96,179) | |
| Issuance of units through Long-Term Incentive Plan | (1,882) | | | 97 | | | 72 | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,810) | |
| Issuance of common units, net | — | | | 5,200 | | | 146,278 | | | — | | | — | | | — | | | — | | | — | | | — | | | 146,278 | |
| Issuance of units associated with the Hamlet Drop-Down | — | | | — | | | — | | | 1,681 | | | 50,000 | | | — | | | — | | | — | | | — | | | 50,000 | |
| Non-cash Management Services Agreement expenses | 23,687 | | | — | | | 5,310 | | | — | | | — | | | — | | | — | | | — | | | — | | | 28,997 | |
| Reimbursable amounts under Make-Whole Agreement | 4,721 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,721 | |
| Cumulative effect of accounting change - derivative instruments | — | | | — | | | (10) | | | — | | | (8) | | | — | | | — | | | 18 | | | — | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (434) | | | — | | | (434) | |
| Net income (loss) | 9,821 | | | — | | | (7,172) | | | — | | | (5,592) | | | — | | | — | | | — | | | — | | | (2,943) | |
| Partners' capital, December 31, 2019 | (101,739) | | | 19,870 | | | 300,184 | | | 13,586 | | | 82,300 | | | 0 | | | 0 | | | 23 | | | (48,192) | | | 232,576 | |
| Excess consideration over Enviva Pellets Greenwood Holdings II, LLC net assets | (61,830) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (61,830) | |
| Distributions to unitholders, distribution equivalent and incentive distribution rights | (22,092) | | | — | | | (74,252) | | | — | | | (39,334) | | | — | | | — | | | — | | | — | | | (135,678) | |
| Issuance of units through Long-Term Incentive Plan | (4,374) | | | 186 | | | (572) | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,946) | |
| Issuance of common units, net | — | | | 6,154 | | | 190,529 | | | — | | | — | | | — | | | — | | | — | | | — | | | 190,529 | |
| Non-cash Management Services Agreement expenses | 25,539 | | | — | | | 12,798 | | | — | | | — | | | — | | | — | | | — | | | — | | | 38,337 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (41) | | | — | | | (41) | |
| Net income (loss) | 22,092 | | | — | | | (3,862) | | | — | | | (1,150) | | | — | | | — | | | — | | | — | | | 17,080 | |
| Partners’ capital, December 31, 2020 | $ | (142,404) | | | 26,210 | | | $ | 424,825 | | | 13,586 | | | $ | 41,816 | | | 0 | | | $ | 0 | | | $ | (18) | | | $ | (48,192) | | | $ | 276,027 | |
See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31,
2017, 20162020, 2019 and
20152018
(In thousands)
| | | | | | | | | |
| | | | | 2016 | | 2015 |
| | 2017 | | (Recast) | | (Recast) |
Cash flows from operating activities: | | | | | | | | | |
Net income | | $ | 14,373 | | $ | 13,463 | | $ | 17,563 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | |
Depreciation and amortization | | | 40,361 | | | 27,735 | | | 30,738 |
Amortization of debt issuance costs, debt premium and original issue discounts | | | 1,448 | | | 1,893 | | | 1,606 |
Impairment of inventory | | | — | | | 890 | | | — |
Impairment of assets held for sale | | | — | | | 9,991 | | | — |
General and administrative expense incurred by sponsor | | | — | | | — | | | 475 |
General and administrative expense incurred by the First Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down | | | — | | | 2,343 | | | 2,364 |
General and administrative expense incurred by the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down | | | 1,343 | | | 1,744 | | | 1,396 |
Allocation of income tax expense from Enviva Cottondale Acquisition I, LLC | | | — | | | — | | | 2,663 |
Early retirement of debt obligation | | | — | | | 4,438 | | | 4,699 |
Loss on assets held for sale | | | 827 | | | — | | | — |
Loss on disposal of assets | | | 4,899 | | | 2,386 | | | 2,081 |
Unit-based compensation | | | 5,014 | | | 4,230 | | | 704 |
De-designation of foreign currency forwards and options | | | 1,593 | | | — | | | — |
Unrealized loss on foreign currency transactions | | | (3) | | | — | | | — |
Change in fair value of interest rate swap derivatives | | | — | | | — | | | 23 |
Change in operating assets and liabilities: | | | | | | | | | |
Accounts receivable, net | | | (1,317) | | | (39,218) | | | (3,577) |
Related-party receivables | | | 1,577 | | | 237 | | | (176) |
Prepaid expenses and other assets | | | 341 | | | 768 | | | (115) |
Assets held for sale | | | (479) | | | — | | | — |
Inventories | | | 5,758 | | | (8,411) | | | (22) |
Other long-term assets | | | — | | | 6,698 | | | (6,051) |
Derivatives | | | (1,720) | | | (1,284) | | | — |
Accounts payable, accrued liabilities and other current liabilities | | | (2,331) | | | 19,379 | | | 6,718 |
Related-party payables | | | 15,733 | | | 3,625 | | | 4,121 |
Accrued interest | | | (1,330) | | | 4,433 | | | 105 |
Deferred revenue and deposits | | | — | | | (486) | | | 425 |
Other long-term liabilities | | | 1,008 | | | 950 | | | 117 |
Net cash provided by operating activities | | | 87,095 | | | 55,804 | | | 65,857 |
Cash flows from investing activities: | | | | | | | | | |
Purchases of property, plant and equipment | | | (28,744) | | | (112,887) | | | (100,216) |
Payment of acquisition related costs | | | — | | | — | | | (3,573) |
Proceeds from the sale of property, plant and equipment | | | 143 | | | 1,763 | | | 299 |
Net cash used in investing activities | | | (28,601) | | | (111,124) | | | (103,490) |
Cash flows from financing activities: | | | | | | | | | |
Principal payments on debt and capital lease obligations | | | (82,954) | | | (204,216) | | | (199,638) |
Principal payments on related-party debt | | | — | | | (3,391) | | | — |
Cash paid related to debt issuance costs | | | (540) | | | (6,390) | | | (6,287) |
Termination payment for interest rate swap derivatives | | | — | | | — | | | (146) |
Cash restricted for debt service | | | — | | | — | | | 11,640 |
IPO proceeds, net | | | — | | | — | | | 215,050 |
Distributions to sponsor | | | — | | | (5,002) | | | (297,185) |
Proceeds from common unit issuance under the At-the-Market Offering Program, net | | | 1,938 | | | 9,300 | | | — |
Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | | | (64,325) | | | (51,376) | | | (16,883) |
Proceeds from debt issuance | | | 131,952 | | | 349,500 | | | 230,140 |
Proceeds from contributions from sponsor | | | — | | | — | | | 12,387 |
Distribution to sponsor related to Enviva Pellets Sampson, LLC Drop-Down | | | — | | | (139,604) | | | — |
Proceeds from contributions from the First Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down | | | — | | | 61,972 | | | 68,059 |
Distributions to sponsor related to Enviva Port of Wilmington, LLC Drop-Down | | | (55,929) | | | — | | | — |
Contributions from sponsor related to Enviva Pellets Sampson, LLC Drop-Down | | | 1,652 | | | — | | | — |
Proceeds from contributions from the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down | | | 9,965 | | | 43,574 | | | 24,000 |
Payment of deferred offering costs | | | (195) | | | (709) | | | (1,964) |
Net cash (used in) provided by financing activities | | | (58,436) | | | 53,658 | | | 39,173 |
Net increase (decrease) in cash and cash equivalents | | | 58 | | | (1,662) | | | 1,540 |
Cash and cash equivalents, beginning of period | | | 466 | | | 2,128 | | | 588 |
Cash and cash equivalents, end of period | | $ | 524 | | $ | 466 | | $ | 2,128 |
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 17,080 | | | $ | (2,943) | | | $ | 6,952 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 77,471 | | | 51,581 | | | 40,745 | |
| MSA Fee Waivers | 23,400 | | | 22,600 | | | 0 | |
| Amortization of debt issuance costs, debt premium and original issue discounts | 1,905 | | | 1,243 | | | 1,093 | |
| Early retirement of debt obligation | 0 | | | 9,042 | | | 751 | |
| Loss on disposal of assets | 6,978 | | | 3,103 | | | 2,386 | |
| Unit-based compensation | 12,848 | | | 5,410 | | | 6,229 | |
| De-designation of foreign currency forwards and options | 0 | | | 0 | | | (1,947) | |
| Fair value changes in derivatives | 5,294 | | | 3,701 | | | (7,464) | |
| Unrealized gains on foreign currency transactions, net | 54 | | | 177 | | | 23 | |
| Change in operating assets and liabilities: | | | | | |
| Accounts and insurance receivables | (60,235) | | | (16,330) | | | 19,230 | |
| Related-party receivables | 2,722 | | | 1,392 | | | 2,720 | |
| Prepaid expenses and other current and long-term assets | (13,819) | | | (358) | | | (182) | |
| Inventories | 825 | | | (1,889) | | | (7,843) | |
| Derivatives | (249) | | | 1,770 | | | 4,907 | |
| Accounts payable, accrued liabilities and other current liabilities | 35,189 | | | 9,287 | | | 14,916 | |
| Related-party payables and accrued liabilities | 0 | | | (27,933) | | | 173 | |
| Deferred revenue | 780 | | | 3,887 | | | 0 | |
| Accrued interest | 15,343 | | | (5,148) | | | 367 | |
| Operating lease liabilities | (5,828) | | | (4,826) | | | 0 | |
| Other long-term liabilities | (423) | | | 94 | | | 997 | |
| Net cash provided by operating activities | 119,335 | | | 53,860 | | | 84,053 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | (100,106) | | | (111,269) | | | (27,132) | |
| Payments in relation to the Greenwood Drop-Down, net of cash acquired | (129,631) | | | 0 | | | 0 | |
| Payments in relation to the Georgia Biomass Acquisition, net of cash acquired | (163,299) | | | 0 | | | 0 | |
| Payment in relation to the Hamlet Drop-Down | 0 | | | (74,700) | | | 0 | |
| Insurance proceeds from property loss | 0 | | | 0 | | | 1,130 | |
| Other | (3,769) | | | 8,486 | | | 0 | |
| Net cash used in investing activities | (396,805) | | | (177,483) | | | (26,002) | |
| Cash flows from financing activities: | | | | | |
| Proceeds from senior secured revolving credit facility | 755,500 | | | 453,000 | | | 299,250 | |
| Principal payments on senior secured revolving credit facility | (635,500) | | | (526,000) | | | (226,250) | |
| Proceeds from debt issuance | 155,625 | | | 601,777 | | | 0 | |
| Principal payments on other long-term debt and finance lease obligations | (5,571) | | | (358,311) | | | (46,466) | |
| Cash paid related to debt issuance costs and deferred offering costs | (3,949) | | | (7,560) | | | (2,495) | |
| Proceeds from common unit issuances, net | 190,529 | | | 96,822 | | | 241 | |
| Payment of deferred consideration for Wilmington Drop-Down | 0 | | | (24,300) | | | 0 | |
| Distributions to unitholders, distribution equivalent rights and incentive distribution rights holder | (133,217) | | | (95,659) | | | (73,518) | |
| Payment to General Partner to purchase affiliate common units for Long-Term Incentive Plan vesting | 0 | | | 0 | | | (2,341) | |
| Payment for withholding tax associated with Long-Term Incentive Plan vesting | (4,996) | | | (1,910) | | | (4,536) | |
| Payments in relation to the Hamlet Drop-Down | (40,000) | | | (99) | | | 0 | |
| Cash paid for redemption premium from early retirement of debt | 0 | | | (7,544) | | | 0 | |
| Net cash provided by (used in) financing activities | 278,421 | | | 130,216 | | | (56,115) | |
| Net increase in cash, cash equivalents and restricted cash | 951 | | | 6,593 | | | 1,936 | |
| Cash, cash equivalents and restricted cash, beginning of period | 9,053 | | | 2,460 | | | 524 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 10,004 | | | $ | 9,053 | | | $ | 2,460 | |
See accompanying notes to consolidated financial statements.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Years ended December 31,
2017, 20162020, 2019 and
20152018
(In thousands)
| | | | | | | | | |
| | | | | 2016 | | 2015 |
| | 2017 | | (Recast) | | (Recast) |
Non-cash investing and financing activities: | | | | | | | | | |
The Partnership acquired property, plant and equipment in non-cash transactions as follows: | | | | | | | | | |
Property, plant and equipment acquired included in accounts payable and accrued liabilities | | $ | 2,653 | | $ | 14,255 | | $ | 23,222 |
Property, plant and equipment acquired under capital leases | | | 1,956 | | | 1,753 | | | 39 |
Property, plant and equipment transferred from inventories | | | 226 | | | 926 | | | 319 |
Contribution of Enviva Pellets Cottondale, LLC non-cash assets | | | — | | | — | | | 122,529 |
Transfer of Enviva Pellets Wiggins, LLC assets to assets held for sale | | | — | | | 13,035 | | | — |
Application of deferred IPO costs to partners' capital | | | — | | | — | | | 5,913 |
Related-party long-term debt transferred to third-party long-term debt | | | — | | | 14,757 | | | — |
Third-party long-term debt transferred to related-party long-term debt | | | — | | | 3,316 | | | — |
Deferred consideration to sponsor included in long-term related-party payable | | | 74,000 | | | — | | | — |
Retained matters from the First Hancock JV included in related-party receivables | | | 585 | | | — | | | — |
Distributions included in liabilities | | | 741 | | | 955 | | | 58 |
Application of short-term deposit to fixed assets | | | 258 | | | — | | | — |
Distribution due to sponsor | | | — | | | — | | | 5,002 |
Debt issuance costs included in accrued liabilities | | | — | | | 139 | | | 36 |
Distribution of Enviva Pellets Cottondale, LLC assets to sponsor | | | — | | | — | | | 319 |
Non-cash adjustments to financed insurance and prepaid expenses | | | — | | | — | | | 105 |
Application of sales tax accrual to fixed assets | | | — | | | — | | | 73 |
Contribution to tax accounts of sponsor | | | — | | | — | | | 35 |
Depreciation capitalized to inventories | | | (427) | | | 344 | | | 211 |
Due from the First Hancock JV for Enviva Pellets Sampson, LLC Drop-Down | | | — | | | 1,652 | | | — |
Non-cash capital contributions from sponsor | | | — | | | — | | | 339 |
Non-cash capital contributions from the First Hancock JV prior to Enviva Pellets Sampson, LLC Drop-Down | | | — | | | 8,230 | | | 1,277 |
Non-cash capital contributions from the First Hancock JV prior to Enviva Port of Wilmington, LLC Drop-Down | | | — | | | 393 | | | 906 |
Supplemental information: | | | | | | | | | |
Interest paid | | $ | 31,513 | | $ | 11,191 | | $ | 9,935 |
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Non-cash investing and financing activities: | | | | | |
| Common unit issuance for deferred consideration for Wilmington Drop-Down | $ | 0 | | | $ | 49,700 | | | $ | 0 | |
| Common unit issuance for the Hamlet Drop-Down | 0 | | | 50,000 | | | 0 | |
| | | | | |
| Property, plant and equipment acquired included in accounts payable and accrued liabilities | 16,197 | | | 3,421 | | | 8,939 | |
| Property, plant and equipment acquired under finance leases | 12,487 | | | 6,493 | | | 3,512 | |
| Deferred consideration to sponsor included in related-party payable | 0 | | | 40,000 | | | 0 | |
| Conversion of subordinated units to common units | 0 | | | 0 | | | 78,504 | |
| Transfer of Enviva Port of Wilmington, LLC Drop-Down consideration to short-term | 0 | | | 0 | | | 74,000 | |
| Supplemental information: | | | | | |
| Interest paid, net of capitalized interest | $ | 22,150 | | | $ | 41,190 | | | $ | 35,222 | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(1) Description of Business and
BasisBasis of PresentationEnviva Partners, LP
(the(together with its subsidiaries, “we,” “us,” “our,” or the “Partnership”) is a
publicly traded Delaware limited partnership formed on November 12, 2013 as a wholly owned subsidiary of Enviva Holdings, LP (together with its wholly owned subsidiaries Enviva MLP Holdco, LLC and Enviva Development Holdings, LLC, where applicable, the “sponsor”). Enviva Partners GP, LLC, a wholly owned subsidiary of Enviva Holdings, LP, is the General Partner (the “General Partner”) of the Partnership.
Through its interests in Enviva, LP and its subsidiaries (other than Enviva Pellets Cottondale, LLC) (the “Predecessor”) and Enviva GP, LLC, the general partner of Enviva, LP, the Partnership supplies utility-grade wood pellets primarily to major power generators under long-term, take-or-pay off-take contracts. The Partnership procuresWe procure wood fiber and
processesprocess it into utility-grade wood pellets and
loadsload the finished wood pellets into railcars, trucks and barges
that are transportedfor transportation to deep-water marine terminals, where they are received, stored and ultimately loaded onto oceangoing vessels for
transportdelivery under long-term, take-or-pay off-take contracts to
our customers principally in the
Partnership’s principally European customers.The Partnership ownsUnited Kingdom (the “U.K.”) and operates sixEurope and increasingly Japan.
We own and operate 9 industrial-scale wood pellet production plants located in the
Mid-Atlantic and Gulf Coast regions ofSoutheastern United States. In addition to the
United States.volumes from our plants, we also procure wood pellets from third parties. Wood pellets are exported from
the Partnership’sour wholly owned deep-water marine terminals
inat the Port of Chesapeake, Virginia (the “Chesapeake terminal”) and
terminal assets at the Port of Wilmington, North Carolina (the “Wilmington terminal”)
, and from third-party deep-water marine terminals in Mobile, Alabama,
and Panama City, Florida
and Savannah, Georgia under a short-term
andcontract, a long-term contract
respectively. The Partnership acquired the Wilmington terminal from a joint venture between the sponsor and certain affiliates of John Hancock Life Insurance Company (U.S.A.) (the “First Hancock JV”) controlled by our sponsor on October 2, 2017 (see Note 4, Transactions Between Entities Under Common Control).Basis of Presentation
On January 5, 2015, the sponsor acquired Green Circle, which owned the wood pellet production plant located in Cottondale, Florida (the “Cottondale plant”). The sponsor converted Green Circle into a Delaware limited liability company and changed the name of the entity to “Enviva Pellets Cottondale, LLC.”
In April 2015, the Partnership became the owner of the Predecessor, Enviva GP, LLC and Enviva Cottondale Acquisition II, LLC (“Acquisition II”), the former owner of Enviva Pellets Cottondale, LLC (“Cottondale”) through a contribution by the sponsor. The primary assets contributed to the Partnership by the sponsor included five industrial-scale wood pellet production plants, a wholly owned deep-water marine terminal and long-term contractual arrangements to sell the wood pellets produced at the plants to third parties and associated shipping contracts.
On May 4, 2015, the Partnership completed its IPO (see Note 2, Initial Public Offering). In connection with the IPO, under a contribution agreement between the sponsor, Enviva MLP Holdco, LLC, Enviva Cottondale Acquisition I, LLC, a wholly owned subsidiary of the sponsor, the Predecessor and the Partnership, Acquisition II merged into the Partnership and the Partnership contributed its interest in Cottondale to the Predecessor. Cottondale was contributed by the sponsor in exchange for subordinated units representing limited partner interests in the Partnership.
On December 11, 2015, under the terms of a contribution agreement between the Partnership and the First Hancock JV, the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Pellets Southampton, LLC (“Southampton”) for total consideration of $131.0 million. The acquisition (the “Southampton Drop-Down”) included a wood pellet production plant in Southampton County, Virginia (the “Southampton plant”), a ten-year 500,000 metric tons per year (“MTPY”) take-or-pay off-take contract and a related third-party ten-year shipping contract. The Partnership accounted for the Southampton Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to December 11, 2015 were retrospectively recast to reflect the
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amountslease and unless otherwise noted)
acquisition as if it had occurred on April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV.
On December 14, 2016, under the terms of a contribution agreement between the Partnership and the First Hancock JV (the “Sampson Contribution Agreement”), the First Hancock JV sold to the Partnership all of the issued and outstanding limited liability company interests in Enviva Pellets Sampson, LLC (“Sampson”) for total consideration of $175.0 million. Sampson owns a wood pellet production plant in Sampson County, North Carolina (the “Sampson plant”). The acquisition (the “Sampson Drop-Down”) included the Sampson plant, an approximate ten-year, 420,000 MTPY take-or-pay off-take contract with Ørsted Bioenergy & Thermal Power A/S (formerly “DONG Energy Thermal Power A/S”), an approximate 15-year, 95,000 MTPY off-take contract with the First Hancock JV and related third-party shipping contracts. The Sampson Drop-Down included the payment of $139.6 million in cash, net of a purchase price adjustment of $5.4 million, to the First Hancock JV, the issuance of 1,098,415 unregistered common units at a value of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company (U.S.A.), and the elimination of $1.2 million of net related-party receivables and payables included in the net assets on the date of acquisition. The Partnership accounted for the Sampson Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to December 14, 2016 were retrospectively recast to reflect the Sampson Drop-Down as if it had occurred on May 15, 2013, the date Sampson was originally organized.
On October 2, 2017, pursuant to the terms of a contribution agreement between the Partnership and the First Hancock JV (the “Wilmington Contribution Agreement”), the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”), which owns the Wilmington terminal assets. The purchase price, which was $130.0 million, included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The initial payment was funded with borrowings from revolving credit commitments (see Note 12, Long-Term Debt and Capital Lease Obligations) and cash on hand. The acquisition (the “Wilmington Drop-Down”) included the Wilmington terminal and a long-termassociated terminal services agreement, with the Partnership’s sponsor to handle throughput volumes sourced by the sponsor from a wood pellet production plant in Greenwood, South Carolina (see Note 13, Related-Party Transactions). The terminal services agreement with the sponsor provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met. The Wilmington terminal will handle up to approximately 600,000 MTPYrespectively.
Basis of
throughput from the Sampson plant.In addition, the Wilmington Contribution Agreement contemplates that Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First Hancock JV’s proposed production plant in Hamlet, North Carolina (the “Hamlet plant”) when the First Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirements are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV will enter into the Wilmington Hamlet TSA and the Partnership will make a final payment of $74.0 million in cash or common units to the First Hancock JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down. At December 31, 2017, the $74.0 million is included in related-party long-term payable on the consolidated balance sheets.
Wilmington also entered into a throughput option agreement with the sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by one of the sponsor’s potential wood pellet production plants.
The Partnership accounted for the Wilmington Drop-Down as a combination of entities under common control at historical cost in a manner similar to a pooling of interests. Accordingly, the consolidated financial statements for the periods prior to October 2, 2017, have been retrospectively recast to reflect the acquisition of the First Hancock JV’s
Presentation ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
interests in Wilmington as if it had occurred on May 15, 2013, the date Wilmington was originally organized (see Note 4, Transactions Between Entities Under Common Control).
Prior to December 28, 2017, the Partnership held a controlling interest in Enviva Pellet, LLC (“Wiggins”), which owned a wood pellet plant in Stone County, Mississippi (the “Wiggins plant”). On December 27, 2017, the Partnership sold the Wiggins plant to a third party buyer for a purchase price of $0.4 million and recorded a loss on the sale of $0.8 million, net, upon deconsolidation. On December 28, 2017 Wiggins was dissolved.
As of December 31, 2017, the Partnership has 100% ownership of the following:
| ·
| | Enviva Partners Finance Corp. (“Enviva Finance Corp.”), a wholly owned subsidiary of the Partnership formed on October 3, 2016 for the purpose of being a co-issuer of some of the Partnership’s indebtedness
|
The Partnership has 99.999% ownership of Enviva, LP
Enviva GP, LLC has 0.001% ownership of Enviva, LP
Enviva, LP has 100% ownership of the following:
Enviva Pellets Amory, LLC (“Enviva Pellets Amory”)
Enviva Pellets Ahoskie, LLC
Enviva Port of Chesapeake, LLC
Enviva Pellets Northampton, LLC
Enviva Pellets Southampton, LLC (“Southampton”)
Enviva Pellets Cottondale, LLC (“Cottondale”)
Enviva Materials, LLC
Enviva Energy Services, LLC
Enviva Pellets Perkinston, LLC
Enviva Pellets Sampson, LLC (“Sampson”)
Enviva Port of Wilmington, LLC (“Wilmington”)
Enviva Port of Panama City, LLC
Enviva MLP International Holdings, LLC
Enviva, LP has 99% ownership of the following:
Enviva Energy Services Coöperatief, U.A.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Enviva MLP International Holdings has 100% ownership of the following:
Enviva Energy Services (Jersey), Limited
Enviva MLP International Holdings has 1% ownership of the following:
Enviva Energy Services Coöperatief, U.A.
The accompanying consolidated financial statements (“financial statements”) include the accounts of the Predecessor and its subsidiaries and were prepared using the Predecessor’s historical basis. Prior to the IPO, certain of the assets and liabilities of the Predecessor were transferred to the Partnership within the sponsor’s consolidated group in a transaction under common control and, as such, the consolidated historical financial statements of the Predecessor are presented as the Partnership’s historical financial statements as the Partnership believes they provide a representation of management’s ability to execute and manage its business plan. The financial statements include all revenues, costs, assets and liabilities attributed to the Predecessor. The financial statements for periods prior to April 9, 2015, have been retroactively recast to reflect the contribution of the sponsor’s interests in the Predecessor and Enviva GP, LLC as if the contributions had occurred at the beginning of the periods presented and the contribution of the sponsor’s interests in Acquisition II as if the contribution occurred on January 5, 2015, the date Acquisition II was acquired by the sponsor. The financial statements for the periods prior to December 14, 2016, have been retroactively recast to reflect the acquisition of the First Hancock JV’s interests in Sampson and Wilmington as if the contributions occurred on May 15, 2013, the date Sampson and Wilmington were originally organized.
(2) Initial Public Offering
On May 4, 2015, the Partnership completed an initial public offering (“IPO”) of 11,500,000 common units, which included a 1,500,000 common unit over-allotment option that was exercised in full by the underwriters at a price to the public of $20.00 per unit ($18.80 per common unit, net of underwriting discounts and commissions) and constituting approximately 48.3% of the Partnership’s outstanding limited partner interests. The net proceeds from the IPO of approximately $215.1 million after deducting the underwriting discount and structuring fee were used to (i) repay intercompany indebtedness related to the acquisition of Green Circle in the amount of approximately $83.0 million and (ii) distribute approximately $86.7 million to the sponsor related to its contribution of assets to the Partnership in connection with the IPO, with the Partnership retaining $45.4 million for general partnership purposes, including offering expenses.
(3) Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
TheOur consolidated financial statements include
theall accounts of the Partnership and its wholly owned and controlled subsidiaries. All intercompany accounts and transactions have been eliminated.
Reclassifications
We operate and manage our business as 1 operating segment.
Reclassification
Certain prior periodyear amounts related to loss on disposal of assets have been reclassified to cost of goods sold from general and administrative expenses to related-party management services agreement (“MSA”) fees to conform to current period presentation. Certain prior period amounts related to the contribution of Sampson included in general partner interest have been reclassifiedpresentation on the consolidated statements of changesoperations.
Enviva Pellets Greenwood
On July 1, 2020, we acquired from our sponsor all of the limited liability company interests in partners’ capitalEnviva Pellets Greenwood Holdings II, LLC, the indirect owner of Enviva Pellets Greenwood, LLC (“Greenwood”), which owns a wood pellet production plant located in Greenwood, South Carolina (the “Greenwood plant”), for a purchase price of $132.0 million, subject to non-controlling interests fromcertain adjustments (such transaction, the general partner interest“Greenwood Drop-Down”). On the date of and in connection with the Greenwood Drop-Down, our sponsor assigned five biomass off-take contracts to conformus (collectively, the “Associated Off-Take Contracts”). The Associated Off-Take Contracts call for aggregate annual deliveries of 1.4 million metric tons per year (“MTPY”) and mature between 2031 and 2041. Our sponsor also assigned two fixed-rate shipping contracts and partially assigned two additional fixed-rate shipping contracts to currentus.
The Greenwood Drop-Down was an asset acquisition between entities under common control and accounted for on the carryover basis of accounting. Accordingly, the consolidated financial statements for the period presentation.beginning July 1, 2020 reflect the acquisition. See Note 3, Transactions Between Entities Under Common Control. On the date of the Greenwood Drop-Down:
•We entered into an agreement with our sponsor, pursuant to which our sponsor agreed to reimburse us for any construction costs incurred for the planned expansion of the Greenwood plant in excess of $28.0 million (the “Greenwood Make-Whole Agreement”).•We entered into an agreement with Enviva Management Company, LLC, a Delaware limited liability company and wholly owned subsidiary of our sponsor (together with its affiliates that provide services to us, as applicable, “Enviva Management Company”), pursuant to which (1) Enviva Management Company waived our obligation to pay an aggregate of approximately $37.0 million in management services and other fees payable under our management
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
services agreement with Enviva Management Company for the period from July 1, 2020 through the fourth quarter of 2021 and (2) Enviva Management Company will waive our obligation to pay certain management services and other fees during 2022 unless and until the Greenwood plant’s production volumes equal or exceed 50,000 metric tons (“MT”) in any calendar month, in each case, to provide cash flow support to us during the planned expansion of the Greenwood plant (the “Third EVA MSA Fee Waiver”).
Georgia Biomass Holding LLC
On July 31, 2020, Enviva Pellets Waycross Holdings, LLC, a wholly owned subsidiary of the Partnership, acquired all of the limited liability company interests in Georgia Biomass Holding LLC, a Georgia limited liability company (“Georgia Biomass”), and the indirect owner of a wood pellet production plant located in Waycross, Georgia (the “Waycross plant”), for a purchase price of $175.0 million, subject to certain adjustments (the “Georgia Biomass Acquisition”). In August 2020, Georgia Biomass converted to a limited liability company organized under the laws of the State of Delaware under the name Enviva Pellets Waycross Holdings Sub, LLC.
The Georgia Biomass Acquisition was recorded as a business combination and accounted for using the acquisition method. Assets acquired and liabilities assumed were recognized at fair value on the acquisition date of July 31, 2020, and the difference between the consideration transferred, excluding acquisition-related costs, and the fair values of the assets acquired and liabilities assumed was recognized as goodwill. See Note 4, Acquisition.
Enviva Wilmington Holdings, LLC
On April 2, 2019, we acquired (the “Hamlet Drop-Down”) from our sponsor all of the issued and outstanding Class B Units in Enviva Wilmington Holdings, LLC (the “Hamlet JV”), a limited liability company owned by our sponsor and John Hancock Life Insurance Company (U.S.A.) and certain of its affiliates (collectively, as applicable, “John Hancock”). On the date of acquisition, we began to consolidate the Hamlet JV as a variable interest entity of which we are the primary beneficiary. As managing member, we have the sole power to direct the activities that most impact the economics of the Hamlet JV. Additionally, as the Class B Units represent a controlling interest in the Hamlet JV, we account for the Hamlet JV as a consolidated subsidiary, not as a joint venture. The Hamlet JV owns a wood pellet production plant in Hamlet, North Carolina (the “Hamlet plant”) and a firm, 15-year take-or-pay off-take contract with a customer for the delivery of nearly 1.0 million MTPY of wood pellets, following a ramp period. The Hamlet Drop-Down was an asset acquisition between entities under common control and accounted for on the carryover basis of accounting. Accordingly, the consolidated financial statements for the period beginning April 2019 reflect the acquisition. See Note 3, Transactions Between Entities Under Common Control.
(2) Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Business Combinations
Since the required adoption of Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), on January 1, 2018, determining whether an entity has acquired a business or an asset (or a group of assets) is critical because the accounting for a business combination differs significantly from that of an asset acquisition. For transfers between entities under common control, the transfer of a business would represent a change in reporting entity requiring a retrospective adjustment of the combined financial statements. Conversely, a common control transaction involving the transfer of net assets that does not constitute a business is not accounted for as a change in reporting entity and is, therefore, accounted for prospectively. For an acquisition of a business from an entity not under common control, the overall principle is that, when an entity (the acquirer) takes control of another entity (the target), the fair value of the underlying exchange transaction is used to establish a new accounting basis for the acquired entity where the acquirer recognizes and measures the assets acquired and liabilities assumed at their full fair values as of the date control is obtained. For an acquisition of an asset from an entity not under common control, a cost accumulation and allocation model is used under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
We must first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. Gross assets acquired should exclude cash and cash equivalents, deferred tax assets and goodwill resulting from the effects of deferred tax liabilities. However, the gross assets acquired should include any consideration transferred (plus the fair value of any noncontrolling interest and previously held interest, if any) in excess of the fair value of net identifiable assets acquired. A tangible asset that is attached to and cannot be physically removed and used separately from another tangible asset (or an intangible asset representing the right to use a tangible asset) without incurring significant cost or significant diminution in utility or fair value to either asset (for example, land and building) should be considered a single asset. In that context, we consider a wood pellet production facility to be a single identifiable asset.
We need to apply judgment to determine what is considered “substantially all” because ASU 2017-01 does not provide a bright line for making this assessment. If the “substantially all” threshold is met, the acquired set of assets and activities is not a business. If that threshold is not met, we must evaluate whether the set meets the definition of a business, which consists of inputs and at least one substantive process applied to those inputs that have the ability to contribute to the creation of outputs. If that threshold is not met but the set does not meet the definition of a business, the acquisition would be an asset acquisition.
A business combination is an acquisition of a business from an entity not under common control and is accounted for using the acquisition method. Identifiable assets acquired and liabilities assumed are recognized at fair value on the acquisition date. Goodwill is calculated as the excess of the fair value of the consideration transferred, which excludes acquisition-related costs that are expensed, over the fair value of the net assets recognized and represents the future economic benefits arising from other net assets acquired that could not be individually identified and separately recognized. Fair value measurements may require us to make significant estimates and assumptions. A measurement period, which could be up to one year from the date of acquisition, exists to identify and measure the assets acquired and the liabilities assumed. During the measurement period, provisional amounts may be recognized and those amounts may subsequently be prospectively adjusted to reflect any new information about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of these amounts. At the end of the measurement period, any subsequent changes would not be recognized under the acquisition method but would instead follow other accounting principles, which would then generally impact earnings.
Common Control Transactions
Assets and businesses acquired from
the Partnership’sour sponsor and its controlled subsidiaries are accounted for as common control
transactions wherebytransactions. For assets acquired in a common control transaction, net assets acquired are accounted for on the carryover basis of accounting and consolidated prospectively as of the transaction date. For businesses acquired in a common control transaction, the net assets acquired are combined at their historical costs and
the Partnership’s consolidated financial statementsprior periods are
adjusted retrospectivelyrecast with historical net equity amounts prior to
reflect the transaction
as if it occurred ondate are attributed to the
earliest date during which the entities were under common control.General Partner and any noncontrolling partner interest at carryover basis. If any recognized consideration transferred in such a transaction exceeds the carrying value of the net assets acquired, the excess is treated as a capital distribution to the General Partner. If the carrying value of the net assets acquired exceeds any recognized consideration transferred including, if applicable, the fair value of any limited partner units issued, then that excess is treated as a capital contribution from the General Partner.
To the extent that such transactions require prior periods to be recast, historical net equity amounts prior to the transaction date are attributed to the General Partner and any noncontrolling partner interest at the historical amount.As the acquisition of Cottondale, the Southampton Drop-Down, the Sampson Drop-Down and the Wilmington Drop-Down represented transfers of entities under common control, the consolidated financial statements and related information presented have been recast to include the historical results of Cottondale effective January 5, 2015, the date the Partnership’s sponsor acquired Acquisition II, Southampton effective April 9, 2015, the date Southampton was originally conveyed to the First Hancock JV and Sampson and Wilmington effective May 15, 2013, the date Sampson and Wilmington were originally organized.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the Partnership’s consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
Segment and Geographic Information
Operating segments are defined as components of an enterprise about which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Partnership views its operations and manages its business as one operating segment. All long-lived assets of the Partnership are located in the United States.
Other Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, and gains and losses that under GAAP are included in comprehensive income (loss) but excluded from net income (loss).
The Partnership’s otherOther comprehensive income
(loss) consists of
net unrealized gains and losses related to derivative instruments accounted for as cash flow
hedges.hedges and foreign currency translation adjustments.ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Cash and Cash Equivalents
Cash and cash equivalents consist of short-term, highly liquid investments readily convertible into cash with an original maturity of three months or less.
Accounts receivable represent amounts billed that are recorded at the invoiced amount and billable under our contracts that are pending finalization of prerequisite billing documentation and do not bear interest. In establishing anAs of December 31, 2020 and 2019, we had 0 amounts in allowance for doubtful accounts management considersgiven the lack of historical credit losses adjustedand no current expectations of credit losses.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to take into account current market conditionsConsolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and
customers’ financial condition, the amount of receivables in dispute, the current receivables aging and current payment patterns. The Partnership does not have any off-balance-sheet credit exposure related to its customers.unless otherwise noted)
Inventories consist of raw materials, work-in-progress, consumable tooling and finished goods. Fixed production overhead, including related depreciation expense, is allocated to inventory based on the normal production capacity of the facilities. To the extent
the Partnership doeswe do not achieve normal production levels,
the Partnership chargeswe charge such
under absorptionunder-absorption of fixed overhead to cost of
salesgoods sold in the period incurred.
Consumable tooling consists of spare parts and tooling to be consumed in the production process. Spare parts are expected to be used within a year and are expensed as used. Tooling items are amortized to expense over an estimated service life generally less than one year.
Inventories are stated at the lower of cost or
marketnet realizable value using the first-in, first-out method (“FIFO”) for all inventories.
Raw material, production and distribution costs associated with delivering wood pellets to marine terminals and third- and related-party wood pellet purchase costs are capitalized as a component of inventory. These costs and the finished production overhead allocated to inventory are reflected in cost of goods sold when inventory is sold.
Intangibles
Intangibles primarily consist of favorable or unfavorable customer contracts and an unfavorable shipping contact that were acquired in the Georgia Biomass Acquisition. Intangibles with definite lives are amortized based on the pattern of economic benefit over their estimated useful lives, which are reviewed annually. The intangibles acquired in the Georgia Biomass Acquisition are being amortized on a straight-line basis, as MT of wood pellets to be sold or shipped under each contract are constant through the end of such contracts. See Note 13, Goodwill and Other Intangibles.
Revenue Recognition
The Partnership
We primarily
earnsearn revenue by supplying wood pellets to
its customers under off-take contracts, the majority of the commitments under which are long-term in nature.
The Partnership refers to the structure of itsOur off-take contracts
asare considered “take-or-pay” because they include a firm obligation of the customer to take a fixed quantity of product at a stated price and provisions that
ensure the Partnership willrequire that we be compensated in the case of a customer’s failure to accept all or a part of the contracted volumes or
for termination
of a contract by a customer. Each
contract definesof our long-term off-take contracts define the annual volume of wood pellets that a customer is required to purchase, and
the Partnership iswe are required to sell, the fixed price per
metric tonMT for product satisfying a base net calorific value and other technical specifications. These prices are
generally fixed for the entire term,
however, some may be subject to
adjustments which may include annual inflation-based adjustments
andor price escalators,
price adjustments for product specifications, as well as, in some instances, price adjustments
for product specifications anddue to changes in underlying
costs, which have historically been immaterial.indices. In addition to sales of
the Partnership’sour product under these long-term
take-or-payoff-take contracts,
the Partnershipwe routinely
sellssell wood pellets under shorter-term contracts, which range in volume and tenor and, in some cases, may include only one specific shipment. Because each of
the Partnership’sour off-take contracts is a bilaterally negotiated agreement,
the Partnership’sour revenue over the duration of
thesesuch contracts does not generally follow
spotobservable current market pricing trends.
The Partnership’sOur performance obligations under these contracts are the delivery of wood pellets, which we aggregate into MT. We account for each MT as a single performance obligation. Our revenue from the
salesales of wood pellets
we produce is recognized as
“Product Sales”product sales upon satisfaction of our performance obligation when
title and risk of loss has passedcontrol transfers to the customer
at the
sales price to the customer is fixed and determinable, and collectability is reasonably assured.time of loading wood pellets onto a ship.
Depending on the specific off‑take contract, shipping terms are either CIF, CFRCost, Insurance and Freight (“CIF”), Cost and Freight (“CFR”) or FOB.Free on Board (“FOB”). Under a CIF contract, we procure and pay for shipping costs, which include insurance and all other charges, up to the port of destination for the customer. Under a CFR contract, we procure and pay for shipping costs, which include insurance (excluding marine cargo insurance) and all other charges, up to the port of destination for the customer. Shipping costs under CIF and CFR contracts after control has passed to the customer is considered a fulfillment activity rather than a performance obligation and associated expenses are included in the price to the customer and, as such, are included in revenue and cost of goods sold. customer. Under FOB contracts, the customer is directly responsible for shipping costs. Our customer shipping terms,
In some cases, we may purchase shipments of product from third-party suppliers and resell them to other parties in back-to-back transactions (“purchase and sale transactions”). We recognize revenue on a gross basis in product sales when we determine that we act as wella principal by having control of the wood pellets before they are transferred to the customer. Indicators of control have included being primarily responsible for fulfilling the promise to provide the wood pellets (such as by contracting to sell wood pellets before contracting to buy them), having inventory risk, or having discretion in establishing the
sales price for the wood pellets. The decision as to whether to recognize revenue on a gross or net basis requires significant judgment.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
timing and size of shipments during the year, can result in material fluctuations in our revenue recognized between periods but generally have little impact on gross margin.
In some cases, the Partnership may purchase shipments of product from third-party suppliers and resell them in back-to-back transactions that immediately transfer title and risk of loss to the ultimate purchaser. Thus, the revenue from these transactions is recorded net of costs paid to the third-party supplier. The Partnership records this revenue as “Other revenue.”
In instances when a customer requests the cancellation, deferral or acceleration of a shipment, the customer may pay a fee, including reimbursement of any incremental costs incurred by the Partnership, which is included in “Other revenue.”
Other revenue also includesWe recognize third- and related-party terminal services fees.
revenue ratably over the related contract term, which is included in other revenue. Terminal services are performance obligations that are satisfied over time, as customers simultaneously receive and consume the benefits of the terminal services we perform. The consideration is generally fixed for minimum quantities and any services above the minimum are generally billed based on a per-MT rate as variable consideration and recognized as services are performed. Any deficiency payments receivable and probable of being collected from a customer not meeting quarterly minimum throughput requirements are recognized during the related quarter in satisfaction of the related performance obligation.
Variable consideration from off-take contracts arises from several pricing features outlined in our off-take contracts, pursuant to which such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the wood pellets as measured both when the wood pellets are loaded onto ships and unloaded at the discharge port as well as certain other contractual adjustments.
Variable consideration from terminal services contracts arises from price increases based on agreed inflation indices and from above-minimum throughput quantities or services.
We allocate variable consideration under our off-take and terminal services contracts entirely to each performance obligation to which variable consideration relates. The estimate of variable consideration represents the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.
Under our off-take contracts, customers are obligated to pay the majority of the purchase price prior to the arrival of the ship at the customers’ discharge port. The remaining portion is paid after the wood pellets are unloaded at the discharge port. We generally recognize revenue prior to the issuance of an invoice to the customer.
In instances where we have contracts to exchange wood pellets held for sale in the ordinary course of business for similar wood pellets to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange, we account for these exchanges as nonmonetary transactions at the carrying amount of the wood pellets transferred, with no impact to revenue and with no net impact to cost of goods sold once an equal amount of wood pellets have been exchanged. For the sale of the wood pellets received to customers not parties to the exchange, we recognize product sales revenue as described above for off-take contracts. To the extent that these exchanges also include compensation to us for shipping wood pellets, we recognize it as product sales revenue as those wood pellets are loaded and we recognize the shipping costs in cost of goods sold.
Cost of goods sold includes the
costscost to produce and deliver wood pellets to
customers. Raw material, production and distributioncustomers, reimbursable shipping-related costs associated with
delivering wood pellets to our ownedspecific off-take contracts with CIF and
leased marine terminalsCFR shipping terms and
third‑costs associated with purchase and
related-party wood pellet purchase costs are capitalized as a component of inventory. Fixed production overhead, including the related depreciation expense, is allocated to inventory based on the normal capacity of the production plants. These costs are reflected in cost of goods sold when inventory is sold.sale transactions. Distribution costs associated with shipping wood pellets to customers
and amortization of favorable acquired customer contracts are expensed as incurred.
Inventory is recorded using FIFO, which requires the use of judgment and estimates. Given the nature of the inventory, theThe calculation of cost of goods sold is based on estimates used in the valuation of the FIFO inventory and in determining the specific composition of inventory that is sold to each customer.
Derivative Instruments
The Partnership uses derivative instruments
Accrued and other current liabilities
Accrued and other current liabilities primarily includes liabilities related to
partially offset its exposure to foreign currency exchange and interest rate risk. The Partnership enters into foreign currency forward and option contracts, a portionconstruction in progress, amounts related cost of
which have been designatedgoods sold such as
cash flow hedges, to offset foreign currency exchange risk on a portion of forecasted revenue and enters into interest rate swaps to offset the variable interest rate riskutility costs at our production facilities, distribution costs associated with
borrowings. The Partnership doesshipping wood pellets to customers, and costs associated with the purchase of wood fiber and wood pellets not
hold or issue derivative financial instruments for trading or speculative purposes.yet invoiced.
Derivative Instruments
Derivative instruments are classified as either assets or liabilities on a gross basis and carried at fair value and included in prepaid expenses and other current assets, other long-term assets, accrued and other current liabilities and . other long-term liabilities on the consolidated balance sheets. Changes inSince August 2018 and March 2020, we have no longer applied hedge accounting treatment to any foreign currency and interest rate derivatives, respectively. Derivative instruments that did not or ceased to qualify, or are no longer designated, as accounting hedges are adjusted to fair value are eitherthrough earnings in the current period.
To the extent hedge accounting had previously been applied, it was applied to qualifying cash flow hedges with unrealized changes in their fair value recognized as unrealized gains and losses in accumulated other comprehensive income in partners’ capital or net income depending on the nature of the underlying exposure, whether the derivative is formally designated as a hedge, and, if designated,to the extent to which the hedge is effective. To receive hedge accounting treatment, cash flow hedges mustthey could be highlyconsidered effective in offsetting changesaccordance with the accounting standards on derivatives and hedging applicable during those periods.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to
expected future cash flows on hedged transactions.Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The effective portion of
qualifying foreign currency
forward and option contracts designated as cash flow hedges
is reported as a component of accumulated other comprehensive income in partners’ capital andwas reclassified into revenue in the same period or periods during which the hedged revenue
affectsaffected earnings. The effective portion of
qualifying interest rate swaps
designated as cash flow hedges is reported as a component of accumulated other comprehensive income in partners’ capital andwas reclassified into interest expense in the same period or periods during which the hedged interest expense affects earnings.
The ineffective portion of cash flow hedges, if any, is recognized in earnings in the current period. The Partnership links all derivative instruments that are designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheets or to specific forecasted transactions.ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
To qualify for hedge accounting, the item to be hedged must cause an exposure risk and the Partnership must have an expectation that the related hedging instrument will be effective at reducing or mitigating that exposure. In accordance with the hedging requirements, the Partnership documents all hedging relationships at inception and includes a description of the risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, the method for assessing effectiveness of the hedging instrument in offsetting the hedged risk and the method of measuring any ineffectiveness. When an event or transaction occurs or the derivative contract expires or the forecasted transaction is no longer probable of occurring, hedge accounting is discontinued. The Partnership also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments are highly effective in offsetting changes in cash flows of hedged items. If it is determined that a derivative instrument has ceased to be a highly effective hedge, hedge accounting is discontinued prospectively.
Hedge effectiveness for foreign exchange forward contracts designated as cash flow hedges is assessed by comparing the change in the fair value of the hedge contract with the change in the fair value of the forecasted cash flows of the hedged item. For foreign exchange option contracts, hedge effectiveness is assessed based on the hedging instrument’s entire change in fair value. Hedge effectiveness for interest rate swaps is assessed by comparing the change in fair value of the swap with the change in the fair value of the hedged item due to changes in the benchmark interest rate.
Derivative instruments that do not qualify, or no longer qualify, as hedges are adjusted to fair value through earnings in the current period.
Foreign Currency Hedges
The Partnership may hedge a portion of its foreign currency exposure associated with revenue under off-take contracts not denominated in U.S. Dollars. The Partnership has designated a portion of its foreign currency forward contracts and foreign currency purchased options as cash flow hedges. These derivatives are used to hedge certain revenue transactions forecasted generally within the next 60-month period.
Interest Rate Hedges
The Partnership utilizes an interest rate swap to hedge its cash flow exposure to fluctuations in variable-based interest rates under borrowings. The Partnership entered into a pay-fixed, receive-variable interest rate swap in September 2016 to hedge the interest rate risk associated with Tranche A-1 and Tranche A-3 of the Senior Secured Credit Facilities. The Partnership discontinued hedge accounting as of December 14, 2016 following the repayment of Tranche A-1 and A-3 of the Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations). Interest expense for the year ended December 31, 2017 included the reclassification of an insignificant amount representing the effective portion reported as a component of accumulated other comprehensive income.
The Predecessor previously used derivative financial instruments to manage its exposure to fluctuations in interest rates on long-term debt as required per the terms of the Prior Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations). The Predecessor recognized the interest rate swaps on the consolidated balance sheet at fair value. The Predecessor’s interest rate swap agreements were not designated as hedges; therefore, the gain or loss was recognized in the consolidated statement of income in interest expense. In connection with the repayment of the Prior Senior Secured Credit Facilities in April 2015 (see Note 12, Long-Term Debt and Capital Lease Obligations), the Predecessor terminated the interest rate swaps and paid a termination fee of $0.1 million.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, which includes the fair values of assets acquired. Equipment under capitalfinance leases is stated at the present value of minimum lease payments. Useful lives of assets are based on
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
historical experience and other relevant information. The useful lives of assets are adjusted when changes in the expected physical life of the asset, its planned use, technological advances, or other factors show that a different life would be more appropriate. Changes in useful lives are recognized prospectively.
Depreciation is calculated using the straight-line method based on the estimated useful lives of the related assets. Plant and equipment held under
capitalfinance leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.
Construction in progress primarily represents expenditures for the development and expansion of facilities. Capitalized interest cost and all direct costs, which include equipment and engineering costs related to the development and expansion of facilities, are capitalized as construction in progress. Depreciation is not recognized for amounts in construction in progress.
Normal repairs and maintenance costs are expensed as incurred. Amounts incurred that extend an asset’s useful life, increase its productivity or add production capacity are capitalized. Direct costs, such as outside labor, materials, internal payroll and benefit costs, incurred during the construction of a new plant are capitalized; indirect costs are not capitalized.
The principal useful lives are as follows:
| | | | | | | | |
Asset | | Estimated useful life |
Land improvements | | 15 to 17 years |
Buildings | | 5 to 40 years |
Machinery and equipment | | 2 to 25 years |
Vehicles | | 5 to 6 years |
Furniture and office equipment | | 2 to 10 years |
Leasehold improvements | | Shorter of estimated useful life or lease term, generally 10 years |
Costs and accumulated depreciation applicable to assets retired or sold are removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations.
Long-lived assets, such as property, plant and equipment and amortizable intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. There were no such indicators that would require impairment testing to be performed during the periods presented.
Leases
We have operating and finance leases related to real estate, machinery, equipment and other assets where we are the lessee. Operating leases with an initial term of 12 months or less are not recorded on the balance sheet but are recognized as lease expense on a straight-line basis over the applicable lease terms. Operating and finance leases with an initial term longer than 12 months are recorded on the balance sheet and classified as either operating or finance.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our leases do not contain any material residual value guarantees, restrictive covenants or subleases. In addition to fixed lease payments, we have contracts that incur variable lease expense related to usage (e.g. throughput fees, maintenance and repair and machine hours), which are expensed as incurred. Our leases have remaining terms of one to 27 years, some of which include options to extend the leases by up to 5 years. Our leases are generally noncancelable. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.
An incremental borrowing rate is applied to our leases for balance sheet measurement. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for a collateralized borrowing over a similar term of the lease payments as of the commencement date.
We adopted ASU 2016-02, Leases, on and as of January 1, 2019 using the modified retrospective transition method, which we applied to all leases existing at the date of initial application of the ASU. We elected to use the effective date as the date of initial application, as opposed to the beginning of the earliest comparative period presented in the financial statements; consequently, financial information and disclosures are not presented under the new standard for periods prior to January 1, 2019. We elected the package of three practical expedients under the transition guidance within the new standard, which permitted us to not reassess our prior conclusions under the previous guidance concerning lease identification, lease classification and initial direct leasing costs. We elected the practical expedient to not evaluate existing or expired land easements that were not accounted for as leases under previous guidance. We did not, however, elect the separate practical expedient pertaining to the use of hindsight in determining the lease term for existing leases.
For contracts that contain lease and nonlease components, nonlease components are separated and accounted for under other, relevant accounting standards. We made an accounting policy election to not separate nonlease components from lease components for heavy machinery and equipment.
Operating leases are included in operating lease ROU assets, accrued and other current liabilities and long-term operating lease liabilities on our consolidated balance sheets. Finance leases are included in property, plant and equipment, the current portion of long-term debt and finance lease obligations and long-term debt and finance lease obligations on our consolidated balance sheets. Changes in ROU assets and operating lease liabilities are included net in change in operating lease liabilities on the consolidated statement of
operations.cash flows.
Debt Issuance Costs and Original Issue
DiscountDiscounts and Premiums
Debt issuance costs represent legal fees, underwriter fees and other direct expenses associatedoriginal issue discounts and premiums incurred with securing the Partnership’s borrowings anddebt financing are capitalized and amortized over the life of the debt. Amortization expense is included in interest expense. If a debt instrument is retired before its scheduled maturity date, any related unamortized debt issuance costs and original issue discounts and premiums are written-off as gain or loss on debt extinguishment in the consolidated balance sheetssame period.
Unamortized debt issuance costs and original issue discounts and premiums related to a recognized debt liability are recognized as a direct deduction from the carrying amount of the related long-term
debt. Original issue discounts are recorded on the consolidated balance sheets within the carrying amount of long-term debt. Debt issuance costsdebt and
original issue discount are amortized
over the term of the related debt using
straight line amortization, which approximates the effective interest
rate method.
If a debt instrument is retired before its scheduled maturity date, any unamortizedUnamortized debt issuance costs
related to our revolving credit commitments are recognized as an asset and
original issue discount associated with that debt instrument are
expensed inamortized using the
same period. Debt issuance costs and original issue discount at December 31, 2017 and 2016, were $7.1 million and $7.8 million, respectively.Gains or losses on debt extinguishment include any associated unamortized debt issuance costs and original issue discount.
straight-line method.
Goodwill represents the purchase price paid for acquired businesses in excess of the identifiable acquired assets and assumed liabilities. Goodwill is not amortized but is tested for impairment annually and whenever an event occurs or circumstances change such that it is more likely than not that the fair value of the reporting unit is less than its carrying amounts. At December 31, 20172020 and 2016,2019, we identified the Partnership identified oneas having 1 reporting unit that corresponded to the
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Partnership’s oneour 1 reportable segment. The Partnership hasWe have selected the fourth fiscal quarterDecember 1 to perform itsour annual goodwill impairment test.
The Partnership first performs
For the years ended December 31, 2020 and 2019, we performed a qualitativequantitative assessment to determine whether it is necessary to perform quantitative testing. If this initial qualitative assessment indicates that it is more likely than not thatusing the fair value of a reporting unit is more than its carrying value, goodwill is not considered impairedmarket approach and the Partnership is not required to perform the two-step impairment test. Qualitative factors considered in this assessment include (i) macroeconomic conditions, (ii) past, current and projected future financial performance, (iii) industry and market considerations, (iv) changes in the costs of raw materials, fuel and labor and (v) entity-specific factors such as changes in management or customer base.If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, the Partnership will perform a two-step impairment test. Under the first step,determined the fair value of the reporting unit is compared withexceeded its carrying value (including goodwill). If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.
If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under Step 2, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill.
amount. For the yearsyear ended December 31, 2017 and 2016, the Partnership applied the2018, we performed a qualitative testassessment and determined that it was more likely than not that the estimated fair value of the reporting unit substantially exceeded the related carrying value and, accordingly, was not requiredof our reporting unit. There have been no impairments to apply the two-step impairment test. The Partnership did not record anycarrying value of the Partnership’s goodwill impairment forduring the years ended December 31, 2017 and 2016 (seeperiods presented. See Note 10, 13,
Goodwill and Other Intangible Assets)Intangibles.In making this qualitative analysis for the years ended December 31, 2017, and 2016, the Partnership evaluated the following economic factors:
| ·
| | The Partnership’s consolidated financial results reflect continued improved financial performance in 2017 compared to 2016 as reflected by increases in gross margin as well as the generation of positive net income in 2017 and 2016.
|
| ·
| | The Partnership continued its expansion with the Wilmington Drop-Down.
|
| ·
| | In 2017, the Partnership entered into agreements for incremental volumes with new and existing customers.
|
| ·
| | In October 2017, the Partnership issued $55.0 million in aggregate principal amount of 8.5% senior unsecured notes due 2021 at a premium of 106.25% to par value.
|
| ·
| | The Partnership’s market capitalization exceeds the carrying value of its net assets as of December 31, 2017.
|
Intangible Assets
In April 2015, the sponsor contributed net assets to the Partnership associated with the acquisition of Green Circle in January 2015, which included intangible assets related to favorable customer contracts (see Note 1, Description of Business and Basis of Presentation). The Partnership also recorded payments made to acquire a six-year wood pellet off-take contract with a European utility in 2010 as an intangible asset. These costs are recoverable through the future revenue streams generated from the customer contracts and are closely related to the revenue from the customer
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
contracts. These costs are recorded as an asset and charged to expense as the revenue is recognized (see Note 10, Goodwill and Other Intangible Assets). All other costs, such as general and administrative expenses and costs associated with the negotiation of a contract that is not consummated, are charged to expense as incurred.
Unit-Based Compensation
Employees, consultants and directors of the General Partner and any of its affiliates are eligible to receive equity awards and other forms of compensation under the Enviva Partners, LP Long-Term Incentive Plan. For accounting purposes, units granted to employees of the Partnership’s affiliates are treated as if they are distributed by the Partnership.Plan (the “LTIP”). Phantom units issued in
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
tandem with corresponding distribution equivalent rights (“DERs”) are granted to employees of Enviva Management whoCompany that provide services to the Partnershipus and to certain non-employeeindependent directors of the General Partner. ThesePhantom unit awards vest subject to the satisfaction of service requirements and/or the achievement of certain performance goals, following whichgoals. Once these conditions have been met, common units in the Partnership will be delivered to the holder of the phantom units. Affiliate entitiesFor accounting purposes, units granted to employees of our affiliates (excluding the General Partner, the Partnership and subsidiaries of the Partnership) are treated as if they were distributed by the Partnership. Such affiliates recognize compensation expense for the phantom units awarded to their employees, and a portion of that expensewhich is allocated to us under the PartnershipMSAs (see Note 13, 15, Related-Party Transactions-Management Services AgreementAgreements and Note 16, 18, Equity-Based Awards). The Partnership’sWe also recognize compensation expense for phantom units awarded to independent directors. As of December 31, 2020, we have the ability to settle certain of our outstanding unit-basedphantom unit awards do notunder the LTIP in either cash or common units at our election. As we have a cash optionthe ability to settle the awards in common units as of December 31, 2020 and areas we reasonably expect to be able to deliver common units at the settlement date, we have classified all of our outstanding phantom unit awards as equity on the Partnership’s consolidatedour balance sheets. The Partnership also recognizes compensation expense for units awarded to non-employee directors.Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment and amortizable intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that a long-lived asset or asset group be tested for possible impairment, the Partnership first compares undiscounted cash flows expected to be generated by that asset or asset group to such asset or asset group’s carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines,
and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Fair Value Measurements
The Partnership applies
We apply authoritative accounting guidance for fair value measurements of financial and nonfinancial assets and liabilities.
The Partnership usesWe use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible.
The Partnership determinesWe determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
| ·
| | Level 1 Inputs: Unadjusted, quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
|
| ·
| | Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
|
•Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.Income taxes
Substantially all of our operating subsidiaries are organized as limited partnerships and entities that are disregarded entities for U.S. federal and applicable state income tax purposes. As a result, those entities disregarded for U.S. federal and state income tax purposes are not subject to U.S. federal and most state income taxes. Our partners and unitholders are liable for these income taxes on their share of our taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the consolidated financial statements and have been included in other income (expense) as incurred.
One of our subsidiaries formed in connection with the Georgia Biomass Acquisition, Enviva Pellets Waycross Holdings, LLC, is an entity taxable as a corporation and is subject to U.S. federal income tax and accounts for income tax under the liability method. Deferred taxes are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of any tax rate change on deferred taxes is recognized in the period that includes the enactment date of the tax rate change. Realization of deferred tax assets is assessed on an annual basis and, unless a deferred tax asset is more likely than not to be utilized, a valuation allowance is recorded to write down the deferred tax assets to their net realizable value.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| ·
| | Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
|
Recent and PendingRecently Adopted Accounting Pronouncements
Standards
On January 1, 2020, we adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure credit losses for most financial assets. The adoption did not have a material impact on the financial statements.
Recently Issued Accounting Standards not yet Adopted
In August 2017,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging: Targeted Improvements toASU 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Hedging Activities (Topic 815)-Targeted ImprovementsIncome Taxes. The standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to Accountingreduce complexity in certain areas, including recognizing deferred taxes for Hedging Activities. ASU 2017-12 expandstax goodwill and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentationallocating taxes to members of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. ASU 2017-12 requires a modified retrospective transition method which requires the recognition of the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption.consolidated group. The new guidancestandard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018,2020, with early adoption permitted. We are adopting the standard on January 1, 2021 and do not expect the adoption to have a material impact on our consolidated financial statements.
(3)Transactions Between Entities Under Common Control
Enviva Pellets Greenwood Holdings II, LLC
The Partnership is$132.0 million purchase price for the Greenwood Drop-Down consisted of a cash payment of $129.7 million, net of a purchase price adjustment of $2.3 million.
The change in net assets on July 1, 2020 from the processGreenwood Drop-Down included $67.8 million of evaluatingnet assets acquired. The following table outlines the impactchanges in consolidated net assets resulting from the Greenwood Drop-Down on July 1, 2020.
| | | | | |
| Assets: | |
| Cash and cash equivalents | $ | 29 | |
| Accounts receivable, net | 25 | |
| Inventories | 5,165 | |
| Prepaid expenses and other current assets | 21 | |
| Property, plant and equipment, net | 104,662 | |
| Operating lease right-of-use assets | 7,850 | |
| Intangible asset, net | 845 | |
| Other long-term assets | 71 | |
| Total assets | 118,668 | |
| |
| Liabilities: | |
| Accounts payable | 1,951 | |
| Accrued and other current liabilities | 4,303 | |
| Interest payable | 366 | |
| Seller Note | 36,880 | |
| Finance lease obligations | 699 | |
| Long-term operating lease liabilities | 6,649 | |
| Total liabilities | 50,848 | |
| Net assets contributed to Partnership | $ | 67,820 | |
The unaudited pro forma combined revenue and net income presented below have been prepared as if the Greenwood Drop-Down had occurred on January 1, 2019. The unaudited pro forma financial information has been derived from the consolidated statements of operations of the
adoption of ASU No. 2017-12 on its consolidated financial statements.In January 2017, the FASB issued ASU 2017-04, Intangibles - GoodwillPartnership and Other. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment chargeGreenwood for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. This standard will be implemented prospectively in 2018 for all future goodwill impairment tests and will simplify such evaluations.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The ASU is effective for the Partnership’s fiscal year 2018, including interimbelow periods. The adoptionhistorical financial information has been
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
restricted cash and restricted cash equivalentsadjusted in the statements of cash flows. The guidance addresses the presentation of changes in restricted cash and restricted cash equivalents in the statements of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalentsunaudited combined pro forma information to give effect to pro forma events that are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statements of cash flows(1) directly attributable to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statements of cash flows or in the notes to the financial statements. Entities will also have to disclose the nature of their restricted cashGreenwood Drop-Down, (2) factually supportable and restricted cash equivalent balances. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption in an interim period is permitted, but any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. Entities will be required to apply the guidance retrospectively when adopted. The ASU is effective for the Partnership’s fiscal year 2018, including interim periods. As a result of the adoption of this standard, restricted cash and restricted cash equivalents will be included with cash and cash equivalents on the consolidated statements of cash flows. Transfers between cash, cash equivalents, restricted cash and restricted cash equivalents will not be presented separately in the statements of cash flows. If cash and restricted cash are presented in more than one line item on the balance sheet, a reconciliation of these amounts to the total shown on the statements of cash flow must be presented in either a narrative or tabular form on the face of the statements of cash flows or in the notes to the financial statements. The Partnership does not expect the adoption of the new standard(3) expected to have a material effectcontinuing impact on how cash receipts and cash payments are presented and classified inour results of operations following the consolidated statements of cash flows.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statements of cash flows with the objective of reducing the existing diversity in practice.Greenwood Drop-Down. The guidance addresses the classification of cash flowsunaudited pro forma financial information does not include non-recurring items such as transaction costs related to (1) debt prepayment or extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rateacquisition. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the borrowing,results of operations that would have been achieved if the Greenwood Drop-Down had taken place on January 1, 2019.
The unaudited pro forma combined revenue and net loss for the years ended December 31, 2020 and 2019 are as follows: | | | | | | | | | | | |
| 2020 | | 2019 |
| Revenue | $ | 873,815 | | | $ | 682,604 | |
| Net loss | (4,687) | | | (46,323) | |
Enviva Wilmington Holdings, LLC
The $165.0 million purchase price for the Hamlet Drop-Down consisted of (1) an initial cash payment of $24.7 million, net of a purchase price adjustment of $0.3 million, on April 2, 2019, (2) the issuance of 1,681,237 unregistered common units at a value of $29.74 per unit, or $50.0 million of common units, on April 2, 2019, (3) contingent consideration payments made after$50.0 million in cash, paid on June 28, 2019 and (4) a business combination, (4) proceedsthird and final cash payment of $40.0 million paid on January 2, 2020.
The changes in net assets at carryover basis on April 2, 2019 included $120.9 million net assets of the Hamlet JV, net of the elimination of $3.0 million of net related-party receivables and payables. The following table outlines the addition of net assets resulting from the settlementHamlet Drop-Down on April 2, 2019.
| | | | | |
| Assets: | |
| Cash and cash equivalents | $ | 3,426 | |
| Related-party receivables | 241 | |
| Prepaid expenses and other current assets | 22 | |
| Property, plant and equipment, net | 140,446 | |
| Other long-term assets | 8 | |
| Total assets | 144,143 | |
| |
| Liabilities: | |
| Accounts payable | 6,395 | |
| Related-party payables | 1,923 | |
| Accrued and other current liabilities | 14,965 | |
| Finance lease obligations | 3 | |
| Total liabilities | 23,286 | |
| Net assets contributed to Partnership | $ | 120,857 | |
Table of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance, including bank-owned life insurance, (6) distributions received from equity method investees and (7) beneficial interests in securitization transactions. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. An entity will first apply any relevant guidance. If there is no guidance that addresses those cash receipts and cash payments, an entity will determine each separately identifiable source or use and classify the receipt or payment based on the nature of the cash flow. If a receipt or payment has aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source of use. The new guidance is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2017. The new guidance will require adoption on a retroactive basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The ASU is effective for the Partnership’s fiscal year 2018, including interim periods. The Partnership does not expect the adoption of the new standard to have a material effect on how cash receipts and cash payments are presented and classified in the consolidated statements of cash flows.In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new pronouncement, an entity is required to recognize assets and liabilities arising from a lease for all leases with a maximum possible term of more than 12 months. A lessee is required to recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. For most leases of assets other than property (for example, equipment, aircraft, cars, trucks), a lessee would recognize a right-of-use asset and a lease liability, initially measured at the present value of lease payments and recognize the unwinding of the discount on the lease liability as interest separately from the amortization of the right-of-use asset. For most leases of property (that is, land and/or a building or part of a building), a lessee would recognize a right-of-use asset and a lease liability, initially measured at the present value of lease payments and recognize a single lease cost, combining the unwinding of the discount on the lease liability with the amortization of the right-of-use asset, on a straight-line basis. The new guidance is effective for public entities for fiscal year and interim periods within those fiscal years beginning after December 15, 2018. Upon adoption, a lessee and a lessor would recognize and measure leases at the beginning of the earliest period
Contents ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Purchase Price Allocation
The Georgia Biomass Acquisition closed on July 31, 2020 and was accounted for as a business combination using the acquisition method of accounting. The following table summarizes the purchase price and the fair values of the amounts recorded for identifiable assets acquired and liabilities assumed at the acquisition date of July 31, 2020.
| | | | | | | | | |
| | | | | |
| Purchase price: | | | | | |
| Cash paid by the Partnership at closing | | | | | $ | 168,338 | |
| Reimbursement to the Partnership of certain acquisition-related costs, net | | | | | 161 | |
| Settlement of payable from the Partnership to Georgia Biomass | | | | | (3,684) | |
| Payment in relation to the Georgia Biomass Acquisition | | | | | 164,815 | |
| Receivable from purchase price adjustment | | | | | (850) | |
| | | | | $ | 163,965 | |
| Identified net assets acquired: | | | | | |
| Cash | | | | | $ | 1,516 | |
| Accounts receivable | | | | | 124 | |
| Inventories | | | | | 5,774 | |
| Prepaid expenses and other current assets | | | | | 792 | |
| Intangible assets | | | | | 5,700 | |
| Property, plant and equipment | | | | | 170,603 | |
| Operating lease right-of-use assets | | | | | 14,716 | |
| Accounts payable | | | | | (390) | |
| Accrued and other current liabilities | | | | | (9,472) | |
| Current portion of long-term finance lease obligations | | | | | (926) | |
| Long-term finance lease obligations | | | | | (3,733) | |
| Long-term operating lease liabilities | | | | | (13,356) | |
| Deferred tax liability, net | | | | | (13,148) | |
| Intangible liabilities | | | | | (7,400) | |
| Other long-term liabilities | | | | | (880) | |
| Identifiable net assets acquired | | | | | 149,920 | |
| Goodwill | | | | | 14,045 | |
| Total purchase price | | | | | $ | 163,965 | |
The opening balance sheet from July 31, 2020 has changed since what had been preliminarily included in our consolidated balance sheet as of September 30, 2020. As a modified retrospective approach. Early adoption is permitted. The Partnership isresult, goodwill decreased by $1.6 million, mainly driven by the change in the processcertain intangible liabilities of evaluating$2.5 million resulting from updated information received offset by the impact on deferred taxes. The measurement period has now ended as the purchase price and the purchase price allocation have been finalized.
The net assets of
adoption on its consolidated financial statements.In May 2014,Georgia Biomass were recorded at their estimated fair values. Significant inputs used to estimate the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 providesfair values of certain net assets acquired included estimates of the: (1) replacement cost for property, plant and equipment as if each asset was new guidance on the recognition of revenue and states that an entity should recognize revenue when controlas of the acquisition date, which was then adjusted for the depreciation and any obsolescence since the date Georgia Biomass originally acquired that asset; (2) market prices for finished goods or services transfers to theinventory and for customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires significantly expanded disclosure regarding qualitative and quantitative information about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers—Principal versus Agent Considerations. ASU No. 2016-08 clarifies the implementation guidance on principal versus agent considerations. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers, which provides narrow scope improvements and practical expedients related to ASU No. 2014-09. ASU No. 2014-09 and subsequent amendments have been codifiedshipping contracts; (3) incremental borrowing rates as Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
ASC 606 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Partnership will adopt ASC 606 effective January 1, 2018. The Partnership currently expects to utilize the modified retrospective method of adoption, which will result in the presentation of the cumulative effectacquisition date for leases acquired; and (4) appropriate discount rates.
Table of initially applying ASC 606 at the date of initial application. The Partnership has established a cross-functional team to lead the assessment and implementation of ASC 606 and has finalized its implementation plans. In connection with the implementation plan, the Partnership has completed its evaluation of its off-take contracts to identify material performance obligations. The Partnership has concluded that the delivery of wood pellets to the customer is the material performance obligation under its off-take contracts. The Partnership also concluded it will aggregate wood pellets into metric tons and account for each metric ton as a single performance obligation. The Partnership has determined that revenue related to its off-take contracts will be recognized at the point in time at which control of the wood pellets passes to the customer, as the wood pellets are loaded onto shipping vessels, which is consistent with the timing of revenue recognition under the Partnership’s current accounting policy. Additionally, the Partnership has concluded that revenue from certain transactions currently presented on a net basis in other revenue will be recognized as principal sales on a gross basis under ASC 606. The Partnership based its conclusion on the fact that in certain instances it controls wood pellets supplied by third parties before control is transferred to customers, even in cases of “flash title”. ASC 606 requires revenue to be recognized on a gross basis when control of goods or services is established before transfer to customers.Certain costs incurred at the discharge port and recoverable from customers were reported in revenue under legacy revenue guidance. Under ASC 606, these costs are not considered a part of the transaction price, and therefore will be excluded from revenue.
ASC 606 permits an entity to account for shipping and handling activities occurring after control has passed to the customer as a fulfillment activity rather than as a revenue element. The Partnership has elected to account for shipping and handling activities as a fulfillment activity, consistent with its current policy. The Partnership does not expect to have a material cumulative effect adjustment upon adoption of ASC 606.
(4) Transactions Between Entities Under Common Control
Wilmington Drop-Down
On October 2, 2017, the Partnership acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Wilmington for total consideration of $130.0 million (see Note 1, Description of Business and Basis of Presentation). The acquisition included an initial payment of $54.6 million in cash, net of a purchase price adjustment of $1.4 million, and deferred consideration of $74.0 million in cash or common units, to the First Hancock JV, and the elimination of $1.0 million of related-party receivables and payables, net, included in the net assets on the date of acquisition.
Contents ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
RecastGoodwill is calculated as the excess of Historical Financial Statements
the fair value of the consideration transferred over the fair value of the net assets recognized and represents the future economic benefits arising from other net assets acquired that could not be individually identified and separately recognized. We believe that the primary items that generated goodwill include both (1) the value of the synergies created between the acquired assets and our pre-existing assets and long-term, take-or-pay off-take contracts and (2) our expected ability to grow the combined business by leveraging the combined business experience and the expanded footprint. None of the goodwill is expected to be deductible for tax purposes.
In connection with the Georgia Biomass Acquisition, acquisition-related costs through December 31, 2020 are approximately $3.9 million and are included within general and administrative expenses on the consolidated statements of operations. These acquisition-related costs do not include integration costs.
Post-acquisition and pro forma financial information
The Partnership accountedconsolidated statements of operations for the Wilmington Drop-Down as a combinationyear ended December 31, 2020 include $45.8 million of entities under common control at historical cost in a manner similar to a poolingrevenue and $9.7 million of interests. Accordingly,net loss from the consolidated financial statements for the periods prior to October 2, 2017 were retrospectively recast to reflect the acquisitionGeorgia Biomass Acquisition since July 31, 2020.
The unaudited pro forma combined revenue and net income presented below have been prepared as if
itthe Georgia Biomass Acquisition had occurred on
May 15, 2013,January 1, 2019. The unaudited pro forma financial information has been derived from the
date Wilmington was originally organized.consolidated statements of operations of the Partnership for the below periods and from the consolidated abbreviated statements of revenues and direct expenses of Georgia Biomass for the six months ended June 30, 2020 and the year ended December 31, 2019. The following table outlinesabbreviated statements of revenues and direct expenses of Georgia Biomass were prepared for the changespurposes of complying with the requirements of Rule 3-05 of Regulation S-X as no separate financial statements of Georgia Biomass had previously been prepared. The abbreviated statements of revenues and direct expenses of Georgia Biomass include the revenues and direct expenses directly attributable to manufacturing and distributing wood pellets to customers in consolidatedthe United Kingdom and Europe by Georgia Biomass.
The unaudited pro forma financial information reflects the effects of applying certain purchase price accounting adjustments to the historical financial information based on the fair value of the identified net assets resultingacquired as of July 31, 2020. The historical financial information has been adjusted in the unaudited pro forma information to give effect to pro forma events that are (1) directly attributable to the Georgia Biomass Acquisition, (2) factually supportable and (3) expected to have a continuing impact on our results of operations following the Georgia Biomass Acquisition. The unaudited pro forma financial information does not include non-recurring items such as transaction costs related to the acquisition. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Georgia Biomass Acquisition had taken place on January 1, 2019.
The unaudited pro forma combined revenue and net income for the years ended December 31, 2020 and 2019 are as follows:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Revenue | $ | 957,537 | | | $ | 845,340 | |
| Net income | 16,407 | | | 9,540 | |
(5) Revenue
We disaggregate our revenue into two categories: product sales and other revenue. Product sales includes sales of wood pellets. Other revenue includes fees associated with customer requests to cancel, defer or accelerate shipments in satisfaction of the related performance obligation and third- and related-party terminal services fees. Other revenue also includes fees received for other services, including for sales and marketing, scheduling, sustainability, consultation, shipping and risk management services, where the revenue is recognized when we have satisfied the performance obligation and have a right to the corresponding fee. These categories best reflect the nature, amount, timing and uncertainty of our revenue and cash flows.
Performance Obligations
As of December 31, 2020, the aggregate amount of consideration from
contracts with customers allocated to the
acquisitionperformance obligations that were unsatisfied or partially satisfied was approximately $14.3 billion. This amount excludes forward prices related to variable consideration including inflation, foreign currency and commodity prices. Also, this amount excludes the effects of
Wilmington on October 2, 2017. | | | |
Assets: | | | |
Cash | | $ | — |
Related-party receivables | | | 2,914 |
Inventories | | | 96 |
Prepaid expenses and other current assets | | | 94 |
Property, plant and equipment, net | | | 75,474 |
Total assets | | | 78,578 |
| | | |
Liabilities: | | | |
Accounts payable | | | 195 |
Related-party payables | | | 319 |
Accrued and other current liabilities | | | 2,864 |
Long-term debt and capital lease obligations | | | 243 |
Long-term liabilities | | | 1,622 |
Total liabilities | | | 5,243 |
Net assets contributed to Partnership | | $ | 73,335 |
the related foreign currency derivative contracts as they do not represent contracts with customers. We
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The following table presentsexpect to recognize approximately 7.0% of our remaining performance obligations as revenue in 2021, an additional 9.0% by 2022 and the changesbalance thereafter. Our off-take contracts expire at various times through 2043 and our terminal services contract expires in 2021.
Variable Consideration
Variable consideration from off-take contracts arises from several pricing features in our off-take contracts, pursuant to previously reported amountswhich such contract pricing may be adjusted in respect of particular shipments to reflect differences between certain contractual quality specifications of the audited consolidated balance sheetwood pellets as of December 31, 2016 included inmeasured both when the Partnership’s annual report on Form 10-K forwood pellets are loaded onto ships and unloaded at the year ended December 31. 2016:discharge port as well as certain other contractual adjustments.
| | | | | | | | | |
| | As of December 31, 2016 |
| | As | | Enviva Port Of | | Total |
| | Reported | | Wilmington, LLC | | (Recast) |
Cash and cash equivalents | | $ | 466 | | $ | — | | $ | 466 |
Accounts receivable, net | | | 77,868 | | | — | | | 77,868 |
Related-party receivables | | | 7,634 | | | 422 | | | 8,056 |
Inventories | | | 29,764 | | | 172 | | | 29,936 |
Prepaid expenses and other current assets | | | 4,983 | | | 40 | | | 5,023 |
Total current assets | | | 120,715 | | | 634 | | | 121,349 |
Property, plant and equipment, net of accumulated depreciation | | | 516,418 | | | 74,498 | | | 590,916 |
Goodwill | | | 85,615 | | | — | | | 85,615 |
Other assets | | | 3,420 | | | 76 | | | 3,496 |
Total assets | | $ | 726,168 | | $ | 75,208 | | $ | 801,376 |
| | | | | | | | | |
Accounts payable | | $ | 9,869 | | $ | 124 | | $ | 9,993 |
Related-party payables | | | 11,118 | | | 354 | | | 11,472 |
Accrued and other current liabilities | | | 47,337 | | | 6,155 | | | 53,492 |
Total long-term debt and capital lease obligations | | | 346,686 | | | 229 | | | 346,915 |
Other liabilities | | | 1,641 | | | 1,001 | | | 2,642 |
Total liabilities | | | 416,651 | | | 7,863 | | | 424,514 |
Total partners’ capital | | | 309,517 | | | 67,345 | | | 376,862 |
Total liabilities and partners’ capital | | $ | 726,168 | | $ | 75,208 | | $ | 801,376 |
The following table presents the changes to previously reported amounts in the audited consolidated statements of incomeVariable consideration from our terminal services contract, which was insignificant for the years ended December 31, 20162020, 2019, and 2015 included in the Partnership’s annual report2018, arises from price increases based on Form 10-K foragreed inflation indices and from above-minimum throughput quantities or services.
For the year ended December 31,
2016: | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | As | | Enviva Port Of | | Total |
| | Reported | | Wilmington, LLC | | (Recast) |
Net revenue | | $ | 464,276 | | $ | — | | $ | 464,276 |
Total cost of goods sold | | | 387,289 | | | 215 | | | 387,504 |
Gross margin | | | 76,987 | | | (215) | | | 76,772 |
Net income (loss) | | | 17,723 | | | (4,260) | | | 13,463 |
Less net loss attributable to noncontrolling partners’ interests | | | 3,654 | | | 2,150 | | | 5,804 |
Net loss attributable to general partner | | | (3,231) | | | (2,110) | | | (5,341) |
Net income attributable to Enviva Partners, LP limited partners’ interest in net income | | | 24,608 | | | — | | | 24,608 |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes2020, we recognized $0.1 million of product sales revenue related to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| | | | | | | | | |
| | Year Ended December 31, 2015 |
| | As | | Enviva Port Of | | Total |
| | Reported | | Wilmington, LLC | | (Recast) |
Net revenue | | $ | 457,374 | | $ | — | | $ | 457,374 |
Total cost of goods sold | | | 397,834 | | | — | | | 397,834 |
Gross margin | | | 59,540 | | | — | | | 59,540 |
Net income (loss) | | | 19,460 | | | (1,897) | | | 17,563 |
Less net income attributable to noncontrolling partners’ interests | | | 1,899 | | | 960 | | | 2,859 |
Net loss attributable to Predecessor | | | (2,132) | | | — | | | (2,132) |
Net income (loss) attributable to general partner | | | 4,449 | | | (937) | | | 3,512 |
Net income attributable to Enviva Partners, LP limited partners’ interest in net income | | | 19,042 | | | — | | | 19,042 |
The following table presents the changes to previously reported amountsperformance obligations satisfied in the audited consolidated statements of cash flows for the years ended December 31, 2016 and 2015 included in the Partnership’s annual report on Form 10-K forprevious periods. For the year ended December 31, 2016:
2019, product sales revenue was reduced by $0.1 million related to performance obligations satisfied in previous periods. For the year ended December 31, 2018, we recognized an insignificant amount of revenue related to performance obligations satisfied in previous periods. | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | As | | Enviva Port Of | | Total |
| | Reported | | Wilmington, LLC | | (Recast) |
Net cash provided by (used in) operating activities | | $ | 57,393 | | $ | (1,589) | | $ | 55,804 |
Net cash used in investing activities | | | (69,147) | | | (41,977) | | | (111,124) |
Net cash provided by financing activities | | | 10,092 | | | 43,566 | | | 53,658 |
Net decrease in cash and cash equivalents | | $ | (1,662) | | $ | — | | $ | (1,662) |
| | | | | | | | | |
| | Year Ended December 31, 2015 |
| | As | | Enviva Port Of | | Total |
| | Reported | | Wilmington, LLC | | (Recast) |
Net cash provided by (used in) operating activities | | $ | 66,413 | | $ | (556) | | $ | 65,857 |
Net cash used in investing activities | | | (80,046) | | | (23,444) | | | (103,490) |
Net cash provided by financing activities | | | 15,173 | | | 24,000 | | | 39,173 |
Net increase in cash and cash equivalents | | $ | 1,540 | | $ | — | | $ | 1,540 |
(5)
As of December 31, 2020 and December 31, 2019, we had $4.9 million and $4.1 million, respectively of deferred revenue for future performance obligations under contracts associated with off-take contracts.
Other
Accrued and other current liabilities included approximately $50.6 million and $19.8 million at December 31, 2020 and, 2019, respectively, for amounts associated with our product sales.
(6) Significant Risks and Uncertainties, Including Business and Credit Concentrations
The Partnership’s
Our business is significantly impacted by
GHGgreenhouse gas emission and renewable energy legislation and regulations in the
U.K., European Union
(“EU”) as well as its member
states.states and Japan. If the
European UnionU.K., the EU or its member states
or Japan significantly modify such legislation or regulations, then
the Partnership’sour ability to enter into new contracts as
the currentour existing contracts expire may be materially affected.
The Partnership’s primary
Our current product sales are primarily to industrial customers are located in the United Kingdom,U.K., Denmark, Belgium and Belgium. Three customers accounted for 93% of the Partnership’s product sales in 2017, two customers accounted for 90% of the Partnership’s product sales in 2016 and three customers accounted for 93% of the Partnership’s product sales in 2015.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The following table shows productNetherlands. Product sales to third-party customers that accounted for 10% or a greater share of consolidated product sales for each of the years ended December 31:
| | | | | | | |
| | | | 2016 | | 2015 | |
| | 2017 | | (Recast) | | (Recast) | |
| | | | | | | |
Customer A | | 66 | % | 75 | % | 56 | % |
Customer B | | 12 | % | 15 | % | 19 | % |
Customer C | | — | % | — | % | 18 | % |
Customer E | | 15 | % | — | % | — | % |
The Partnership’s cash and cash equivalents31 are placed in or with various financial institutions. The Partnership has not experienced any losses on such accounts.
(6) Property, Plant and Equipment
Property, plant and equipment consistedas follows:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Customer A | 40% | | 48% | | 46% |
| Customer B | 9% | | 10% | | 11% |
| Customer C | 23% | | 20% | | 16% |
| Customer D | 11% | | 15% | | 17% |
Table of the following at December 31: | | | | | | |
| | | | 2016 |
| | 2017 | | (Recast) |
Land | | $ | 13,492 | | $ | 13,492 |
Land improvements | | | 42,962 | | | 42,322 |
Buildings | | | 196,153 | | | 186,479 |
Machinery and equipment | | | 413,349 | | | 400,867 |
Vehicles | | | 635 | | | 522 |
Furniture and office equipment | | | 5,970 | | | 5,604 |
Leasehold improvements | | | 987 | | | 742 |
| | | 673,548 | | | 650,028 |
Less accumulated depreciation | | | (117,067) | | | (80,781) |
| | | 556,481 | | | 569,247 |
Construction in progress | | | 5,849 | | | 21,669 |
Total property, plant and equipment, net | | $ | 562,330 | | $ | 590,916 |
Total depreciation expense was $39.1 million, $25.7 million and $24.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, the Partnership had assets under capital leases with a cost and related accumulated depreciation of $4.7 million and $1.2 million, respectively. At December 31, 2016, the Partnership had assets under capital leases with a cost and related accumulated depreciation of $2.4 million and $0.7 million, respectively.
(7) Inventories
Inventories consisted of the following at December 31:
| | | | | | |
| | | | 2016 |
| | 2017 | | (Recast) |
Raw materials and work-in-process | | $ | 4,516 | | $ | 7,689 |
Consumable tooling | | | 14,447 | | | 12,150 |
Finished goods | | | 4,573 | | | 10,097 |
Total inventories | | $ | 23,536 | | $ | 29,936 |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(7) Inventory Impairment and Asset Disposal
On February 27, 2018, a fire occurred at the Chesapeake terminal, causing damage to equipment and approximately 43,000 MT of wood pellets (the “Chesapeake Incident”). As part of our risk management process, we maintain certain insurance policies, which are subject to deductibles and sublimits for each covered event. When recovery of all or a portion of property damage loss or other covered expenses through insurance proceeds is probable, a receivable is recorded and the loss or expense is reduced up to the amount of the total loss or expense. No gain or income resulting from business interruption insurance is recorded until all contingencies related to the insurance claim have been resolved.
To meet our contractual obligations to our customers, we incurred incremental costs to commission temporary wood pellet storage and handling and ship loading operations (collectively, “business continuity activities”) at nearby locations. The wood pellets from our production plants in the Mid-Atlantic region were delivered to such temporary locations as well as to the Wilmington terminal, which increased our distribution costs. We incurred $60.3 million related to asset impairment, inventory write-off and disposal costs, emergency response costs, asset repair costs and business continuity activities as a result of the Chesapeake Incident. During the year ended December 31, 2018, we recognized recoveries of $62.1 million related to the Chesapeake Incident, which included $25.5 million of business continuity insurance recoveries, recorded in cost of goods sold, and $1.8 million of business interruption insurance recoveries, recorded in other income, for lost profits from both damaged wood pellets and the subsequent reduction in the production of wood pellets. At December 31, 2018, $3.8 million of probable insurance recoveries were included in insurance receivables; we received the $3.8 million in probable insurance recoveries in February 2019 plus an additional $0.5 million recognized as other income in 2019.
(8) Inventories
Inventories consisted of the following at December 31:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Raw materials and work-in-process | $ | 12,500 | | | $ | 9,795 | |
| Consumable tooling | 21,855 | | | 20,485 | |
| Finished goods | 8,009 | | | 2,718 | |
| Total inventories | $ | 42,364 | | | $ | 32,998 | |
(9) Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following at December 31:
| | | | | | | | | | | |
| 2020 | | 2019 |
| Land | $ | 22,611 | | | $ | 15,226 | |
| Land improvements | 60,110 | | | 56,637 | |
| Buildings | 316,706 | | | 217,167 | |
| Machinery and equipment | 799,881 | | | 588,447 | |
| Vehicles | 3,105 | | | 635 | |
| Furniture and office equipment | 8,202 | | | 6,822 | |
| Leasehold improvements | 1,029 | | | 1,029 | |
| Property, plant and equipment | 1,211,644 | | | 885,963 | |
| Less accumulated depreciation | (295,921) | | | (203,695) | |
| Property, plant and equipment, net | 915,723 | | | 682,268 | |
| Construction in progress | 156,096 | | | 69,512 | |
| Total property, plant and equipment, net | $ | 1,071,819 | | | $ | 751,780 | |
Accrued amounts for property, plant and equipment and construction in progress included in accrued and other current liabilities were $10.8 million and $9.4 million at December 31, 2020 and 2019.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Total depreciation expense was $72.2 million, $51.6 million and $40.6 million for the years ended December 31, 2020, 2019 and 2018, respectively. Total interest capitalized related to construction in progress was $6.1 million, $2.1 million and $0.2 million for the years ended December 31, 2020, 2019 and 2018 respectively. We recorded loss on disposal of assets of $7.0 million, $3.1 million and $2.4 million for the years ended December 31, 2020, 2019 and 2018, respectively, primarily attributable to the disposal of assets replaced in connection with maintenance capital expenditures.
(10) Leases
Operating lease ROU assets and liabilities and finance leases were as follows as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Operating leases: | | | | |
| Operating lease right-of-use assets | | $ | 51,434 | | | $ | 32,830 | |
| | | | |
| Current portion of operating lease liabilities | | $ | 3,450 | | | $ | 1,439 | |
| Long-term operating lease liabilities | | 50,074 | | | 33,469 | |
| Total operating lease liabilities | | $ | 53,524 | | | $ | 34,908 | |
| | | | |
| Finance leases: | | | | |
| Property plant and equipment, net | | $ | 24,246 | | | $ | 7,398 | |
| | | | |
| Current portion of long-term finance lease obligations | | $ | 8,828 | | | $ | 4,584 | |
| Long-term finance lease obligations | | 10,775 | | | 2,954 | |
| Total finance lease liabilities | | $ | 19,603 | | | $ | 7,538 | |
Operating and finance lease costs were as follows for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | |
| Lease Cost | | Classification | | 2020 | | 2019 |
| Operating lease cost: | | | | | | |
| Fixed lease cost | | Cost of goods sold | | $ | 5,806 | | | $ | 4,814 | |
| Variable lease cost | | Cost of goods sold | | 28 | | | 16 | |
| Short-term lease cost | | Cost of goods sold | | 8,421 | | | 7,309 | |
| | Total operating lease costs | | $ | 14,255 | | | $ | 12,139 | |
| Finance lease cost: | | | | | | |
| Amortization of leased assets | | Depreciation and amortization | | 7,498 | | | 4,159 | |
| Variable lease cost | | Cost of goods sold | | 254 | | | 9 | |
| Interest on lease liabilities | | Interest expense | | 490 | | | 292 | |
| | Total finance lease costs | | $ | 8,242 | | | $ | 4,460 | |
| | Total lease costs | | $ | 22,497 | | | $ | 16,599 | |
We are party to a lease agreement with North Carolina State Ports Authority (“NCSPA”) to lease certain real property at NCSPA’s Wilmington, North Carolina marine terminal for the Wilmington terminal. The lease has a 21-year term, 2 five-year renewal options and annual base rent of $0.2 million that is payable monthly or annually, subject to a minimum annual throughput fee of $1.9 million for 1.0 million tons annually, subject to increases for throughput above 1.0 million tons annually and an annual increase in producer’s price index up to 1% for industrial commodities less fuel. No payments are due until September 2021. Total estimated payments over the life of the lease are approximately $71.7 million. Operating lease expense related to the lease was $2.3 million for each of the years ended December 31, 2020, 2019 and 2018.
Depreciation expense relating to assets held under finance lease obligations was $1.8 million for the year ended December 31, 2018.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Operating and finance lease cash flow information was as follows for the years ended December 31, 2020 and 2019:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | |
| Operating cash flows from operating leases | | $ | 5,828 | | | $ | 4,826 | |
| Operating cash flows from finance leases | | 490 | | | 292 | |
| Financing cash flows from finance leases | | 5,571 | | | 3,304 | |
| | | | |
| Assets obtained in exchange for lease obligations: | | | | |
| Operating leases | | $ | 21,561 | | | $ | 7,465 | |
| Finance leases | | 12,487 | | | 6,493 | |
The future minimum lease payments and the aggregate maturities of operating and finance lease liabilities are as follows as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, | | Operating
Leases | | Finance
Leases | | Total |
| 2021 | | $ | 6,726 | | | $ | 9,232 | | | $ | 15,958 | |
| 2022 | | 6,466 | | | 5,084 | | | 11,550 | |
| 2023 | | 6,365 | | | 2,304 | | | 8,669 | |
| 2024 | | 6,190 | | | 896 | | | 7,086 | |
| 2025 | | 6,184 | | | 608 | | | 6,792 | |
| Thereafter | | 66,570 | | | 2,529 | | | 69,099 | |
| Total lease payments | | 98,501 | | | 20,653 | | | 119,154 | |
| Less: imputed interest | | (44,977) | | | (1,050) | | | (46,027) | |
| Total present value of lease liabilities | | $ | 53,524 | | | $ | 19,603 | | | $ | 73,127 | |
The weighted-average remaining lease terms and discount rates for our operating and finance leases were weighted using the undiscounted future minimum lease payments and are as follows as of December 31, 2020:
| | | | | | | | |
| Weighted average remaining lease term (years): | | |
| Operating leases | | 17 |
| Finance leases | | 4 |
| Weighted average discount rate: | | |
| Operating leases | | 7% |
| Finance leases | | 3% |
(11) Derivative Instruments
The Partnership uses
We use derivative instruments to partially offset
itsour business exposure to foreign currency exchange and interest rate risk.
The PartnershipWe may enter into foreign currency forward and option contracts to offset some of the foreign currency exchange risk on expected future cash flows and interest rate swaps to offset some of the interest rate risk on expected future cash flows on certain borrowings. The
Partnership’spreponderance of our off-take contracts are U.S. Dollar-denominated. We are primarily exposed to fluctuations in foreign currency exchange rates related to a minority of our off-take contracts that require future deliveries of wood pellets to be settled in British Pound Sterling (“GBP”) and Euro (“EUR”). Our derivative instruments expose
itus to credit risk to the extent that hedge counterparties may be unable to meet the terms of the applicable derivative instrument.
The Partnership seeksWe seek to mitigate such risks by limiting
itsour counterparties to major financial institutions. In addition,
the Partnership monitorswe monitor the potential risk of loss with any one counterparty resulting from credit risk. Management does not expect material losses as a result of defaults by counterparties.
The Partnership usesWe use derivative instruments to manage cash flow and
doesdo not enter into derivative instruments for speculative or trading purposes.
Cash Flow Hedges
Foreign Currency Exchange Risk
The Partnership is primarily exposed
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to fluctuations in foreign currency exchange rates related to off-take contracts that require future deliveriesConsolidated Financial Statements (Continued)
(In thousands, except number of wood pellets to be settled in British Pound Sterling (“GBP”). Deliveries under one of these contracts began in late 2017. The Partnership hasunits, per unit amounts and unless otherwise noted)
We have entered and may continue to enter into foreign currency forward contracts, purchased option contracts or other instruments to partially manage this risk and, hasprior to August 2018, had designated and may continue to designatecertain of these instruments as cash flow hedges. During December 2017,In August 2018, due to market changes, increases in demand for wood pellets and requests from customers to accommodate the Partnershipacceleration or deferral of contracted deliveries, we determined that certain transactions were no longerit was not probable that the timing of occurring within the forecasted time period. The Partnershiprevenues associated with the hedged transactions would occur as originally scheduled. As a result, we discontinued hedge accounting for all designated foreign currency cash flow hedges and recognized the full amount of unrealized net gains and lossesincluded in accumulated in other comprehensive income of $1.9 million in earnings. Since August 2018, none of our foreign currency derivative instruments have been designated as cash flow hedging instruments. In connection with the discontinuation of cash flow hedge accounting, we have recorded the on-going changes in the fair value of foreign currency derivatives as product sales or cost of goods sold depending on the nature of the item being hedged.
During the year ended December 31, 2020, we entered into pay-fixed, receive-variable interest rate swaps that expire in September 2021 and October 2021 to hedge interest rate risk associated with our variable rate borrowings under our senior secured revolving credit facility that are not designated and accounted for as cash flow hedges.
Derivative instruments are classified as Level 2 assets or liabilities based on inputs such as spot and forward benchmark interest rates (such as LIBOR) and foreign exchange rates. The fair value of derivative instruments as of December 31, 2020 and 2019 was as follows:
| | | | | | | | | | | | | | |
| | Asset (Liability) |
| Balance Sheet Classification | 2020 | | 2019 |
| Designated as hedging instruments: | | | | |
| Interest rate swap | Prepaid and other current assets | $ | 0 | | | $ | 56 | |
| Total derivatives designated as hedging instruments | | $ | 0 | | | $ | 56 | |
| | | | |
| Not designated as hedging instruments: | | | | |
| Interest rate swaps | Accrued and other current liabilities | $ | (119) | | | $ | 0 | |
| | | | |
| Foreign currency exchange contracts: | | | | |
| Prepaid and other current assets | $ | 308 | | | $ | 408 | |
| Other long-term assets | 924 | | | 1,774 | |
| Accrued and other current liabilities | (2,224) | | | (735) | |
| Other long-term liabilities | (3,508) | | | (1,055) | |
| Total derivatives not designated as hedging instruments | | $ | (4,619) | | | $ | 392 | |
Unrealized losses related to thesethe change in fair market value of interest rate swaps are recorded in interest expense and were $0.2 million for the year ended December 31, 2020. Our interest rate swap outstanding during the year ended December 31, 2019 was designated as a hedging relationshipsinstrument.
Net unrealized losses related to the change of fair market value of foreign currency derivative instruments not designated as hedging instruments were $4.3 million and $4.6 million during the years ended December 31, 2020 and 2019, respectively and are included in
other expenseproduct sales on the consolidated statements of
income.Foroperations.
During the qualifying cash flow hedges,year ended December 31, 2018, we recorded a net unrealized gain of $8.6 million related to changes in the effective portionfair value of the gain or lossforeign currency instruments not designated as hedging instruments, of which $8.4 million was included in product sales and $0.2 million was included in cost of goods sold on the changeconsolidated statements of operations. Included in fair value is initially reported as a componentthe unrealized net gains for the year ended December 31, 2018 was $1.9 million related to the reclassification of unrealized net gains previously included in accumulated other comprehensive income in partners’ capitalas described above.
Realized gains related to foreign currency derivatives settled were $0.3 million, $1.7 million and
subsequently reclassified into earnings when$4.6 million, respectively, during the
hedged exposure affects earnings. The ineffective portion of the gain or loss, if any, is reported in earnings in the current period. The Partnership considers its cash flow hedges to be highly effective at inception and as ofyears ended December 31,
2017.The Partnership’s outstanding cash flow hedges at December 31, 2017 expire on dates between2020, 2019 and 2022.
Interest Rate Risk
The Partnership is exposed to fluctuations in interest rates on borrowings under its Senior Secured Credit Facilities. The Partnership entered into a pay-fixed, receive-variable interest rate swap in September 2016 to hedge the interest rate risk associated with its variable rate borrowings under its Senior Secured Credit Facilities. The Partnership elected to discontinue hedge accounting as of December 14, 2016 following the repayment of a portion of its outstanding indebtedness under its Senior Secured Credit Facilities,2018 and subsequently re-designated the interest rate swap for the remaining portion of such outstanding indebtedness during the three months ended March 31, 2017. The Partnership’s interest rate swap expires concurrently with the maturity of the Senior Secured Credit Facilities in April 2020.
The counterparty to the Partnership’s interest rate swap is a major financial institution.
The fair values of cash flow hedging instrumentsare included in product sales on the consolidated balance sheet asstatements of December 31, 2017 were as follows:
| | | | | | | | |
| | | | Asset
| | Liability
|
| | Balance Sheet Location
| | Derivatives
| | Derivatives
|
Derivatives designated as hedging instruments:
| | | | | | | | |
Forward contracts:
| | | | | | | | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Foreign currency exchange forward contracts | | Other long-term liabilities | | $ | — | | $ | 2,118 |
Purchased options: | | | | | | | | |
Foreign currency purchased option contracts | | Prepaid and other current assets | | | 1,024 | | | — |
Interest rate swap: | | | | | | | | |
Interest rate swap | | Other current assets | | | 220 | | | — |
Interest rate swap | | Other long-term assets | | | 407 | | | — |
Total derivatives designated as hedging instruments | | | | $ | 1,651 | | $ | 2,118 |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | |
Forward contracts: | | | | | | | | |
Foreign currency exchange forward contracts | | Prepaid and other current assets | | $ | 124 | | $ | — |
Foreign currency exchange forward contracts | | Accrued and other current liabilities | | | — | | | 806 |
Foreign currency exchange forward contracts | | Other long-term liabilities | | | — | | | 528 |
Purchased options: | | | | | | | | |
Foreign currency purchased option contracts | | Prepaid and other current assets | | | 3 | | | — |
Foreign currency purchased option contracts | | Other long-term assets | | | 45 | | | — |
Total derivatives not designated as hedging instruments | | | | $ | 172 | | $ | 1,334 |
| | | | | | | | |
The fair values of cash flow hedging instruments included in the condensed consolidated balance sheet as of December 31, 2016 were as follows:
| | | | | | | | |
| | | | Asset | | Liability |
| | Balance Sheet Location | | Derivatives | | Derivatives |
Derivatives designated as hedging instruments: | | | | | | |
Forward contracts: | | | | | | | | |
Foreign currency exchange forward contracts | | Prepaid and other current assets | | $ | 188 | | $ | — |
Foreign currency exchange forward contracts | | Other long-term assets | | | 632 | | | — |
Foreign currency exchange forward contracts | | Other long-term liabilities | | | 626 | | | — |
Purchased options: | | | | | | | | |
Foreign currency purchased option contracts | | Other long-term liabilities | | | — | | | 51 |
Total derivatives designated as hedging instruments | | | | $ | 1,446 | | $ | 51 |
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate swap | | Other long-term assets | | $ | 484 | | $ | — |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses recognized in incomeearnings for the year ended December 31, 20172019 were as follows:
| | | | | | | | | | | | | |
| | | | | | Amount of | | | | |
| | | | | Location of | | Gain (Loss) | | Location of Gain | | Amount of Gain |
| | Amount of Gain | | Gain (Loss) | | Reclassified from | | (Loss) Recognized in | | (Loss) Recognized in |
| | (Loss) in Other | | Reclassified from | | Accumulated Other | | Income on Derivative | | Income on Derivative |
| | Comprehensive | | Accumulated Other | | Comprehensive | | (Ineffective Portion | | (Ineffective Portion |
| | Income on | | Comprehensive | | Income | | and Amount | | and Amount |
| | Derivative | | Income | | into Income | | Excluded from | | Excluded from |
| | (Effective Portion) | | (Effective Portion) | | (Effective Portion) | | Effectiveness Testing) | | Effectiveness Testing) |
Foreign currency exchange forward contracts | | $ | (4,126) | | Product sales | | $ | (15) | | Other income (expense) | | $ | (1,237) |
Foreign currency exchange purchased option contracts | | | (1,411) | | Other revenue | | | — | | Other income (expense) | | | (368) |
Interest rate swap | | | 74 | | Other income (expense) | | | (221) | | Other income (expense) | | | 13 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Amount of Gain
(Loss) in Other
Comprehensive
Income on
Derivative
(Effective Portion) | | Location of
Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income
(Effective Portion) | | Amount of
Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income
into Income
(Effective Portion) |
| Interest rate swap | $ | (146) | | | Interest expense | | $ | 288 | |
The effects of instruments designated as cash flow hedges and the related changes in accumulated other comprehensive income and the gains and losses in income for the year ended December 31, 2016 were as follows:
| | | | | | | | | | | | | |
| | | | | | Amount of | | | | |
| | | | | Location of | | Gain (Loss) | | Location of Gain | | Location of Gain |
| | Amount of Gain | | Gain (Loss) | | Reclassified from | | (Loss) Recognized in | | (Loss) Recognized in |
| | (Loss) in Other | | Reclassified from | | Accumulated Other | | Income on Derivative | | Income on Derivative |
| | Comprehensive | | Accumulated Other | | Comprehensive | | (Ineffective Portion | | (Ineffective Portion |
| | Income on | | Comprehensive | | Income | | and Amount | | and Amount |
| | Derivative | | Income | | into Income | | Excluded from | | Excluded from |
| | (Effective Portion) | | (Effective Portion) | | (Effective Portion) | | Effectiveness Testing) | | Effectiveness Testing) |
Foreign currency exchange forward contracts | | $ | 770 | | Product sales | | $ | — | | Product sales | | $ | 1 |
Foreign currency exchange forward contracts | | | — | | Other revenue | | | — | | Other revenue | | | — |
Interest rate swap | | | — | | Other income (expense) | | | — | | Other income (expense) | | | — |
Foreign currency exchange purchased option contracts | | | (175) | | Product sales | | | — | | Product sales | | | — |
Certain cash flow hedges related to foreign currency exchange risk previously designated as hedges ceased to qualify for hedge accounting treatment and the Partnership discontinued hedge accounting for such hedged transactions on December 31, 2017. As of December 31, 2017, $1.6 million of loss included in accumulated other comprehensive income was reclassified to earnings. As of December 31, 2017, the estimated net amounts of existing gains and losses in accumulated other comprehensive income associated with derivative instruments expected to be transferred to the consolidated statement of income is a gain of $0.1 million during the next twelve months.
The Partnership entersWe enter into master netting arrangements which are designed to permit net settlement of derivative transactions among the respective counterparties. If the Partnershipwe had settled all transactions with itsour respective counterparties at December 31, 2017, the Partnership2020, we would have madereceived a net settlement termination payment of $1.6$4.8 million, which differs by $0.2 million from the recorded fair value of the derivatives. The Partnership presents itsWe present our derivative assets and liabilities at their gross fair values.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The notional amounts of outstanding derivative instruments associated with outstanding or unsettled derivative instruments as of December 31, 20172020 and 2019 were as follows:
| | | | | 2020 | | 2019 |
Foreign exchange forward contracts in GBP | | £ | 46,465 | Foreign exchange forward contracts in GBP | £ | 143,565 | | | £ | 50,575 | |
Foreign exchange purchased option contracts in GBP | | £ | 34,050 | Foreign exchange purchased option contracts in GBP | £ | 51,601 | | | £ | 43,415 | |
Foreign exchange forward contracts in EUR | | € | 5,350 | Foreign exchange forward contracts in EUR | € | 12,968 | | | € | 0 | |
Interest rate swap | | $ | 44,756 | |
| Foreign exchange purchased option contracts in EUR | | Foreign exchange purchased option contracts in EUR | € | 0 | | | € | 1,200 | |
| Interest rate swaps | | Interest rate swaps | $ | 70,000 | | | $ | 34,354 | |
The Prior Credit Agreement required the Predecessor to swap a minimum of 50% of the term loan balance outstanding under the Prior Senior Secured Credit Facilities. In connection with the issuance of the Prior Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations), the Predecessor entered into floating-to-fixed interest rate swaps (the Partnership received a floating market rate and paid a fixed interest rate) to manage the interest rate exposure related to the Prior Senior Secured Credit Facilities. All indebtedness outstanding under the Prior Senior Secured Credit Facilities was repaid in full on April 9, 2015, and the Partnership terminated the related rate interest rate swaps and paid a termination fee of $0.1 million.
The Partnership did not have derivative instruments designated as cash flow hedges during the year ended December 31, 2015.
(9)
(12) Fair Value Measurements
The amounts reported in the consolidated balance sheets as cash and cash equivalents, accounts receivable,
related-party receivables, prepaid expenses and other current assets,
related-party receivables, net, accounts payable, related-party payables,
net, deferred consideration due to related-party and accrued
liabilities, related-party accrued liabilities and other current liabilities approximate fair value because of the short-term nature of these instruments.
Derivative instruments and long-term debt and capital lease obligations including the current portion are classified as Level 2 instruments. Derivatives are classified as Level 2 as they are fair valued using inputs that are observable in active markets such as benchmark interest rates and foreign exchange rates (see Note 11, Derivative Instruments). The fair value of the Seniorour 2026 Notes (see Note 12, 14, Long-Term Debt and CapitalFinance Lease Obligations – Senior Notes) was determined based on observable market prices in a lessan active market and was categorized as Level 2 in the fair value hierarchy. The fair value of other long-term debt and capital lease obligationsthe Seller Note is classified as Level 2 was determinedand is estimated on discounted cash flow analyses based on the usage of market prices not quoted onobservable inputs in active markets and other observable market data. The carrying amount of derivative instruments approximates fair value as of December 31, 2017 and December 31, 2016 were as follows: | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Carrying | | Fair | | Carrying | | Fair |
| | Amount | | Value | | Amount | | Value |
Senior Notes | | $ | 352,224 | | $ | 374,624 | | $ | 293,797 | | $ | 306,547 |
Other long-term debt and capital lease obligations | | | 48,793 | | | 48,793 | | | 57,283 | | | 57,283 |
Total long-term debt and capital lease obligations | | $ | 401,017 | | $ | 423,417 | | $ | 351,080 | | $ | 363,830 |
The fair value of the long-term debt and capital lease obligations are estimated based upon rates currently available for debt and capital lease obligations with similar terms and remaining maturities.
The carrying amount of other long-term debt, which is primarily comprised of the senior secured revolving credit facility that resets based on a market rate, approximates fair value. The carrying amount and estimated fair value of long-term debt as of December 31, 2020 and 2019 was as follows: 108
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| 2026 Notes | $ | 746,875 | | | $ | 796,875 | | | $ | 593,476 | | | $ | 644,250 | |
| Seller Note | 37,571 | | | 40,405 | | | 0 | | | 0 | |
| Other long-term debt | 122,000 | | | 122,000 | | | 2,006 | | | 2,006 | |
| Total long-term debt | $ | 906,446 | | | $ | 959,280 | | | $ | 595,482 | | | $ | 646,256 | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(10)(13) Goodwill and Other Intangible Assets
Intangible Assets
Intangible assets consisted of the following at:
Intangibles | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2017 | | December 31, 2016 |
| | | | | Gross | | | | | Net | | Gross | | | | | Net |
| | Amortization | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying |
| | Period | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
Favorable customer contracts | | 3 | years | | $ | 8,700 | | $ | (8,591) | | $ | 109 | | $ | 8,700 | | $ | (7,468) | | $ | 1,232 |
Wood pellet contract | | 6 | years | | | 1,750 | | | (1,750) | | | — | | | 1,750 | | | (1,611) | | | 139 |
Total intangible assets | | | | | $ | 10,450 | | $ | (10,341) | | $ | 109 | | $ | 10,450 | | $ | (9,079) | | $ | 1,371 |
Intangible assets include favorable customer contracts acquired in connection
Goodwill was $99.7 million and $85.6 million at December 31, 2020 and 2019, respectively. Goodwill includes $14.0 million recorded associated with the Partnership’s purchaseGeorgia Biomass Acquisition on July 31, 2020, see Note 4, Acquisition. Goodwill includes $80.7 million associated with the acquisition of Green CircleCottondale by our sponsor and its contribution of Cottondale to us in January 2015. The Partnership also recorded payments made to acquire a six-year wood pellet contract with a European utility2015 and $4.9 million from acquisitions in 2010 as an intangible asset. These costs are recoverable through the future revenue streams generated from the associated contract and are closely related to the revenue from the customer contracts. The Partnership amortizes the customer contract intangible assets as deliveries are completed2010. We did not record any impairment losses during the respective contract terms. During the years ended December 31, 2017, 20162020, 2019 or 2018.
Intangibles
Intangible assets (liabilities) consisted of the following at December 31, 2020:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Favorable customer contracts | $ | 6,200 | | | $ | (5,566) | | | $ | 634 | |
| Assembled workforce | 1,856 | | | (1,249) | | | 607 | |
| Unfavorable customer contract | (600) | | | 57 | | | (543) | |
| Unfavorable shipping contract | (6,300) | | | 485 | | | (5,815) | |
| Total intangible liabilities, net | $ | 1,156 | | | $ | (6,273) | | | $ | (5,117) | |
The Greenwood Drop-Down included an intangible asset of assembled workforce. As a result of the Georgia Biomass Acquisition, we recorded intangible assets and
2015,liabilities related to favorable off-take contracts that expired in 2020 or expire in December 2024, an unfavorable customer contract that expires in December 2024 and an unfavorable shipping contract that expires in December 2025. During the year ended December 31, 2020, $5.3 million of
$1.3 million, $2.0 million and $6.0 million, respectively, ofnet amortization
expense was included in
cost of goods sold in the accompanying consolidated statements of income. The remainingdepreciation and amortization
expense of $0.1 million will be recognized in 2018.Goodwill
In 2015, the Partnership recorded an addition to goodwill of $80.7 million as part of the acquisition of Cottondale by the sponsor and its contribution to the Partnership as part of the Reorganization. Goodwill also includes $4.9 million from the acquisitions in 2010 of a business from IN Group Companies and of a company now known as Enviva Pellets Amory. The Partnership’s reported goodwill balance of $85.6 million at December 31, 2017 and 2016 was allocated to the Partnership’s one reporting unit, which also represents the Partnership’s one segment.
(11) Assets Held for Sale
The Partnership had a controlling interest in Wiggins, an entity that owned a wood pellet plant in Stone County, Mississippi. In December 2016, the Partnership, with the authorization of the Partnership’s board of directors, initiated a plan to sell the Wiggins plant, which triggered an evaluation of a potential asset impairment. The Partnership reclassified the Wiggins plant assets to current assets held for sale and ceased depreciation. Also in December 2016, the Partnership executed an agreement to sell Wiggins, with the closing of the transaction scheduled for January 20, 2017. The carrying amount of the assets held for sale exceeded the estimated fair value which resulted in a $10.0 million non-cash charge to earnings, which is included in impairment of assets held for sale on the consolidated statements of income. On January 20, 2017, the sales agreement terminated when the prospective buyer failed to pay the purchase price. Subsequently, the Partnership ceased operations but the Wiggins plant remained available for immediate sale.
operations.
The
Partnership worked with prospective buyers throughout 2017, including the buyer from the December 2016 agreement. On December 27, 2017, the Partnership sold the Wiggins plant to a third-party buyer for a purchase priceestimated aggregate net reduction of
$0.4 million and recorded a loss on the sale of $0.8 million, net, upon deconsolidation, consisting of a loss on the sale of $3.4 million and a $2.6 million gain upon deconsolidation, which is included in general and administrative expenses on the consolidated statements of income. On December 28, 2017, Wiggins was dissolved. During December 2016, the Partnership recorded an impairment of $10.0 million related to the fixed assets at the Wiggins plant (see Note 11, Assets Held for Sale). The Partnership did not record any impairments related to assets held for saleamortization expense for the next five years ended December 31, 2017 and 2015 (see Note 10, Goodwill and Other Intangible Assets).
is as follows: | | | | | |
| Year Ended December 31, | |
| 2021 | $ | 664 | |
| 2022 | 1,010 | |
| 2023 | 1,140 | |
| 2024 | 1,140 | |
| 2025 | 1,163 | |
| Total | $ | 5,117 | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(12)(14) Long-Term Debt and CapitalFinance Lease Obligations
Senior
Long-term debt and finance lease obligations at carrying value consisted of the following at December 31: | | | | | | | | | | | |
| 2020 | | 2019 |
| 2026 Notes, net of unamortized discount, premium and debt issuance of $3.1 million and $6.5 million as of December 31, 2020 and 2019, respectively | $ | 746,875 | | | $ | 593,476 | |
| Senior secured revolving credit facility | 120,000 | | | 0 | |
| Seller Note, net of unamortized discount of $2.4 million | 37,571 | | | 0 | |
| Other loans | 2,000 | | | 2,006 | |
| Finance leases | 19,603 | | | 7,538 | |
| Total long-term debt and finance lease obligations | 926,049 | | | 603,020 | |
| Less current portion of long-term debt and finance lease obligations | (13,328) | | | (6,590) | |
| Long-term debt and finance lease obligations, excluding current installments | $ | 912,721 | | | $ | 596,430 | |
2026 Notes
Due 2021On November 1, 2016, the Partnership and Enviva Finance Corp. (together with the Partnership, the “Issuers”), Wilmington Trust, National Association, as trustee, and the guarantors party thereto entered into an indenture, as amended or supplemented (the “Indenture”) pursuant to which the Issuers
In December 2019, we issued $300.0$600.0 million in aggregateprincipal amount of 6.5% senior unsecured notes due January 15, 2026 (the “2026 Notes). We received gross proceeds of approximately $601.8 million from the 2026 Notes and net proceeds of approximately $595.8 million after deducting commissions and expenses. We used the net proceeds from the 2026 Notes to (1) redeem our existing $355.0 million principal amount of 8.5% senior unsecured notes due November 1, 2021 (the “Senior“2021 Notes”) to eligible purchasers (the “Senior Notes Offering”) in a private placement under Rule 144A and Regulation S, including payment of the Securities Actrelated redemption premium, (2) repay borrowings under our senior secured revolving credit facility, including payment of 1933, as amendedthe related accrued interest and (3) for general partnership purposes.
In July 2020, we issued an additional $150.0 million aggregate principal amount of the 2026 Notes at an offering price of 103.75% of the principal amount (the “Securities Act”“Additional Notes”). We received net proceeds of approximately $153.6 million from the Additional Notes offering after deducting discounts and commissions. We used the net proceeds from the Additional Notes offering to fund a portion of the cash consideration for the Greenwood Drop-Down and Georgia Biomass Acquisition, to repay borrowings under our revolving credit facility and for general partnership purposes.
Interest payments
commenced on May 1, are due semi-annually in arrears on
May 1January 15 and
November 1. In August 2017, holdersJuly 15 of
100%each year, commencing July 15, 2020. During 2020, we recorded $2.7 million of
premium offset by debt issuance costs associated with the
Senior Notes tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that the registered notes are not subject to restrictions on transfer). The PartnershipAdditional Notes. During 2019, we recorded
$6.4$6.6 million
in issue discounts andof debt issuance costs,
offset by premium associated with the issuance of the
Senior2026 Notes, which have been recorded as a deduction to long-term debt and
capital leaseobligations.The Partnership used $139.6 million of the net proceeds from the Senior Notes, together with cash on hand, to pay a portion of the purchase price for the Sampson Drop-Down and $159.8 million to repay borrowings, including accrued interest, under the Senior Secured Credit Facilities.
On October 10, 2017, pursuant to the Indenture, the Issuers issued and sold an additional $55.0 million in aggregate principal amount of Senior Notes to a purchaser (the “Additional Notes Purchaser”) at 106.25% of par value plus accrued interest from May 1, 2017. The additional Senior Notes have the same terms as the Senior Notes. The sale of the additional Senior Notes resulted in gross proceeds to the Issuers of approximately $60.0 million. The proceeds were used to repay borrowings under the Partnership’s revolving credit commitments under the Senior Secured Credit Facilities, which were used to fund the Wilmington Drop-Down, and for general partnership purposes.
In December 2017, the Additional Notes Purchaser tendered such notes in exchange for newly issued registered notes with terms substantially identical in all material respects to the Senior Notes (except that the registered notes are not subject to restrictions on transfer). The additional Senior Notes will be treated together with the Senior Notes as a single class for all purposes under the Indenture. The Partnership recorded $0.9 million in original issue discounts and costs and $3.4 million in premiums associated with the issuance of the additional Senior Notes, which have been recorded as a net addition to long-term debt and capitalfinance lease obligations.
At any time prior to November 1, 2018, the Issuers may redeem up to 35% of the aggregate principal amount of the Senior Notes (including any additional notes) issued under the Indenture at a redemption prices of 108.5% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, in an amount not greater than the net cash proceeds of one or more equity offerings by the Partnership, provided that:
| ·
| | at least 65% of the aggregate principal amount of the Senior Notes issued under the Indenture on November 1, 2016, remains outstanding immediately after the occurrence of such redemption (excluding notes held by the Partnership and its subsidiaries); and
|
| ·
| | the redemption occurs within 120 days of the date of the closing of such equity offering(s).
|
On and after November 1, 2018, the IssuersWe may redeem all or a portion of the Senior2026 Notesat any time at the applicable redemption prices (expressed as percentages of principal amount) set forth below,price, plus accrued and unpaid interest, if any, on the Senior Notes redeemed to the applicable redemption date (subject(subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date), if and, in some cases, plus a make-whole premium.
As of December 31, 2020 and 2019, we were in compliance with the covenants and restrictions associated with, and no events of default existed under, the indenture dated as of December 9, 2019 governing the 2026 Notes. The 2026 Notes are guaranteed jointly and severally on a senior unsecured basis by our existing subsidiaries (excluding Enviva Partners Finance Corp.) that guarantee certain of our indebtedness and may be guaranteed by certain future restricted subsidiaries.
2021 Notes
In December 2019, we redeemed
during the twelve-month period beginning November 1all $355.0 million of aggregate principal amount of 2021 Notes and recognized a $9.0 million loss on the
years indicated below:early retirement of debt obligation consisting of a $7.5 million debt redemption premium and $1.5 million for the write-off of unamortized debt issuance costs, original issue discount and premium. The amounts were amortized over the term of the 2021 Notes and were expensed in December 2019 when we repaid $355.0 million of aggregate principal amount of the 2021 Notes. The 2021 Notes early redemption was funded from the issuance of the 2026 Notes. Senior Secured Revolving Credit Facility
We have a $350.0 million senior secured revolving credit facility that matures on October 18, 2023.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| | | |
Year: | | Percentages | |
2018 | | 104.250 | % |
2019 | | 102.125 | % |
2020 and thereafter | | 100.000 | % |
Borrowings under the revolving credit commitments thereunder bear interest, at our option, at either a Eurodollar rate or at a base rate, in each case, plus an applicable margin. The Senior Notes containapplicable margin will fluctuate between 1.75% per annum and 3.00% per annum, in the case of Eurodollar rate borrowings, or between 0.75% per annum and 2.00% per annum, in the case of base rate loans, in each case, based on our Total Leverage Ratio (as defined in our credit agreement) at such time, with 25 basis point increases or decreases for each 0.50 increase or decrease in our Total Leverage Ratio from 2.75:1:00 to 4.75:1:00.
We are required to pay a commitment fee on the daily unused amount under the revolving credit commitments at a rate between 0.25% and 0.50% per annum. During the years ended December 31, 2020, 2019 and 2018, commitment fees were $0.9 million, $0.8 million and $0.5 million, respectively.
At December 31, 2020, we had $120.0 million in outstanding borrowings under our senior secured revolving credit facility. At December 31, 2019, we had 0 outstanding borrowings under our senior secured revolving credit facility.
We had a letter of credit outstanding under our senior secured revolving credit facility of $0.3 million at December 31, 2020 and NaN at December 31, 2019.
The credit agreement contains certain
non-financial covenants,
applicablerestrictions and events of default. We are required to
the Partnership including, butmaintain (1) a maximum Total Leverage Ratio at or below 4.75 to 1.00 (or 5.00 to 1.00 during a Material Transaction Period) and (2) a minimum Interest Coverage Ratio (as defined in our credit agreement) of not
limitedless than 2.25 to
(1) restricted payments, (2) incurrence of indebtedness and issuance of preferred securities, (3) liens, (4) dividend and other payment restrictions affecting subsidiaries, (5) merger, consolidation or sale of assets, (6) transactions with affiliates, (7) designation of restricted and unrestricted subsidiaries, (8) additional subsidiary guarantees, (9) business activities and (10) reporting obligations.1.00.
As of December 31,
20172020 and
2016, the Partnership was2019, we were in compliance with all covenants and restrictions associated with, and no events of default existed under,
the Indenture. The Partnership’sour senior secured revolving credit facility. Our obligations under the
Indenturesenior secured revolving credit facility are guaranteed by certain of
the Partnership’sour subsidiaries and secured by liens on substantially all of
our assets; however, the
Partnership’s assets.Senior Secured Credit Facilities
On April 9, 2015, the Partnership entered into a Credit Agreement (the “Credit Agreement”) providing for $199.5 million aggregate principal amount of senior secured credit facilities (the “Original Credit Facilities”). The Original Credit Facilities consisted of $174.5 million aggregate principal amount of borrowings and revolving credit commitments in an aggregate principal amount at any time outstanding, taken together with the face amount of letters of credit, not in excess of $25.0 million.
On December 11, 2015, the Partnership entered into the First Incremental Term Loan Assumption Agreement (the “Assumption Agreement”) providing for $36.5 million aggregate principal amount of incremental borrowings (the “Incremental Term Advances” and, together with the Original Credit Facilities, the “Senior Secured Credit Facilities”) under the Credit Agreement. In addition, on December 11, 2015, FiberCo, an affiliate and a wholly owned subsidiary of the Partnership’s sponsor, purchased $15.0 million aggregate principal amount of the borrowings, net of a 1.0% lender fee. On June 30, 2016, FiberCo assigned all of its rights and obligations in its capacity as a lender to a third party. The Partnership recorded $0.4 million as interest expense to this indebtedness during the year ended December 31, 2016.
On October 17, 2016, the Partnership entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) under the Partnership’s Senior Secured Credit Facilities. Following the Sampson Drop-Down, the Second Amendment provided for an increase from $25.0 million to $100.0 million of the revolving credit commitments.
On December 14, 2016, proceeds from the Senior Notes were used to repay outstanding indebtedness, including accrued interest of $159.9 million under the Senior Secured Credit Facilities. For the year ended December 31, 2016, the Partnership recorded a $4.4 million loss on early retirement of debt obligation related to the repayments.
The Senior Secured Credit Facilities include a commitment fee payable on undrawn revolving credit facility commitmentsis not guaranteed by the Hamlet JV or secured by liens on its assets.
Seller Note
In connection with the Greenwood Drop-Down, we became a party to, and a guarantor of, 0.50%a promissory note (the “Seller Note”) with a remaining principal balance of $40.0 million, which was initially recorded at its carrying value of $36.9 million. The Seller Note matures in February 2023 and has an interest rate of 2.5% per annum (subject to a stepdown of 0.375% per annum if the Total Leverage Ratio is less than or equal to 2.00:1.00). Letters of credit issued underannum. Principal and related interest payments are due annually through February 2022 and quarterly thereafter.
Debt Issuance Costs and Premium
Unamortized debt issuance costs and premium included in long-term debt at December 31, 2020 and 2019 were $5.5 million and $6.5 million, respectively. Unamortized debt issuance costs associated with the revolving credit facility
are subject to a fee calculated at the applicable margin for revolving credit facility Eurodollar rate borrowings. The Partnership had $0 outstanding under the revolving credit commitments as of December 31, 2017included in long-term assets was $1.5 million and
$6.5$2.0 million at December 31,
2016.The Partnership had a $4.0 million letter of credit outstanding under2020 and 2019, respectively. Amortization expense included in interest expense for the letters of credit facility as ofyears ended December 31, 20172020, 2019 and 2016. The letter2018 was $1.9 million, $1.2 million and $1.1 million, respectively.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Our long-term debt matures through 2026 and our finance lease obligations have maturity dates of between 2021 and 2031. The
Senior Secured Credit Facilities mature in April 2020. Borrowings under the Senior Secured Credit Facilities bear interest, at the Partnership’s option, at either a base rate plus an applicable margin or at a Eurodollar rate (with a 1.00% floor for term loan borrowings) plus an applicable margin. Principalaggregate maturities of long-term debt and
interest are payable quarterly.The Partnership can request loans under incremental facilities under the Credit Agreement on the terms and conditions and in the maximum aggregate principal amounts set forth therein, provided that lenders provide commitments to make loans under such incremental facilities. The Partnership is required to make mandatory prepayments of the Senior Secured Credit Facilities with the proceeds of certain asset sales and debt incurrences. The Partnership may voluntarily prepay the Senior Secured Credit Facilities in whole or in part at any time without premium or penalty.
The Credit Agreement contains certain covenants, restrictions and events of default including, but not limited to, a change of control restriction and limitations on the Partnership’s ability to (i) incur indebtedness, (ii) pay dividends or make other distributions, (iii) prepay, redeem or repurchase certain debt, (iv) make loans and investments, (v) sell assets, (vi) incur liens, (vii) enter into transactions with affiliates, (viii) consolidate or merge and (ix) assign certain material contracts to third parties or unrestricted subsidiaries. The Partnership will be restricted from making distributions if an event of default exists under the Credit Agreement or if the interest coverage ratio (determinedfinance lease obligations as the ratio of consolidated EBITDA, as defined in the Credit Agreement, to consolidated interest expense, determined quarterly) is less than 2.25:1.00 at such time.
Pursuant to the Credit Agreement, the Partnership is required to maintain, as of the last day of each fiscal quarter, a ratio of total debt to consolidated EBITDA (“Total Leverage Ratio”), as defined in the Credit Agreement, of not more than a maximum ratio, initially set at 4.25:1.00 and stepping down to 3.75 :1.00 during the term of the Credit Agreement; provided that the maximum permitted Total Leverage Ratio will be increased by 0.50:1.00 for the period from the consummation of certain qualifying acquisitions through the end of the second full fiscal quarter thereafter.
As of December 31, 20172020 are as follows:
| | | | | | | | |
| Year Ending December 31: | | |
| 2021 | | $ | 13,328 | |
| 2022 | | 33,623 | |
| 2023 | | 130,920 | |
| 2024 | | 808 | |
| 2025 and thereafter | | 752,924 | |
| Long-term debt and finance lease obligations | | 931,603 | |
| Unamortized premium and debt issuance costs | | (5,554) | |
| Total long-term debt and finance lease obligations | | $ | 926,049 | |
(15) Related-Party Transactions
Related-party amounts included on the consolidated statements of operations were as follows:
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | 2020 | | 2019 | | 2018 |
| Other revenue | | $ | 1,264 | | | $ | 1,789 | | | $ | 3,545 | |
| Cost of goods sold | | 125,284 | | | 111,491 | | | 84,148 | |
General and administrative expenses(1) | | 32,545 | | | 29,457 | | | 21,762 | |
(1) Includes $10.3 million, $5.0 million and December 31, 2016,$4.7 million of expense related to Affiliate Grants
Management Services Agreements
Enviva Partners, LP and the
Partnership wasHamlet JV are parties to MSAs with Enviva Management Company. Enviva Management Company provides us with operations, general administrative, management and other services. We reimburse Enviva Management Company for all direct or indirect internal or third-party expenses it incurs in
complianceconnection with
all covenantsthe provision of such services. The MSAs include rent-related amounts for noncancelable operating leases for office space in Maryland and
restrictions associated with,North Carolina held by our sponsor. We believe the costs allocated to us have been made on a reasonable basis and
no events of default existed under,are the
Credit Agreement. The obligations under the Credit Agreement are guaranteed by certainbest estimate of the
Partnership’s subsidiaries and secured by lienscosts that we would have incurred on
substantially all assets.Prior Senior Secured Credit Facilities
In November 2012,a stand-alone basis.
Under the
Predecessor entered intoHamlet JV’s MSA (the “Hamlet JV MSA”), the
Credit and Guaranty Agreement (the “Prior Credit Agreement”) that provided for a $120.0 million aggregate principal amount of senior secured credit facilities (the “Prior Senior Secured Credit Facilities”). All outstanding indebtedness under the Prior Senior Secured Credit Facilities was repaid in full, including related accrued interest, in the amount of $82.2 million on April 9, 2015. The Partnership funded the repayment with a portion of borrowings under the Original Credit Facilities. For the year ended December 31, 2015, the Partnership recorded a $4.7 million loss on early retirement of debt obligation relatedHamlet JV pays an annual management fee to Enviva Management Company; to the
repayment.Related-Party Notes Payable
On January 22, 2016, a non-controlling interest holder in Wiggins becameextent allocated costs exceed the holder ofannual management fee, the $3.3 million Wiggins construction loan and working capital line. Related-party interest expense associatedadditional costs are recorded with the related-party notes payable was insignificant during the year ended December 31, 2016. The construction loan and working capital line outstanding principal of $3.1 million and an insignificant amount of accrued interest were repaid in full by Wiggins on the October 18, 2016 maturity date.
increase to partners’ capital. In connection with the January 5, 2015 acquisitionHamlet Drop-Down, Enviva Management Company waived the Hamlet JV’s obligation to pay approximately $2.7 million of Cottondale (formerly owned by Green Circle),management fees payable to Enviva Management Company from the sponsor made a term advancedate thereof until July 1, 2020 (the “Hamlet JV MSA Fee Waiver”).
Related-party amounts included on the consolidated balance sheets under our MSAs were as follows:
| | | | | | | | | | | | | | |
| As of December 31, | | 2020 | | 2019 |
| Finished goods inventory | | $ | 907 | | | $ | 419 | |
| Related-party payables | | 8,650 | | | 18,703 | |
Related-party amounts included on the consolidated statements of $36.7 million to Cottondaleoperations under a revolving note. The revolving note accrued interest at an annual rateour MSAs were as follows:
| | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | | 2020 | | 2019 | | 2018 |
| Cost of goods sold | | $ | 74,475 | | | $ | 63,377 | | | $ | 52,280 | |
| General and administrative expenses | | 32,545 | | | 29,457 | | | 21,762 | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Acquisition II, $50.0During the years ended December 31, 2020 and 2019, $1.9 million and $2.6 million, respectively, of fees expensed under a note payable accruing interest atthe Hamlet JV MSA were waived and recorded as an annual rateincrease to partners’ capital.
Drop-Down Agreements
Greenwood Drop-Down
Pursuant to the Third EVA MSA Fee Waiver, during the year ended December 31, 2020, $18.0 million was recorded as an increase to partners’ capital consisting of 4.0%. Cottondale repaid $4.8 millionexpenses waived under the agreement.
Hamlet Drop-Down
On the date of the outstanding principalHamlet Drop-Down:
•We entered into an agreement with our sponsor, pursuant to which (1) our sponsor agreed to guarantee certain cash flows from the Hamlet plant until June 30, 2020, (2) our sponsor agreed to reimburse us for construction cost overruns in March 2015. As a resultexcess of budgeted capital expenditures for the Hamlet plant, subject to certain exceptions, (3) we agreed to pay to our sponsor quarterly incentive payments for any wood pellets produced by the Hamlet plant in excess of forecast production levels through June 30, 2020 and (4) our sponsor agreed to retain liability for certain claims payable, if any, by the Hamlet JV (the “Hamlet Make-Whole Agreement”).
•We entered into an agreement with Enviva Management Company to waive our obligation to pay an aggregate of approximately $13.0 million in fees payable under our MSA with Enviva Management Company (the “EVA MSA”) with respect to the period from the date of the sponsor’s contributionHamlet Drop-Down through the second quarter of Acquisition II,2020 (the “First EVA MSA Fee Waiver”).
•The Hamlet JV entered into an interim services agreement (the “ISA”) with Enviva Hamlet Operator, LLC, a wholly owned subsidiary of our sponsor (“Hamlet Operator”), pursuant to which owned Cottondale,Hamlet Operator, as an independent contractor, agreed to manage, operate, maintain and repair the Hamlet plant and provide other services to the Partnership on April 9, 2015,Hamlet JV for the Partnership recorded $81.9 millionperiod from July 1, 2019 through June 30, 2020 in exchange for a fixed fee per MT of outstanding principalwood pellets produced by the Hamlet plant during such period and $0.9 milliondelivered at place to the Wilmington terminal. Under and during the term of accrued interest relatedthe ISA, Hamlet Operator agreed to these notes.In connection(1) pay all operating and maintenance expenses at the Hamlet plant, (2) cover all reimbursable general and administrative expenses associated with the closing of the IPO on May 4, 2015, the related-party notes payable outstanding principal of $81.9 millionHamlet plant and related accrued interest of $1.1 million were repaid(3) pay other costs and expenses incurred by the PartnershipHamlet plant to produce and sell the wood pellets delivered to the sponsor. Wilmington terminal from the Hamlet plant. Our sponsor guaranteed all obligations of Hamlet Operator under the ISA.
During the year ended December 31,
2015, $1.12020, $3.5 million
was recorded as an increase to partners’ capital consisting of
related-party interest expense associated withexpenses waived under the
related-party notes payable was incurred.Long-term debt, at carrying value are composedFirst EVA MSA Fee Waiver. Cost of the following at December 31:
| | | | | | |
| | | | | 2016 |
| | 2017 | | (Recast) |
Senior Notes, net of unamortized discount, premium and debt issuance of $2.8 million as of December 31, 2017 and $6.2 million as of December 31, 2016 | | $ | 352,224 | | $ | 293,797 |
Senior Secured Credit Facilities, Tranche A-1 Advances, net of unamortized discount and debt issuance costs of $1.0 million as of December 31, 2017 and $1.4 million as of December 31, 2016 | | | 39,263 | | | 41,651 |
Senior Secured Credit Facilities, Tranche A-3 Advances, net of unamortized discount and debt issuance costs of $0.1 million as of December 31, 2017 and $0.2 million as of December 31, 2016 | | | 4,372 | | | 4,489 |
Senior Secured Credit Facilities, revolving credit commitments, at a Eurodollar Rate of 7.0% at December 31, 2016 | | | — | | | 6,500 |
Other loans | | | 2,023 | | | 2,759 |
Capital leases | | | 3,135 | | | 1,884 |
Total long-term debt and capital lease obligations | | | 401,017 | | | 351,080 |
Less current portion of long-term debt and capital lease obligations | | | (6,186) | | | (4,165) |
Long-term debt and capital lease obligations, excluding current installments | | $ | 394,831 | | $ | 346,915 |
The aggregate maturities of long-term debt and capital lease obligations,goods sold included $25.2 million net of unamortized discounta cost of cover deficiency fee from our sponsor pursuant to the Hamlet Make-Whole Agreement as a result of Hamlet Operator’s failure to meet specified production levels, offset by the agreed-upon price due to Hamlet Operator for the wood pellets produced by the Hamlet plant that we sold. As of December 31, 2020, included in related-party receivables, net are $12.3 million related to the ISA. The Hamlet Make-Whole Agreement, First EVA MSA Waiver and debt issuance costs, are as follows:
| | | |
Year Ended December 31: | | | |
2018 | | $ | 5,097 |
2019 | | | 5,301 |
2020 | | | 35,828 |
2021 | | | 354,788 |
2022 | | | 3 |
Thereafter | | | — |
Total long-term debt and capital lease obligations | | $ | 401,017 |
Depreciation expense relatingISA expired pursuant to assets held under capital lease obligations was $0.7 million, $0.2 million and $0.1 million for each oftheir terms on June 30, 2020.
During the
yearsyear ended December 31,
2017, 20162019, $19.7 million was recorded as an increase to partners’ capital and
2015, respectively.$7.7 million was recorded in cost of goods sold pursuant to the agreements we entered into on the date of acquisition of the Hamlet JV. The increases to partners’ capital are comprised of expenses waived under the First EVA MSA Fee Waiver and the Hamlet JV MSA Fee Waiver and reimbursement of construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant. The net reduction in cost of goods sold comprises our receipt of a cost of cover deficiency fee from our sponsor pursuant to the Make-Whole Agreement as a result of Hamlet Operator’s failure to meet specified production levels, offset by the agreed-upon price due to Hamlet Operator for the pellets produced by the Hamlet plant that we have sold.
Our sponsor assigned to us all of its rights and obligations under the amended and restated credit agreement, dated as of June 30, 2018, between the Hamlet JV, as borrower, and our sponsor, as lender. On April 2, 2019, we amended and restated the Hamlet JV Revolver to extend the maturity date of the revolving loans made to the Hamlet JV and increase our commitment as lender to fund increases in the amount of such loans from $30.0 million to $60.0 million in order to fund capital expenditures and working capital at the Hamlet plant. As of December 31, 2020 and 2019, the outstanding balance of the Hamlet JV Revolver was
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(13) Related-Party Transactions
Related-party amounts included on$41.7 million and $52.2 million, respectively, due from the consolidated statements of income were the following for each of the years ended December 31,:
| | | | | | | | | |
| | 2017 | | 2016 (Recast) | | 2015 (Recast) |
| | |
Other revenue | | $ | 5,912 | | $ | — | | $ | — |
Cost of goods sold | | | 69,445 | | | 41,467 | | | 22,268 |
General and administrative expenses | | | 15,132 | | | 17,236 | | | 16,587 |
Management Services Agreement
On April 9, 2015, the Partnership, the General Partner,Hamlet JV to Enviva, LP, Enviva GP, LLC and certain subsidiariesboth of Enviva, LP (collectively, the “Service Recipients”)which are eliminated upon consolidation.
Second EVA MSA Fee Waiver
In June 2019, we entered into
a five-year Management Services Agreement (the “MSA”)an additional agreement with Enviva Management
Company (the
“Provider”“Second EVA MSA Fee Waiver”)
, a wholly owned subsidiary of the sponsor, pursuant to which
we received a $5.0 million waiver of fees under the
Provider provides the Service Recipients with operations, general administrative, managementEVA MSA through September 30, 2019 as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and
other services (the “Services”). Under the terms of the MSA, the Service Recipients are required to reimburse the Provider the amount of all direct or indirect internal or third-party expenses incurred by the Provider in connection with the provision of the Services, including, without limitation: (i) the portion of the salary and benefits of the employees engaged in providing the Services reasonably allocable to the Service Recipients; (ii) the charges and expenses of any third party retained to provide any portion of the Services; (iii) office rent and expenses and other overhead costs incurred in connection with, or reasonably allocable to, providing the Services; (iv) amounts related to the payment of taxes related to the business of the Service Recipients; and (v) costs and expenses incurred in connection with the formation, capitalization, business or other activities of the Provider pursuant to the MSA.Direct or indirect internal or third-party expenses incurred are either directly identifiable or allocated to the Partnership by the Provider. The Provider estimates the percentage of salary, benefits, third-party costs, office rent and expenses and any other overhead costs incurred by the Provider associated with the Services to be provided to the Partnership. Each month, the Provider allocates the actual costs accumulated in the financial accounting system using these estimates. The Provider also charges the Partnership for any directly identifiable costs such as goods or services provided at the Partnership’s request.
our sponsor’s respective shipping obligations under our existing off-take contracts. During the year ended December 31, 2019, $5.0 million of fees expensed under the EVA MSA were waived and recorded as an increase to partners’ capital pursuant to the Second EVA MSA Fee Waiver.
Wilmington Drop-Down - Second Payment
In October 2017, we purchased all of the Partnership incurred $65.5issued and outstanding limited liability company interests in Enviva Port of Wilmington, LLC (“Wilmington”) for total consideration of $130.0 million (the “Wilmington Drop-Down”). On April 1, 2019, we made the second and final payment of $74.0 million, which consisted of $24.3 million in cash, of which $22.8 million was distributed to John Hancock, and the issuance of 1,691,627 common units, or approximately $49.7 million in common units, which were distributed to John Hancock.
Greenwood Contract
We were party to a contract with Greenwood to purchase wood pellets produced by the Greenwood plant through March 2022 (the “Greenwood Contract”) and had a take-or-pay obligation with respect to 550,000 MTPY of wood pellets from July 2019 through March 2022 subject to Greenwood’s option to increase or decrease the volume by 10% each contract year. Pursuant to an amendment to the Greenwood Contract, our take-or-pay obligation with respect to 550,000 MTPY of wood pellets was deferred to 2021. The Greenwood Contract was terminated on the date of the Greenwood Drop-Down.
During the years ended December 31, 2020, 2019 and 2018, we purchased $18.8 million, $46.2 million and $27.4 million, respectively, of wood pellets from Greenwood and recorded a cost of cover deficiency fee of approximately $0.3 million, $5.0 million and $0.7 million, respectively, as Greenwood was unable to satisfy certain commitments.
As of December 31, 2020, the net purchased amount of $18.1 million related to the
MSA. Of this amount, $49.9Greenwood contract was included in cost of goods sold and there was no finished good inventory. As of December 31, 2019 and 2018, of the net $41.2 million and $26.7 million, $40.9 million and $26.2 million is included in cost of goods sold, and
$15.1$0.3 million
is included in general and
administrative expenses on the consolidated statements of income. At December 31, 2017, $0.5 million
incurred under the MSA is included in finished goods
inventory.inventory, respectively.
As of December 31, 2020, there were 0 related-party payables related to our wood pellet purchases from Greenwood. As of December 31, 2019, $1.3 million is included in related-party payables related to our wood pellet purchases from Greenwood.
Holdings TSA
Prior to its termination on the date of the Greenwood Drop-Down, we were party to a long-term terminal services agreement with our sponsor (the “Holdings TSA”). Pursuant to the Holdings TSA, our sponsor agreed to deliver a minimum of 125,000 MT of wood pellets per quarter for receipt, storage, handling and loading services by the Wilmington terminal and pay a fixed fee on a per-ton basis for such terminal services. During the years ended December 31, 2020 and 2019, we recorded 0 terminal services revenue from our sponsor. During the year ended December 31, 2016,2018, we recorded $0.8 million as terminal services revenue from our sponsor, which is included in other revenue.
In 2018, the Partnership incurred $56.0Holdings TSA was amended and assigned to Greenwood and provided for deficiency payments to Wilmington if quarterly minimum throughput requirements were not met. During the years ended December 31, 2020, 2019 and 2018, we recorded $1.3 million, $1.8 million and $2.2 million, respectively, of deficiency fees from Greenwood, which is included in other revenue.
Additionally, in 2018, Hurricane Florence impacted the rail line on which wood pellets are typically transported from the Greenwood plant to the Wilmington terminal. As a result, Greenwood was unable to satisfy certain commitments under the Holdings TSA and the Greenwood Contract and agreed to pay $1.8 million to us as deficiency fees in consideration of these commitments. Consideration of $0.5 million related to the
MSA. Of this amount, $37.9Holdings TSA was included in other revenue and $1.3 million
isrelated to the Greenwood contract was included
inas a reduction of cost of goods sold
and $17.2 million is included in general and administrative expenses on the consolidated statements of income. At December 31, 2016, $0.9 million incurred under the MSA is included in finished goods inventory.Duringduring the year ended December 31, 2015, the Partnership incurred $39.4 million related to the MSA. Of this amount, $22.3 million is included in cost2018.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Common Control Transactions
Cottondale
On January 5, 2015,Enviva FiberCo, LLC
We purchase raw materials from Enviva FiberCo, LLC (“FiberCo”), a wholly owned subsidiary of our sponsor, including through a wood supply agreement that provided for deficiency fees in the event FiberCo did not satisfy certain volume commitments. Purchased raw materials net of cost of cover deficiency fees are included in cost of goods sold. Raw materials purchased during the year ended December 31, 2020 were $7.5 million. NaN cost of cover deficiency fees were recognized during the year ended December 31, 2020. During the year ended December 31, 2019, cost of cover deficiency fees net of raw material purchases were $0.5 million. During the year ended December 31, 2018, raw material purchases were $7.1 million. There were 0 cost of cover deficiency fees during the year ended December 31, 2018. As of December 31, 2020, $0.3 million is included in related-party payables related to raw materials purchased from FiberCo. There was 0 amount in related-party payables related to raw materials purchased from FiberCo as of December 31, 2019.
Equipment Transfer
In April 2020, Enviva Pellets Northampton, LLC sold certain equipment to the sponsor acquired Green Circle, which ownedfor approximately $4.1 million.
Biomass Option Agreement – Enviva Holdings, LP
In February 2017, Enviva, LP entered into an agreement and a confirmation thereunder with our sponsor (together, as amended, the Cottondale plant. Acquisition I contributed Green Circle“Option Contract”).
During the year ended December 31, 2018, Enviva, LP purchased $1.7 million of wood pellets from our sponsor. The Option Contract terminated in accordance with its terms in March 2018.
(16) Income Taxes
Our consolidated statement of operations for the year ended December 31, 2020 included income tax expense of $0.1 million. For the years ended December 31, 2019 and 2018, 0 provision for income tax was recorded in the consolidated financial statements.
Components of the income tax provision applicable to our federal and state taxes are as follows:
| | | | | | | | | |
| 2020 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Deferred income tax expense: | | | | | |
| U.S. Federal | $ | 69 | | | | | |
| | | | | |
| | | | | |
| Total deferred | $ | 69 | | | | | |
| Total income tax expense related to continuing operations | $ | 69 | | | | | |
The effective income tax rate from continuing operations varies from the U.S. Federal statutory rate principally due to the Partnership in April 2015 in exchange for subordinated units in the Partnership. Prior to such contribution, the sponsor converted Green Circle into a Delaware limited liability company and changed the namefollowing:
| | | | | |
| 2020 |
| Income taxes at statutory federal income tax rate | $ | 3,601 | |
| Increase (decrease) in income taxes resulting from: | |
| Partnership earnings not subject to tax | (3,671) | |
| Other | 139 | |
| Total income tax expense | $ | 69 | |
Table of the entity to “Enviva Pellets Cottondale, LLC” (see Note 1, Description of Business and Basis of Presentation).Southhampton Drop-Down
In connection with the closing of the Senior Secured Credit Facilities (see Note 12, Long-Term Debt and Capital Lease Obligations), on December 11, 2015, under the terms of a contribution agreement between the Partnership and the First Hancock JV, the First Hancock JV contributed to Enviva, LP, all of the issued and outstanding limited liability company interests in Southampton for total consideration of $131.0 million (see Note 1, Description of Business and Basis of Presentation).
Sampson Drop-Down
On December 14, 2016, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Sampson for total consideration of $175.0 million (see Note 1, Description of Business and Basis of Presentation).
Wilmington Drop-Down
On October 2, 2017, the First Hancock JV contributed to Enviva, LP all of the issued and outstanding limited liability company interests in Wilmington for total consideration of $130.0 million (see Note 1, Description of Business and Basis of Presentation).
Related-Party Indemnification
In connection with the Sampson Drop-Down, the First Hancock JV agreed to indemnify the Partnership, its affiliates, and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims (“Retained Matters”) related to the construction of the Sampson plant that were included in the net assets contributed. At December 31, 2016, accrued liabilities related to such indemnifiable amounts included $6.4 million related to work performed by certain vendors. The Partnership recorded a corresponding related-party receivable from the First Hancock JV of $6.4 million for reimbursement of such indemnifiable amounts. At December 31, 2017, the related-party receivable associated with such amounts was $3.0 million.
In connection with the Wilmington Drop-Down, the First Hancock JV agreed to indemnify the Partnership, its affiliates, and its respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Port of Wilmington that were included in the net assets contributed. The Partnership recorded a corresponding related-party receivable from the First Hancock JV of $1.8 million for reimbursement of such indemnifiable amounts. At December 31, 2017, the related-party receivable associated with such amounts was $1.3 million.
Sampson Construction Payments
Pursuant to three payment agreements between the Partnership and the First Hancock JV dated effective as of July 27, 2017, September 30, 2017, and December 31, 2017 (together, the “Payment Agreements”), the First Hancock JV agreed to pay an aggregate amount of $1.4 million to the Partnership in consideration for costs incurred by the
Contents ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Partnership to repair or replace certain equipment atDeferred tax assets and liabilities result from the Sampson plant following the consummationfollowing:
| | | | | | | | | |
| 2020 | | | | |
| Deferred tax assets: | | | | | |
| Net operating loss carryforward | $ | 3,611 | | | | | |
| | | | | |
| Total deferred tax assets | $ | 3,611 | | | | | |
| Deferred tax liabilities: | | | | | |
| Investment in affiliates | $ | (16,828) | | | | | |
| | | | | |
| Total deferred tax liabilities | $ | (16,828) | | | | | |
| Net deferred tax assets (liabilities) | $ | (13,217) | | | | | |
As of
the Sampson Drop-Down.Terminal Services Agreements
On December 14, 2016, Enviva, LP and Wilmington entered into a terminal services agreement (the “Sampson TSA”) regarding wood pellets produced at the Sampson plant and transported by truck to the Wilmington terminal. Pursuant to the Sampson TSA, the wood pellets were received, stored and ultimately loaded onto oceangoing vessels for transport to the Partnership’s customers. The Sampson TSA was terminated in connection with the Wilmington Drop-Down on October 2, 2017.
In connection with the Wilmington Drop-Down, Wilmington and the sponsor entered into a terminal services agreement dated October 2, 2017 providing for wood pellet receipt, storage, handling and loading services by the Wilmington terminal on behalf of the sponsor (the “Holdings TSA”). Pursuant to the Holdings TSA, which remains in effect until September 1, 2026, the sponsor agreed to deliver a minimum of 125,000 MT per quarter and pay a fixed fee on a per-ton basis for the terminal services. During the year ended December 31, 2020, we have federal net operating loss carryforwards of approximately $17.2 million expiring in years 2033 to 2036.
For calendar year 2020, the only periods subject to examination for U.S. federal and state income tax returns are 2017
the Partnershipthrough 2019. We believe our income tax filing positions, including our status as a pass-through entity, would be sustained on audit and do not anticipate any adjustments that would result in a material change to our consolidated balance sheet. Therefore, 0 reserves for uncertain tax positions or interest and penalties have been recorded
$2.8 million as terminal services revenue, which is included in “Other revenue.” The Partnership had no terminal services revenue under the Holdings TSA during the years ended December 31,
20162020, 2019 and
2015.The Holdings TSA was amended and assigned to Enviva Pellets Greenwood, LLC,2018.
(17) Partners’ Capital
Common Units - Issuance
In June 2020, we issued 6,153,846 common units in a wholly owned subsidiaryprivate placement at a price of Enviva JV Development Company, LLC,$32.50 per common unit for gross proceeds of $200.0 million. We received proceeds of $190.5 million, net of $9.5 million of issuance costs.
In March 2019, we issued 3,508,778 common units in a
joint venture between the Partnership’s sponsor, Hancock Natural Resource Group, Inc. and certain other affiliatesregistered direct offering for net proceeds of
John Hancock Life Insurance Company (U.S.A.) (the “Second Hancock JV”).Enviva FiberCo, LLC
The Partnership purchases raw materials from FiberCo. Raw material purchases during the years ended December 31, 2017 and 2016 from FiberCo were $8.5approximately $97.0 million, and $3.7net of $3.0 million respectively. Raw material purchases from FiberCo were insignificant for the year ended December 31, 2015.
Biomass Purchase Agreement – Hancock JV
of issuance costs. On April 9, 2015, Enviva, LP entered into a master biomass purchase and sale agreement (the “Biomass Purchase Agreement”) and a confirmation thereunder with the First Hancock JV pursuant to which the First Hancock JV sold to Enviva, LP, at a fixed price per metric ton, certain volumes of wood pellets per month. The Partnership sold the wood pellets purchased from the First Hancock JV to customers under the Partnership’s existing off-take contracts. Such confirmation was terminated on December 11, 2015.
On September 7, 2016, Sampson entered into a confirmation under the Biomass Purchase Agreement pursuant to which Sampson agreed to sell to the sponsor 60,000 MT of wood pellets through August 31, 2017. On June 23, 2017, the sponsor satisfied its take-or-pay obligation under the agreement with a $2.7 million payment to the Partnership, which is included in “Other revenue.”
On September 26, 2016, Enviva, LP and Sampson entered into two confirmations under the Biomass Purchase Agreement pursuant to which Enviva, LP agreed to sell to Sampson 140,000 MT of wood pellets, and Sampson agreed to sell to Enviva, LP 140,000 MT of wood pellets. The confirmation pursuant to which Enviva, LP agreed to sell wood pellets to Sampson under the Biomass Purchase Agreement was terminated1, 2019, in connection with the Sampson Drop-Down.
Second Payment for the Wilmington Drop-Down, we issued 1,691,627 common units, or $49.7 million in common units, to the Hamlet JV, which common units were distributed to John Hancock.
In January 2018, our sponsor sold to our general partner 81,708 common units, which were used to satisfy our obligation to settle vested performance-based phantom unit awards granted under the LTIP. On May 9, 2018, our sponsor sold to third parties all of the 1,265,453 common units held by our sponsor on such date. All of our subordinated units, which at the time were held by our sponsor, converted into common units on a 1-for-one basis at the end of the subordination period on May 30, 2018. As of December 31, 2018, 11,905,138 common units were held by our sponsor. On April 2, 2019, in connection with the Hamlet Drop-Down, we issued 1,681,237 common units, or $50.0 million in common units, to our sponsor.Shelf Registration - Equity Interests in the Partnership
We filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission (the “SEC”) on June 21, 2019 to allow us, from time to time, in one or more offerings, to offer and sell (1) common units representing limited partner interests in Enviva Partners, LP and (2) preferred units representing equity interests in Enviva Partners, LP. The aggregate initial offering price of all securities sold by us under the effective shelf registration statement may not exceed $500.0 million.
On April 1, 2019, in connection with the Second Payment for the Wilmington Drop-Down, we issued 1,691,627 common units, or $49.7 million in common units, to the Hamlet JV, which common units were distributed to John Hancock. On April 2, 2019, in connection with the Hamlet Drop-Down, we issued 1,681,237 common units, or $50.0 million in common units, to our sponsor. In accordance with our registration rights agreements with John Hancock, we registered the common units issued for the Wilmington-Drop Down and the Hamlet Drop-Down for resale, subject to certain limitations, pursuant to the effective shelf registration statement.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Biomass Option Agreement – Enviva Holdings, LP
On February 3, 2017, Enviva, LP entered into a master biomass purchase and sale agreement and a confirmation thereunder, which confirmation was amended on April 1, 2017, each with the sponsor (together, the “Option Contract”), pursuant to which Enviva, LP has the option to purchase certain volumes of wood pellets from the sponsor, from time to time at a price per metric ton determined by reference to a market index. The sponsor has a corresponding right to re-purchase volumes purchased by Enviva, LP pursuant to the Option Contract at a price per metric ton determined by reference to such market index at then-prevailing rates in the event that Enviva, LP purchases more than 45,000 MT of wood pellets pursuant to the Option Contract.
During the year ended December 31, 2017, pursuant to the Option Contract, Enviva, LP purchased $11.1 million of wood pellets from the sponsor, which amount is included in cost of goods sold in the Partnership’s consolidated statements of income. The Partnership did not purchase wood pellets from the sponsor during the years ended December 31, 2016 and 2015.
EVA-MGT Contracts
In January 2016 the Partnership entered into a contract with the First Hancock JV to supply 375,000 MTPY of wood pellets (the “EVA‑MGT Contract”) to MGT Teesside Limited’s Tees Renewable Energy Plant (the “Tees REP”), which is under development. The EVA‑MGT Contract commences in 2019, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for commissioning volumes in 2019 and in GBP thereafter.
The Partnership entered into a second supply agreement with the First Hancock JV in connection with the Sampson Drop‑Down to supply an additional 95,000 MTPY of the contracted volume to the Tees REP. The contract, which is denominated in GBP, commences in 2019 and continues through 2034.
(14) Income Taxes
The Partnership’s operations are organized as limited partnerships and entities that are disregarded entities for federal and state income tax purposes. As a result, the Partnership is not subject to U.S. federal and most state income taxes. The partners and unitholders of the Partnership are liable for these income taxes on their share of the Partnership’s taxable income. Some states impose franchise and capital taxes on the Partnership. Such taxes are not material to the consolidated financial statements and have been included in other income (expense) as incurred.
For calendar year 2017, the only periods subject to examination for federal and state income tax returns are 2015 through 2017. The Partnership believes its income tax filing positions, including its status as a pass-through entity, would be sustained on audit and does not anticipate any adjustments that would result in a material change to its consolidated balance sheet. Therefore, no reserves for uncertain tax positions, nor interest and penalties, have been recorded. For the years ended December 31, 2017 and 2016, no provision for federal or state income taxes has been recorded in the consolidated financial statements.
The Partnership’s consolidated financial statements include Enviva Finance Corp., which is a wholly owned C corporation that was formed for the purpose of being the co-issuer of the Partnership’s Senior Notes. There were no activities generated by Enviva Finance Corp. during 2017 and 2016, as a result, no provision for federal or state income taxes has been recorded in the consolidated financial statements.
The Partnership’s consolidated statement of income for the year ended December 31, 2015, includes income tax expense of $2.7 million related to the activities of the Cottondale plant from the date of acquisition on January 5, 2015 through April 8, 2015. This amount is reflected as a capital contribution. During this period, Green Circle was a corporate subsidiary of the predecessor entity of Acquisition II. Green Circle, which is now Enviva Cottondale
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Acquisition I, LLC, and Acquisition II were each treated as a corporation for federal income tax purposes until April 7, 2015 and April 8, 2015, respectively. Prior to the contribution of Acquisition II to the Partnership on April 9, 2015, the financial results of the predecessor entity of each of Acquisition II and Green Circle were included in the consolidated federal income tax return of the tax paying entity, Acquisition I.
(15) Partners’ Capital
In connection with the closing of the IPO, the Partnership recapitalized the outstanding limited partner interests held by the sponsor into 405,138our private placement of common units and 11,905,138 subordinated units representingin June 2020, we entered into a 51.7% ownership interest in the Partnership as of the closing of the IPO. On December 11, 2015, the Partnership issued 942,023 common units to a wholly owned subsidiary of the sponsor in connection with the Southampton Drop-Down. In addition, the sponsor is the owner of the General Partner and the General Partner holds the IDRs.
Subordinated Units
All of the subordinated units will convert into common units on a one‑for‑one basis at the end of the subordination period, which is expected to occur in May 2018. Our sponsor has registration rights agreement with investors, pursuant to which we agreed to file and maintain a registration statement with respect to the common units it currently holds andresale of the common units it will hold upon conversionon the terms set forth therein. On July 10, 2020, we filed the registration statement and on July 20, 2020, the registration statement was declared effective.
At-the-Market Offering Program
Pursuant to an equity distribution agreement dated August 8, 2016, we may offer and sell common units from time to time through a group of
managers, subject to the
subordinated units.terms and conditions set forth in such agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”). During the years ended December 31, 2020 and 2019, we did not sell common units under the ATM Program.
Allocations of Net Income
(Loss)
The
First Amended and Restated Agreement of Limited Partnership of the Partnership (the “Partnership Agreement”)Partnership’s partnership agreement contains provisions for the allocation of net income and loss to
theour unitholders
of the Partnership and the General
Partner.Partner, a wholly owned subsidiary of our sponsor. For purposes of maintaining partner capital accounts, the
Partnership Agreementpartnership agreement specifies that items of income and loss shall be allocated among the partners of the Partnership in accordance with their respective percentage ownership interest. Such allocations are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions, which are allocated 100% to the General Partner.
Prior to the Hamlet Drop-Down, John Hancock had received all of its capital contributions and substantially all of its preference amount and the historical net losses of the Hamlet JV had been allocated to the members of the Hamlet JV in proportion to their unreturned capital contributions; consequently, the balance of members’ capital attributable to John Hancock was negative at the time of the Hamlet Drop-Down. We have not received full repayment of revolving borrowings from the Hamlet JV pursuant to the Hamlet JV Revolver or its capital contributions and full preference amount as of December 31, 2020; as a result, none of the earnings of the Hamlet JV have been allocated to John Hancock following the Hamlet Drop-Down and no change has been recognized to the negative noncontrolling interest balance attributable to John Hancock that we acquired.
Incentive Distribution Rights
Incentive distribution rights (“IDRs”) represent the right to receive increasing percentages (from 15.0% to 50.0%) of quarterly distributions from operating surplus after
we achieve distributions in amounts exceeding specified target distribution
levels have been achieved by the Partnership. The General Partnerlevels. Our sponsor currently holds the IDRs but may transfer
these rightsthem at any time.
At-the-Market Offering Program
On August 8, 2016, the Partnership filed a prospectus supplement to the shelf registration filed with the SEC on June 24, 2016, for the registration of the continuous offering of up to $100.0 million of common units, in amounts, at prices, and on terms to be determined by market conditions and other factors at the time of the offerings. In August 2016, the Partnership entered into an equity distribution agreement (the “Equity Distribution Agreement”) with certain managers pursuant to which the Partnership may offer and sell common units from time to time through or to one or more of the managers, subject to the terms and conditions set forth in the Equity Distribution Agreement, of up to an aggregate sales amount of $100.0 million (the “ATM Program”).
During the year ended December 31, 2017, the Partnership sold 71,368 common units under the Equity Distribution Agreement for net proceeds of $1.9 million, net of an insignificant amount of commissions. Accounting and other fees of approximately $0.2 million were offset against the proceeds. Net proceeds from sales under the ATM Program were used for general partnership purposes.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
During the year ended December 31, 2016, the Partnership sold 358,593 common units under the Equity Distribution Agreement for net proceeds of $9.3 million, net of $0.1 million of commissions. Deferred issuance costs of approximately $0.4 million, primarily consisting of legal, accounting and other fees, were offset against the proceeds. Net proceeds from sales under the ATM Program were used for general partnership purposes.
Sampson Drop-Down
As partial consideration for the Sampson Drop-Down, the Partnership issued 1,098,415 unregistered common units at a price of $27.31 per unit, or $30.0 million of common units, to affiliates of John Hancock Life Insurance Company (U.S.A.) (see Note 4, Transactions Between Entities Under Common Control).
Cash Distributions to Unitholders
The partnership agreement sets forth the calculation to be used to determine the amount of cash distributions that
the common and subordinatedour unitholders and
our sponsor will receive.
Distributions that have been paid or declared related to the reporting period are considered in the determination of earnings per unit. The following table details the cash distribution paid or declared (in millions, except per unit amounts):
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Total |
| | | | | | | | | | | | | | Payment to |
| | | | | | | | | | | | | | General |
| | | | | | | | | | | | | | Partner for |
| | | | | | | | | | | | | | Incentive |
| | Declaration | | Record | | Payment | | Distribution | | Total Cash | | Distribution |
Quarter Ended | | Date | | Date | | Date | | Per Unit | | Distribution | | Rights |
March 31, 2016 | | May 4, 2016 | | May 16, 2016 | | May 27, 2016 | | $ | 0.5100 | | $ | 12.6 | | $ | 0.2 |
June 30, 2016 | | August 3, 2016 | | August 15, 2016 | | August 29, 2016 | | $ | 0.5250 | | $ | 13.0 | | $ | 0.3 |
September 30, 2016 | | November 2, 2016 | | November 14, 2016 | | November 29, 2016 | | $ | 0.5300 | | $ | 13.3 | | $ | 0.3 |
December 31, 2016 | | February 1, 2017 | | February 15, 2017 | | February 28, 2017 | | $ | 0.5350 | | $ | 14.1 | | $ | 0.4 |
March 31, 2017 | | May 3, 2017 | | May 18, 2017 | | May 30, 2017 | | $ | 0.5550 | | $ | 14.6 | | $ | 0.5 |
June 30, 2017 | | August 2, 2017 | | August 15, 2017 | | August 29, 2017 | | $ | 0.5700 | | $ | 15.0 | | $ | 0.7 |
September 30, 2017 | | November 2, 2017 | | November 15, 2017 | | November 29, 2017 | | $ | 0.6150 | | $ | 16.2 | | $ | 1.1 |
December 31, 2017 | | January 31, 2018 | | February 15, 2018 | | February 28, 2018 | | $ | 0.6200 | | $ | 16.3 | | $ | 1.1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Declaration
Date | | Record
Date | | Payment
Date | | Distribution
Per Unit | | Total Cash
Distribution | | Total Payment to holder of Incentive Distribution Rights |
| June 30, 2019 | | July 31, 2019 | | August 15, 2019 | | August 29, 2019 | | $ | 0.6600 | | | $ | 22.1 | | | $ | 2.8 | |
| September 30, 2019 | | October 30, 2019 | | November 15, 2019 | | November 29, 2019 | | $ | 0.6700 | | | $ | 22.4 | | | $ | 3.1 | |
| December 31, 2019 | | January 29, 2020 | | February 14, 2020 | | February 28, 2020 | | $ | 0.6750 | | | $ | 22.7 | | | $ | 3.3 | |
| March 31, 2020 | | April 29, 2020 | | May 15, 2020 | | May 29, 2020 | | $ | 0.6800 | | | $ | 22.9 | | | $ | 3.5 | |
| June 30, 2020 | | August 5, 2020 | | August 14, 2020 | | August 28, 2020 | | $ | 0.7650 | | | $ | 30.4 | | | $ | 7.5 | |
| September 30, 2020 | | October 30, 2020 | | November 13, 2020 | | November 27, 2020 | | $ | 0.7750 | | | $ | 30.8 | | | $ | 7.9 | |
| December 31, 2020 | | January 29, 2021 | | February 15, 2021 | | February 26, 2021 | | $ | 0.7800 | | | $ | 31.2 | | | $ | 8.1 | |
For purposes of calculating
the Partnership’sour earnings per unit under the two-class method, common units are treated as participating preferred
units, and the subordinated units are treated as the residual equity interest, or common equity.units. IDRs are treated as participating securities.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Distributions made in future periods based on the current period calculation of cash available for distribution are allocated to each class of equity that will receive the distribution. Any unpaid cumulative distributions are allocated to the appropriate class of equity.
The Partnership determines
We determine the amount of cash available for distribution for each quarter in accordance with the Partnership Agreement.our partnership agreement. The amount to be distributed to common unitholders, subordinated unitholders and IDR holders is based on the distribution waterfall set forth in the Partnership Agreement.our partnership agreement. Net earnings for the quarter are allocated to each class of partnership interest based on the distributions to be made. Additionally, if, during
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses and gains and losses that pursuant to GAAP are included in comprehensive income (loss) but excluded from net income (loss).
The following table presents the subordination period,changes in accumulated other comprehensive income (loss):
| | | | | |
| Accumulated other comprehensive income at December 31, 2018 | $ | 439 | |
| Cumulative effect of accounting change - derivative instruments | 18 | |
| Net unrealized losses on cash flow hedges | (146) | |
| Reclassification of net gains on cash flow hedges realized into net loss | (288) | |
| Accumulated other comprehensive income at December 31, 2019 | 23 | |
| |
| Reclassification of net gains on cash flow hedges realized into net loss | (22) | |
| Currency translation adjustment | (19) | |
| Accumulated other comprehensive loss at December 31, 2020 | $ | (18) | |
Hamlet JV
The capital of the Hamlet JV is divided into two classifications: (1) Class A Units and (2) Class B Units, issued at a price of $1.00 per unit for each class.
Class A Units - Noncontrolling Interests
Class A Units were issued to John Hancock in exchange for capital contributions at a price of $1.00 for each Class A Unit.
John Hancock had a total capital commitment of $235.2 million and, as of December 31, 2020, John Hancock held 227.0 million Class A Units with a remaining capital commitment amount of $8.2 million.
Class B Units - Controlling Interests
Class B Units were issued to the Partnership does not have enough cash available to makein exchange for capital contributions at a price of $1.00 for each Class B Unit.
The Partnership had a total capital commitment of $232.2 million and, as of December 31, 2020, the required minimum distributionPartnership held 224.0 million Class B Units with a remaining commitment amount of $8.2 million.
Pursuant to the common unitholders,limited liability company agreement of the Partnership will allocate net earningsHamlet JV (the “Hamlet JV LLCA”), we are the managing member of the Hamlet JV and have the authority to manage the common unitholders basedbusiness and affairs of the Hamlet JV and take actions on its behalf, including adopting annual budgets, entering into agreements, effecting asset sales or biomass purchase agreements, making capital calls, incurring debt and taking other actions, subject to consent of John Hancock in certain circumstances. The Hamlet JV LLCA also sets forth the amountcapital commitments and limitations thereon from each of the members and provides for the allocation of sale proceeds and distributions among the holders of outstanding Class A Units and Class B Units.
We included all accounts of the Hamlet JV in
arrears. When actual cash distributions are made based on distributionsour consolidated results as of April 2, 2019 as the Class B Units represent a controlling interest in
arrears, those cash distributions will not be allocated to the
common unitholders, as such earnings were allocated in previous quarters.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Accumulated Other Comprehensive Income
Comprehensive income consists of two components, net incomeDistribution Rights
Distributions to John Hancock and
other comprehensive income. Other comprehensive income refers to
revenue, expenses, and gains and losses that under GAAP are included in comprehensive income but excluded from net income. The Partnership’s other comprehensive income for 2017 and 2016 consists of unrealized gains and losses related to derivative instruments accounted for as cash flow hedges. There was no other comprehensive income for the year ended December 31, 2015.The following table presents the changes in accumulated other comprehensive income:
| | | |
| | Unrealized
|
| | Losses on
|
| | Derivative
|
| | Instruments
|
Balance at December 31, 2015
| | $
| —
|
Net unrealized losses
| | | (246)
|
Reclassification of net losses realized into net income
| | | 841
|
Accumulated other comprehensive income at December 31, 2016
| | | 595
|
Net unrealized losses
| | | (5,463)
|
Reclassification of net losses realized into net income
| | | 1,828
|
Accumulated other comprehensive loss at December 31, 2017
| | $
| (3,040)
|
Noncontrolling Interests—Enviva Pellets Wiggins, LLC
Prior to December 28, 2017, the Partnership held a 67% controlling interestare made in Wiggins. In December 2016,the reasonable discretion of the Partnership withas managing member and are governed by the authorizationwaterfall provisions of the Partnership’s boardHamlet JV LLCA, which provides that distributions, after repayment of directors, initiated a plan, and entered into a purchase and sale agreement,revolving borrowings under the Hamlet JV Revolver, are to sellbe made as follows:
•First: To the Wiggins plant. At such time, the Partnership reclassified the Wiggins plant assetsmembers in proportion to current assets held for sale and ceased depreciation. On January 20, 2017, the purchase and sale agreement terminated when the buyer failed to pay the purchase price.On December 27, 2017, the Partnership sold the Wiggins plant to a third-party buyer for a purchase price of $0.4 million and recorded a loss on the sale of $0.8 million, net, which is included in general and administrative expenses. On December 28, 2017, Wiggins was dissolved along with associated noncontrolling interests. Upon dissolution, no amounts were distributedtheir relative unreturned capital contributions, then to the non-controlling interest holdersmembers in proportion to their relative unpaid preference amount.
•Thereafter: 25% to John Hancock and all intercompany balances were forgiven (see Note 11, Assets Held for Sale).Noncontrolling Interests—First Hancock JV
Sampson and 75% to the Partnership.
Wilmington wereDrop-Down
Wilmington was a wholly owned
subsidiariessubsidiary of the
First HancockHamlet JV prior to the consummation of the
Sampson Drop-Down and the Wilmington Drop-Down.
The Partnership’sOur consolidated financial statements
have beenfor the periods prior to October 2, 2017, were retrospectively recast to include the financial results of
Sampson and Wilmington as if the consummation of the
Sampson Drop-Down and Wilmington Drop-Down had occurred on May 15, 2013, the date
Sampson and Wilmington
werewas originally organized. The interests of the
First HancockHamlet JV’s third-party investors in
Sampson and Wilmington for periods prior to the related drop-down transactions have been reflected as a non-controlling interest in
the Partnership’sour financial statements.
The Partnership’s consolidated statements of income for the years ended December 31, 2017, 2016, and 2015 include net losses of $0, $3.3 million and $1.9 million, respectively, attributable to the non-controlling interests in Sampson. The Partnership’sOur consolidated statements of operations for the years ended December 31,
2017, 2016,2020, 2019 and
2015 include net losses of $3.1 million, $2.2 million and $1.0 million, respectively, attributable to the non-controlling2018 contained 0 noncontrolling interests in Wilmington.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(16)(18) Equity-Based Awards
The General Partner maintains the
Enviva Partners, LP Long-Term Incentive Plan (“LTIP”) for employees, consultants and directors of the General Partner and any of its affiliates that perform services for the Partnership. The LTIP,
which provides for the grant, from time to time, at the discretion of the board of directors of the General Partner or a committee thereof, of unit options, unit appreciation rights, restricted units, phantom units, DERs
unit awards, and other
unit-based awards. The LTIP limits the number of common units that may be delivered pursuant to awards under the plan to
2,738,1823,450,000 common
units. Common units
subjectin accordance with the second amendment to
the LTIP, which became effective on January 27, 2021. If equity awards
thatgranted under the LTIP are forfeited,
cancelled,canceled, exercised, paid
in cash or otherwise terminate or expire without the actual delivery of
the underlying common units, the corresponding number of such common units will
beremain available for delivery pursuant to other
awards.awards under the LTIP. The common units
underissuable pursuant to the LTIP will consist, in whole or in part, of common units acquired in the open market or from any affiliate or any other person, newly issued common units or any combination of the foregoing as determined by the board of directors of the General Partner or a committee thereof.
During
2017, 20162020, 2019 and
2015,2018, the board of directors of the General Partner granted phantom units in tandem with corresponding DERs to employees of
the ProviderEnviva Management Company who provide services to
the Partnershipus (the “Affiliate Grants”)
, and phantom units in tandem with corresponding DERs to
certain non-employeeindependent directors of the General Partner (the “Director Grants”). The phantom units and corresponding DERs are subject to certain vesting and forfeiture provisions. Award recipients do not have all
of the rights of a
common unitholder with respect to the phantom units until the phantom units have vested and been settled. Awards of the phantom units
are settled in common units
are settled within 60 days after the applicable vesting date. If a phantom unit award recipient experiences a termination of service under certain circumstances set forth in the applicable award agreement, the unvested phantom units and corresponding DERs
(in the case of performance-based Affiliate Grants) are forfeited. Forfeitures are recognized when the actual forfeiture occurs.
A summary
Table of the Affiliate Grants for the years ended December 31, 2017, 2016 and 2015 is as follows: | | | | | | | | | | | | | | | |
| | | | | | | Performance-Based | | Total Affiliate Grant |
| | Phantom Units | | Phantom Units | | Phantom Units |
| | | | Weighted- | | | | Weighted- | | | | Weighted- |
| | | | Average | | | | Average | | | | Average |
| | | | Grant Date | | | | Grant Date | | | | Grant Date |
| | | | Fair Value | | | | Fair Value | | | | Fair Value |
| | Units | | (per unit)(1) | | Units | | (per unit)(1) | | Units | | (per unit)(1) |
Nonvested December 31, 2014 | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Granted | | 200,351 | | $ | 20.62 | | 81,803 | | $ | 20.36 | | 282,154 | | $ | 20.54 |
Forfeitures | | (12,230) | | $ | 21.26 | | — | | $ | — | | (12,230) | | $ | 21.26 |
Vested | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Nonvested December 31, 2015 | | 188,121 | | $ | 20.58 | | 81,803 | | $ | 20.36 | | 269,924 | | $ | 20.51 |
Granted | | 207,404 | | $ | 18.32 | | 174,045 | | $ | 19.16 | | 381,449 | | $ | 18.71 |
Forfeitures | | (49,372) | | $ | 19.93 | | (20,493) | | $ | 20.57 | | (69,865) | | $ | 20.11 |
Vested | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Nonvested December 31, 2016 | | 346,153 | | $ | 19.32 | | 235,355 | | $ | 19.46 | | 581,508 | | $ | 19.37 |
Granted | | 301,400 | | $ | 25.67 | | 111,104 | | $ | 25.51 | | 412,504 | | $ | 25.63 |
Forfeitures | | (51,687) | | $ | 21.77 | | (95,545) | | $ | 18.36 | | (147,232) | | $ | 18.36 |
Vested | | — | | $ | — | | (139,810) | | $ | 20.20 | | (139,810) | | $ | 20.20 |
Nonvested December 31, 2017 | | 595,866 | | $ | 22.32 | | 111,104 | | $ | 25.52 | | 706,970 | | $ | 22.82 |
| (1)
| | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
|
Phantom units subject to the Affiliate Grants vest on the third anniversary of the grant date except for performance-based phantom units which vest on the achievement of specific performance milestones. The fair value of
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
A summary of the Affiliate Grants for the years ended December 31, 2020, 2019 and 2018 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Time-Based Phantom Units | | Performance-Based Phantom Units | | Total Affiliate Grant Phantom Units |
| Units | | Weighted-Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) | | Units | | Weighted-Average Grant Date Fair Value (per unit)(1) |
| Nonvested December 31, 2017 | 595,866 | | | $ | 22.32 | | | 111,104 | | | $ | 25.52 | | | 706,970 | | | $ | 22.82 | |
| Granted | 398,729 | | | $ | 29.15 | | | 171,104 | | | $ | 28.92 | | | 569,833 | | | $ | 29.08 | |
| Adjusted | 0 | | | $ | 0 | | | 19,832 | | | $ | 18.19 | | | 19,832 | | | $ | 18.19 | |
| Forfeitures | (89,119) | | | $ | 25.59 | | | (17,469) | | | $ | 25.76 | | | (106,588) | | | $ | 25.62 | |
| Vested | (181,536) | | | $ | 21.42 | | | (45,059) | | | $ | 23.80 | | | (226,595) | | | $ | 21.89 | |
| Nonvested December 31, 2018 | 723,940 | | | $ | 25.91 | | | 239,512 | | | $ | 27.65 | | | 963,452 | | | $ | 26.34 | |
| Granted | 395,851 | | | $ | 30.41 | | | 219,943 | | | $ | 30.28 | | | 615,794 | | | $ | 30.36 | |
| Forfeitures | (99,999) | | | $ | 28.56 | | | (24,185) | | | $ | 29.82 | | | (124,184) | | | $ | 28.80 | |
| Vested | (145,506) | | | $ | 18.30 | | | 0 | | | $ | 0 | | | (145,506) | | | $ | 18.30 | |
| Nonvested December 31, 2019 | 874,286 | | | $ | 28.90 | | | 435,270 | | | $ | 28.84 | | | 1,309,556 | | | $ | 28.88 | |
| Granted | 552,988 | | | $ | 37.98 | | | 387,060 | | | $ | 38.02 | | | 940,048 | | | $ | 38.00 | |
| Forfeitures | (133,273) | | | $ | 33.15 | | | (105,935) | | | $ | 30.89 | | | (239,208) | | | $ | 32.15 | |
| Vested | (232,116) | | | $ | 26.97 | | | (67,881) | | | $ | 28.03 | | | (299,997) | | | $ | 27.21 | |
| Nonvested December 31, 2020 | 1,061,885 | | | $ | 33.52 | | | 648,514 | | | $ | 34.07 | | | 1,710,399 | | | $ | 33.73 | |
____________________________________________(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
Time-based Affiliate Grants vest on the third or fourth anniversary of the grant date and performance-based Affiliate Grants vest in three or four years, where the number of units that vest depend on achievement of specific performance milestones. We account for the delivery of common units upon the settlement of vested Affiliate Grants as if such common units were distributed by us. The fair value of the Affiliate Grants granted during 20172020 and 2019 was $10.6$35.7 million and $18.7 million, respectively, based on the market price per unit on the applicable date of grant. These units are accounted for as if they are distributed byThe grant date fair value of performance-based Affiliate Grants is reported based on the Partnership.probable outcome of the performance conditions on the grant date. The fair value of the Affiliate Grants is remeasuredexpensed by Enviva Management Company at the Provider at each reporting period until the awardgrant date. Compensation expense is settled. Compensation cost recorded each period will vary based on the change in the award’sgrant date fair value. Changes in unit-based compensation expense due to passage of time, forfeitures, probability of meeting required performance conditions and final settlements are recorded as adjustments to unit-based compensation expense and partners’ capital. For awards with performance goals, theperformance-based Affiliate Grants, expense is accrued only ifto the extent that the performance goals are considered to be probable of occurring. The Provider
Enviva Management Company recognizes unit-based compensation expense for the units awarded and a portion of that expense is allocated to
us under the
Partnership. During the fourth quarter of 2017, $1.6 million of unit-based compensation was reversed as performance goals were not met. The Provider allocates unit-based compensation expense to the PartnershipMSAs in the same manner as other corporate expenses.
The Partnership’sOur portion of the unit-based compensation expense is included in
cost of goods sold and general and administrative expenses.
The PartnershipWe recognized
$3.4$10.3 million,
$3.1$5.0 million and
$0.4$4.7 million of general and administrative expense associated with the Affiliate Grants during the years ended December 31,
2017, 20162020, 2019 and
2015,2018, respectively.
As performance goals were met during 2018, 0 unit-based compensation with respect to performance-based Affiliate Grants expense was adjusted.
We paid $5.0 million to Enviva Management Company to satisfy the withholding tax requirements associated with 232,116 time-based Affiliate Grants and 67,881 performance-based Affiliate Grants that vested under the LTIP during the year ended December 31, 2020. We paid $1.9 million to Enviva Management Company to satisfy the withholding tax requirements associated with 145,506 time-based Affiliate Grants that vested under the LTIP during the year ended December 31, 2019. NaN performance-based Affiliate Grants vested under the LTIP during the year ended December 31, 2019.The unrecognized estimated unit-based compensation cost relating to outstanding Affiliate Grants at December 31, 2020 was $14.1 million, which will be recognized over the remaining vesting period.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Director Grants
A summary of the Director Grant unit awards subject to vesting for the years ended December 31,
2017, 20162020, 2019 and
2015,2018, is as follows:
| | | | | | | | | | | | | | | |
| | | | | | | Performance-Based | | Total Director Grant |
| | Phantom Units | | Phantom Units | | Phantom Units |
| | | | Weighted- | | | | Weighted- | | | | Weighted- |
| | | | Average | | | | Average | | | | Average |
| | | | Grant Date | | | | Grant Date | | | | Grant Date |
| | | | Fair Value | | | | Fair Value | | | | Fair Value |
| | Units | | (per unit)(1) | | Units | | (per unit)(1) | | Units | | (per unit)(1) |
Nonvested December 31, 2014 | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Granted | | 14,112 | | $ | 21.26 | | — | | $ | — | | 14,112 | | $ | 21.26 |
Forfeitures | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Vested | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Nonvested December 31, 2015 | | 14,112 | | $ | 21.26 | | — | | $ | — | | 14,112 | | $ | 21.26 |
Granted | | 17,724 | | $ | 22.57 | | — | | $ | — | | 17,724 | | $ | 22.57 |
Forfeitures | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Vested | | (14,112) | | $ | 21.26 | | — | | $ | — | | (14,112) | | $ | 21.26 |
Nonvested December 31, 2016 | | 17,724 | | $ | 22.57 | | — | | $ | — | | 17,724 | | $ | 22.57 |
Granted | | 15,840 | | $ | 25.25 | | — | | $ | — | | 15,840 | | $ | 25.25 |
Forfeitures | | — | | $ | — | | — | | $ | — | | — | | $ | — |
Vested | | (17,724) | | $ | 22.57 | | — | | $ | — | | (17,724) | | $ | 22.57 |
Nonvested December 31, 2017 | | 15,840 | | $ | 25.25 | | — | | $ | — | | 15,840 | | $ | 25.25 |
| | | | | | | | | | | |
| Time-Based Phantom Units |
| Units | | Weighted-Average Grant Date Fair Value (per unit)(1) |
| Nonvested December 31, 2017 | 15,840 | | | $ | 25.25 | |
| Granted | 13,964 | | | $ | 28.65 | |
| Vested | (15,840) | | | $ | 25.25 | |
| Nonvested December 31, 2018 | 13,964 | | | $ | 28.65 | |
| Granted | 13,264 | | | $ | 30.16 | |
| Vested | (13,964) | | | $ | 28.65 | |
| Nonvested December 31, 2019 | 13,264 | | | $ | 30.16 | |
| Granted | 14,987 | | | $ | 38.37 | |
| Vested | (13,264) | | | $ | 30.16 | |
| Nonvested December 31, 2020 | 14,987 | | | $ | 38.37 | |
____________________________________________ | (1)
| | Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
|
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.On February 3, 2017,
In January and August 2020, Director Grants valued at $0.4$0.5 million and $0.1 million were granted, andwhich vest on the first anniversary of the grant dates, in January and August 2021, respectively. In January 2019, Director Grants valued at $0.4 million were granted. which vested on the first anniversary of the grant date February 3, 2018. On May 4, 2017,in January 2020. In January 2021, the Director Grants that were nonvestedunvested at December 31, 20162020 vested and common units were issued. In addition, 3,724issued in respect thereof.
During the year ended December 31, 2018, 420 common units were granted and issued to non-employeeindependent directors of the General Partner as compensation for services performed on the General Partner’s board of directorsdirectors. NaN common units were granted during the years ended December 31, 2020 and 2019.
For the year ended December 31,
2017. For the years ended December 31, 2017 and 2016 the Partnership2020, we recorded $0.5 million
and $0.4 million, respectively, of
unit-based compensation expense with respect to the Director Grants. For
each of the
yearyears ended December 31,
2015, an insignificant amount2019 and 2018, we recorded $0.4 million of
unit-based compensation expense with respect to the Director
Grants. The unrecognized estimated unit-based compensation cost relating to outstanding Director Grants
was recorded.The at December 31, 2020 is $0.1 million and will be recognized over the remaining vesting period.
Distribution Equivalent Rights
DERs associated with the Affiliate Grants and the Director Grants subject to time-based vesting entitle the recipients to receive payments
in respect thereof in a per-unit amount that is equal to any distributions made by
the Partnershipus to the holders of common units within 60 days following the record date for such distributions. The DERs associated with the Affiliate Grants subject to performance-based vesting will remain outstanding and unpaid from the grant date until the earlier of the settlement or forfeiture of the related performance-based phantom units.
DER distributions paid related to time-based Affiliate Grants were $3.9 million, $2.7 million and $1.8 million, respectively, for the years ended December 31, 2020, 2019 and 2018. At December 31, 2020, there were 0 DER distributions unpaid related to time-based Affiliate Grants. At December 31, 2019, $0.6 million of DER distributions unpaid related to time-based Affiliate Grants were included in related-party payables.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Unpaid DER amountsdistributions unpaid related to the performance-based Affiliate Grants atwere as follows as of December 31, 2017 were $0.9 million. Unpaid DER amounts of $0.7 million are included in accrued liabilities and $0.2 million are included in other long-term liabilities on the consolidated balance sheets. Unpaid DER amounts related to the performance-based Affiliate Grants at December 31, 2016 were $0.6 million. Unpaid DER amounts of $0.4 million are included in accrued liabilities and $0.2 million are included in other long-term liabilities on the consolidated balance sheets. DER distributions are paid by an affiliate and were $1.0 million and $0.7 million for the years ended December 31, 2017 and 2016, respectively, and were insignificant for the year ended December 31, 2015. At December 31, 2017 and 2016, $0 and $0.4 million, respectively, of DER distributions are included in related-party accrued liabilities.
(17)31:
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| Accrued liabilities | | $ | 1,697 | | | $ | 397 | |
| Other long-term liabilities | | 2,942 | | | 1,193 | |
| Total unpaid DERs related to performance-based Affiliate Grants | | $ | 4,639 | | | $ | 1,590 | |
(19) Net Income
(Loss) per Limited Partner Unit
Net income
(loss) per unit applicable to limited partners
(including subordinated unitholders) is computed by dividing limited partners’ interest in net income
(loss), after deducting any incentive distributions, by the weighted-average number of outstanding
common and subordinated units.
The Partnership’sOur net income
(loss) is allocated to the limited partners in accordance with their respective ownership percentages, after giving effect to priority income allocations for incentive distributions, if any, to the holder of the IDRs,
pursuant to the Partnership Agreement, which are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to
the Partnership’sour unitholders are determined in relation to actual distributions declared and are not based on the net income
(loss) allocations used in the calculation of earnings per unit.
On May 30, 2018, the requirements under our partnership agreement for the conversion of all of our subordinated units into common units were satisfied and the subordination period for such subordinated units ended. As a result, all of our 11,905,138 outstanding subordinated units converted into common units on a 1-for-one basis. The conversion did not impact the amount of the cash distribution paid or the total number of our outstanding units representing limited partner interests. Our net income (loss) was allocated to the General Partner and the limited partners, including the holders of the subordinated units and IDR holders, in accordance with our partnership agreement.
In addition to the common
and subordinated units,
the Partnership has alsowe have identified the IDRs and phantom units as participating securities and
usesapply the two-class method when calculating the net income
(loss) per unit applicable to limited partners, which is based on the weighted-average number of common units and subordinated units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive time-based and performance-based phantom units on
the Partnership’sour common units. Basic and diluted earnings per unit
that previously was applicable to subordinated limited partners
arewas the same because there
are nowere 0 potentially dilutive subordinated units outstanding.
The computation of net income (loss) available per limited partner unit is as follows for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Enviva Partners, LP limited partners’ interest in net income (loss) | $ | 13,624 | | | $ | (5,822) | | | $ | 6,952 | |
| Less: Distributions declared on: | | | | | |
| Common units | $ | 115,318 | | | $ | 88,761 | | | $ | 54,604 | |
| Subordinated units through end of subordination period | 0 | | | 0 | | | 12,407 | |
| IDRs | 26,917 | | | 11,439 | | | 5,867 | |
| Total distributions declared | 142,235 | | | 100,200 | | | 72,878 | |
| Earnings less than distributions | $ | (128,611) | | | $ | (106,022) | | | $ | (65,926) | |
Basic and diluted net (loss) income per limited partner unit is as follows:
| | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | Common
Units | | General
Partner |
| Weighted-average common units outstanding—basic | | 36,813 | | | — | |
| Effect of nonvested phantom units | | — | | | — | |
| Weighted-average common units outstanding—diluted | | 36,813 | | | — | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
The computation of net income (loss) per limited partner unit is a follows for the years ended December 31:
| | | | | | | | | |
| | | | 2016 | | 2015 |
| | 2017 | | (Recast) | | (Recast) |
| | | | | | | | |
Net income | | $ | 14,373 | | $ | 13,463 | | $ | 17,563 |
Less net loss attributable to noncontrolling partners’ interests | | | 3,140 | | | 5,804 | | | 2,859 |
Net income attributable to Enviva Partners, LP | | $ | 17,513 | | $ | 19,267 | | $ | 20,422 |
Less: Predecessor loss to May 4, 2015 (prior to IPO) | | $ | — | | $ | — | | | (2,132) |
Less: Pre-acquisition income from April 10, 2015 to December 10, 2015 from operations of Enviva Pellets Southampton, LLC Drop-Down allocated to General Partner | | | — | | | — | | | 6,264 |
Less: Pre-acquisition income from inception to December 13, 2016 from operations of Enviva Pellets Sampson, LLC Drop-Down allocated to General Partner | | | — | | | (3,231) | | | (1,815) |
Less: Pre-acquisition income from inception to October 1, 2017 from operations of Enviva Port of Wilmington, LLC Drop-Down allocated to General Partner | | | (3,049) | | | (2,110) | | | (937) |
Enviva Partners, LP limited partners’ interest in net income | | $ | 20,562 | | $ | 24,608 | | $ | 19,042 |
Less: Distributions declared on: | | | | | | | | | |
Common units | | $ | 34,033 | | $ | 26,933 | | $ | 14,282 |
Subordinated units | | | 28,096 | | | 24,167 | | | 13,846 |
IDRs | | | 3,398 | | | 1,077 | | | — |
Total distributions declared | | | 65,527 | | | 52,177 | | | 28,128 |
Earnings less than distributions | | $ | (44,965) | | $ | (27,569) | | $ | (9,086) |
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 | | Common
Units | | General
Partner | | Total |
| Distributions declared | | $ | 115,318 | | | $ | 26,917 | | | $ | 142,235 | |
| Earnings less than distributions | | (128,611) | | | — | | | (128,611) | |
| Net (loss) income available to partners | | $ | (13,293) | | | $ | 26,917 | | | $ | 13,624 | |
| Weighted-average units outstanding—basic and diluted | | 36,813 | | | | | |
| Net loss per limited partner unit—basic and diluted | | $ | (0.36) | | | | | |
Basic and diluted net income per limited partner unit is follows:
| | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Common | | Subordinated | | General |
| | Units | | Units | | Partner |
| | |
Weighted-average common units outstanding—basic | | | 14,403 | | | 11,905 | | | — |
Effect of nonvested phantom units | | | 948 | | | — | | | — |
Weighted-average common units outstanding—diluted | | | 15,351 | | | 11,905 | | | — |
| | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Common | | Subordinated | | General | | | |
| | Units | | Units | | Partner | | Total |
| | |
Distributions declared | | $ | 34,033 | | $ | 28,096 | | $ | 3,398 | | $ | 65,527 |
Earnings less than distributions | | | (24,631) | | | (20,334) | | | — | | | (44,965) |
Net income attributable to partners | | $ | 9,402 | | $ | 7,762 | | $ | 3,398 | | $ | 20,562 |
Weighted-average units outstanding—basic | | | 14,403 | | | 11,905 | | | | | | |
Weighted-average units outstanding—diluted | | | 15,351 | | | 11,905 | | | | | | |
Net income per limited partner unit—basic | | $ | 0.65 | | $ | 0.65 | | | — | | $ | 1.30 |
Net income per limited partner unit—diluted | | $ | 0.61 | | $ | 0.65 | | | — | | $ | 1.26 |
| | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Common
Units | | General
Partner |
| Weighted-average common units outstanding—basic | | 31,791 | | | — | |
| Effect of nonvested phantom units | | — | | | — | |
| Weighted-average common units outstanding—diluted | | 31,791 | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 | | Common
Units | | General
Partner | | Total |
| Distributions declared | | $ | 88,761 | | | $ | 11,439 | | | $ | 100,200 | |
| Earnings less than distributions | | (106,022) | | | — | | | (106,022) | |
| Net (loss) income available to partners | | $ | (17,261) | | | $ | 11,439 | | | $ | (5,822) | |
| Weighted-average units outstanding—basic and diluted | | 31,791 | | | | | |
| Net loss per limited partner unit—basic and diluted | | $ | (0.54) | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | Common
Units | | Subordinated
Units | | General
Partner |
| Weighted-average common units outstanding—basic | | 21,533 | | | 4,893 | | | — | |
| Effect of nonvested phantom units | | 1,020 | | | 0 | | | — | |
| Weighted-average common units outstanding—diluted | | 22,553 | | | 4,893 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | Common
Units | | Subordinated
Units | | General
Partner | | Total |
| Distributions declared | | $ | 54,604 | | | $ | 12,407 | | | $ | 5,867 | | | $ | 72,878 | |
| Earnings less than distributions | | (53,720) | | | (12,206) | | | — | | | (65,926) | |
| Net income available to partners | | $ | 884 | | | $ | 201 | | | $ | 5,867 | | | $ | 6,952 | |
| Weighted-average units outstanding—basic and diluted | | 21,533 | | | 4,893 | | | | | |
| | | | | | | | |
| Net income per limited partner unit—basic and diluted | | $ | 0.04 | | | $ | 0.04 | | | | | |
| | | | | | | | |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Common | | Subordinated | | General |
| | Units | | Units | | Partner |
| | |
Weighted-average common units outstanding—basic | | | 13,002 | | | 11,905 | | | — |
Effect of nonvested phantom units | | | 557 | | | — | | | — |
Weighted-average common units outstanding—diluted | | | 13,559 | | | 11,905 | | | — |
| | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Common | | Subordinated | | General | | |
| | Units | | Units | | Partner | | Total |
| | |
Distributions declared | | $ | 26,933 | | $ | 24,167 | | $ | 1,077 | | $ | 52,177 |
Earnings less than distributions | | | (14,531) | | | (13,038) | | | — | | | (27,569) |
Net income attributable to partners | | $ | 12,402 | | $ | 11,129 | | $ | 1,077 | | $ | 24,608 |
Weighted-average units outstanding—basic | | | 13,002 | | | 11,905 | | | | | | |
Weighted-average units outstanding—diluted | | | 13,559 | | | 11,905 | | | | | | |
Net income per limited partner unit—basic | | $ | 0.95 | | $ | 0.93 | | $ | — | | $ | 1.88 |
Net income per limited partner unit—diluted | | $ | 0.91 | | $ | 0.93 | | $ | — | | $ | 1.84 |
| | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Common | | Subordinated | | General |
| | Units | | Units | | Partner |
| | |
Weighted-average common units outstanding—basic | | | 11,988 | | | 11,905 | | | — |
Effect of nonvested phantom units | | | 270 | | | — | | | — |
Weighted-average common units outstanding—diluted | | | 12,258 | | | 11,905 | | | — |
| | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Common | | Subordinated | | General | | |
| | Units | | Units | | Partner | | Total |
| | |
Distributions declared | | $ | 14,282 | | $ | 13,846 | | $ | — | | $ | 28,128 |
Earnings less than distributions | | | (4,721) | | | (4,365) | | | — | | | (9,086) |
Net income attributable to partners | | $ | 9,561 | | $ | 9,481 | | $ | — | | $ | 19,042 |
Weighted-average units outstanding—basic | | | 11,988 | | | 11,905 | | | | | | |
Weighted-average units outstanding—diluted | | | 12,258 | | | 11,905 | | | | | | |
Net income per limited partner unit—basic | | $ | 0.80 | | $ | 0.80 | | $ | — | | $ | 1.60 |
Net income per limited partner unit—diluted | | $ | 0.79 | | $ | 0.79 | | $ | — | | $ | 1.58 |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(18)(20) Commitments and Contingencies
Shipping Event
During the fourth quarter of 2016, the Partnership re-purchased a shipment of wood pellets from one customer and subsequently sold it to another customer in a back-to-back transaction. Smoldering was observed onboard the vessel carrying the shipment, which resulted in damage to a portion of the shipment and one of the vessel’s five cargo holds (the “Shipping Event”). The disponent owner of the vessel (the “Shipowner”) had directly or indirectly chartered the vessel from certain other parties (collectively, the “Head Owners”) and in turn contracted with Cottondale as the charterer of the vessel. Following the mutual appointment of arbitrators in connection with the Shipping Event, on June 8, 2017, the Shipowner submitted claims against Cottondale (the “Claims”) alleging damages of approximately $11.8 million (calculated using exchange rates as of December 31, 2017), together with other unquantified losses and damages. The Claims provide that the Shipowner would seek indemnification and other damages from Cottondale to the extent that the Shipowner is unsuccessful in its defense of claims raised by the Head Owners against it for damages arising in connection with the Shipping Event.
Although it is reasonably possible that the Shipping Event may result in additional costs and liabilities for the Partnership’s account, responsibility for such costs and liabilities incurred in connection with the Shipping Event is disputed among the various parties involved. If any such costs and liabilities ultimately are allocated to the Partnership, a portion may be recovered under insurance. The Partnership believes it has meritorious defenses to the Claims, but is generally unable to predict the timing or outcome of any claims or proceedings, including the Claims, associated with the Shipping Event, or any insurance recoveries in respect thereof. Consequently, the Partnership is unable to provide an estimate of the amount or range of possible loss.
Operating Leases
The MSA fee charged by Enviva Holdings, LP to the Partnership includes rent related amounts for a noncancelable operating lease for office space in Maryland and North Carolina held by Enviva Holdings, LP. Other rent expense was insignificant for the years ended December 31, 2017, 2016 and 2015.
On February 20, 2015, the Wilmington terminal entered into a Deed of Lease Agreement (the “Lease”) with North Carolina State Ports Authority (“NCSPA”) to lease certain real property at NCSPA’s Wilmington, North Carolina marine terminal for the Wilmington terminal. The Lease has a twenty-one year term, with two five-year renewal options, with annual base rent of $0.2 million which is payable monthly or annually, subject to an annual increase in the producer’s price index for industrial commodities less fuel. No payments are due until September 15, 2021. The total estimated base rent payments over the life of the lease are estimated at $4.7 million.
On May 4, 2016, the Wilmington terminal and NCSPA entered into a second amendment to the Lease, which includes a minimum annual throughput ton fee, subject to an annual increase in producer’s price index up to 1%. The total estimated minimum annual throughput ton fee is estimated at $1.9 million annually.
Future minimum lease payments, excluding those charged under the MSA fee, for noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 2017 are as follows:
| | | |
2018 | | $ | 3,737 |
2019 | | | 2,829 |
2020 | | | 2,738 |
2021 | | | 2,723 |
2022 | | | 2,535 |
Thereafter | | | 61,525 |
Total future minimum lease payments | | $ | 76,087 |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
Commitments
The Partnership hasWe have entered into throughput agreements expiring between 2021 through 2023 and 2028 to receive terminal and stevedoring services at the Partnership’s port facilities.certain of our terminals, some of which include options to extend for up to 5 years. The agreements specify a minimum cargo throughput requirement at a fixed price per ton or a fixed fee, subject to an adjustment based on the consumer price index or the producer pricesprice index, for a defined period of time, ranging from monthly to annual basis.annually. At December 31, 2017, the Partnership2020, we had approximately $35.3$22.8 million related to firm commitments under thesuch terminal services and stevedoring services agreements. For the years ended December 31, 2017, 20162020, 2019 and 2015,2018, terminal services and stevedoring services expenses were $10.6$9.7 million, $10.3$11.3 million and $7.1$9.8 million, respectively.
The Partnership has
We have entered into long-term arrangements to secure transportation from itsour plants to the port facilities.our export terminals. Under certain of these agreements, expiringwhich expire between 20192023 through 2023, the Partnership2026, we are committed to various annual minimum volumes under multi‑year fixed‑cost
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
multi-year fixed-cost contracts with
third‑partythird-party logistics providers for trucking and rail transportation, subject to increases in the consumer price index and certain fuel price adjustments. For the years ended December 31,
2017, 20162020, 2019 and
2015,2018, ground transportation expenses were
$23.8$30.7 million,
$21.7$25.5 million and
$20.9$29.8 million, respectively.
The Partnership has
We have entered into long-term supply arrangements, expiring between
20192021 through
2021,2026, to secure the supply of wood pellets from third-party
vendors.vendors and related parties. The minimum annual purchase volumes are at a fixed price per
metric tonMT adjusted for volume, pellet quality and certain shipping-related charges. The supply
agreementagreements for the purchase of
720,0001,080,000 MT of wood pellets from British Columbia
isare fully offset by an agreement to sell
720,0001,080,000 MT of wood pellets to the same counterparty from
the Partnership’sour terminal
locations. Aslocations, where $237.5 million remains to be sold as of December 31,
2017 the Partnership2020. Under long-term supply arrangements, we purchased approximately
$3.5$43.2 million,
under these long-term supply agreements. No amounts were incurred related to these agreements$51.6 million and $29.5 million of wood pellets for the years ended December 31,
20162020, 2019 and
2015.2018, respectively.
Fixed and determinable portions of the minimum aggregate future payments under these firm terminal and stevedoring services, stevedoring,ground transportation and wood pellet supply agreements obligations for the next five years are as follows:
| | | |
2018 | | $ | 25,244 |
2019 | | | 27,294 |
2020 | | | 56,313 |
2021 | | | 93,033 |
2022 | | | 6,674 |
Thereafter | | | 6,674 |
Total | | $ | 215,232 |
| | | |
| | | | | |
| 2021 | $ | 142,383 | |
| 2022 | 119,881 | |
| 2023 | 112,633 | |
| 2024 | 83,182 | |
| 2025 | 41,673 | |
| Total | $ | 499,752 | |
In order to mitigate volatility in
the Partnership’sour shipping costs,
it haswe have entered into
fixed‑pricefixed-price shipping contracts with reputable shippers matching the terms and volumes of certain of
the Partnership’s off‑takeour off-take contracts for which
the Partnership iswe are responsible for arranging shipping. Contracts with shippers, expiring between
20192021 through
2034,2039, include provisions as to the minimum amount of
metric tons per yearMTPY to be shipped and may also stipulate the number of shipments. Pursuant to these contracts, the terms
of which extend up to
fifteenseventeen years, charges are based on a
fixed‑pricefixed-price per
metric tonMT and, in some cases, there are adjustment provisions for increases in the price of fuel or for other
distribution‑relateddistribution-related costs. The charge per
metric tonMT varies depending on the loading
port and
the discharge port.
ForShipping expenses included in cost of goods sold was $75.0 million for the year ended December 31, 2020 and $64.1 million for each of the years ended December 31,
2017, 20162019 and
2015, shipping expenses were approximately $52.2 million, $41.5 million, and $44.9 million, respectively, and were included in cost of sales.2018.
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(19) Subsequent Events
Long-Term Incentive Plan
On January 31, 2018, 2018, the Board granted 13,964 Director Grants and 359,843 Affiliate Grants in tandem with corresponding DERs. The Director Grants vest on the first anniversary of the grant date. Of the total Affiliate Grants, 243,442 phantom units vest on the third anniversary of the grant date and 116,401 phantom units vest on the performance of specific milestones. The fair value of the Director Grants and Affiliate Grants was $10.7 million based on the market price per unit on the date of the grant.
Greenwood Contract
On February 16, 2018, the Partnership entered into a contract with a wholly owned subsidiary of the Second Hancock JV to purchase wood pellets produced by the Greenwood plant (the “Greenwood Contract”). Pursuant to the Greenwood Contract, the Partnership has agreed, subject to certain conditions, to purchase all of the production from the Greenwood plant from the date of acquiring the Greenwood plant through March 2022 and has a take-or-pay obligation for 550,000 MTPY (prorated for partial contract years) beginning in mid-2019.
(20) Quarterly Financial Data (Unaudited)
The following table presents the Partnership’s unaudited quarterly financial data. This information has been prepared on a basis consistent with that of the Predecessor’s audited consolidated financial statements and all necessary material adjustments, consisting of normal recurring accruals and adjustments, have been included to present fairly the unaudited quarterly financial data. As discussed in Note 1, Description of Business and Basis of Presentation, the consolidated financial statements for the periods prior to the Wilmington Drop-Down have been retroactively recast. The quarterly information presented below has also been recast accordingly. The quarterly results of operations for these periods are not necessarily indicative of future results of operations. Basic and diluted earnings per unit are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per unit information may not equal annual basic and diluted earnings per unit.
| | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth | | | |
For the Year Ended December 31, 2017 | | Quarter | | Quarter | | Quarter | | Quarter | | Total |
| | (Recast) | | (Recast) | | (Recast) | | | | |
Net revenue | | $ | 122,443 | | $ | 127,547 | | $ | 132,223 | | $ | 161,008 | | $ | 543,221 |
Gross margin | | | 16,368 | | | 16,331 | | | 20,382 | | | 25,721 | | | 78,802 |
Net (loss) income | | | (45) | | | 1,497 | | | 5,023 | | | 7,898 | | | 14,373 |
Enviva Partners, LP limited partners’ interest in net income | | | 2,535 | | | 3,862 | | | 6,339 | | | 7,826 | | | 20,562 |
Basic income per limited partner common unit | | $ | 0.08 | | $ | 0.12 | | $ | 0.20 | | $ | 0.25 | | $ | 0.65 |
Diluted income per limited partner common unit | | $ | 0.07 | | $ | 0.11 | | $ | 0.19 | | $ | 0.24 | | $ | 0.61 |
Basic income per limited partner subordinated unit | | $ | 0.08 | | $ | 0.12 | | $ | 0.20 | | $ | 0.25 | | $ | 0.65 |
Diluted income per limited partner subordinated unit | | $ | 0.08 | | $ | 0.12 | | $ | 0.20 | | $ | 0.25 | | $ | 0.65 |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
| | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth | | | |
For the Year Ended December 31, 2016 | | Quarter | | Quarter | | Quarter | | Quarter | | Total |
| | (Recast) | | (Recast) | | (Recast) | | (Recast) | | (Recast) |
Net revenue | | $ | 107,252 | | $ | 119,709 | | $ | 110,794 | | $ | 126,521 | | $ | 464,276 |
Gross margin | | | 15,754 | | | 19,457 | | | 22,417 | | | 19,144 | | | 76,772 |
Net income (loss) | | | 4,933 | | | 9,144 | | | 9,028 | | | (9,642) | | | 13,463 |
Enviva Partners, LP limited partners’ interest in net income (loss) | | | 7,494 | | | 12,053 | | | 13,033 | | | (7,972) | | | 24,608 |
Basic income (loss) per limited partner common unit | | $ | 0.30 | | $ | 0.48 | | $ | 0.51 | | $ | (0.34) | | $ | 0.95 |
Diluted income (loss) per limited partner common unit | | $ | 0.29 | | $ | 0.47 | | $ | 0.50 | | $ | (0.34) | | $ | 0.91 |
Basic income (loss) per limited partner subordinated unit | | $ | 0.30 | | $ | 0.48 | | $ | 0.51 | | $ | (0.32) | | $ | 0.93 |
Diluted income (loss) per limited partner subordinated unit | | $ | 0.29 | | $ | 0.47 | | $ | 0.50 | | $ | (0.32) | | $ | 0.93 |
ENVIVA PARTNERS, LP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(In thousands, except number of units, per unit amounts and unless otherwise noted)
(21) Supplemental Guarantor Information
The Partnership and its wholly owned finance subsidiary, Enviva Partners Finance Corp., are the co-issuers of the Senior Notes on a joint and several basis. The Partnership has no material independent assets or operations. The Senior Notes are guaranteed on a senior unsecured basis by certain of the Partnership’s direct and indirect wholly owned subsidiaries (excluding Enviva Partners Finance Corp. and certain recently formed immaterial subsidiaries) and will be guaranteed by the Partnership’s future restricted subsidiaries that guarantee certain of its other indebtedness (collectively, the “Subsidiary Guarantors”). The guarantees are full and unconditional and joint and several. Each of the Subsidiary Guarantors is directly or indirectly 100% owned by the Partnership. Enviva Partners Finance Corp. is a finance subsidiary formed for the purpose of being the co-issuer of the Senior Notes. Other than certain restrictions arising under the Credit Agreement and the Indenture (see Note 12, Long-Term Debt and Capital Lease Obligations), there are no significant restrictions on the ability of any restricted subsidiary to (i) pay dividends or make any other distributions to the Partnership or any of its restricted subsidiaries or (ii) make loans or advances to the Partnership or any of its restricted subsidiaries.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)
‑15(e)-15(e) and 15(d)
‑15(e)-15(e) under the Exchange Act) was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of our General Partner. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based
uponon their evaluation, the Chief Executive Officer and Chief Financial Officer of our General Partner concluded that the design and operation of our disclosure controls and procedures were effective as of December 31,
2017,2020, the end of the period covered by this Annual Report.
Internal Control over Financial Reporting
Management’s Annual Report on Internal Control over Financial Reporting
The management of our General Partner is responsible for establishing and maintaining adequate internal control over financial reporting for us as defined in Rules 13a‑15(f) and 15d‑15(f) of the Exchange Act. Under the supervision of, and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework in 2013, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management of our General Partner concluded that our internal control over financial reporting was effective as of December 31, 2017. This Annual Report on Form 10‑K does not include an attestation report2020. The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, due to a transition period established by rulesas stated in their report which is included in Part II, Item 8. “Financial Statements and Supplementary Data of the SEC for emerging growth companies.this report.”
Inherent Limitations on Effectiveness of Controls
Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) that occurred during the three months ended December 31,
20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We acquired Georgia Biomass Holding, LLC and Enviva Pellets Greenwood Holdings II, LLC during the year ended December 31, 2020, as described in Notes 3 and 4 to our consolidated financial statements included in this Annual Report on Form 10-K. The acquired businesses are included in our 2020 consolidated financial statements and together constituted approximately 23% and 2% of total assets and net assets, respectively, as of December 31, 2020 and 5% of revenues for the year then ended. We are in the process of evaluating the existing controls and procedures of the acquired businesses and are implementing our internal control structure over these acquired businesses. In accordance with SEC guidance permitting the exclusion of an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded the acquired businesses from the assessment of the effectiveness of internal control over financial reporting as of December 31, 2020. The acquired businesses will be included in the assessment of the effectiveness of internal control over financial reporting as of December 31, 2021.
Indemnification for Consent from Predecessor Independent Registered Public Accounting Firm
We have agreed to indemnify and hold KPMG LLP (KPMG) harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the incorporation by reference of KPMG’s audit report on the Partnership’s financial statements incorporated by reference into the Partnership’s registration statements on Form S-8 (File No. 333-236150 and 333-203756) and Form S-3 (333-232247).
Report of Independent Registered Public Accounting Firm
To the Unitholders and the Board of Directors of Enviva Partners, LP
Opinion on Internal Control Over Financial Reporting
We have audited Enviva Partners, LP and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Enviva Partners, LP and subsidiaries (the Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Georgia Biomass Holding, LLC and Enviva Pellets Greenwood Holdings II, LLC, which are included in the 2020 consolidated financial statements of the Partnership and together constituted approximately 23% and 2% of total assets and net assets, respectively, as of December 31, 2020 and 5% of revenues for the year then ended. Our audit of internal control over financial reporting of the Partnership also did not include an evaluation of the internal control over financial reporting of Georgia Biomass Holding, LLC and Enviva Pellets Greenwood Holdings II, LLC.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Enviva Partners, LP and subsidiaries as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, changes in partners’ capital and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated February 25, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
Management of the Partnership’s General Partner is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
February 25, 2021
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We are managed and operated by the board of directors and executive officers of our General Partner. Our unitholders are not entitled to elect our General
Partner or itsPartner’s directors or otherwise directly participate in our management or operations. Our General Partner owes certain contractual duties to our unitholders as well as a fiduciary duty to its owners.
As a result of owning our General Partner, our sponsor has the right to appoint all members of the board of directors of our General
Partner.Partner (our “Board”). In evaluating director candidates, our sponsor will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skill and expertise that are likely to enhance the
board’sBoard’s ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of committees of the
boardBoard to fulfill their duties.
The
board of directors of our General PartnerBoard has ten directors, including
fourfive directors meeting the independence standards established by the
NYSENew York Stock Exchange (the “NYSE”) and the
Securities Exchange
Act.Act of 1934, as amended (the “Exchange Act”). The
board of directorsBoard met
eightnine times during
2017.2020.
All of the executive officers of our General Partner listed below allocate their time between managing the business and affairs of us and our sponsor. The amount of time that our executive officers devote to our business and the business of our sponsor varies in any given year based on a variety of factors. Our executive officers devote as much time to the management of our business as is necessary for the proper conduct of our business and affairs.
However, our executive officers’ fiduciary duties to our sponsor and other obligations may prevent them from devoting sufficient time to our business and affairs.We incur general and administrative costs related to our
MSAmanagement services agreements (“MSAs”) with Enviva Management
Company, LLC, a wholly owned subsidiary of our sponsor (together with its affiliates that provide services to us, as applicable, “Enviva Management Company”) that cover the corporate salary and overhead expenses associated with our business. If the
MSAMSAs were terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the
MSA,MSAs, our partnership agreement would require us to reimburse our General Partner and its affiliates, including our sponsor, for all expenses incurred and payments made on our behalf.
Executive Officers and Directors of Our General Partner
The following table shows information for the executive officers and directors of our General Partner. As the owner of our General Partner, our sponsor appoints all members of the board of directors of our General Partner.Board. Directors hold office until their successors have been appointed or qualified or until the earlier of their death, resignation, removal or disqualification. Executive officers are appointed by and serve at the discretion of the board. Board. Our corporate governance guidelines to provide that, unless the Board determines otherwise, a non-employee director shall retire from service on the Board effective as of the last day of the fiscal year in which the director has turned 80, provided that the Chairman of the Board may, in his or her sole discretion, waive this requirement for an individual director for up to two years. In 2020, William K. Reilly, one of our independent directors, was granted a one-year waiver pursuant to the guidelines.
There are no family relationships among any of our directors or executive officers. One of our directors and all of our executive officers also serve as executive officers of our sponsor.
| | | | | | | | | | | | | | |
| | | | | | | | |
Name of Beneficial Owner | | Age | | Position With Our General Partner |
John K. Keppler | | 47
50 | | Chairman, President and Chief Executive Officer | | | | |
Stephen F. Reeves
Shai S. Even | | 58
52 | | Executive Vice President and Chief Financial Officer | | | | |
Thomas Meth
| | 45
| | Executive Vice President, Sales and Marketing
| | | | |
William H. Schmidt, Jr. | | 45
48 | | Executive Vice President, Corporate Development and General Counsel | | | | |
Thomas Meth | | 48 | | Executive Vice President, Sales and Marketing |
| E. Royal Smith | | 45
48 | | Executive Vice President, Operations | | | | |
James P. Geraghty
Joseph N. Lane | | 40 | | Executive Vice President, and Controller | | | | Human Capital |
Raymond J. Kaszuba, III
Yanina A. Kravtsova | | 39
44 | | Executive Vice President, Communications, Public and Treasurer | | | | Environmental Affairs |
Ralph Alexander | | 62
65 | | Director | | | | |
John C. Bumgarner, Jr. | | 75
78 | | Director | | | | |
Robin J. A. Duggan
Jim H. Derryberry | | 51
76 | | Director | | | | |
Michael B. Hoffman
| | 67
| | Director
| | | | |
Christopher B. Hunt | | 54
57 | | Director | | | | |
Gerrit “Gerrity” L. Lansing, Jr. | | 48 | | Director |
| William K. Reilly | | 78
81 | | Director | | | | |
Jeffrey W. Ubben | | 59 | | Director |
| Gary L. Whitlock | | 68
71 | | Director | | | | |
Carl L. Williams
| | 41
| | Director
| | | | |
Janet S. Wong | | 59
62 | | Director | | | | |
John K. Keppler. Mr. Keppler has served as Chairman of the board of directors and President and Chief Executive Officer of our General Partner since our inception in November 2013. Mr. Keppler co‑foundedco-founded Intrinergy, the predecessor to our sponsor, in 2004, and has been responsible for setting Enviva’s strategic direction and leading the company’s growth.2004. From 2002 to 2004, Mr. Keppler was the Director of Corporate Strategy in the Office of the Vice Chairman with America Online and, prior to that, he was Senior Manager, Business Affairs and Development with America Online from 2001 to 2002. Mr. Keppler holds a B.A. in political economy from the University of California, Berkeley, as well as an MBA from The Darden Graduate School of Business Administration at The University of Virginia. Over the course of Mr. Keppler’s career, he has gained extensive experience growing innovative ideas into successful businesses across a broad range of industries and has developed a wealth of experience in business strategy and operations and a keen knowledge of the renewable energy sector. For the past tenfifteen years, Mr. Keppler has been responsible for setting our strategic direction and leading the company’sour growth from a start‑upstart-up company to the world’s leading producer of wood biomass fuels. In light of this experience, we believe that he has the requisite set of skills to serve as a director, as well as Chairman, President and Chief Executive Officer.Stephen F. Reeves.
Shai S. Even. Mr. ReevesEven has served as Executive Vice President and Chief Financial Officer of our General Partner since our inceptionJune 2018. In this role, Mr. Even leads Enviva’s finance, accounting and information technology organizations and provides strategic leadership on finance matters. He has over 25 years of experience with operational and strategic finance, including in November 2013.senior financial and management roles at master limited partnerships. Most recently, Mr. Reeves has served in the same capacity at our sponsor and Enviva, LP since 2012. HeEven served as Senior Vice President and Chief Financial Officer of The Black & Decker Corporation,Alon USA Energy, Inc. and served as President and Chief Financial Officer of Alon USA Partners, LP. While at Alon, Mr. Even led Alon’s parent company’s successful IPO on the NYSE in 2005 and the successful IPO of Alon’s master limited partnership in 2012. During his tenure at Alon, he led the company’s two major acquisitions and scaled its finance organization to complement the growth of the company. Prior to joining Alon, Mr. Even served as the Chief Financial Officer of DCL Group in Tel Aviv, Israel, and as an auditor with KPMG. Mr. Even holds a global manufacturerbachelor’s degree in Economics and marketerAccounting from Bar-Ilan University and is a certified public accountant.
William H. Schmidt, Jr. Mr. Schmidt has served as Executive Vice President, Corporate Development and General Counsel of power tools, home improvement products and industrial fastening equipment, from 2008 through 2010,our General Partner since February 2018 and, prior to that, as Executive Vice President, General Counsel and Secretary since our inception in November 2013. He also has served as Executive Vice President, Corporate Development and General Counsel of our sponsor’s general partner since February 2018 and, prior to that, as Executive Vice President, General Counsel and Secretary since March 2013. Mr. Schmidt also serves as President and General Counsel of Enviva Development Holdings, LLC, our sponsor’s development company. In these capacities, Mr. Schmidt is responsible for our and our sponsor’s corporate development activities and legal affairs. Prior to joining Enviva, Mr. Schmidt was Senior Vice President and General Counsel of Buckeye GP LLC, the general partner of Buckeye Partners, L.P., a diversified master limited partnership. Mr. Schmidt also was President of Lodi Gas Storage, L.L.C., a subsidiary of Buckeye Partners, L.P., from August 2009 to January 2012. Prior to joining Buckeye in the Worldwide Power Tools and Accessories division of Black and Decker as Vice President—Global Finance from April 2000.September 2004, Mr. Reeves was previouslySchmidt practiced law at Chadbourne & Parke LLP, an international law firm that subsequently merged with the audit firm of Ernst & Young LLP. Mr. Reeves earned a B.S. in Accounting from the Pennsylvania State University.Norton Rose Fulbright.
Thomas Meth. Mr. Meth has served as Executive Vice President, Sales and Marketing of our General Partner since our inception in November 2013. He was also a co‑founderco-founder of Intrinergy. Mr. Meth is responsible for our commercial customer
relations as well as our
marketing, sustainability, communicationsmarket development, customer fulfillment and
public relationsshipping initiatives. Prior to Intrinergy, Mr. Meth was Head of Sales and Marketing in Europe, the Middle East and Africa for the Colfax Corporation from 2002 to 2004. From 1993 to 2000, Mr. Meth was
the Director of Sales for Europay Austria, a consumer financial services company that offered MasterCard, Maestro and Electronic Purse services. Mr. Meth holds a bachelor of commerce from Vienna University of Economics and Business Administration in Austria as well as an MBA from The Darden Graduate School of Business Administration at The University of Virginia. Mr. Meth was an executive officer of Intrinergy Deutschland Management GmbH (“IDM”) and Enviva Pellets GmbH and Co. KG (“EPD”), which were engaged in pellet manufacturing in Germany unrelated to our core business.
Both entities filed for insolvency in Amtsgerichts Straubing, a district court located in Germany, in November 2010. Our predecessor distributed its indirect interests in IDM and EPD to our sponsor as part of the
Reorganization.reorganization in connection with our IPO.William H. Schmidt, Jr. Mr. Schmidt has served as Executive Vice President, Corporate Development and General Counsel of our General Partner since February 2018 and prior to that as Executive Vice President, General Counsel and Secretary since our inception in November 2013. He has served in the same capacity at our sponsor and Enviva, LP since March 2013. Mr. Schmidt is responsible for our and our sponsor’s legal affairs and, as President of Enviva Development Holdings, LLC, for our sponsor’s corporate development activities. Prior to joining us, Mr. Schmidt was the Senior Vice President and General Counsel of Buckeye GP LLC, the general partner of Buckeye Partners, L.P., a master limited partnership that owned and operated petroleum pipelines and terminals in the United States, marine terminals serving international petroleum markets, natural gas storage facilities, and a petroleum products marketing business. From November 2010 to February 2013, he was Vice President and General Counsel of Buckeye GP LLC and, from November 2007 to November 2010, he was Vice President, General Counsel and Secretary of Buckeye GP LLC. Prior to November 2007, Mr. Schmidt served as Vice President and General Counsel of Buckeye Pipe Line Services Company, an affiliate of Buckeye Partners, L.P., since February 2007 and as Associate General Counsel since September 2004. Mr. Schmidt also was the President of Lodi Gas Storage, L.L.C., a subsidiary of Buckeye Partners, L.P., from August 2009 to January 2012. Prior to joining Buckeye, Mr. Schmidt practiced law at Chadbourne & Parke LLP, an international law firm.
E. Royal Smith.Mr. Smith has served as Executive Vice President, Operations of our General Partner Enviva, LP and our sponsor since August 2016 and prior to that as Vice President, Operations since April 2014. Prior to joining Enviva, LP,Previously, he served as Director of Operations, NAA Division of Guilford Performance Textiles, a global textile manufacturing company, from March 2012 to July 2014. From August 2010 to March 2012, Mr. Smith also served as Director of Quality, NAA Division. Prior to joining Guilford, Mr. Smith worked as a Plant Manager at Pactiv, a food packaging manufacturer, from May 2009 to August 2010. Mr. Smith served as General Manager of a facility operated by United Plastics Group International from December 2005 to May 2009, after serving in other roles at the company from April 2002. From January 1999 to September 1999, he served as Production Supervisor of The General Motors Corporation, before serving as Mechanical Device/Tool and Die Supervisor from September 1999 to August 2000. Mr. Smith holds a B.S. in Mechanical Engineering from GMI Engineering and Management Institute.
James P. Geraghty.
Joseph N. Lane. Mr. GeraghtyLane has served as Executive Vice President and Controller of our General Partner since our inception in November 2013, and has served in the same capacity at our sponsor and Enviva, LP since January 2011. From July 2008 to January 2011, Mr. Geraghty was Project Manager at Rose Financial Services, a consulting firm that specializes in assisting early stage high‑growth companies to scale their finance functions in preparation for private and public debt and equity offerings. Prior to that, he was the Controller at The George Washington University Hospital since July 2002. From September 1999 to July 2002, Mr. Geraghty worked in the Assurance and Business Advisory Services of Arthur Andersen, LLP. Mr. Geraghty holds a B.S. in Accounting from Mount Saint Mary’s University, an MBA from the George Washington University School of Business and holds a Certified Public Accountant accreditation.Raymond J. Kaszuba, III. Mr. Kaszuba has served as Vice President and Treasurer of our General Partner and Enviva, LP since July 2015. Prior to joining Enviva, LP, he worked in several Treasury and finance‑related positions at Exxon Mobil Corporation, a leading oil and natural gas company, for 8 years. Mr. Kaszuba holds a B.S. in Finance and Economics from the University of Dayton and an MBA from the Tepper School of Business at Carnegie Mellon University.
Michael B. Hoffman. Mr. Hoffman has served as a director on the board of directors of our General Partner since our inception in November 2013. Mr. Hoffman is a partner of Riverstone, where he is principally responsible for investments in power and renewable energy for Riverstone’s funds. Mr. Hoffman is co‑head of Riverstone’s Renewable Energy Funds I and II. Before joining Riverstone in 2003, Mr. Hoffman was senior managing director and head of the mergers and acquisitions advisory business of The Blackstone Group for 15 years, where he also served on the firm’s principal group investment committee as well as its executive committee. Prior to joining Blackstone, Mr. Hoffman was managing director and co‑head of the mergers and acquisitions department of Smith Barney, Harris Upham & Co. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, Mr. Hoffman is chairman of the board of directors of Onconova Therapeutics Inc. He is also a member of the board of trustees of The Rockefeller University. We believe Mr. Hoffman’s extensive leadership and financial expertise enable him to contribute significant managerial, strategic and financial oversight skills to the board of directorsHuman Capital of our General Partner and our sponsor since March 2018. Previously, Mr. Lane was Vice President, Human Resources of Asia Pacific of Milliken & Company since 2015, after holding roles with progressively more responsibility since joining the company in 2001. Over the course of Mr. Lane’s career, he has gained a wealth of valuable experience dealing with talent-related matters associated with scaling organizations, mergers and acquisitions activity, industrial manufacturing and international operations. Mr. Lane received a Bachelor of Science in Business Administration with an emphasis in Human Resources Management from Clemson University in 2003 as well as an MBA from the Babcock Graduate School of Business Administration at Wake Forest University in 2009. He holds the SHRM certification for Senior HR Professionals (SPHR-CP).
Yanina A. Kravtsova. Ms. Kravtsova has served as Executive Vice President, Communications, Public & Environmental Affairs of our General Partner since December 2019 and, prior to that, as Vice President, Environmental Affairs and Chief Compliance Officer from October 2018. In her current role, Ms. Kravtsova leads the teams responsible for media, governmental and community relations, as well as environmental permitting of our facilities. Ms. Kravtsova brings to Enviva over 20 years of leadership and senior management team.experience in the renewable energy and power sector. Prior to joining Enviva, Ms. Kravtsova served as Senior Vice President, General Counsel and Secretary of Terraform Global, Inc. from February 2015. Ms. Kravtsova was also Legal Head of Renewable Energy Investments at Google Inc. from August 2011 to January 2015. Ms. Kravtsova practiced law at Clifford Chance U.S. LLP, Latham & Watkins LLP and The World Bank Group, handling international project finance, regulatory and corporate matters for energy projects. Ralph Alexander. Mr. Alexander has served as director on the board of directors of our General PartnerBoard since our inception in November 2013. Mr. Alexander has served as the PresidentChairman of the Board and CEO of Talen Energy since December 2016. He became affiliated with Riverstone Holdings LLC in September 2007. For nearly 25 years, Mr. Alexander served in various positions with subsidiaries and affiliates of BP plc, one of the world’s largest oil and gas companies. From June 2004 until December 2006, he served as Chief Executive Officer of Innovene, BP’s $20 billion olefins and derivatives subsidiary. From 2001 until June 2004, he served as Chief Executive Officer of BP’s Gas, Power and Renewables and Solar segment and was a member of the BP group executive committee. Prior to that, Mr. Alexander served as a Group Vice President in BP’s Exploration and Production segment and BP’s Refinery and Marketing segment. He held responsibilities for various regions of the world, including North America, Russia, the Caspian, Africa, and Latin America. Prior to these positions, Mr. Alexander held various positions in the upstream, downstream and finance groups of BP. Mr. Alexander currently serveshas served on the board of Talen Energy Corporation since June 2015. From December 2014 through December 2016, Mr. Alexander served on the board of EP Energy Corporation. He has previously served on the boards of Foster Wheeler, Stein Mart, Inc., Amyris and Anglo‑American plc. Mr. Alexander holds an M.S. in Nuclear Engineering from Brooklyn Polytech (now NYU School of Engineering—Polytechnic) and an M.S. in Management Science from Stanford University.
Carl L. Williams. Mr. Williams has served as a director on the board of directors of our General Partner since our inception in November 2013. Mr. Williams is a Managing Director at Riverstone. He also serves on the boards of a number of Riverstone portfolio companies and their affiliates. Prior to joining Riverstone in 2008, Mr. Williams was in the Global Natural Resources investment banking group at Goldman, Sachs & Co. from 2005 to 2008. While at Goldman, he focused on mergers and acquisitions and financing transactions in the power generation, alternative energy, oil and gas and refining industries. Prior to that, he held various positions in engineering and strategic sourcing with Lyondell Chemical Company, a supplier of raw materials and technology to the coatings industry, from 1999 to 2004. He received his MBA from Columbia Business School, and holds a B.S. in chemical engineering and a B.A. in economics and managerial studies from Rice University. We believe that Mr. Williams’ extensive experience in, and knowledge of, each of the finance and energy sectors enable him to provide essential guidance to the board of directors of our General Partner and our management team.
Robin J. A. Duggan. Mr. Duggan has served as a director on the board of directors of our General Partner since our inception in November 2013. Mr. Duggan has been a Managing Director of Riverstone since 2014, and previously served as a Principal of Riverstone for seven years. Prior to joining Riverstone, Mr. Duggan was the founder of Commodity Optimization Ventures Ltd., a business that provided advice to clients in the private equity industry, including Texas Pacific Group. Before founding his business, he served for over 17 years in various positions with subsidiaries and affiliates of BP plc. From 2004 to 2005, Mr. Duggan was the Vice President of European Business Optimization at Innovene, BP’s olefins and derivatives subsidiary, where he was responsible for commercial activity for olefins and refining in Europe and also oversaw Innovene’s successful separation from BP in Europe. From 1999 to 2003, Mr. Duggan held a number of senior level positions in BP’s Petrochemicals segment, including serving as the Performance Unit Leader of the Aromatics and Olefins division, Global Business Manager of the Styrene business unit, and the Planning, Performance and Strategy Manager of the Acetyls business unit. Prior to that time, Mr. Duggan held various positions in BP’s Upstream segment in the United Kingdom, Australia and Venezuela over a period of ten years. Mr. Duggan serves on the boards of a number of Riverstone portfolio companies and their affiliates. He holds a B.A in biochemistry from Oxford University and an M.S. in management science from Stanford University. Based upon his strong background in various aspects of the energy industry, we believe Mr. Duggan has the requisite set of skills to serve as a director.
John C. Bumgarner, Jr. Mr. Bumgarner has served as a director on the board of directors of our General PartnerBoard since April 2015. Mr. Bumgarner has been engaged in private investment since November 2002, and currently assists in operating a family‑owned, multi‑facetedfamily-owned, multi-faceted real estate company. Mr. Bumgarner previously served as Co‑ChiefCo-Chief Operating Officer and President of Strategic Investments for Williams Communications Group, Inc., a high technology company, from May 2001 to November 2002. Williams Communications Group, Inc. filed a Plan of Reorganization with the U.S. Bankruptcy Court in August 2002. Mr. Bumgarner joined
The Williams Companies, Inc., in 1977 and, prior to working at Williams Communications Group, Inc., served as Senior Vice President of Williams Companies Corporate Development and Planning, President of Williams International Company and President of Williams Real Estate Company. He most recently served as a director of Energy Partners, Ltd., an oil and natural gas exploration and production company, from January 2000 to February 2009, and at Market Planning Solutions Inc. from February 1982 until April 2011. Energy Partners, Ltd. filed a Plan of Reorganization with the U. S. Bankruptcy Court in May 2009.
Mr. Bumgarner holds a B.S. from the University of Kansas and an M.B.A. from Stanford University. Mr. Bumgarner’s substantial experience as an executive at a conglomerate and as a director on boards of public and private companies engaged in a variety of industries provide him with unique insight that is particularly helpful and valuable to the board of directors of our General Partner.
William K. Reilly.Board.
Jim H. Derryberry. Mr. ReillyDerryberry has served as a director on the board of directors of our General PartnerBoard since April 2015.July 2018. Mr. Reilly served as Administrator of the U.S. Environmental Protection Agency from 1989 to 1993. From October 1997 to December 2009, Mr. Reilly served as President and Chief Executive Officer of Aqua International Partners, an investment group which finances water improvements in emerging markets. He also served as Senior Advisor to TPG Capital from September 1994 to December 2016. In 2010, Mr. Reilly was appointed by President Obama as co‑chair of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. He currently serves on the board of directors of Royal Caribbean Cruises Ltd. Mr. ReillyDerryberry served as a director of Conoco Inc.USA Compression GP, LLC from 1998January 2013 to April 2018. He is currently a special advisor for Riverstone Holdings LLC where he held the office of Chief Operating Officer and Chief Financial Officer until its merger with Phillips Petroleum Company in 2002, and thereafter served as2006. Prior to joining Riverstone, Mr. Derryberry was a managing director of ConocoPhillips until May 2013. From 1993 until April 2012, Mr. ReillyJ.P. Morgan where he was head of the Natural Resources and Power Group. He had previously served in the Goldman Sachs Global Energy and Power Group where he was responsible for mergers and acquisitions, capital markets financing, and the management of relationships with major energy companies. He also served on the board of directors of E.I. duPont de Nemours and Company. HeMagellan GP, LLC, the general partner of Magellan Midstream Partners, L.P, from 2005-2006. Mr. Derryberry has also previously served as the first Payne Visiting Professor at Stanford University, President of the World Wildlife Fund and President of The Conservation Foundation. He is Chairman Emeritus of the World Wildlife Fund and Chairman of the Nicholas Institute for Environmental Policy Solutions at Duke University. Mr. Reilly’s extensive environmental regulatory experience and his service on various other boards make him well qualified to serve asbeen a member of the boardBoard of directors of our General Partner, and allow him to provide unique and valuable perspective on matters critical to our operations.Janet S. Wong. Ms. Wong has served as a director on the board of directors of our General Partner since April 2015. Since January 2013, Ms. Wong has served as an Executive Advisor for Ascend, a non‑profit professional organization that enables its members, corporate partners and the community to realize the leadership potential of Pan‑Asians in global corporations. At Ascend, Ms. Wong has been a co‑developer and instructor for its Executive Insight courses. In 2015, Ms. Wong was elected to serve on the Audit CommitteeOverseers for the American Heart Association as well asHoover Institution at Stanford University and is a member of the Budget Review Subcommittee. In addition, she serves on the Louisiana Tech University Foundation Board and the College of BusinessEngineering Advisory Board where she isat the immediate past-Chairman. Ms. Wong served as a PartnerUniversity of Texas at Grant Thornton LLP from August 2008 through July 2012, where she was the Central Region CorporateAustin. He received his B.S. and Partnership Services Lead Partner. In 2008, Ms. Wong retiredM.S. degrees in engineering from the partnershipUniversity of KPMG, culminating a career with the global firmTexas at Austin and earned an M.B.A. from 1985 through 2008, where she served as a National Industry Practice Lead Partner. Ms. Wong has extensive experience working with clients in the consumer markets, energy, financial services, manufacturing, and technology sectors. She is a Certified Public Accountant. She holds a Master of Professional Accountancy from Louisiana Tech University and a Master of Taxation from Golden GateStanford University. We believe Ms. Wong’s audit expertise and her professional and leadership experience enable her to provide essential guidance to the board of directors of our General Partner and our management team.
Christopher B. Hunt. Mr. Hunt has served as a director on the board of directors of our General PartnerBoard since April 2016. Mr. Hunt is a managing directorpartner of Riverstone and joined Riverstone in 2008. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, he also currently serves on the board of directors of NTR Plc. Prior to joining Riverstone, Mr. Hunt ran international power development and generation businesses for BP plc and Enron Corporation. Mr. Hunt received his BA from Wesleyan University and his MBA from Columbia University. He has also completed various post‑graduatepost-graduate programs at Harvard University, Stanford University, the Massachusetts Institute of Technology and Oxford University. Mr. Hunt brings extensive experience in the renewable energy, conventional power and natural gas industries to the Board.
Gerrit “Gerrity” L. Lansing, Jr. Mr. Lansing has served as a director on the Board since October 2020. Mr. Lansing is a Managing Director and Partner of BTG Pactual and Head of BTG Pactual Tangible Assets Group, which includes BTG Pactual Timberland Investment Group (“TIG”). TIG is one of the world’s largest timberland investment managers with more than $3.5 billion under management and investments including more than 2.6 million acres across four continents. Mr. Lansing leads a management team at TIG with more than 800 years of combined experience and which operates in accordance with the UN Principles for Responsible Investment and with first-class sustainable forestry practices including those set forth by the Forest Stewardship Council and Programme for the Endorsement of Forest Certification, as validated by extensive independent audits. Prior to his current role, he was a Founder and Chief Executive Officer of Equator, LLC and its Brazilian subsidiary, TTG Brasil Investimentos Florestais Ltda, which was acquired by BTG Pactual in 2012. Prior to this, as Chief Executive Officer, Mr. Lansing spent nearly a decade building Madison Trading, LLC and Chatham Energy Partners, LLC (acquired by The Intercontinental Exchange). He is on the board of directors of the Nasher Museum of Art at Duke University, the Buckley School in New York City, the National Alliance of Forest Owners and La Fundación de la Universidad del Valle de Guatemala. Mr. Lansing received his B.A. from Duke University.
William K. Reilly. Mr. Reilly has served as a director on the Board since April 2015. Mr. Reilly served as Administrator of the U.S. Environmental Protection Agency from 1989 to 1993. From October 1997 to December 2009, Mr. Reilly served as President and Chief Executive Officer of Aqua International Partners, an investment group that finances water improvements in emerging markets. He also served as Senior Advisor to TPG Capital from September 1994 to December 2016. In 2010, Mr. Reilly was appointed by President Obama as co-chair of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling and in 2012, President Obama named Mr. Reilly to the Council for Global Development. He currently serves as a director and chair of the board committee on environment, safety, security and health of Royal Caribbean Cruises Ltd. Mr. Reilly served as a director of Conoco Inc. from 1998 until its merger with Phillips Petroleum Company in 2002, and thereafter served as a director of ConocoPhillips until May 2013. From 1993 until April 2012, Mr. Reilly also served on the board of directors of E.I. duPont de Nemours and Company and was a director of Energy Future Holdings from 2007 to 2019. He has also previously served as the first Payne Visiting Professor at Stanford University, President of the World Wildlife Fund and President of The Conservation Foundation. He is Chairman Emeritus of the World Wildlife Fund and Chairman of the Nicholas Institute for Environmental Policy Solutions at Duke University. Mr. Reilly’s extensive environmental regulatory experience and his service on various other boards make him well qualified to serve as a member of the Board, and allow him to provide unique and valuable perspective on matters critical to our General Partner.operations.
Jeffrey W. Ubben. Mr. Ubben is a Founder, Managing Partner, and member of the Management Committee of Inclusive Capital Partners. Mr. Ubben is a retired Founder of ValueAct Capital, where he was Chief Executive Officer, member of the Management Committee, Chief Investment Officer, and Portfolio Manager. Mr. Ubben also founded and serves as Portfolio Manager of the ValueAct Spring Fund. Prior to founding ValueAct Capital in 2000, Mr. Ubben was a Managing Partner at Blum Capital Partners for more than five years. Mr. Ubben is a director of The AES Corporation, where he is a member of the Compensation and Financial Audit Committees, AppHarvest, and Nikola Corporation. He is the former chairman and director of Martha Stewart Living Omnimedia, Inc., and a former director of Catalina Marketing Corp., Gartner Group, Inc., Mentor Corporation, Misys plc, Sara Lee Corp., Twenty-First Century Fox Inc., Valeant Pharmaceuticals International, Willis Towers Watson plc, and several other public and private companies. In addition, Mr. Ubben serves on the boards of Duke University, The Nature Conservancy’s NatureVest, and the E.O. Wilson Biodiversity Foundation, and formerly served as Chair of the National Board of the Posse Foundation for nine years. He has a B.A. from Duke University and an M.B.A. from the Kellogg School of Management at Northwestern University.
Gary L. Whitlock. Mr. Whitlock has served as a director on the board of directors of our General PartnerBoard since April 2016. Mr. Whitlock served as Executive Vice President and Chief Financial Officer of CenterPoint Energy, Inc. (“CenterPoint”) from September 2002 until April 2015. From April 2015 until his retirement on October 1, 2015, he served as Special Advisor to the Chief Executive Officer of CenterPoint. While at CenterPoint, Mr. Whitlock was responsible for accounting, treasury, risk management, tax, strategic planning, business development, emerging businesses and investor relations. From July 2001 to September 2002, Mr. Whitlock served as Executive Vice President and Chief Financial Officer of the Delivery Group of Reliant Energy, Incorporated (“Reliant”). Prior to joining Reliant, Mr. Whitlock served as Vice President of Finance and Chief Financial Officer of Dow AgroSciences LLC, a subsidiary of The Dow Chemical Company (“Dow”), from 1998 to 2001. He began his career with Dow in 1972, where he held a number of financial leadership positions, both in the United States and globally. While at Dow, Mr. Whitlock served on
the boards of directors of various Dow entities. Mr. Whitlock is a Certified Public Accountant and received a BBA in accounting from Sam Houston State University in 1972. He has previously served on the board of directors of Texas Genco Holdings, Inc., the board of directors of the general partner of Enable Midstream Partners, LP from March 2013 to August 2015, the board of directors of KiOR, Inc. from December 2010 to June 2015, the board of directors of CHI St. Luke’s Health System, The Woodlands, and the Leadership Cabinet of Texas Children’s Hospital. Mr. Whitlock brings extensive experience in public company financial management and reporting to the Board.
Janet S. Wong. Ms. Wong has served as a director on the Board since April 2015. Since January 2013, Ms. Wong has served as a National Executive Advisor for Ascend, a non‑profit professional organization that enables its members, corporate partners and the community to realize the leadership potential of Asians in global corporations. At Ascend, Ms. Wong has led the largest network of Asian corporate board directors and is recognized as a global thought leader on leadership and diversity issues. Currently, Ms. Wong serves on the board of directorsLumentum Holdings Inc., a market-leading high technology manufacturer of our General Partner.Director Independence
Theinnovative optical and photonics products where she is a member of the Audit Committee, and the board of directorsAllegiance Bancshares, Inc., a financial services company where she is a member of the Audit Committee and the Corporate Governance and Nominating Committee. In addition, she serves on the non-profit boards of the Computer History Museum, Louisiana Tech University Foundation and the Thirty Percent Coalition. Ms. Wong served as a Partner at Grant Thornton LLP from August 2008 through July 2012, where she was the Central Region Corporate and Partnership Services Lead Partner. In 2008, Ms. Wong retired from the partnership of KPMG, culminating a career with the global firm from 1985 through 2008, where she served as a National Industry Practice Lead Partner. Ms. Wong has extensive experience working with clients in the consumer markets, energy, financial services, manufacturing, and technology sectors. She is a Certified Public Accountant. She holds a Master of Professional Accountancy from Louisiana Tech University and a Master of Taxation from Golden Gate University. We believe Ms. Wong’s audit expertise and her professional and leadership experience enable her to provide essential guidance to the Board and our General Partnermanagement team.
Director Independence
The Board has
fourfive independent directors: John C. Bumgarner, Jr., William K. Reilly,
Jeffrey W. Ubben, Gary L. Whitlock and Janet S. Wong. The NYSE does not require a publicly traded partnership such as ours to have a majority of independent directors on the board or to establish a compensation committee or a nominating committee. However, our General Partner is required to have an audit committee of at least three members, and all its members are required to meet the independence and experience standards established by the NYSE and the Exchange Act.
Committees of the Board of Directors
The board of directors of our General PartnerBoard has three standing committees: an audit committee, a compensation committee and a health, safety, sustainability and environmental committee. The board of directors of our General PartnerBoard may also form a conflicts committee from time to time. Due to the related‑party nature
We are required to have an audit committee of at least three members, and all the members of the audit committee are required to meet the independence and experience standards established by the NYSE and the Exchange Act. Mr. Bumgarner,
Mr. Whitlock and Ms. Wong
and Mr. Whitlock currently serve as members of the audit committee. The
boardBoard determined that all members of the audit committee are financially literate and are “independent” under the standards of the NYSE and SEC regulations currently in effect. SEC rules also require that a public company disclose whether or not its audit committee has an “audit committee financial expert” as a member. An “audit committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes defined by Regulation
S‑KS-K Item 407(d)(s)(ii). The
board of directors of our General PartnerBoard believes Ms. Wong satisfies the definition of “audit committee financial expert.”
The audit committee assists the
board of directorsBoard in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and partnership policies and controls. The audit committee has the sole authority to (1) retain and terminate our independent registered public accounting firm, (2) approve all auditing services and related fees and the terms thereof performed by our independent registered public accounting firm and (3)
pre‑approvepre-approve any non‑audit services and tax services to be rendered by our independent registered public accounting firm. The audit committee is also responsible for confirming the independence and objectivity of our independent registered public accounting firm. Our independent registered public accounting firm has been given unrestricted access to the audit committee and our management.
Compensation Committee
As a limited partnership listed on the NYSE, we are not required to have a compensation committee. However, the Board has established a compensation committee consisting of Mr. Alexander, Mr. Bumgarner and Mr. Ubben to, among other things, administer our long-term incentive plan and establish and review general policies related to, and determine and approve, or make recommendations to the Board with respect to, the compensation and benefits of the non‑employee members of the Board.
Our General Partner’s board of directorsBoard may, from time to time, establish a conflicts committee to which the boardBoard will appoint at least one director and which may be asked to review specific matters that the boardBoard believes may involve conflicts of interest and determines to submit to the conflicts committee for review. The conflicts committee determines if the resolution of the conflict of interest is adverse to the interest of the partnership. The members of the conflicts committee may not be officers or employees of our General Partner or directors, officers or employees of its affiliates, including our sponsor, and must meet the independence standards established by the NYSE and the Exchange Act to serve on an audit committee of a board of directors, along with other requirements in our partnership agreement.
Any matters approved by the conflicts committee will be conclusively deemed to be approved by us and all of our partners and not a breach by our General Partner of any duties it may owe us or our unitholders. Due to the related‑party nature of the Wilmington Drop‑Down, the board of directors of our General Partner formed a conflicts committee comprised of Mr. Bumgarner, Mr. Whitlock and Ms. Wong to evaluate the Wilmington Drop‑Down.
Compensation Committee
As a limited partnership listed on the NYSE, we are not required to have a compensation committee. However, in connection with our IPO, the board of directors of our General Partner established a compensation committee consisting of Mr. Alexander, Mr. Bumgarner and Mr. Hoffman to, among other things, administer our long‑term incentive plan and establish and review general policies related to, and determine and approve, or make recommendations to the board with respect to, the compensation and benefits of the non‑employee members of the board.
Health, Safety, Sustainability and Environmental Committee
In connection with our IPO, the board of directors of our General Partner formed
The Board has established a
Health, Safety, Sustainabilityhealth, safety, sustainability and
Environmental Committeeenvironmental committee (the “HSSE committee”) consisting of Mr.
DugganLansing, Mr. Reilly and Mr.
Reilly.Ubben. The HSSE committee assists the
board of directors of our General PartnerBoard in fulfilling its oversight responsibilities with respect to the
board’sBoard’s and our continuing commitment to
(i)(1) ensuring the safety of our employees and the public and assuring that our businesses and facilities are operated and maintained in a safe and environmentally sound manner,
(ii)(2) sustainability, including sustainable forestry practices,
(iii)(3) delivering environmental benefits to our customers, the forests from which we source our wood fiber and the communities in which we operate and
(iv)(4) minimizing the impact of our operations on the environment. The HSSE committee reviews and oversees our health, safety, sustainability and environmental policies, programs, issues and initiatives, reviews associated risks that affect or could affect us, our employees and the public and ensures proper management of those risks and reports to the board on health, safety, sustainability and environmental matters affecting us, our employees and the public. The members of the HSSE committee are non‑employee directors of our General Partner.
Executive Sessions of
Non‑ManagementNon-Management Directors
The board of directors of our General PartnerBoard holds regular executive sessions in which the non‑managementnon-management directors meet without any members of management present. The purpose of these executive sessions is to promote open and candid discussion among the non‑managementnon-management directors. In the event that the non‑managementnon-management directors include directors who are not independent under the listing requirements of the NYSE, then at least once a year, there will be an executive session including only independent
directors. The director who presides at these meetings is John C. Bumgarner, Jr. Unitholders and any other interested parties may
also communicate directly with the presiding director or with the
non‑managementnon-management directors as a group, by mail addressed to:
Presiding Director c/o General Counsel
7200 Wisconsin Avenue, Suite 1000
Communication with the Board of Directors
As set forth in the Communications Policy adopted by the
board of directors of our General Partner,Board, a holder of our units or other interested party who wishes to communicate with any director of our General Partner may do so by sending communications to the
board,Board, any committee of the
board,Board, the Chairman of the
boardBoard or any other director to:
7200 Wisconsin Avenue, Suite 1000
and marking the envelope containing each communication as “Unitholder Communication with Directors” and clearly identifying the intended recipient(s) of the communication. Communications will be relayed to the intended recipient of the board of directors of our General PartnerBoard pursuant to the Communications Policy, which is available on the “Investors“Investor Relations” section of our website at http://www.envivabiomass.com. Any communications withheld under the Communications Policy will nonetheless be recorded and available for any director who wishes to review them.
Our General Partner has adopted a Code of Business Conduct and Ethics that applies to our General Partner’s directors, officers and employees, as well as to employees of our subsidiaries or affiliates that perform work for us. The Code of Business Conduct and Ethics also serves as the financial code of ethics for our Chief Executive Officer, Chief Financial Officer, controller and other senior financial officers. Our General Partner has also adopted Corporate Governance Guidelines that outline the important policies and practices regarding our governance.
We make available free of charge, within the “Investors“Investor Relations” section of our website at http://www.envivabiomass.com and in print to any interested party who so requests, our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter and HSSE Committee Charter. Requests for print copies may be directed to Investor Relations, Enviva Partners, LP, 7200 Wisconsin Ave., Suite 1000, Bethesda, Maryland 20814, or by telephone at (301) 657‑5560. We will post on our website all waivers to or amendments of the Code of Business Conduct and Ethics, which are required to be disclosed by applicable law and the listing requirements of the NYSE. The information contained on, or connected to, our website is not incorporated by reference into this Annual Report on Form 10‑K10-K and should not be considered part of this or any other report we file with or furnish to the SEC.Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
Table of the Exchange Act requires that the directors and executive officers of our General Partner and all persons who beneficially own more than 10% of our common units file initial reports of ownership and reports of changes in ownership of our common units with the SEC. As a practical matter, we assist the directors and executive officers of our General Partner by monitoring transactions and completing and filing Section 16 reports on their behalf.Based solely upon our review of copies of filings or written representations from the reporting persons, we believe that, for the year ended December 31, 2017, Mr. Gary Whitlock, a member of the board of directors of our General Partner, failed to file, on a timely basis, one report on Form 4 required to be filed under Section 16(a) of the Exchange Act with respect to one transaction. On August 2, 2017, Mr. Whitlock was issued 505 common units in connection with his annual compensation. The Form 4 required to be filed by Mr. Whitlock in connection with this issuance was filed on October 27, 2017.
Contents
ITEM 11. EXECUTIVE COMPENSATION
Neither we nor our General Partner have any employees. All of our
Compensation Discussion & Analysis
Background
This Compensation Discussion and Analysis (“CD&A”) explains the 2020 executive
officers are currently employed by Enviva Management.We are providing compensation disclosure that satisfiesprogram for the requirements applicable to emerging growth companies. For 2017, we determined our named executive officers (“Named Executive Officers” orOfficers (the “NEOs”) to be:
identified below. Please read this CD&A together with the tables and related narrative about executive compensation that follow. The table below lists our NEOs in 2020 whose compensation is described in this CD&A: | ·
| | | | | | | |
| Executive | | Title |
| John K. Keppler | | Chairman of the Board of Directors, President and Chief Executive Officer |
| Shai S. Even | ·
| | E. Royal Smith, Executive Vice President, Operations, and
|
| ·
| | Stephen F. Reeves, Executive Vice President and Chief Financial Officer.
Officer |
| Thomas Meth | | Executive Vice President, Sales and Marketing |
| William H. Schmidt, Jr. | | Executive Vice President, Corporate Development and General Counsel |
| E. Royal Smith | | Executive Vice President, Operations |
The
As a publicly traded partnership, our employment and compensation structure is different from that of a typical public corporation. Neither we nor our General Partner have any employees. Instead, our employees, including our NEOs, are employed by Enviva Management Company, LLC and its affiliates who provide services to the Partnership and the affiliates of our sponsor (collectively, “Enviva Management Company”). As each of our NEOs has been appointed to serve as an executive officersofficer of our General Partner, split their time between managingthroughout this CD&A we will refer to them as our businessNEOs.
We are party to management services agreements (the “MSAs”) with Enviva Management Company, pursuant to which Enviva Management Company provides us with employment and management services necessary for the other businessesoperation of our sponsor thatbusiness.Although our NEOs’ salaries and bonuses are unrelatedpaid, and benefits are provided, directly by Enviva Management Company, we partially reimburse Enviva Management Company based on the cost allocated to us. Exceptus for each NEO pursuant to the MSAs. Other than with respect to equity-based awards that may be granted underpursuant to the LTIP,Enviva Partners, LP Long-Term Incentive Plan (“LTIP”), Enviva Management Company generally has all responsibility and authority for compensation‑related decisions for the NEOs, remains with Enviva Management and its
affiliates, and such decisions are not subject to any approval by us, our General Partner’s board of directors or any committees thereof. the Compensation Committee of our General Partner (the “Compensation Committee”). For a more detailed description of the MSAs and our relationship with Enviva Management Company, see Item 13. “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related Persons—Management Services Agreements” in this Annual Report.
This CD&A describes key features of our executive compensation program and summarizes the 2020 cash and LTIP compensation and other benefits received by our NEOs. Although we do not make decisions regarding the base salaries paid, or annual cash incentive awards pursuant to the Enviva Management Annual Incentive Compensation Plan (the “AICP”) made, to our NEOs by Enviva Management Company, this CD&A describes each element of compensation for which we are responsible for partially reimbursing Enviva Management Company pursuant to the MSAs. The descriptions of such compensation elements have been provided to us by Enviva Management Company and reflect the philosophy and decisions of Enviva Management Company. Unless otherwise specifically noted, the quantification of these compensation elements within this CD&A and the tables that follow reflect the portion of compensation allocated to us for the 2020 calendar year pursuant to the MSAs.
Highlights
Enviva Management Company’s executive compensation philosophy seeks to tie compensation to our financial and operating performance. Specifically, the executive compensation program includes various performance metrics for NEOs that are closely aligned with financial returns to our unitholders and are designed to result in annual and long-term value creation. The performance goals established in the NEOs’ compensation plans are aggressive, and potential awards are intended to provide them an opportunity to earn above-median rewards in return for achieving such aggressive goals.
Track Record of Strong Performance
Enviva Management Company believes that the combination of the three primary components of our executive compensation program (annual base salary, annual cash incentive under the AICP and long-term equity incentive under the LTIP), coupled with aggressive goal setting and a pay-for-performance culture, has enabled the Partnership to deliver strong historical results and we expect to continue this trend into the future.
In 2020, we achieved our lowest total recordable incident rate (“TRIR”) in the Partnership’s history, and substantially reduced certain process and safety risks while confronting a global health pandemic that required us to make adjustments to our daily operations to ensure we could continue to run our plants and terminals in a safe, stable and reliable manner while maintaining a healthy workforce in the face of a rapidly spreading novel coronavirus. Against the particularly challenging economic and operating backdrop due to COVID-19, we achieved-record distributable cash flow attributable to Enviva Partners, LP (“DCF”) of $141.4 million, an increase of 44% over 2019 DCF of $98.5 million. For the 3-year period ended December 31, 2020, Enviva’s DCF increased at a compound annual growth rate (“CAGR”) of 28%. For the 5-year period ended December 31, 2020, Enviva’s DCF increased at a CAGR of 18%. Enviva’s 2020 total unitholder return (“TSR”) of 31% outperformed the TSR of the Alerian Index of -29% and the TSR of the S&P 500 Index of 18%. For the 3-year period ended December 31, 2020, Enviva’s TSR of 110% outperformed the TSR of the Alerian Index of -33% and the TSR of the S&P 500 of 49%. For the 5-year period ended December 31, 2020, Enviva’s TSR of 278% outperformed the TSR of the Alerian Index of -26% and the TSR of the S&P 500 Index of 103%.
In addition to the directly observable strong financial performance, we also continued to build a fully contracted product sales backlog that now totals $14.6 billion and has a weighted-average remaining term of 12.8 years from February 1, 2021, providing for substantial potential future growth for the Partnership. In 2020, we successfully completed two transformative acquisitions that increased our production capacity by more than 35% and added $5.3 billion to our product sales backlog, all as we continued to maintain our role as a leader in sustainability in pursuit of our mission to displace coal, grow more trees and fight climate change.
Enviva Financial Highlights
| | | | | |
| (1) | | TSR includes unit price appreciation and distributions paid. |
| (2) | | DCF is not a specific financial measure calculated in accordance with GAAP. |
Executive Compensation Elements Support Our Philosophy and Strategy
Enviva Management Company’s executive compensation program is designed to attract, retain, reward and motivate high-performing executive leadership whose talent and expertise enable us to create long-term unitholder value not only on an absolute basis but also relative to our peers.The program consists of three primary components, described below, that contain a substantial portion of at-risk, performance-based compensation, incorporate our financial and operational results and align our NEOs’ interests with those of our unitholders with the ultimate objective of increasing long-term unitholder value.
Key Focus of the Compensation Program
Competitive compensation opportunities
•Providing competitive compensation opportunities is a key factor allowing us to attract and retain the caliber of executives we need to deliver on the aggressive performance goals established under the incentive compensation arrangements in which our executives participate.
•Among other factors, each NEO’s 2020 target total direct compensation was determined with reference to market data reflecting executive pay levels among our peer companies and survey data taken from the broader market.
NEO compensation is designed to drive and reward long-term growth in unitholder value
•All NEOs’ 2020 compensation included a significant equity compensation component under the LTIP.
•50% of each NEO’s equity compensation is earned based on achievement of aggressive DCF growth targets, a key driver of growth in unitholder value over the long-term.
•Unitholder alignment is further supported by robust ownership guidelines that encourage a long-term ownership culture among our NEOs.
•In 2020, equity awards to NEOs were subject to a combination of 3-year and 4-year cliff vesting schedules (as compared to our prior practice of solely utilizing a 3-year schedule). In an effort to further enhance retention and more closely align the LTIP with longer-term unitholder interest, our NEOs were transitioned to awards that had a 4-year cliff vesting schedule and an additional TSR modifier for all LTIP grants beginning in 2021.
Enviva Management Company sets aggressive performance goals
•Aggressive performance goals for incentive-based compensation require exceptional organizational and individual performance, which is the kind of performance we expect from our NEOs.
•Performance at or above these goals should produce aggregate NEO compensation in the top quartile when compared to the competitive market.
•As evidence of the difficulty of meeting our aggressive goals, our NEOs have received, on average, an 89% payout against target compensation under the AICP and LTIP during the last three years even as the Partnership’s TSR significantly outperformed that of the Alerian and S&P 500 Indices.
Committed to best practices
•Significant At-Risk, Variable Compensation: A significant percentage of annual compensation is at-risk, variable and performance-based, such as AICP awards and certain LTIP awards.
•No Guaranteed Bonuses: We do not have in place any annual or multi-year bonus or incentive guarantees for the NEOs.
•No Gross-Ups: No tax gross-ups upon a change in control or with respect to Code Section 409A matters.
•No Individual Supplemental Executive Retirement Plans: There are no executive retirement plans that are different from the ones offered to the broader employee population.
•No Excessive Perquisites: We do not offer excessive perquisites to our NEOs.
•No Hedging or Pledging Units: Our Insider Trading Policy prohibits, among other things, hedging and pledging transactions relating to our units.
•Independent Compensation Consultant: Enviva Management Company has engaged an independent compensation consultant the “Compensation Consultant”) to assist with Enviva Management Company’s and the Compensation Committee’s regular review of our executive compensation program.
2020 NEO Compensation
Compensation Strategy and Philosophy
The aim of Enviva Management Company’s executive compensation program is to retain highly skilled and talented leaders to manage and grow our sponsor’s and the Partnership’s businesses. Furthermore, given that we sit at the forefront of a relatively new and rapidly evolving industry, our success depends in large part on retaining the unique skill sets that our NEOs have developed during their tenure with the Company.
Process for Determining Executive Compensation
As discussed above, Enviva Management Company is responsible for developing and administering the executive compensation program. Enviva Management Company also provides the Compensation Committee with access to the Compensation Consultant and relevant data in order for the Compensation Committee to have a fulsome picture of the NEOs’ compensation levels as compared to peers when it and the Board make final LTIP award decisions.
Role of Compensation Consultant
Enviva Management Company retains an independent compensation consultant to advise on matters related to executive and non-employee director compensation. In 2019 and during part of 2020, Longnecker & Associates (“Longnecker”) was the Compensation Consultant. In August 2020, Enviva Management Company transitioned the consulting engagement to Meridian Compensation Partners, LLC (“Meridian”).
For 2020, the scope of Longnecker’s services included provision of executive compensation benchmarking data used to inform 2020 compensation actions, and the scope of Meridian’s engagement included a review of our peer group and an executive compensation analysis based on an updated peer group. Neither Longnecker nor Meridian have authority to make decisions regarding compensation and serve solely in an advisory role.
Peer Group and Market Data
Neither peer group data nor broader employment market survey data is a prescription for program design or individual pay levels for Enviva Management Company or our Compensation Committee. Peer data, in combination with broader market survey data, provides a reference point for competitive pay rates and program design for our NEOs. Each year, in cooperation with the Compensation Consultant, Enviva Management Company reviews the peer group used for the prior year and determines what modifications, if any, would be appropriate for the upcoming year. Factors considered in selecting peers include operations in related industry sectors, comparable market capitalization and revenues, similarity of business strategy and availability and clarity of publicly filed compensation data. We also consider companies tracked as peers of ours by the investment community, although these companies may or may not ultimately be included in our peer group for presentation herein. For instance, to supplement the executive compensation information derived from our peer group, Enviva Management
Company has also considered, on a limited basis, available compensation data from NextEra Energy Partners, LP (“Nextera”). Although similar to us in business focus and structure, NextEra was not formally identified as a peer company for compensation benchmarking purposes due to the lack of available comprehensive pay data. In the peer group review process, we may also consider the impact of mergers or other corporate-level transactions that have occurred during the past year.
In October 2019, Enviva Management Company reviewed the peer group to be used for 2020 compensation decisions. The Compensation Consultant advised that the peer group used for 2019 compensation decisions was largely still appropriate for comparison purposes and Enviva Management Company made minimal changes to the group. The peer group adopted as a comparison group for 2020 compensation consisted of the following eleven companies:
Peer Group (Approved October 2019)
| | | | | |
| Bloom Energy Corporation | Rayonier Advanced Materials Inc. |
| CatchMark Timber Trust, Inc. | Rayonier Inc. |
| CrossAmerica Partners LP | Summit Midstream Partners, LP |
| Hi-Crush Inc. | SunCoke Energy, Inc. |
| Pattern Energy Group Inc. | USA Compression Partners, LP |
| PotlatchDeltic Corporation | |
In October 2020, Enviva Management Company reviewed the peer group listed above and determined that certain changes to the list would be appropriate for 2021 compensation decisions, including as a result of bankruptcy filings, changes to business models and changes to market capitalization levels within the previous peer group. The revised peer group of fourteen companies, listed below, will provide a reference point for considering the compensation arrangements for our NEOs in 2021.
Peer Group (Approved October 2020)
| | | | | |
| Atlantica Sustainable Infrastructure plc | Ormat Technologies, Inc. |
| CatchMark Timber Trust, Inc. | PotlatchDeltic Corporation |
| Cheniere Energy, Inc. | Rayonier Advanced Materials Inc. |
| Crestwood Equity Partners LP | Rayonier Inc. |
| Delek US Holdings, Inc. | SunCoke Energy, Inc. |
| Green Plains Inc. | TPI Composites, Inc. |
| Hanon Armstrong | USA Compression Partners, LP |
Key Elements of the 2020 Executive Compensation Program
The following discussion provides details regarding the three primary elements of the 2020 compensation program for our NEOs: base salary, AICP awards and LTIP awards. Our NEOs also receive certain customary health, welfare and retirement plan benefits from Enviva Management Company that are briefly described below.
Base Salary
Each NEO’s base salary is a fixed component of annual compensation and is set out in such NEO’s employment agreement with Enviva Management Company. Enviva Management Company makes all final decisions regarding the NEOs’ salaries based on a review of the specific job duties and functions, individual NEO expertise and the relative competitiveness of the NEO’s compensation compared to our peers and to the market survey data. Below are the amounts allocated to the Partnership with respect to 2019 and 2020 NEO annual base salaries, as of December 31 of each such year, to the extent the individual was a “NEO” for that year:
| | | | | | | | | | | | | | |
| Name | | Allocable 2020 Annual Base Salary | | Allocable 2019 Annual Base Salary |
| John K. Keppler | | $ | 182,838 | | | $ | 170,885 | |
| Shai S. Even | | 112,796 | | | 109,614 | |
| Thomas Meth | | 97,097 | | | — | |
| William H. Schmidt, Jr. | | 85,339 | | | — | |
| E. Royal Smith | | 249,389 | | | 238,606 | |
Short-Term Cash Incentive Compensation
Each NEO participated in the AICP with respect to the 2020 calendar year and received a short-term cash incentive award pursuant to the AICP. The AICP amounts paid to each NEO with respect to 2020 that are allocable to us by Enviva Management Company pursuant to the MSAs are disclosed in the Summary Compensation Table under the “Non-Equity Incentive Compensation” column.
Each year the Compensation Committee and Enviva Management Company have discussions regarding the design and the potential values of the AICP awards. However, Enviva Management Company is the sponsor of the AICP and makes all final decisions regarding the performance metrics and target compensation levels associated with each participating employee.
With respect to the 2020 AICP awards, consistent with prior years, Enviva Management Company established an aggregate company bonus pool that is calculated based on performance relative to a single DCF-based financial target. Enviva Management Company generally sets aggressive performance metrics at levels that are designed to be extremely challenging to achieve. Following the determination of the overall AICP bonus pool, individual NEO awards were determined by Enviva Management Company based on individual performance goals linked to certain safety, operating, financial, growth and other targets measured at both the Partnership and our sponsor. The AICP amounts for each NEO allocated to the Partnership are disclosed below:
| | | | | | | | |
| Name | | Allocable Amount of the Actual 2020 AICP Award |
| John K. Keppler | | $ | 343,297 | |
| Shai S. Even | | 170,465 | |
| Thomas Meth | | 109,381 | |
| William H. Schmidt, Jr. | | 107,330 | |
| E. Royal Smith | | 282,403 | |
Apart from the AICP administered by Enviva Management Company, the Partnership’s board of directors has the ability to award, in exceptional circumstances, discretionary bonuses. In 2020, the Partnership awarded certain NEOs transaction-related cash bonuses in recognition of their efforts for us in 2020, including the equity financing activities conducted in June of 2020. The transaction bonuses are subject to a claw-back provision requiring repayment net of taxes in the event of the termination of the NEO’s employment for cause, or in the event that the NEO resigns without good reason, in each case within the three year period following the grant of the bonus. The transaction bonus amounts are disclosed as “Bonuses” in the Summary Compensation Table.
Long-Term Equity Incentive Compensation
The LTIP is intended to promote our long-term success and increase long-term unitholder value by attracting, motivating and aligning the interests of our independent directors, officers and other employees with those of our unitholders. Our LTIP provides for the grant of a variety of awards, but the award that we have determined to most appropriately incentivize and reward our LTIP participants, including the NEOs, is a phantom unit award. See Note 18, Equity-Based Awards. Each NEO received a long-term equity incentive award with respect to the 2020 calendar year under the LTIP in the form of phantom units. The terms of our NEOs’ LTIP awards are determined by our Board following a recommendation from the Compensation Committee.In 2020, in an effort to further enhance retention and more closely align the LTIP with longer-term unitholder interest, we transitioned the vesting schedule for new equity awards made to our NEOs under the LTIP from a 3-year cliff vesting schedule to a 4-year cliff vesting schedule. Beginning in 2021, our NEOs received LTIP awards that were solely on the 4-year vesting schedule.
The 2020 phantom unit grants to our NEOs were divided into 50% time-based phantom units and 50% performance-based phantom units:
•Time-based phantom units vest at the end of a three- or four-year period based on continued service following the grant date.
•Performance-based phantom units vest upon the achievement of specified levels of DCF per common unit over a multi-year period. The performance-based phantom unit awards may vest between 0% and 200% of the target amount granted to each NEO.
Each grant of phantom units includes the right to receive distribution equivalent rights (“DERs”).The DERs associated with performance-based phantom units are paid to the holder in cash within 60 days following the vesting of the associated award (if any) and are forfeited if the underlying award was forfeited for any reason.The DERs associated with the time-based phantom units are paid to the holder of the award within the 60-day period immediately following any cash distribution that we make with respect to our common units.The settlement of the phantom units may be made in cash or in common units, at the discretion of our Compensation Committee.
The target value of LTIP awards that each NEO receives annually is set forth in his employment agreement as a percentage of base salary.Although each NEO’s employment agreement is with Enviva Management Company, our Board (following recommendations from the Compensation Committee) has decision-making authority over the terms and conditions of any LTIP award, such as vesting and forfeiture provisions. In determining the LTIP awards granted to the NEOs on January 29, 2020, our Compensation Committee and the full Board considered the performance of the Partnership as well as individual performance for 2020. The grant date fair value of the phantom units awarded in January 2020 is disclosed in the Summary Compensation Table under the Stock Awards column, based on the percentage of the award allocated to us.
The number of phantom units granted to the NEOs in January 2020 is set forth below:
| | | | | | | | | | | | | | |
| Name | | Number of Time-based Phantom Units Granted in 2020* | | Target Number of Performance-based Phantom Units Granted in 2020* |
| John K. Keppler | | 85,878 | | 85,878 |
| Shai S. Even | | 29,614 | | 29,614 |
| Thomas Meth | | 20,270 | | 20,270 |
| William H. Schmidt, Jr. | | 27,968 | | 27,968 |
| E. Royal Smith | | 18,690 | | 18,690 |
| | | | |
*The time-based phantom units and performance-based phantom units were each further divided evenly between a three-year and a four-year cliff vesting schedule. The potential number of phantom units that could become vested pursuant to the satisfaction of the required performance metrics is set forth below.
Beginning with the 2020 compensation year, the Compensation Committee transitioned the vesting schedule under the LTIP applicable to the NEOs and certain other executives of Enviva Management Company to a 4-year cliff vesting schedule. For 2020, two tranches of LTIP awards were issued: (a) one tranche of time- and performance-based phantom units with a three-year cliff vesting schedule and (b) one tranche of time- and performance-based phantom units with a four-year cliff vesting schedule. The combination of awards was implemented for this single year to ensure that the program could be effectively transitioned from a three-year cliff vesting schedule to a four-year cliff vesting schedule without having any periods in which our NEOs would not have equity compensation that directly aligns them with our unitholders.
For each performance-based phantom unit award granted on January 29, 2020, vesting is contingent upon the achievement of certain levels of per-unit DCF growth over the respective three- or four-year periods. Actual levels of per-unit DCF growth will result in between 0% and 200% of the performance units vesting. The achievement of the 200% “maximum” performance level would require exceptional performance, whereas achievement below the threshold performance level would result in 0% vesting. The table below shows the number of common units that could be paid out upon the achievement of threshold, target or maximum performance levels for each performance-based phantom unit granted under the LITP in 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 3-YEAR PERFORMANCE-BASED PHANTOM UNITS | | 4-YEAR PERFORMANCE-BASED PHANTOM UNITS |
| | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum |
| John K. Keppler | | 21,470 | | 42,939 | | 85,878 | | 21,470 | | 42,939 | | 85,878 |
| Shai S. Even | | 7,404 | | 14,807 | | 29,614 | | 7,404 | | 14,807 | | 29,614 |
| Thomas Meth | | 5,068 | | 10,135 | | 20,270 | | 5,068 | | 10,135 | | 20,270 |
| William H. Schmidt, Jr. | | 6,992 | | 13,984 | | 27,968 | | 6,992 | | 13,984 | | 27,968 |
| E. Royal Smith | | 4,673 | | 9,345 | | 18,690 | | 4,673 | | 9,345 | | 18,690 |
2021 LTIP Awards
In 2021, performance-based phantom units granted to the NEOs under the LTIP will vest solely following a four-year period. Moreover, the Compensation Committee, upon discussion with and review of information provided by the Compensation Consultant, added relative TSR as a new performance metric in addition to DCF-based metrics over such four-year period. The Committee may also exercise its discretion with respect to other factors, such as the Partnership’s performance with respect to environmental, social and governance matters, during the relevant performance period.
Other Benefits
Retirement and Health and Welfare — Enviva Management Company offers the same types of retirement, health and welfare benefits to the NEOs as part of its total executive compensation package as it does to other eligible employees.
Our NEOs currently participate in a 401(k) plan maintained by Enviva Management Company. The 401(k) plan permits all eligible employees, including our NEOs, to make voluntary pre-tax contributions and/or Roth after-tax contributions to the plan. In addition, Enviva Management Company is permitted to make discretionary matching contributions under the plan. All matching contributions made during the first three years of an individual’s employment vest under the plan following the satisfaction of an initial three-year cliff vesting schedule; thereafter, all matching contributions vest immediately. All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted as required by law.
Employment Agreements — As noted above, Enviva Management Company has entered into employment agreements with each of the NEOs, with the most recent amendment and restatement of each agreement occurring in November 2020.Mr. Even’s employment agreement has a three-year initial term beginning in June 2018, and the remaining NEOs’ employment agreements contain one-year terms beginning on the November 2020 amendment date. Each employment agreement provides for automatic renewal for successive 12-month periods following the end of such agreement’s term unless either party provides written notice of non-renewal at least 60 days prior to a renewal date. Under the employment agreements, the NEOs are each entitled to an annualized base salary and are eligible for annual AICP awards and LTIP awards, which have been detailed above. As described below under “—Potential Payments Upon Termination or a Change in Control,” the employment agreements also provide for certain severance payments in the event an NEO’s employment is terminated under certain involuntary circumstances, such as a termination without cause, by an NEO for good reason, or upon the death or disability of an NEO. A portion of payments made as a result of a termination of employment, such as in the event of the acceleration of a NEOs units granted pursuant to the LTIP, may be allocable to us pursuant to the MSAs.
Unit Ownership Requirements
The Partnership maintains a Unit Ownership and Retention Policy (the “Retention Policy”) that is administered by the Compensation Committee and requires the officers of the General Partner who are required to file ownership reports under Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) and certain other officers as designated from time-to-time by our General Partner’s Board or the Compensation Committee to retain at least 50% (and where the individual has not met certain holding requirements by specific timelines, 100%) of common units awarded under the LTIP (net of any common units withheld or sold to cover tax liabilities) until certain ownership requirements are met.The requirements for our NEOs are set forth in the table below: | | | | | | | | |
| Name | | Multiple of Annualized Base Salary |
| CEO | | 5x |
| Other NEO’s | | 3x |
Units that count towards the satisfaction of the officer retention requirement include common units held directly by each NEO, common units owned indirectly by such NEO (e.g., by a spouse or other immediate family member residing in the same
household or a trust for the benefit of such NEO or his or her family) and phantom units granted under the LTIP (excluding phantom units subject to performance-based vesting conditions). As of the date of this filing, each of our NEOs was in compliance with the Retention Policy.
Incentive Compensation Recoupment Policy
The LTIP provides that any award granted pursuant to the plan will be subject to any claw-back or recoupment policies required by law, securities exchange rules or otherwise determined appropriate by our General Partner.In the event that Enviva Management and its affiliates have the ultimate decision‑making authority with respectCompany determines to grant transaction-related or special bonuses to the total compensationNEOs, those awards are generally granted with a built-in claw-back provision.
Anti-Hedging and Anti-Pledging Policy
All of our employees, including our NEOs, and our directors are subject to our Insider Trading Policy, which, among other things, prohibits any covered individual from entering into short sales or hedging or pledging shares of our common units.The anti-hedging policy contained in our Insider Trading Policy specifically prohibits employees, including our NEOs, directors and their designees from purchasing financial instruments or otherwise engaging in transactions that hedge or offset or are designed to hedge or offset any decrease in the market value of our securities (or derivatives thereof), regardless of how the securities (or derivatives thereof) were acquired.
Compensation Risk Assessment
In accordance with the requirements of Item 402(s) of Regulation S-K, to the extent that risks may arise from our compensation policies and practices for our employees that are reasonably likely to have a material adverse effect on us, we are required to discuss our policies and practices for compensating our employees (including our employees that are not NEOs) as they relate to our risk management practices and risk-taking incentives. We have determined that our compensation policies and practices for our employees, including our NEOs, do not encourage excessive risk-taking and are not reasonably likely to have a material adverse effect on us. Our Compensation Committee routinely assesses our compensation policies and practices and takes this consideration into account as part of its review.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on the reviews and discussions referred to in the foregoing sentence, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report.
John C. Bumgarner, Jr.
Ralph Alexander
Jeffrey W. Ubben
SUMMARY COMPENSATION TABLE
The table below sets forth the annual compensation allocated to us for our NEOs for the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018, to the extent the individual was a “named executive
officers and employees.officer” for that year.
The compensation disclosed below with respect to the NEOs reflects only the portion of compensation expense that is allocated to us pursuant to the MSA amongMSAs. The disclosures below relating to compensation and benefits paid directly by Enviva Management Company are based on information provided to us by Enviva Management Company. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary | | Bonus (1) | | Unit
Awards (2) | | Non-Equity Incentive Plan Compensation (1) | | All Other Compensation (3) | | Total |
| John K. Keppler | | 2020 | | $ | 182,838 | | | $ | 600,000 | | | $ | 1,631,253 | | | $ | 343,297 | | | $ | 2,138 | | | $ | 2,759,526 | |
| (Chairman of the Board of Directors, President and Chief Executive Officer) | | 2019 | | 170,885 | | | — | | | 642,712 | | | 271,875 | | | 2,100 | | | 1,087,572 | |
| | 2018 | | 190,248 | | | — | | | 784,014 | | | 204,300 | | | 2,355 | | | 1,180,917 | |
| Shai S. Even | | 2020 | | 112,796 | | | 350,000 | | | 562,518 | | | 170,465 | | | 2,138 | | | 1,197,917 | |
| (Executive Vice President and Chief Financial Officer) | | 2019 | | 109,614 | | | — | | | 273,594 | | | 121,500 | | | 2,100 | | | 506,808 | |
| | 2018 | | 98,780 | | | — | | | 467,487 | | | 105,060 | | | 835 | | | 672,162 | |
| Thomas Meth | | 2020 | | 97,097 | | | 75,000 | | | 385,029 | | | 109,381 | | | 2,138 | | | 668,645 | |
| (Executive Vice President, Sales & Marketing) | | | | | | | | | | | | | | |
| William H. Schmidt, Jr. | | 2020 | | 85,339 | | | 350,000 | | | 425,002 | | | 107,330 | | | 1,710 | | | 969,381 | |
| (Executive Vice President, Corporate Development and General Counsel) | | | | | | | | | | | | | | |
| E. Royal Smith | | 2020 | | 249,389 | | | — | | | 994,046 | | | 282,403 | | | 5,985 | | | 1,531,823 | |
| (Executive Vice President, Operations) | | 2019 | | 238,606 | | | — | | | 522,318 | | | 167,738 | | | 5,880 | | | 934,542 | |
| | 2018 | | 178,480 | | | — | | | 728,566 | | | 160,650 | | | 4,496 | | | 1,072,192 | |
| | | | | | | | | | | | | | |
(1)Amounts in the Non-Equity Incentive Plan Compensation column with respect to 2018 and 2019 represent the annual discretionary cash bonuses for each NEO under the AICP, which was operated in a manner to provide performance-based incentive awards in those years, although the amounts were inadvertently reported in prior years within the “Bonus” column and have now been moved. As further described in the CD&A, the AICP awards for the 2020 year were also deemed to operate as performance-based incentive awards and are reported within the Non-Equity Incentive Plan Compensation column. Amounts in the “Bonus” column with respect to the 2020 year relate to the transaction-based bonuses received by certain NEOs for the 2020 year.
(2)The amounts reflected in this column represent the aggregate grant date fair value of time-based and performance-based phantom units (which include tandem DERs) granted to the NEOs pursuant to the LTIP, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 718, disregarding the estimate of forfeitures. The grant date fair value for time-based phantom unit awards issued in 2020 is based on the closing price of our General Partnercommon units on the date of grant, which was $37.99 per unit for awards granted on January 29, 2020. The grant date fair value of performance-based phantom unit awards is reported based on the probable outcome of the performance conditions on the grant date. See Note 18, Equity-Based Awards, to our consolidated financial statements for additional detail regarding assumptions underlying the value of these awards. If the maximum amount, rather than the probable amount, allocated to us were reported in the table with respect to the performance-based phantom units, the values associated with the performance-based grants would be as follows: Mr. Keppler, $1,631,253; Mr. Even, $562,518, Mr. Meth, $385,029, Mr. Schmidt, $425,002 and Mr. Smith, $994,046.
(3)Amounts reported in the “All Other Compensation” column reflect employer contributions to the NEOs’ accounts under the 401(k) plan in which the NEOs participate.
2020 GRANTS OF PLAN-BASED AWARDS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Possible Payouts Under Equity Incentive Plan Awards (2) | | | | |
| Name | | Grant Date | | Threshold | | Target | | Maximum | | Threshold (Units) | | Target (Units) | | Maximum (Units) | | All Other Equity Awards (3)(Units) | | Grant Date Fair Value (4) |
| John K. Keppler | | | | $ | 135,938 | | | $ | 271,875 | | | $ | 543,750 | | | | | | | | | | | |
| | 1/29/2020 | | | | | | | | 42,939 | | 85,878 | | 171,756 | | | | $ | 815,626 | |
| | 1/29/2020 | | | | | | | | | | | | | | 85,878 | | 815,626 | |
| Shai S. Even | | | | 67,500 | | | 135,000 | | | 270,000 | | | | | | | | | | | |
| | 1/29/2020 | | | | | | | | 14,807 | | 29,614 | | 59,228 | | | | 281,259 | |
| | 1/29/2020 | | | | | | | | | | | | | | 29,614 | | 281,259 | |
| Thomas Meth | | | | 43,313 | | | 86,625 | | | 173,250 | | | | | | | | | | | |
| | 1/29/2020 | | | | | | | | 10,135 | | 20,270 | | 40,540 | | | | 192,514 | |
| | 1/29/2020 | | | | | | | | | | | | | | 20,270 | | 192,514 | |
| William H. Schmidt, Jr. | | | | 42,500 | | | 85,000 | | | 170,000 | | | | | | | | | | | |
| | 1/29/2020 | | | | | | | | 13,984 | | 27,968 | | 55,936 | | | | 212,501 | |
| | 1/29/2020 | | | | | | | | | | | | | | 27,968 | | 212,501 | |
| E. Royal Smith | | | | 111,825 | | | 223,650 | | | 447,300 | | | | | | | | | | | |
| | 1/29/2020 | | | | | | | | 9,345 | | 18,690 | | 37,380 | | | | 497,023 | |
| | 1/29/2020 | | | | | | | | | | | | | | 18,690 | | 497,023 | |
(1)The values within these columns reflect the threshold, target and maximum values of the AICP awards that could be allocable to us for the 2020 year.
(2)These columns reflect the performance-based phantom units granted to our NEOs during the 2020 year. The portion of the award settlement that will be allocated to us will be governed by the MSAs.
(3)This column reflects the time-based phantom units granted to our NEOs during the 2020 year.
(4)As further described in Footnote (2) to the Summary Compensation Table, the values in the “Grant Date Fair Value” column are determined by multiplying (a) the number of phantom units granted (with the probable grant date value for performance-based phantom units to be at target levels) by (b) $37.99, the closing price of our common units on the grant date, by (c) the percentage allocated to us pursuant to the MSAs.
NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE AND GRANTS OF PLAN-BASED AWARDS TABLE
Management Services Agreements
The amounts set forth in the table above reflect only the portion of compensation that is allocable to us pursuant to the MSAs. For a more detailed description of the MSAs and our relationship with Enviva
Management. For more information about the MSA, please read ItemManagement Company, see “Item 13. “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related
Persons—ManagementPersons--Management Services
Agreement.”The disclosures below relatingAgreements” in this Annual Report.
Phantom Unit Awards
We granted time-based and performance-based phantom unit awards to cash compensation paid by Enviva Management are based on information provided to us by Enviva Management. With the exception of the grants made under the LTIP, the elements of compensation discussed below are not subject to approvals by the board of directors of our General Partner or any of its committees.SUMMARY COMPENSATION TABLE
The table below sets forth the annual compensation expensed by us for our Named Executive Officers for the fiscal years ended December 31, 2017 and December 31, 2016. As noted above, the amounts included in the table below reflect only the portion of compensation expense that is allocated to usNEOs pursuant to the MSA.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Unit | | All Other | | | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($)(1) | | Awards(2) | | Compensation(3) | | Total ($) |
John K. Keppler | | 2017 | | $ | 214,000 | | $ | 313,200 | | $ | 534,997 | | $ | 4,889 | | $ | 1,067,086 |
(Chairman of the Board of | | 2016 | | $ | 212,913 | | $ | 433,350 | | $ | 440,998 | | $ | — | | $ | 1,087,261 |
Directors, President and Chief | | | | | | | | | | | | | | | | | |
Executive Officer) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
E. Royal Smith | | 2017 | | $ | 255,000 | | $ | 191,250 | | $ | 382,505 | | $ | 9,925 | | $ | 838,680 |
(Executive Vice President, | | 2016 | | $ | 253,758 | | $ | 261,900 | | $ | 146,881 | | $ | 6,600 | | $ | 669,139 |
Operations) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Stephen F. Reeves | | 2017 | | $ | 193,000 | | $ | 142,500 | | $ | 385,997 | | $ | 5,368 | | $ | 726,865 |
(Executive Vice President and | | 2016 | | $ | 250,075 | | $ | 243,875 | | $ | 376,342 | | $ | 5,168 | | $ | 875,460 |
Chief Financial Officer) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (1)
| | Pursuant to the Enviva Management Annual Incentive Compensation Plan, bonus compensation for fiscal 2017 represents the aggregate amount of the annual discretionary cash bonuses paid to each Named Executive Officer.
|
| (2)
| | The amounts reflected in this column represent the grant date fair value of phantom units (which include tandem distribution equivalent rights (“DERs”)) granted to the NEOs pursuant to the LTIP, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 718. The grant date fair value for time‑based phantom unit awards is based on the closing price of our common units, which was (i) $25.25 per unit for awards granted on February 1, 2017 with respect to the 2017 fiscal year and (ii) $18.19 per unit for awards granted on February 3, 2016 with respect to the 2016 fiscal year. The grant date fair value of performance‑based phantom unit awards is reported based on the probable outcome of the performance conditions on the grant date. The value of the performance‑based phantom unit awards granted in 2017, assuming achievement of the maximum performance level, was (i) $534,997 for Mr. Keppler, (ii) $382,505 for Mr. Smith and (iii) $385,997 for Mr. Reeves. The value of the performance‑based phantom unit awards granted in 2016, assuming achievement of the maximum performance level, was (i) $440,998 for Mr. Keppler, (ii) $146,881 for Mr. Smith and (iii) $376,342 for Mr. Reeves. See Note 16, Equity‑Based Awards, to our consolidated financial statements for additional detail regarding assumptions underlying the value of these awards.
|
| (3)
| | Amounts reported in the “All Other Compensation” column reflect employer contributions to the Named Executive Officers’ accounts under the 401(k) plan in which the Named Executive Officers participate.
|
NARRATIVE DISCLOSURE TO THE SUMMARY COMPENSATION TABLE
Management Services Agreement
Effective April 9, 2015, the executive officerstime-based phantom unit awards will cliff vest following a three-year period, and half will cliff vest following a four-year period, in each case subject to the NEOs continued employment.Half of our General Partner became employed by Enviva Management and split their time between managing our business and the other businesses of our sponsor. The amount of time that each executive officer devotes to our business and the other businesses of our sponsor is determined based on a variety of factors. In April 2015, we and our General Partner entered into the MSA with Enviva Management. For more information about the MSA, please read Item 13. “Certain Relationships and Related Transactions, and Director Independence—Other Transactions with Related Persons—Management Services Agreement.”
Phantom Unit Awards
On February 1, 2017, the board of directors of our General Partner grantedperformance-based phantom units under the LTIP to each of our Named Executive Officers. One‑will cliff vest following a three-year performance period, and half of these awards arewill cliff vest following a four-year period, subject to time‑based vesting conditions (“time‑based phantom units”) and will become vested on the third anniversary of the grant date so long as the applicable Named Executive Officer remains continuously employed by Enviva Management or one of our affiliates from the grant date through the applicable vesting date. The other half of these awards vest based on the achievement of specific performance metrics (“performance‑based phantom units”). Vested phantom units (less any phantom units withheld to satisfy applicable tax withholding obligations) will be settled through the issuancespecified levels of DCF per common units within 60 days followingunit over the applicable vesting date. While a Named Executive Officer holds unvestedperformance period. The performance-based phantom units, he is entitled to receive DER credits equal to the amount of cash distributions paid in respect of a common unit awards may vest between 0% and 200% of the Partnership. The DERs included with performance‑based phantom units are paid in cash within 60 days following the vesting of the associated phantom units (and are forfeited at the same time the associated phantom units are forfeited). The DERs included with time‑based phantom units are paid in cash within 60 days following a cash distribution with respecttarget amount granted to our common units. each NEO.The potential acceleration and forfeiture events relating to these phantom units are described in greater detail under “—Potential Payments Upon Termination or a Change ofin Control” below.
Employment Agreements
Each of our NEOs is a party to an employment agreement with Enviva Management. We refer to these employment agreements herein collectively as the “Employment Agreements.” The Employment Agreements of Messrs. Keppler, Smith and Reeves were each amended and restated as of December 1, 2016, August 19, 2016 and May 29, 2015, respectively. Mr. Keppler’s Employment Agreement has a three‑year initial term, Mr. Reeves’s Employment Agreement has a two‑year initial term and Mr. Smith’s Employment Agreement has a one‑year initial term. Each Employment Agreement’s initial term automatically renews annually for successive 12‑month periods unless either party provides written notice of non‑renewal at least 60 days prior to a renewal date. Under the Employment Agreements, our NEOs are each entitled to an annualized base salary and are eligible for discretionary annual bonuses based on performance targets established annually by the board of directors of the general partner of our sponsor or a committee thereof, in its sole discretion. Mr. Keppler’s, Mr. Reeves’ and Mr. Smith’s Employment Agreements provided that each such annual bonus would have a target value of not less than 150% (in the case of Mr. Keppler), 90% (in the case of Mr. Reeves) or 75% (in the case of Mr. Smith) of the applicable NEO’s annualized base salary. The Employment Agreements also provide that the NEOs will be eligible to receive annual awards based upon our common units under the LTIP. For fiscal year 2016, the Employment Agreements provided that such annual LTIP awards would have target values equal to 210%, 150% and 60% of the annualized base salary of Messrs. Keppler, Reeves and Smith, respectively, as in effect of the first day of the 2016 fiscal year. Pursuant to Mr. Keppler’s amended and restated Employment Agreement, effective for 2017, the target value of Mr. Keppler’s LTIP awards increased from 210% to 250% of his annualized base salary in effect on January 1, 2017. In addition, pursuant to Mr. Smith’s amended and restated Employment Agreement, effective for 2017, the target value of Mr. Smith’s LTIP awards increased from 60% to 100% of his annualized base salary in effect on January 1, 2017. As discussed below under “—Potential Payments Upon Termination or a Change in Control,” the Employment Agreements also provide for certain severance payments in the event an NEO’s employment is terminated under certain circumstances.
OUTSTANDING EQUITY AWARDS AT 20172020 FISCAL YEAR‑END
The following table reflects information regarding outstanding equity‑based awards held by our Named Executive Officers as of December 31,
2017. | | | | | | | | | | | | | | | | | | |
| | Option Awards(1) | | Unit Awards |
| | | | | | | | | | | | | | Equity | | |
| | | | | | | | | | | | | | Incentive | | Equity |
| | Number | | Number of | | | | | | | | | | Plan Awards: | | Incentive |
| | of Securities | | Securities | | | | | | | | | | Number of | | Plan Awards: |
| | Underlying | | Underlying | | | | | | | | | | Unearned | | Market Value |
| | Unexercised | | Unexercised | | | | | | Number of | | Market Value | | Performance- | | of Unearned |
| | Options | | Options | | Option | | Option | | Units That | | of Units That | | based Units | | Units That |
| | Unexercisable | | Exercisable | | Exercise | | Expiration | | Have Not | | Have Not | | That Have | | Have Not |
Name | | (#)(2) | | (#)(3) | | Price ($) | | Date ($) | | Vested(#)(5) | | Vested($)(6) | | Not Vested(#) | | Vested($)(7) |
John K. Keppler | | | | | | | | | | | | | | | | | | |
Class C-1 Units | | — | | 232,941 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Class C-2 Units | | — | | 666,000 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Class E-1 Units | | — | | 275,000 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Phantom Units | | | | | | | | | | 69,544 | | $ | 1,922,892 | | 34,772 | | $ | 961,446 |
E. Royal Smith | | | | | | | | | | | | | | | | | | |
Class C-4 Units | | — | | 175,000 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Class E-1 Units | | — | | 25,000 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Phantom Units | | | | | | | | | | 17,130 | | $ | 487,470 | | 8,815 | | $ | 243,735 |
Stephen F. Reeves | | | | | | | | | | | | | | | | | | |
Class C-2 Units | | — | | 200,000 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Class E-1 Units | | — | | 225,000 | | N/A | (4) | N/A | (4) | | | | | | | | | |
Phantom Units | | | | | | | | | | 41,256 | | $ | 1,140,728 | | 20,628 | | $ | 570,364 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unit Awards |
| Name | | Number of Units That Have Not Vested (1) | | Market Value of Units That Have Not Vested (2) | | Equity Incentive Plan Awards: Number of Unearned Units That Have Not Vested (3) | | Equity Incentive Plan Awards: Market Value of Unearned Units That Have Not Vested (2) |
| John K. Keppler | | | | | | | | |
| Phantom Units | | 234,438 | | | $ | 10,648,174 | | | 122,570 | | | $ | 5,567,129 | |
| | | | | | | | |
| Shai S. Even | | | | | | | | |
| Phantom Units | | 86,331 | | | $ | 3,921,154 | | | 47,757 | | | $ | 2,169,123 | |
| | | | | | | | |
| Thomas Meth | | | | | | | | |
| Phantom Units | | 82,805 | | | $ | 3,761,003 | | | 32,704 | | | $ | 1,485,416 | |
| | | | | | | | |
| William H. Schmidt, Jr. | | | | | | | | |
| Phantom Units | | 101,509 | | | $ | 4,610,539 | | | 43,337 | | | $ | 1,968,367 | |
| | | | | | | | |
| E. Royal Smith | | | | | | | | |
| Phantom Units | | 74,615 | | | $ | 3,389,013 | | | 29,964 | | | $ | 1,360,965 | |
| | | | | | | | |
(1)The amounts in this column reflect outstanding time-based phantom unit awards, which vest as set forth in the table that follows, so long as the applicable NEO remains continuously employed by Enviva Management Company or one of our affiliates from the grant date through each vesting date. This table also reflects the number of units that were initially granted as performance-based awards, but for which the performance period ended on December 31, 2020, at which time they became time-based phantom units until the date the Compensation Committee certified performance and
settled the awards in the 2021 year. See the section below titled “—Potential Payments Upon Termination or Change in Control” for a description of potential acceleration and forfeiture provisions.
(2)The amounts reflected in this column represent the market value of the common units underlying the phantom unit awards granted to the Named Executive Officers and set forth in the preceding column, computed based on the closing price of our common units on December 31, 2020, which was $45.42 per unit. The portion of the award settlement that will be allocated to us will be governed by the MSAs.
(3)The amounts in this column reflect the target number of common units issuable upon settlement of outstanding performance-based phantom unit awards granted in 2019 and 2020, which vest on the dates set forth above based on achievement of performance metrics with respect to the three-year period ending on December 31, 2021 and 2022, and the four-year period ending on December 31, 2023, respectively, so long as the applicable Named Executive Officer remains continuously employed by Enviva Management Company or one of our affiliates from the grant date through the end of each performance period. See the section below titled “—Potential Payments Upon Termination or Change in Control” for a description of potential acceleration and forfeiture provisions.
| (1)
| | The equity awards that are disclosed in this Outstanding Equity Awards at 2017 Fiscal Year‑End table under Option Awards are incentive units in Enviva Holdings, LP (“Holdings”) that are intended
| | | | | | | | | | | |
| Name | | Vesting Date | | Number of Phantom Units to constitute profits interests for federal tax purposes rather than traditional option awards.Vest |
| John K. Keppler | | January 27, 2021 | | 53,142 |
| | January 31, 2021 | | 30,367 |
| | June 4, 2021 | | 16,502 |
| | January 30, 2022 | | 48,549 |
| | January 29, 2023 | | 42,939 |
| | January 29, 2024 | | 42,939 |
| | | | |
| Shai S. Even | | January 27, 2021 | | 24,547 |
| | June 4, 2021 | | 14,027 |
| | January 30, 2022 | | 18,143 |
| | January 29, 2023 | | 14,807 |
| | January 29, 2024 | | 14,807 |
| | | | |
| Thomas Meth | | January 27, 2021 | | 17,906 |
| | January 31, 2021 | | 10,232 |
| | June 4, 2021 | | 16,502 |
| | January 30, 2022 | | 17,895 |
| | January 29, 2023 | | 10,135 |
| | January 29, 2024 | | 10,135 |
| | | | |
| William H. Schmidt, Jr. | | January 27, 2021 | | 22,663 |
| | January 31, 2021 | | 12,950 |
| | June 4, 2021 | | 16,502 |
| | January 30, 2022 | | 21,426 |
| | January 29, 2023 | | 13,984 |
| | January 29, 2024 | | 13,984 |
| | | | |
| E. Royal Smith | | January 27, 2021 | | 16,517 |
| | January 31, 2021 | | 9,438 |
| | June 4, 2021 | | 16,502 |
| | January 30, 2022 | | 13,468 |
| | January 29, 2023 | | 9,345 |
| | January 29, 2024 | | 9,345 |
| | | | |
| (2)
| | Awards reflected as “Unexercisable” are Holdings incentive units that have not yet become vested.
|
UNITS VESTED IN 2020 | (3)
| | Awards reflected as “Exercisable” are Holdings incentive units that have become vested, but have not yet been settled.
|
The following table provides information on the vesting of phantom units held by the NEOs in 2020. None of the NEOs held stock options in 2020. The value realized from the vesting of phantom unit awards is equal to the closing price of our common units on the vesting date or the performance certification date for performance awards, as applicable, multiplied by | (4)
| | These equity awards are not traditional options and, therefore, there is no exercise price or expiration date associated with them.
|
| (5)
| | The phantom units subject to time‑based vesting conditions will vest on (i) February 1, 2020 with respect to awards granted in 2017 (ii) February 3, 2019 with respect to awards granted in 2016 and (iii) May 4, 2018 with respect to awards granted in 2015, each so long as the applicable Named Executive Officer remains continuously employed by Enviva Management or one of our affiliates from the grant date through such vesting date.
|
| (6)
| | The amounts reflected in this column represent the market value of our common units underlying the phantom unit awards granted to the Named Executive Officers, computed based on the closing price of our common units on December 29, 2017, which was $27.65 per unit.
|
the number of shares acquired. The value is calculated before payment of any applicable withholding or other income taxes. The portion of the award settlement that will be allocated to us will be governed by the MSAs. | (7)
| | The values reported in this column are calculated by multiplying the market value of our common units on December 29, 2017 ($27.65) by the number of common units that would be earned if the threshold (rather than target) performance targets were met for those awards. The actual payout values may increase or decrease based upon the value of our common units and the settlement requirements set forth in the award agreements.
|
| | | | | | | | | | | | | | |
| Name | | Number of Units Acquired Upon Vesting | | Value Realized Upon Vesting |
| John K. Keppler | | 42,517 | | | $ | 1,618,399 | |
| Shai S. Even | | — | | | — | |
| Thomas Meth | | 18,079 | | | 688,173 | |
| William H. Schmidt, Jr. | | 22,919 | | | 872,406 | |
| E. Royal Smith | | 14,305 | | | 544,516 | |
ADDITIONAL NARRATIVE DISCLOSURE
Retirement Benefits
PENSION BENEFITS AND NON-QUALIFIED DEFERRED COMPENSATION
We have not maintained, and do not currently maintain, a defined benefit pension plan or a nonqualified deferred compensation plan providing for retirement benefits. Our Named Executive OfficersNEOs currently participate in a
401(k) plan maintained by Enviva Management.Management Company. The 401(k) plan permits all eligible employees, including the Named Executive Officers,NEOs, to make voluntary pre‑tax contributions and/or Roth after‑tax contributions to the plan. In addition, Enviva Management Company is permitted to make discretionary matching contributions under the plan. MatchingAll matching contributions made during the first three years of an individual’s employment vest under the plan are subject to afollowing the satisfaction of an initial three‑year cliff vesting schedule.schedule; thereafter, all matching contributions vest immediately. All contributions under the plan are subject to certain annual dollar limitations, which are periodically adjusted for changes in the costas required by law.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Each of living.Potential Payments Upon Termination or a Change in Control
our NEOs maintains an employment agreement with Enviva Management Company.
Under the Employment Agreements,employment agreements, if the applicable NEO’s employment is terminated without “cause,” by the applicable NEO for “good reason” or due to the applicable NEO’s death or “disability,” (each term as defined within the employment agreements) then so long as the applicable NEO (or, in the event of his death, his estate) executes (and does not revoke within the time provided to do so) a release in a form satisfactory to Enviva Management Company within the time period specified in the Employment Agreements,such NEO’s employment agreement, such NEO will receive the following severance benefits: (i) in the case of Mr. Keppler, a severance payment (generally payable in installments) in an aggregate amount equal to 1.5 (or, if such termination occurs within 12 months following a “change in control,” 2.0) times the sum of his annualized based salary and target annual bonus as in effect on the date of such termination; (ii) in the case of Messrs. Reeves and Smith, a severance payment (generally payable in installments) in an aggregate amount equal to the sum of his annualized based salary and target annual bonus as in effect on the date of such termination; (iii) full vesting of outstanding awards under ourthe LTIP (which vesting for awards that include a performance requirement (other than continued service) will be based on (1)(i) actual performance if such termination occurs within the six‑monthsix-month period preceding to the expiration of the performance period or (2)(ii) target performance if such termination occurs at any other time during the performance period); and (iv) monthly reimbursement for. In addition, the amount the NEO pays for continuation coverage under the employer’s group health plans for up to 12 months following such termination (or, in the case of Mr. Keppler, up to 18 months following such termination, plus Mr. KepplerNEOs would be entitled to an additionaleligible for cash payment equal to six times his monthly premium for such coverage inseverance benefits based on a predetermined severance factor multiplied by the event his employment terminates within 12 months following a change in control and he has not obtained coverage under a group health plan sponsored by another employer within the time period specified in his Employment Agreement).Under the Employment Agreements, “cause” means the applicable NEO’s: (i) material breach of any policy established by Enviva Management or its affiliates that pertains to drug and/or alcohol abuse (or health and safety in the case of Mr. Keppler) and is applicable to the NEO; (ii) engaging in acts of disloyalty to the employer or its affiliates, including fraud, embezzlement, theft, commission of a felony, or proven dishonesty; or (iii) willful misconduct in the performance of, or willful failure to perform a material function of, the NEO’s duties under the Employment Agreement. In addition, “good reason,” for purposes of the Employment Agreements, means, without the applicable NEO’s consent and subject to certain notice and cure periods, (w) the material diminution in such NEO’s authority, duties, title or responsibilities, (x) the material diminution in such NEO’sNEOs annualized base salary minimumand target annual bonus opportunity or target annual long‑term incentive award, (y)amount. The NEOs would also be eligible for reimbursement from Enviva Management Company for the relocationcontinuation coverage of the geographic location of such NEO’s principal place ofapplicable group health plans.
The employment
by more than 100 miles from the location of his principal place of employment as of the effective date of the Employment Agreement or (z) the employer’s delivery of a written notice of non‑renewal of the Employment Agreement. “Disability” is defined for purposes of the Employment Agreements as existing if the applicable NEO is unable to perform the essential functions of his position, with reasonable accommodation, due to an illness or physical or mental impairment or other incapacity that continues for a period in excess of 90 days, whether consecutive or not, in any period of 365 consecutive days. The determination of a disability will be made by the employer after obtaining an opinion from a doctor selected by the employer. A “change in control” is defined in Mr. Keppler’s Employment Agreement as (1) the sale or disposal by Holdings of all or substantially all of its assets to any person other than an affiliate of Holdings, (2) the merger or consolidation of Holdings with or into another entity (other than a merger or consolidation in which unitholders in Holdings immediately prior to such transaction retain a greater than 50% equity interest in the surviving entity), (3) the failure of the Riverstone Funds and its affiliates to possess the power to direct the management and policies of Holdings, or (4) (A) the sale of all or substantially all of our assets to any person other than one of our affiliates, (B) our merger or consolidation with or into another entity (other than a merger or consolidation in which our unitholders immediately prior to such transaction retain a greater than 50% equity interest in the surviving entity), or (C) the failure of the Riverstone Funds and its affiliates to possess the power to direct our management and policies.The Employment Agreementsagreements also contain certain restrictive covenants pursuant to which our NEOs have recognized an obligation to comply with, among other things, certain confidentiality covenants as well as covenants not
to compete in a defined market area with Enviva Management Company (or any of its affiliates to which they have provided services or about which they have obtained confidential information) or solicit their employer’s or its affiliates’ employees, in each case, during the term of the agreement and for a period of one year thereafter.
Director Compensation
Officers or employees
Our estimated calculations of the LTIP award acceleration values that would be allocated to us pursuant to the MSAs in the event that the NEOs experienced an eligible employment termination event as of December 31, 2020 are as follows: Mr. Keppler, $3,795,216; Mr. Even, $1,403,115; Mr. Meth, $1,224,467; Mr. Schmidt, $1,227,548 and Mr. Smith, $3,099,788. The estimated payments are not necessarily indicative of the actual amounts such executive would have received in such circumstances, as such amounts could not be known with certainty until the applicable event occurs. Such LTIP acceleration values use the closing price of our predecessor or our sponsor or its affiliates who also serve ascommon units on December 31, 2020, which was $45.42 per unit.
DIRECTOR COMPENSATION
For the year ended December 31, 2020, directors of our General Partner, do not receive additional compensation for such service. Directors of our General Partner who are not also officers or employees of our predecessor or our sponsor or its affiliates (“independent directors”) receiveother than Mr. Keppler, received compensation for their serviceservices on our General Partner’s board of directors and committees thereof consisting of of:
•an annual retainer of $75,000, $85,000,
•an additional annual retainer of $20,000 for services as the chair of the audit committee,
•an additional annual retainer of $17,500 for service as the chair of the compensation committee,
•an additional annual retainer of $15,000 for service as the chair of any standingthe health, safety, sustainability and environmental committee (the “HSSE committee”),
•payment of $2,000 each time such director attended a board meeting,
•payment of $1,750 each time such director attended an additional audit committee meeting, and
•payment of $1,500 each time such independent director attends a boardattended any meeting of the compensation committee or committee meeting, and one or more awards under the LTIP relating to our common units that, inHSSE committee.
Additionally, for the aggregate, result in approximately $100,000 of annual compensation (based on the value of our common units on the date of grant of such awards). As compensation for service on the Conflicts Committee, established by the board ofyear ended December 31, 2020, directors of our General Partner, to evaluateother than Mr. Keppler and directors who are also officers or employees of Riverstone Holdings LLC or its affiliates (excluding the Wilmington Drop‑Down, each Conflicts Committee Director was paidGeneral Partner, the Partnership and its subsidiaries) (the “Sponsor Directors”), received an annual grant under the LTIP with a feegrant date fair value of $1,500 per meeting of the Conflicts Committee and Mr. Bumgarner, as Chairman was paid a flat fee of $25,000, which fee was in addition to the per meeting fee payable to the Chairman. approximately $115,000.
Until the earlier of (i) four years after a director other than Mr. Keppler, Mr. Lansing and the Sponsor Directors (such director, an independent director“independent director”) is appointed to the board of directors of our General Partner or (ii) the date on which such independent director first holds an amount of our common units with an aggregate value equal to at least $250,000, one‑halfone-half of all annual retainers and payments for attending board or committee meetings are paid to such independent director in the form of common units pursuant to the LTIP and the remainder areis paid in cash. Each non‑employeeof our independent directors has met the above conditions and 100% of their annual retainers and payments for attending board or committee meetings were paid in cash.Each director is reimbursed for out‑of‑pocketout-of-pocket expenses incurred in connection with attending board and committee meetings. Eachmeetings and each director will be fully indemnified by us for actions associated with serving as a director to the fullest extent permitted under Delaware law. Prior to 2019, the Sponsor Directors did not receive compensation under our director compensation program. Compensation of the Sponsor Directors and Mr. Lansing for their service on the Board is paid directly to Riverstone/Carlyle Management LP. With respect to Mr. Ubben, his cash compensation is paid directly to Inclusive Capital Partners, L.P.
The following table provides information concerning the compensation of our
non-employee directors,
other than Mr. Keppler (whose compensation has been reported within the Summary Compensation Table), for the fiscal year ended December 31,
2017. | | | | | | | | | | | | |
| | Fees Earned | | Common | | Phantom | | |
| | or Paid in | | Unit | | Unit | | |
Name | | Cash ($)(1) | | Awards ($)(2) | | Awards ($)(3) | | Total ($) |
John C. Bumgarner, Jr. | | $ | 191,000 | | $ | — | | $ | 99,990 | | $ | 290,990 |
William K. Reilly | | $ | 76,500 | | $ | 22,618 | | $ | 99,990 | | $ | 199,108 |
Gary L. Whitlock | | $ | 60,000 | | $ | 56,009 | | $ | 99,990 | | $ | 215,999 |
Janet S. Wong | | $ | 119,250 | | $ | 17,259 | | $ | 99,990 | | $ | 236,499 |
| | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned
in Cash | | Unit
Awards (1) | | Total |
| John C. Bumgarner, Jr. | | $ | 195,650 | | | $ | 123,800 | | | $ | 319,450 | |
| William K. Reilly | | 122,500 | | | 123,800 | | | 246,300 | |
| Jeffrey W. Ubben (2) | | 80,250 | | | 119,428 | | | 199,678 | |
| Gary L. Whitlock | | 128,650 | | | 123,800 | | | 252,450 | |
| Janet S. Wong | | 148,650 | | | 123,800 | | | 272,450 | |
| Ralph Alexander (3) | | 117,000 | | | — | | | 117,000 | |
| Jim H. Derryberry (3) | | 103,000 | | | — | | | 103,000 | |
| Robin J. A. Duggan (3)(4) | | 78,750 | | | — | | | 78,750 | |
| Christopher B. Hunt (3) | | 103,000 | | | — | | | 103,000 | |
| Carl L. Williams (3)(5) | | 122,500 | | | — | | | 122,500 | |
| Gerrit (“Gerrity”) L. Lansing, Jr. (3)(6) | | 28,750 | | | — | | | 28,750 | |
____________________________________________ | (1)
| | Includes annual cash retainer fee and committee chair fees for each independent director during fiscal 2016, as more fully explained above.
|
| (2)
| | Reflects the aggregate grant date fair value of common units granted to the independent directors pursuant to the LTIP, as part of the compensation paid to independent directors who do not hold common units with an aggregate value equal to at least $250,000.
|
| (3)
| | Reflects the aggregate grant date fair value of phantom units (which include tandem DERs) granted to the independent directors pursuant to the LTIP, computed in accordance with FASB ASC Topic 718. See Note 16, Equity‑Based Awards, to our consolidated financial statements on Form 10‑K for the year ended December 31, 2017 for additional detail regarding assumptions underlying the value of these equity awards. The grant date fair value for the phantom unit awards is based on the closing price of our common units on the grant date of February 1, 2017, which was $25.25 per unit. Each independent director’s phantom unit awards vest in full on February 1, 2018, in each case, so long as the director continues to serve on the board of directors of our General Partner through such date.
|
(1)Amounts included in this column reflect the aggregate grant date fair value of phantom units (which include tandem DERs) granted to the independent directors, computed in accordance with FASB ASC Topic 718, disregarding the estimate of forfeitures, in each case pursuant to the LTIP. See Note 18, Equity-Based Awards, for additional detail regarding assumptions underlying the value of these equity awards. The grant date fair value for the phantom unit awards, except for those of Mr. Ubben, is based on the closing price of our common units on the grant date of January 29, 2020, which was $37.99 per unit. Such phantom unit awards vested in full on January 29, 2021. The grant date fair value for Mr. Ubben’s phantom unit awards is based on the closing price of our common units on the grant date of August 5, 2020, which was $40.00 per unit. Such phantom unit awards will vest in full on August 5, 2022. As of December 31, 2020, each then-current independent director held 3,028 unvested phantom units in the aggregate, other
than Mr. Ubben, who held 2,875 unvested phantom units. Our directors that are not independent do not receive LTIP awards, therefore they do not hold outstanding awards as of December 31, 2020.
(2)Mr. Ubben was appointed to the Board on June 18, 2020. His cash compensation was paid to directly to Inclusive Capital Partners, L.P., although he received his LTIP grant directly.
(3)Compensation of the Sponsor Directors and Mr. Lansing for their service on the Board is paid directly to Riverstone/Carlyle Management LP.
(4)Mr. Duggan resigned from the Board on October 18, 2020.
(5)Mr. Williams resigned from the Board on February 5, 2021.
(6)Mr. Lansing was appointed to the Board on October 18, 2020.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the beneficial ownership of common units
and subordinated units of Enviva Partners, LP as of February
16, 201815, 2021 held by:
| ·
| | beneficial owners of 5% or more of our common units;
|
| ·
| | each director and named executive officer; and
|
•beneficial owners of 5% or more of our common units; | ·
| | all of our directors and executive officers as a group.
|
•each director and NEO; and•all of our directors and executive officers as a group.
Unless otherwise noted, the address for each beneficial owner listed below is 7200 Wisconsin Ave., Suite 1000, Bethesda, MD 20814.
| | | | | | | | | | | |
| | | | | | | | | | Percentage of | |
| | | | | | | | Percentage of | | Common and | |
| | | | Percentage of | | Subordinated | | Subordinated | | Subordinated | |
| | Common Units | | Common Units | | Units | | Units | | Units | |
| | Beneficially | | Beneficially | | Beneficially | | Beneficially | | Beneficially | |
Name of Beneficial Owner | | Owned(1) | | Owned | | Owned | | Owned | | Owned | |
Enviva Holdings, LP(2)(3)(4) | | 1,265,453 | | 8.8 | % | 11,905,138 | | 100 | % | 50.0 | % |
Enviva Partners GP, LLC | | — | | — | % | — | | — | | — | % |
Goldman Sachs Asset Management(5) | | 905,988 | | 6.3 | % | — | | — | | 3.4 | % |
ClearBridge Investments, LLC(6) | | 665,000 | | 4.6 | % | — | | — | | 2.5 | % |
FS Global Credit Opportunities Fund(7) | | 656,974 | | 4.6 | % | — | | — | | 2.5 | % |
John K. Keppler | | 24,558 | | * | | — | | — | | * | % |
Stephen F. Reeves | | 12,492 | | * | | — | | — | | * | % |
E. Royal Smith | | 4,205 | | * | | — | | — | | * | % |
Ralph Alexander | | — | | — | % | — | | — | | — | % |
John C. Bumgarner, Jr.(8) | | 179,023 | | 1.2 | % | — | | — | | * | % |
Robin J. A. Duggan | | — | | — | % | — | | — | | — | % |
Michael B. Hoffman | | — | | — | % | — | | — | | — | % |
Christopher B. Hunt | | — | | — | % | — | | — | | — | % |
William K. Reilly | | 23,598 | | * | | — | | — | | * | % |
Gary L. Whitlock | | 11,903 | | * | | — | | — | | * | % |
Carl L. Williams | | — | | — | % | — | | — | | — | % |
Janet S. Wong | | 20,727 | | * | | — | | — | | * | % |
All directors and executive officers as a group (16 persons) | | 306,124 | | 2.1 | % | — | | — | | 1.2 | % |
| | | | | | | | | | | | | | |
| Name of Beneficial Owner | | Common Units
Beneficially
Owned(1) | | Percentage of
Common Units
Beneficially
Owned |
| Enviva Holdings, LP(2)(3)(4) | | 13,586,375 | | | 33.95 | % |
| Enviva Partners GP, LLC | | — | | | — | % |
| Inclusive Capital Partners, L.P.(5) | | 4,834,867 | | | 12.08 | % |
| John K. Keppler | | 119,952 | | | * |
| Thomas Meth | | 49,142 | | | * |
| William H. Schmidt, Jr. | | 49,098 | | | * |
| E. Royal Smith | | 29,091 | | | * |
| Shai S. Even | | 12,583 | | | * |
| Ralph Alexander | | — | | | — | |
| John C. Bumgarner, Jr.(6) | | 188,858 | | | * |
| Jim H. Derryberry | | — | | | — | |
| Christopher B. Hunt | | — | | | — | |
| Gerrit (“Gerrity”) L. Lansing, Jr. | | — | | | * |
| William K. Reilly | | 34,786 | | | * |
| Jeffrey W. Ubben(5) | | 4,834,867 | | | 12.08 | % |
| Gary L. Whitlock | | 23,538 | | | * |
| Janet S. Wong | | 30,562 | | | * |
| All directors and executive officers as a group (16 persons) | | 5,380,303 | | | 13.44 % |
____________________________________________* Less than 1% of common units outstanding.
| (1)
| | This column does not include phantom units granted to our directors and officers pursuant to the LTIP.
|
| (2)
| | Of this aggregate amount beneficially owned, (i) Enviva Development Holdings, LLC, a wholly owned subsidiary of Enviva Holdings, LP, has shared voting power over 860,315 common units and shared dispositive power over 860,315 common units, (ii) Enviva Holdings, LP has shared voting power over 1,265,453 common units and shared dispositive power over 1,265,453 common units, (iii) Enviva Holdings GP, LLC has shared voting power over 1,265,453 common units and shared dispositive power over 1,265,453 common units, (iv) R/C Wood Pellet Investment Partnership, L.P. has shared voting power over 1,265,453 common units and shared dispositive power over 1,265,453 common units, (v) Riverstone/Carlyle Renewable Energy Partners II, L.P. has shared voting power over 1,265,453 common units and shared dispositive power over 1,265,453 units and (vi) R/C Renewable Energy GP II, L.L.C. has shared voting power over 1,265,453 common units and shared dispositive power over 1,265,453 common units.
|
(2)Effective July 22, 2020, R/C Wood Pellet Investment Partnership, L.P. transferred its interest in Enviva Holdings GP, LLC (“Holdings GP”) to Riverstone Enviva Holdings GP, LLC (“Riverstone Enviva Holdings”). As a result, Riverstone Enviva Holdings became the sole member of Holdings GP, which is the general partner of Enviva Holdings, LP (“Enviva Holdings”), which is the sole member of each of the Common Unit Holders (as defined below).
(3)David M. Leuschen and Pierre F. Lapeyre Jr. are the managing directors of Riverstone Management Group, L.L.C. (“Riverstone Management”), and have or share voting and investment discretion with respect to the securities beneficially owned by Riverstone Management, which is the general partner of Riverstone/Gower Mgmt Co Holdings, L.P., which is the sole member of Riverstone Holdings LLC, which is the sole member of Riverstone Echo GP, LLC, which is the general partner of Riverstone Echo Partners, L.P., which is the sole member of each of Riverstone ECF GP, LLC (“ECF GP”) and Riverstone Echo Rollover GP, LLC (“Echo Rollover GP”). ECF GP is the general partner of Riverstone Echo Continuation Holdings, L.P. (“Echo Continuation Holdings”). Echo Rollover GP is the general partner of Riverstone Echo Rollover Holdings, L.P. (“Echo Rollover Holdings”). Riverstone Enviva Holdings is managed by its members, Echo Continuation Holdings and Echo Rollover Holdings.
| (3)
| | R/C Renewable Energy GP II, L.L.C is the general partner of Riverstone/Carlyle Renewable Energy Partners II, L.P., which is the general partner of R/C Wood Pellet Investment Partnership, L.P., which is the sole member of Enviva Holdings GP, LLC, which is the general partner of Enviva Holdings, LP, which is the sole member of Enviva MLP Holdco, LLC and Enviva Cottondale Acquisition I, LLC. R/C Renewable Energy GP II, L.L.C. is managed by a six‑person investment committee. Pierre F. Lapeyre, Jr., David M. Leuschen, Ralph Alexander, Michael B. Hoffman, Daniel A. D’Aniello and Edward J. Mathias are the members of the investment committee of R/C Renewable Energy GP II, L.L.C.
|
(4)Riverstone Enviva Holdings is the sole member of Holdings GP, which is the general partner of Enviva Holdings, which is the sole member of each of (i) Enviva MLP Holdco, which is the record holder of 7,578,921 Common Units and a 100% limited liability company interest in the general partner, and (ii) Enviva Cottondale, which owns a 100% limited liability company in Enviva Collateral PledgeCo, LLC (together with Enviva MLP Holdco, the “Common Unit Holders”) which is the record holder of 6,007,454 common units. | (4)
| | The address for each of R/C Renewable Energy GP II, L.L.C., Riverstone/Carlyle Renewable Energy Partners II, L.P. and R/C Wood Pellet Investment Partnership, L.P. is c/o Riverstone Holdings, LLC, 712 Fifth Avenue, 36th Floor, New York, New York 10019.
|
(5)As reported in a Schedule 13D filed with the SEC on August 4, 2020, Inclusive Capital Partners, L.P. (“In-Cap”) and Inclusive Capital Partners Spring Fund Manager, L.L.C. (“In-Cap Spring Fund Manager”), have been granted investment and voting discretion over the common units held by Inclusive Capital Partners Spring Master Fund, L.P. (f/k/a ValueAct Spring Master Fund, L.P.), a British Virgin Islands limited partnership (“In-Cap Spring Master Fund”). In-Cap acts as investment manager to In-Cap Spring Master Fund. The managing member of In-Cap Spring Fund Manager is Inclusive Capital Partners Holdco, L.P., a Delaware limited partnership (“In-Cap Holdco”). In-Cap is the general partner of In-Cap Holdco. Inclusive Capital Partners, L.L.C., a Delaware limited liability company (“In-Cap LLC”), is the general partner of In-Cap. Mr. Ubben is the controlling member of the management committee of In-Cap LLC.The address of the business office of In-Cap, In-Cap Spring Fund Manager,In-Cap Spring Master Fund, In-Cap Holdco, In-Cap LLC and Mr. Ubben is 572 Ruger Street, Suite B, San Francisco, CA 94129. | (5)
| | As reported on Schedule 13G/A as of December 31, 2017 and filed with the SEC on January 24, 2018 by GS Investment Strategies, LLC and Goldman Sachs Asset Management, L.P. (collectively, “Goldman Sachs Asset Management”), Goldman Sachs Asset Management discloses that it beneficially owns in the aggregate 905,988 common units. Of this aggregate amount beneficially owned, (i) GS Investment Strategies, LLC is reported to have shared voting power over 905,988 common units and shared dispositive power over 905,988 common units and (ii) Goldman Sachs Asset Management, L.P. is reported to have shared voting power over 905,988 common units and shared dispositive power over 905,988 common units. The address of Goldman Sachs Asset Management is 200 West Street, New York, NY 10282.
|
(6)Of these 188,858 common units, 165,928 are held by the Bumgarner Family Trust. Mr. Bumgarner has investment control over these units. | (6)
| | As reported on Schedule 13G /A as of December 31, 2017 and filed with the SEC on February 14, 2017 by ClearBridge Investments, LLC, ClearBridge Investments, LLC discloses that it beneficially owns in the aggregate 665,000 common units. Of this aggregate amount beneficially owned, ClearBridge Investments, LLC is reported to have sole voting power over 665,000 common units and sole dispositive power over 665,000 common units. The address of ClearBridge Investments, LLC is 620 8th Avenue, New York, NY 10018.
|
| (7)
| | As reported on Schedule 13G as of December 31, 2017 and filed with the SEC on January 13, 2017 by (i) FS Global Credit Opportunities Fund, (ii) FS Global Advisor, LLC, which serves as the investment adviser to FS Global Credit Opportunities Fund, (iii) Michael C. Forman, who is a control person of FS Global Advisor, LLC and (iv) David J. Adelman, who is a control person of FS Global Advisor, LLC (collectively, the “FS Global Reporting Persons”), the FS Global Reporting Persons disclose that they beneficially own in the aggregate 656,974 common units. Of this aggregate amount beneficially owned, (i) FS Global Credit Opportunities Fund is reported to have shared voting power over 656,974 common units and shared dispositive power over 656,974 common units; (ii) FS Global Advisor, LLC is reported to have shared voting power over 656,974 common units and shared dispositive power over 656,974 common units; (iii) Michael C. Forman is reported to have shared voting power over 656,974 common units and shared dispositive power over 656,974 common units; and (iv) David J. Adelman is reported to have shared voting power over 656,974 common units and shared dispositive power over 656,974 common units. The address of the FS Global Reporting Persons is 201 Rouse Boulevard, Philadelphia, PA 19112.
|
| (8)
| | These 170,632 common units are held by the Bumgarner Family Trust. Mr. Bumgarner has investment control over these units.
|
Equity Compensation Plan Information
The following table sets forth information with respect to the securities that may be issued under the Enviva Partners, LP Long-Term Incentive Plan (the “LTIP”) as of December 31, 2020.
| | | | | | | | | | | | | | | | | | | | |
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(2) | | Weighted- average exercise price of outstanding options, warrants and rights ($) (b)(3) | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(4) |
| Equity compensation plans approved by security holders(1) | | 1,815,827 | | | n/a | | 124,436 | |
| Equity compensation plans not approved by security holders(2) | | — | | | — | | | — | |
| Total | | 1,815,827 | | | n/a | | 124,436 | |
(1)The LTIP was approved by the board of directors of our General Partner prior to the IPO.
(2)The LTIP was amended in January 2020 and January 2021 to increase the number of common units that may be issued thereunder. The amendments to the LTIP did not require shareholder approval under the rules of the NYSE.
(3)The amount in column (a) of this table reflects (i) the aggregate number of common units issuable upon settlement of outstanding time-based phantom units and (ii) the aggregate number of common units issuable upon settlement of outstanding performance-based phantom units assuming a 100% performance factor pursuant to the LTIP as of December 31, 2017. | | | | | | |
| | | | | | Number of |
| | | | | | securities |
| | | | | | remaining |
| | | | | | available for |
| | Number of | | | | future issuance |
| | securities to be | | Weighted- | | under equity |
| | issued upon | | average exercise | | compensation |
| | exercise of | | price of | | plans (excluding |
| | outstanding | | outstanding | | securities |
| | options, warrants | | options, warrants | | reflected in |
| | and rights | | and rights ($) | | column (a)) |
Plan category | | (a)(2) | | (b)(3) | | (c)(4) |
Equity compensation plans approved by security holders(1) | | 1,091,947 | | n/a | | 2,738,182 |
Equity compensation plans not approved by security holders | | — | | — | | — |
Total | | 1,091,947 | | n/a | | 2,738,182 |
(4)This column is not applicable because only phantom units have been granted under the LTIP and phantom units do not have an exercise price. | (1)
| | The LTIP was approved by the board of directors of our General Partner prior to the IPO.
|
(5)The amount in this column reflects the total number of common units remaining available for future issuance under the LTIP as of December 31, 2020. For additional information about the LTIP and the awards granted thereunder, please read Part III, Item 11. “Executive Compensation.” | (2)
| | The amount in column (a) of this table reflects the aggregate number of outstanding phantom units under the LTIP as of December 31, 2017.
|
| (3)
| | This column is not applicable because only phantom units have been granted under the LTIP and phantom units do not have an exercise price.
|
| (4)
| | The amount in this column reflects the total number of common units remaining available for future issuance under the LTIP as of December 31, 2017. For additional information about the LTIP and the awards granted thereunder, please read Part III, Item 11. “Executive Compensation.”
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
As of February
16, 2018,15, 2021, our sponsor owned
1,265,45313,586,375 common units
and 11,905,138 subordinated units representing
approximately 50%an approximate 34% limited partner interest in
us.us and owns all our incentive distribution rights. In addition, our sponsor owns and controls (and appoints all the directors of) our General Partner, which maintains a
non‑economicnon-economic general partner interest in
us and owns all our incentive distribution rights.us.
The terms of the transactions and agreements disclosed in this section were determined by and among affiliated entities and, consequently, are not the result of
arm’s‑lengtharm’s-length negotiations. These terms are not necessarily at least as favorable to the parties to these transactions and agreements as the terms that could have been obtained from unaffiliated third parties.
Distributions and Payments to Our General Partner and Its Affiliates
We generally make 100% of our cash distributions to our unitholders, including affiliates of our General Partner. In addition, if distributions exceed the minimum quarterly distribution and other higher target distribution levels, our
General Partner,sponsor, or the holder of our incentive distribution rights, will be entitled to increasing percentages of the distributions, up to 50.0% of the distributions above the highest target distribution level.
Assuming we have sufficient cash available for distribution to pay the full minimum quarterly distribution on all of our outstanding common units
and subordinated units for four quarters, our General Partner and its affiliates would receive
antotal annual
distributiondistributions of approximately
$21.9$22.4 million on their
common units.
Our General Partner does not receive a management fee or other compensation for its management of our partnership, but we reimburse our General Partner and its affiliates for all direct and indirect expenses they incur and payments they make on our behalf. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. Under our MSA,management services agreements (“MSAs”) with Enviva Management Company, LLC, a Delaware limited liability company and wholly owned subsidiary of our sponsor (together with its affiliates that provide services to us, as applicable, “Enviva Management Company”), we are obligated to reimburse Enviva Management Company for all direct or indirect costs and expenses incurred by, or chargeable to, Enviva Management Company in connection with its provision of services necessary for the operation of our business. If the MSAMSAs were terminated without replacement, or our General Partner or its affiliates provided services outside of the scope of the MSA,MSAs, our partnership agreement would require us to reimburse our General Partner and its affiliates for all expenses they incur and payments they make on our behalf. Our partnership agreement does not set a limit on the amount of expenses for which our General Partner and its affiliates may be reimbursed.
If our General Partner withdraws or is removed, its
non‑economicnon-economic general partner interest
and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests.
If we are ever liquidated, the partners, including our General Partner, will be entitled to receive liquidating distributions according to their respective capital account balances.
Agreements with Affiliates
Sampson
Greenwood Contribution Agreement
and Off-Take Contracts Assignment
On
December 14, 2016, we consummated the transactions contemplated by a contribution agreement (the “Sampson Contribution Agreement”) with the First Hancock JV, which is a joint venture between our sponsor, Hancock Natural Resource Group, Inc., and certain other affiliates of John Hancock Life Insurance Company (U.S.A.). Under the terms of the Contribution Agreement,July 1, 2020, we acquired from
the First Hancock JVour sponsor all of the
issued and outstanding limited liability company interests in Enviva Pellets
Sampson,Greenwood Holdings II, LLC (“
Sampson”) for total consideration of $175.0 million. Sampson owns a wood pellet production plant in Sampson Country, North Carolina (the “Sampson plant”Greenwood Holdings II”),
that is expected to produce 500,000 MTPYthe indirect owner of
wood pellets in 2017 and to reach its full production capacity of approximately 600,000 MTPY in 2019. The acquisition (the “Sampson Drop‑Down”) included the Sampson plant, a ten‑year 420,000 MTPY take‑or‑pay off‑take contract, a 15‑year, 95,000 MTPY off‑take contract with the First Hancock JV, and related third‑party shipping contracts. The Sampson Drop‑Down included the payment of $139.6 million in cash, net of a purchase price adjustment of $5.4 million, to the First Hancock JV, the issuance of 1,098,415 common units at a value of $27.31, or an aggregate value of $30.0 million, to affiliates of John Hancock Life Insurance Company (U.S.A.).We also entered into the Terminal Services Agreement by and between Enviva LP and Wilmington pursuant to which Wilmington agreed to provide terminal services at the Wilmington terminal for production from the Sampson plant.
Wilmington Contribution Agreement
On October 2, 2017, pursuant to the terms of a contribution agreement with the First Hancock JV (the “Wilmington Contribution Agreement”), we acquired from the First Hancock JV all of the issued and outstanding limited liability company interests in Enviva Port of Wilmington,Pellets Greenwood, LLC, (“Wilmington”Greenwood”) for a purchase price of $130.0 million. The purchase price included an initial payment of $54.6 million, net of an approximate purchase price adjustment of $1.4 million. The acquisition (the “Wilmington Drop-Down”) included the Wilmington terminal and a long-term terminal services agreement with the Partnership’s sponsor to handle throughput volumes sourced by the sponsor fromwhich owns a wood pellet production plant in Greenwood, South Carolina.Carolina (the “Greenwood plant”), for a purchase price of $132.0 million, subject to certain adjustments (such transaction, the “Greenwood Drop-Down”). On July 1, 2020, we paid cash consideration of $129.7 million, net of an initial purchase price adjustment of $2.3 million. Greenwood Holdings II’s liabilities included a $40.0 million, third-party promissory note bearing interest at 2.5% per year that we assumed from our sponsor at closing. We also assumed a railcar lease agreement related to the operation of the Greenwood plant from our sponsor.
On the date of the Greenwood Drop-Down, our sponsor assigned five biomass off-take contracts to us (collectively, the “Associated Off-Take Contracts”). The terminalAssociated Off-Take Contracts call for aggregate annual deliveries of 1.4 million metric tons per year (“MTPY”) and mature between 2031 and 2041. Our sponsor also assigned to us fixed-rate shipping contracts with aggregate annual shipping volume of 1.4 million MTPY.
Payments to Riverstone for Affiliated Director Services
Beginning in 2019, we paid Riverstone/Carlyle Management LP, an affiliate of our sponsor, compensation for the services
agreement withof the
Partnership’s sponsor provides for deficiency payments to Wilmington if quarterly minimum throughput requirements are not met. The Wilmington terminal will handle up to approximately 600,000 MTPYofficers or employees of
throughput fromRiverstone Holdings LLC or its affiliates who serve as directors on the
Partnership’s production plant in Sampson County, North Carolina.In addition, the Wilmington Contribution Agreement contemplates that Wilmington will enter into a long-term terminal services agreement (the “Wilmington Hamlet TSA”) with the First Hancock JV and Enviva Pellets Hamlet, LLC (“Hamlet”) to receive, store and load wood pellets from the First Hancock JV’s proposed production plant in
board of directors of our
Hamlet, North Carolina (the “Hamlet plant”) whenGeneral Partner, as well as for Mr. Lansing. During the First Hancock JV completes construction of the Hamlet plant. The Wilmington Hamlet TSA also provides for deficiency payments to Wilmington if minimum throughput requirements are not met. Pursuant to the Wilmington Contribution Agreement, following notice of the anticipated first delivery of wood pellets to the Wilmington terminal from the Hamlet plant, Wilmington, Hamlet, and the First Hancock JV will enter into the Wilmington Hamlet TSA and we will make a final payment of $74.0 million in cash or common units representing limited partner interests in the Partnership to the First Hancock JV, subject to certain conditions, as deferred consideration for the Wilmington Drop-Down.
Wilmington also entered into a throughput option agreement with the our sponsor granting the sponsor, subject to certain conditions, the option to obtain terminal services at the Wilmington terminal at marginal cost throughput rates for wood pellets produced by one of our sponsor’s potential wood pellet production plants.
Related-Party Indemnification
In connection with the Sampson Drop-Down, the First Hancock JV agreed to indemnify us, our affiliates, and our respective officers, directors, managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims (“Retained Matters”)year ended December 31, 2020, total compensation expense related to the construction of the Sampson plant that were included in the net assets contributed.
In connection with the Wilmington Drop-Down, the First Hancock JV agreed to indemnify us, our affiliates, and our respective officers, directors managers, counsel, agents and representatives from all costs and losses arising from certain vendor liabilities and claims related to the construction of the Port of Wilmington that were included in the net assets contributed.
Sampson Construction Payments
Pursuant to three payment agreements with the First Hancock JV dated effective as of July 27, 2017, September 30, 2017, and December 31, 2017 (together, the “Payment Agreements”), the First Hancock JV agreed to pay an aggregate amount of $1.4 million in consideration for costs incurred by us to repair or replace certain equipment at the Sampson plant following the consummation of the Sampson Drop-Down.
Terminal Services Agreements
In connection with the Wilmington Drop-Down, Wilmington and the sponsor entered into a terminal services agreement dated October 2, 2017 providing for wood pellet receipt, storage, handling and loading services by the Wilmington terminal on behalf of the sponsor (the “Holdings TSA”). Pursuant to the Holdings TSA, which remains in effect until September 1, 2026, the sponsor agreed to deliver a minimum of 125,000 MT per quarter and pay a fixed fee on a per-ton basis for the terminal services.
The Holdings TSA was amended and assigned to Enviva Pellets Greenwood, LLC, a wholly owned subsidiary of Enviva JV Development Company, LLC, a joint venture between our sponsor, Hancock Natural Resource Group, Inc. and certain other affiliates of John Hancock Life Insurance Company (U.S.A.) (“Second Hancock JV”).
EVA‑MGT$0.6 million.
In January 2016 we entered into a contract with the
First HancockHamlet JV to supply 375,000 MTPY of wood pellets (the “EVA‑MGT Contract”) to MGT Teesside Limited’s
(“MGT”) Tees Renewable Energy Plant (the “Tees REP”), which is under development.
In exchange for a fee, the Partnership amended the EVA-MGT Contract to delay delivery of volumes originally scheduled for 2019 until 2020 and cancel volumes originally scheduled for 2020. The
EVA‑MGT Contract commencesEVA-MGT contract commenced in
2019,2020, ramps to full supply in 2021 and continues through 2034. The EVA-MGT Contract is denominated in U.S. Dollars for
commissioning volumesone shipment in
20192020 and in British Pound Sterling (“GBP”)
thereafter.for all other shipments. On January 22, 2016, the Partnership entered into a Contingent Novation Agreement relating to the Tees REP with the Hamlet JV and MGT pursuant to which, in the event MGT terminates the MGT Contract or we notify MGT that we wish to terminate the EVA-MGT Contract, MGT may become a party to the EVA-MGT Contract in lieu of the Hamlet JV, subject to the terms thereof.
We entered into a second supply agreement
(the “Second Supply Agreement”) with the
First HancockHamlet JV in connection with the
acquisition of Enviva Pellets Sampson,
Drop‑DownLLC to supply an additional 95,000 MTPY of the contracted volume to the Tees REP.
In connection with the Hamlet Drop-Down, on March 20, 2019 we amended the Second Supply Agreement, whereby option volumes excisable by the Hamlet JV in 2019 were added for the Hamlet JV to meet its delivery obligations under its long-term, take-or-pay off-take contract with MGT (the “MGT Contract”) existing as of the date thereof. In exchange for a fee, we further amended the Second Supply Agreement on November 22, 2019 to cancel certain volumes originally scheduled for 2020. The
contract, whichSecondary Supply Agreement is denominated in GBP, commences in
20192021 and continues through
2034.2034.On August 10, 2016, the Hamlet JV entered into a Fuel Supply Direct Agreement related to the MGT Contract together with our sponsor, John Hancock, MGT and Lloyds Bank PLC, acting as security trustee, pursuant to which, among other things, (1) MGT, as borrower, granted security for the payment of certain liabilities under its financing documents and, on a second-ranking basis, payments to the Hamlet JV under the MGT Contract and certain related documents, and (2) the Hamlet JV, our sponsor and John Hancock consented to MGT granting such security interests and agreed to notify the security trustee of any material default under the MGT Contract or certain other related documents, in all cases subject to the terms thereof. Registration Rights Agreement
On April 9, 2015, we entered into a master biomass purchase and sale agreement with the Hamlet JV. In connection with the IPO,Hamlet Drop-Down, on March 20, 2019 we entered into a new confirmation (the “Confirmation”) thereunder pursuant to which we agreed to purchase all wood pellets produced by the Hamlet plant from commencement of operations through December 31, 2019 and all wood pellets produced by the Hamlet plant but not sold to MGT from January 1, 2020 through June 30, 2020. Additionally, during 2020 we entered into two amendments with the Hamlet JV, pursuant to which we extended the term of the Confirmation and agreed to purchase approximately 60,000 MT produced by the Hamlet plant from July 1, 2020 through August 15, 2020 and all wood pellets produced by the Hamlet plant but not sold to MGT from August 16, 2020 through December 31, 2020. During the year ended December 31, 2020, total wood pellet purchases were $67.0 million.
Registration Rights Agreement - Sponsor
In connection with our initial public offering (“IPO”) on May 4, 2015, we entered into a registration rights agreement with our sponsor pursuant to which we may be required to register the sale of the
(i) common units issued (or issuable) to our
sponsor pursuant to the IPO Contribution Agreement, (ii) subordinated units and (iii) common units issuable upon conversion of the subordinated units pursuant to the terms of the partnership agreement (together, the “Registrable Securities”) it holds.sponsor. Under the registration rights agreement, our sponsor will have
the right to request that we register the sale of Registrable Securities held by it, and our sponsor will have the right to require us to make available shelfpiggyback registration
statements permitting sales of Registrable Securities into the market from time to time over an extended period,rights, subject to certain limitations.
In addition, the registration rights agreement gives our sponsor piggyback registration rights under certain circumstances. The registration rights agreement also includes provisions dealing with indemnification and contribution and allocation of expenses. All
of the Registrable Securitiescommon units held by our sponsor
andor any permitted transferee will be entitled to these registration rights.
In accordance with the registration rights agreement, we registered all of our sponsor’s common units for resale, subject to certain limitations, pursuant to our effective registration statement on Form S-3, filed with the SEC on June 21, 2019.
Purchase Rights Agreement
In connection with the IPO, on May 4, 2015, we
We entered into a the Purchase Rights Agreementpurchase rights agreement with our sponsor pursuant to which our sponsor willagreed to provide to us for a period of five years following the closing of our IPO,with a right of first offer to purchase any wood pellet production plant or deep‑water marine terminal that it, its subsidiaries or any other entity that it controls, (including the Hancock JVs) owns and proposes to sell (each, a “ROFO Asset”). for a five-year period. Pursuant to an amendment, the term of the purchase rights agreement was extended to May 2021 and will automatically renew on an annual basis unless either party provides notice of termination within 60 days prior to the end of the then-current term.
We will have thirty days following receipt of thenotice of our sponsor entity’s intention to sell a ROFO Asset to propose an offer for the ROFO Asset. If we submit an offer, our sponsor will negotiate with us exclusively and in good faith to enter into a
letter of intent or definitive documentation for the purchase of the ROFO Asset on mutually acceptable terms. If we are unable to agree to terms within 45 days,
theour sponsor entity will have 150 days to enter into definitive documentation with a third party purchaser on terms that are, in the good faith judgment of
theour sponsor entity selling such ROFO Assets, superior to the most recent offer proposed by us.
Biomass Purchase Agreement – Hancock JV
On September 7, 2016, Sampson entered into a confirmation under the Biomass Purchase Agreement pursuant to which Sampson agreed to sell to the sponsor 60,000 MT of wood pellets through August 31, 2017. On June 23, 2017, the sponsor satisfied its take-or-pay obligation under the agreement.
Biomass Option Agreement – Enviva Holdings, LP
On February 3, 2017, we entered into a master biomass purchase and sale agreement and a confirmation thereunder, which confirmation was amended on April 1, 2017, each with the sponsor (together, the “Option Contract”), pursuant to which we have the option to purchase certain volumes of wood pellets from the sponsor, from time to time at a price per metric ton determined by reference to a market index. The sponsor has a corresponding right to re-purchase volumes purchased by us pursuant to the Option Contract at a price per metric ton determined by reference to such market index at then-prevailing rates in the event that we purchase more than 45,000 MT of wood pellets pursuant to the Option Contract.
Management Services
AgreementOnAgreements and Fee Waivers
EVA MSA
In April
9, 2015, all of our employees and
members of management became employed by Enviva Management
Company, and we and our General Partner entered into the
MSA with Enviva Management, pursuant to which Enviva Management provides us with all services necessary for the operation of our business.EVA MSA. The
EVA MSA has a term of five years, which is automatically renewed unless terminated by us for cause. Enviva Management
Company is also able to terminate the agreement if we fail to reimburse it for its costs and expenses allocable to us.
Pursuant to the
EVA MSA, we reimburse Enviva Management
Company for all direct or indirect costs and expenses incurred by, or chargeable to, Enviva Management
Company in connection with the provision of the services, including
without limitation, salary and benefits of employees engaged in providing such services, as well as office rent, expenses and other overhead costs of Enviva
Management.Management Company. Enviva Management
Company determines the amount of costs and expenses that is allocable to us.
In connection with the Hamlet Drop-Down, we and Enviva Management Company entered into an agreement pursuant to which an aggregate of approximately $13.0 million in fees that otherwise would be owed by us under the EVA MSA will be waived during the period from the closing of the Hamlet Drop-Down through the second quarter of 2020. The agreement expired pursuant to its terms on June 30, 2020.
In June 2019, we entered into an additional agreement with Enviva Management Company (the “Second EVA MSA Fee Waiver”) pursuant to which we received a $5.0 million waiver of fees under the EVA MSA through September 30, 2019 as consideration for an assignment of two shipping contracts to our sponsor to rebalance our and our sponsor’s respective shipping obligations under existing off-take contracts. During the year ended December 31, 2019, $5.0 million of fees expensed under the EVA MSA were waived and recorded as an increase to partners’ capital pursuant to the Second EVA MSA Fee Waiver.In connection with the Greenwood Drop-Down, we and Enviva Management Company entered into an agreement pursuant to which (1) an aggregate of approximately $37.0 million in management services and other fees that otherwise would be owed by us under our management services agreement with Enviva Management Company will be waived with respect to the period from the closing of the Greenwood Drop-Down through the fourth quarter of 2021 and (2) Enviva Management Company will continue to waive certain management services and other fees during 2022 unless and until the Greenwood plant’s production volumes equal or exceed 50,000 MT in any calendar month, in each case, to provide cash flow support to us during the planned expansion of the Greenwood plant. During the year ended December 31, 2020, $18.0 million of MSA fees were waived, of which $9.9 million was included in cost of goods sold and $8.1 million was included in related-party management services fees in general and administrative expenses.
Hamlet JV MSA
Pursuant to a management services agreement between the Hamlet JV and Enviva Management Company (the “Hamlet JV MSA”), Enviva Management Company provides the Hamlet JV with operations, general administrative, management and other services. As compensation for Enviva Management Company’s services under the Hamlet JV MSA, the Company pays an annual management fee to Enviva Management Company. The Hamlet JV will reimburse Enviva Management Company for all reasonable and necessary costs and expenses (other than general and administrative costs) incurred by, or chargeable to, Enviva Management Company.
Make-Whole Agreements
Greenwood
On the date of the Greenwood Drop-Down, we entered into a make-whole agreement with our sponsor, pursuant to which our sponsor agreed to reimburse us for any construction costs incurred for the planned expansion of the Greenwood plant in excess of $28.0 million. No amounts have been reimbursed as of December 31, 2020.
Hamlet JV
In connection with the Hamlet Drop-Down, on April 2, 2019 we entered into a make-whole agreement with our sponsor, pursuant to which (1) our sponsor agreed to guarantee certain cash flows from the Hamlet plant until June 30, 2020, (2) our
sponsor agreed to reimburse us for construction cost overruns in excess of budgeted capital expenditures for the Hamlet plant, subject to certain exceptions, (3) we agreed to pay to our sponsor quarterly incentive payments for any wood pellets produced by the Hamlet plant in excess of forecast production levels through June 30, 2020 and (4) our sponsor agreed to retain liability for certain claims payable, if any, by the Hamlet JV. The make-whole agreement expired pursuant to its terms on June 30, 2020. No amounts were reimbursed during the year ended December 31, 2020.
Interim Services Agreement and Guaranty
In connection with the Hamlet Drop-Down, on April 2, 2019 we entered into an interim services agreement (the “ISA”) with Enviva Hamlet Operator, LLC, a wholly owned subsidiary of our sponsor (“Hamlet Operator”) pursuant to which Hamlet Operator, as an independent contractor, agreed to manage, operate, maintain and repair the Hamlet plant and provide other services to the Hamlet JV for the period from July 1, 2019 through June 30, 2020 in exchange for a fixed fee per metric ton of wood pellets produced by the Hamlet plant during such period and delivered at place to the Wilmington terminal. Under and during the term of the ISA, Hamlet Operator agreed to (1) pay all operating and maintenance expenses at the Hamlet plant, (2) cover all reimbursable general and administrative expenses associated with the Hamlet plant and (3) pay certain other costs and expenses incurred by the Hamlet plant. Our sponsor guarantees all obligations of Hamlet Operator under the ISA. The ISA expired pursuant to its terms on June 30, 2020. During the year ended December 31, 2020, we recognized $27.9 million of expense related to the ISA.
Pursuant to the ISA, the Hamlet JV MSA was suspended during the term of the ISA, and Enviva Management Company waived the management fees payable to Enviva Management Company under the Hamlet JV MSA with respect to such period, which was approximately $2.7 million.
Hamlet JV Revolver
In connection with the Hamlet Drop-Down, on April 2, 2019, our sponsor assigned to us all of its rights and obligations under the amended and restated credit agreement, dated as of June 30, 2018, between the Hamlet JV, as borrower, and our sponsor, as lender. On April 2, 2019, we amended and restated the credit agreement to extend the maturity date of the revolving loans made to the Hamlet JV and increase our commitment as the lender to fund increases in the amount of such loans from $30.0 million to $60.0 million in order to fund capital expenditures and working capital at the Hamlet plant. As of December 31, 2020, the outstanding balance of the Hamlet JV Revolver was $52.2 million due from the Hamlet JV, which was eliminated upon consolidation.
Hamlet JV LLC Agreement
On December 29, 2016, our sponsor and John Hancock entered into the Fourth Amended and Restated Limited Liability Company Agreement of the Hamlet JV (the “Hamlet JV LLCA”). Following the Hamlet Drop-Down and pursuant to the Hamlet JV LLCA, we are the managing member of the Hamlet JV and have the authority to manage the business and affairs of the Hamlet JV and take actions on its behalf, including adopting annual budgets, entering into agreements, effecting asset sales or biomass purchase agreements, making capital calls, incurring debt and taking other actions, subject to John Hancock’s consent in certain circumstances. The Hamlet JV LLCA also sets forth the capital commitments and limitations thereon for each of the members and provides for the allocation of sale proceeds and distributions among the holders of outstanding Class A Units and Class B Units. For more information on capital commitments, please see Item 8—Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, (17)—Partners’ Capital—Hamlet JV.
Replacement Pledge Agreement
In connection with the Hamlet Drop-Down, on April 2, 2019 we entered into a pledge agreement in favor of John Hancock pursuant to which, among other things, we pledged our Class B Units in the Hamlet JV to John Hancock in replacement of a corresponding pledge previously made to John Hancock by our sponsor as support for a guaranty previously provided to John Hancock.
Guarantee Fee Agreement
On December 28, 2017, the Hamlet JV entered into a guarantee fee agreement (the “Guarantee Fee Agreement”) with our sponsor pursuant to which our sponsor agreed to guarantee certain obligations of the Hamlet JV under certain equipment leases and shipping contracts related to its business in exchange for certain fees.
Sponsor Indemnification Agreement
In connection with the Hamlet Drop-Down, on April 2, 2019 we entered into an agreement (the “Sponsor Indemnification Agreement”) with our sponsor pursuant to which we agreed to indemnify our sponsor for any amounts owed under the
Guarantee Fee Agreement and our sponsor agreed to pay to us any fees it receives from the Hamlet JV for providing guarantees under the Guarantee Fee Agreement. Pursuant to the Sponsor Indemnification Agreement, the Partnership also agreed to indemnify our sponsor with respect to its obligations under certain guarantee and indemnity agreements with John Hancock related to the Hamlet JV.
Management Services Fee Adjustment Agreement
On March 20, 2019, our sponsor entered into a management services fee adjustment agreement pursuant to which our sponsor agreed to make payments to us in respect of any amounts payable by the Hamlet JV pursuant to the Hamlet JV MSA in excess of the fixed-priced amounts for services established in the ISA. The agreement terminated on April 2, 2019 in accordance with its terms. No payments were made thereunder.
Equipment Transfers
In April 2020, Enviva Pellets Northampton, LLC sold certain equipment to our sponsor for approximately $4.1 million.
Other Transactions with Related Persons
We purchase raw materials from Enviva FiberCo, LLC (“FiberCo”), a wholly owned subsidiary of our sponsor.
On July 1, 2019, we entered into an agreement with FiberCo pursuant to which FiberCo agreed to build specified levels of stumpage inventory and we agreed to purchase such inventory during the sponsor. first and second quarter of 2020 at a fixed-price premium to the then-prevailing market price. Pursuant to such agreement, FiberCo was required to pay us fixed shortfall payments in the event that actual inventory levels fall below the specified levels as of specified dates.
Raw material purchasesmaterials purchased during the year ended December 31, 2020 were $7.5 million. No cost of cover deficiency fees were recognized as of December 31, 2020. As of December 31, 2020, $0.3 million is included in related-party payables related to raw materials purchased from FiberCo duringFiberCo.
Greenwood Contract
In December 2017,
we entered into a master off-take contract with our sponsor (the “Sponsor Off-take Master Agreement”). In February 2018, we entered into a confirmation governed by the Sponsor Off-take Master Agreement with Greenwood. We amended such confirmation in March 2018, July 2019 and
2016 were $8.5 millionJanuary 2020. Under the amended confirmation, we agreed to purchase the wood pellets produced by the Greenwood plant through March 2022 and
$3.7 million, respectively.have a take-or-pay obligation with respect to 550,000 MTPY of wood pellets (prorated for partial contract years) beginning in 2021 and subject to Greenwood’s option to increase or decrease the volume by 10% each contract year.
The Sponsor Off-Take Master Agreement was terminated on July 1, 2020 in connection with the Greenwood Drop-Down. As of December 31, 2020, the net purchased amount under the Greenwood contract was of $18.1 million.
Netting Agreement
We entered into an agreement with our sponsor effective as of September 30, 2019 (the “Netting Agreement”) pursuant to which we agreed to set off related-party accounts receivable and accounts payable; consequently, we intend to set off related-party receivables and payables, which are reflected net in related-party receivables and payables, as applicable, in accordance with the Netting Agreement.
Procedures for Review, Approval and Ratification of Transactions with Related Persons
In connection with the closing of our IPO, the board of directors of our General Partner adopted policies for the review, approval and ratification of transactions with related persons. The board adopted a written Code of Business Conduct and Ethics under which a director is
expectedrequired to bring to the attention of
the chief executive officer or the board any conflict or potential conflict of interest that may arise between the director or any affiliate of the director, on the one hand, and us or our General Partner on the other. The resolution of any such conflict or potential conflict should, at the discretion of the board in light of the circumstances, be determined by a majority of the disinterested directors.
Under the provisions of our Code of Business Conduct and Ethics, any executive officer will be required to avoid conflicts of interest unless approved by the board of directors of our General Partner.
The Code of Business Conduct and Ethics described above was adopted in connection with the closing of our IPO and, as a result, the transactions described above that were entered into prior to or in connection with the IPO were not reviewed according to such procedures.
The board has also adopted a Conflicts of Interest Policy, under which if a conflict or potential conflict of interest arises between our General Partner or its affiliates, on the one hand, and us or our unitholders, on the other hand, the resolution of any such conflict or potential conflict should be addressed by the board of directors of our General Partner in accordance with the provisions of our partnership agreement. At the discretion of the board in light of the circumstances, the resolution may be determined by the board in its entirety or by a conflicts committee meeting the definitional requirements for such a committee under our partnership agreement.
The Conflicts of Interest Policy also provides that the board may determine on our behalf thatapprove certain contracts (“Affiliated Contracts”) between us, on the one hand, and the General Partner and any of its affiliates, on the other hand, are fair and reasonable and in our best interests, so long as the board reasonably determines that such contracts are on terms and conditions(in the aggregate) not less favorable to us than could be obtained on an arm’s‑length basis from an unrelated third party, taking into account the totality of the relationships between all partiescircumstances involved. Transactions described above
The Conflicts of Interest Policy also provides that
were enteredeither of the Chief Executive Officer or the Chief Financial Officer (each, an “Approving Officer”) of our General Partner have the authority, without prior board approval but subject to board review, to approve certain Affiliated Contracts involving asset transfers, services related to the production, storage, terminaling or transportation of biomass, or leases in order to promote the proper functioning of our day-to-day business affairs so long as the applicable Approving Officer and the General Counsel of our General Partner determine, after reasonable inquiry, that such Affiliated Contracts are on terms (in the aggregate) not less favorable to us than could be obtained on an arm’s‑length basis from an unrelated third party, taking into
prior to or in connection withaccount the
IPO were not reviewed according to such procedures.totality of the circumstances involved.
See Part III, Item 10. “Directors,“Directors, Executive Officers and Corporate Governance”Governance” for information regarding the directors of our General Partner and independence requirements applicable to the board of directors of our General Partner and its committees.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
KPMG
Ernst & Young LLP (“KPMG”EY”) served as our independent auditor forauditors during the years ended December 31, 2017, 20162020 and 2015.2019, respectively. The following table presents fees paid for professional audit services rendered by KPMGof our annual consolidated financial statements and for the audit of our
annual financial statementsother services for the years ended December 31, 2017, 20162020 and 2015,2019.
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | | 2020 | | 2019 |
Audit fees(1) | | $ | 2,218 | | | $ | 1,439 | |
Audit related fees(2) | | 860 | | | 10 | |
All other fees(3) | | 10 | | | 11 | |
| Total | | $ | 3,088 | | | $ | 1,460 | |
____________________________________________(1)Fees for financial statement audit and feesreview services customary under generally accepted auditing standards or for otherthe purpose of rendering an opinion or review on the financial statements related to the fiscal year then ended.
(2)Fees for assurance and related services renderedtraditionally performed by KPMG: | | | | | | | | | |
| | Year Ended December 31, |
(in thousands) | | 2017 | | 2016 | | 2015 |
Audit Fees(1) | | $ | 1,902 | | $ | 1,205 | | $ | 1,040 |
Audit-Related Fees | | | — | | | — | | | — |
Tax Fees | | | — | | | — | | | — |
All Other Fees | | | — | | | — | | | — |
Total | | $ | 1,902 | | $ | 1,205 | | $ | 1,040 |
(3)Fees for use of the EY global accounting and financial reporting research tool. | (1)
| | Fees for audit services related to the fiscal year consolidated audit, quarterly reviews, registration statements and services that were provided in connection with statutory and regulatory filings.
|
Policy for Approval of Audit and Permitted Non‑AuditNon-Audit Services
Before the independent registered public accounting firm is engaged by us or our subsidiaries to render audit or non‑audit services, the audit committee must
pre‑approvepre-approve the engagement. Audit committee
pre‑approvalpre-approval of audit and
non‑auditnon-audit services is not required if the engagement for the services is entered into pursuant to
pre‑approvalpre-approval policies and procedures established by the audit committee. The chairman of the audit committee has the authority to grant
pre‑approvals,pre-approvals, provided such approvals are within the
pre‑approvalpre-approval policy and presented to the audit committee at a subsequent meeting.
The audit committee approved the appointment of
KPMGEY as our independent auditor to conduct the audit of our consolidated financial statements for the year ended December 31,
20172020 and all of the services described above.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a)Certain documents are filed as a part of this Annual Report and are incorporated by reference and found on the pages below.
|
| 1.
| | Financial Statements—Please read Part II, Item 8. “Financial Statements and Supplementary Data—Index to Financial Statements.”
|
(a) Certain documents are filed as a part of this Annual Report and are incorporated by reference and found on the pages below. | 2.
| | All schedules have been omitted because they are either not applicable, not required or the information called for therein appears in the consolidated financial statements or notes thereto.
|
1.Financial Statements—Please read Part II, Item 8. “Financial Statements and Supplementary Data—Index to Financial Statements.” | 3.
| | 2. All schedules have been omitted because they are either not applicable, not required or the information called for therein appears in the consolidated financial statements or notes thereto. 3. Exhibits—Exhibits required to be filed by Item 601 of Regulation S‑K set forth below are incorporated herein by reference. |
| | | | | | | | |
Exhibit
| | Exhibit |
| 2.1 | | Contribution Agreement by and betweenamong Enviva WilmingtonDevelopment Holdings, LLC, Enviva Holdings, LP, and Enviva Partners, LP dated May 8, 2017March 21, 2019 (Exhibit 2.1, Form 8‑K8-K filed May 12, 2017,March 25, 2019, File No. 001‑37363)001-037363) |
3.12.2 | | Contribution Agreement, dated as of June 18, 2020, by and among Enviva Development Holdings, LLC, Enviva Partners, LP and Enviva Holdings, LP (Exhibit 2.1, Form 8-K filed June 19, 2020, File No. 001-37363) |
| 2.3 | | |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
4.13.4* | | |
| 4.1 | | Indenture, dated as of November 1, 2016,December 9, 2019, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto, and Wilmington Trust, National Association, as trustee (Exhibit(incorporated by reference herein to Exhibit 4.1 to the Partnership’s Form 8‑K8-K filed November 3, 2016,on December 9, 2019, File No. 001‑37363)001-37363) |
| 4.2 | | |
| 4.3 | | Registration Rights Agreement, dated May 4, 2015, by and among Enviva Partners, LP, Enviva MLP Holdco, LLC and Enviva Cottondale Acquisition I, LLC (Exhibit 4.1, Form 8‑K filed May 4, 2015, File No. 001‑37363) |
10.14.4 | | |
| 4.5 | | |
| 4.6* | | |
| 10.1* | | Amended and Restated Purchase Rights Agreement, dated May 4, 2015,February 24, 2020, by and among Enviva Partners, LP, Enviva Partners GP, LLC and Enviva Holdings, LP (Exhibit 10.1, Form 10-K filed February 27, 2020) |
| 10.2 | | Purchase Agreement, dated as of June 29, 2020, by and among Enviva Partners, LP, Enviva Partners Finance Corp., the subsidiary guarantors party thereto and Barclays Capital Inc., as representative of the initial purchasers named therein. (Exhibit 10.2,10.1, Form 8‑K8-K filed May 4, 2015,June 29, 2020, File No. 001‑37363)001-37363) |
10.2†
10.3 | | |
| 10.4† | | |
10.3†
10.5† | | Management Services Agreement by and among Enviva Partners, LP, Enviva Partners GP, LLC, Enviva, LP, Enviva GP, LLC, the subsidiaries of Enviva, LP party thereto and Enviva Management Company, LLC, dated as of April 9, 2015 (Exhibit 10.12, Form S‑1 Registration Statement filed April 15, 2015, File No. 333‑199625) |
10.410.6 | | Fourth Amendment to Credit Agreement and Second Amendment to Guarantee and Collateral Agreement, dated as of April 9, 2015,October 18, 2018, by and among Enviva Partners, LP, as Borrower, certain subsidiaries of the Lenders party theretoBorrower and Barclays Bank PLC, as Administrative Agent and Collateral AgentAgent. (Exhibit 10.13,10.1, Form S‑1 Registration Statement8-K filed April 15, 2015,October 19, 2018, File No. 333‑199625)001-37363)) |
10.510.7 | | |
| 10.8 | | Make-Whole Agreement, dated as of April 9, 2015,July 1, 2020, by and between Enviva Holdings, LP and Enviva, Wilmington Holdings, LLCLP (Exhibit 10.8,10.5, Form 8‑K10-Q filed May 4, 2015,August 6, 2020, File No. 001‑37363)001-37363) |
10.610.9 | | Terminal Services Agreement, dated April 9, 2015, by and between Enviva Port of Chesapeake, LLC and Enviva Wilmington Holdings, LLC (Exhibit 10.7, Form 8‑K filed May 4, 2015, File No. 001‑37363)
|
10.7 | | License Agreement, dated April 9, 2015, by and among Enviva Holdings, LP, Enviva Partners GP, LLC and Enviva Partners, LP (Exhibit 10.3, Form 8‑K filed May 4, 2015, File No. 001‑37363) |
10.8†
10.10† | | |
| | | | | | | | |
10.9†
Exhibit Number | | Exhibit |
| 10.11† | | |
10.10†
10.12† | |
|
| 10.13† | |
|
| 10.14 | | Management Services Agreement Fee Waiver by and among Enviva, LP, Enviva GP, LLC, Enviva Pellets Ahoskie, LLC, Enviva Pellets Amory, LLC, Enviva Pellets Northampton, LLC, Enviva Pellets Cottondale, LLC, Enviva Port of Chesapeake, LLC, Enviva Energy Services, LLC, Enviva Pellets Sampson, LLC, Enviva Pellets Southampton, LLC, Enviva Port of Panama City, LLC, Enviva Port of Wilmington, LLC and Enviva Management Company, LLC dated April 2, 2019 (Exhibit 10.3, Form 10-Q filed May 9, 2019, File No. 001-37363) |
| 10.15 | | |
| 10.16 | | |
| 10.17 | |
|
| 10.18†* | | |
| 10.19†* | | |
| 10.20*† | | |
| 10.21*† | | |
| 10.22*† | | |
| 10.23*† | | |
| 10.24*† | | |
| 10.25*† | | |
| 10.26*† | | |
| 10.27† | | |
| 10.28† | | |
| 10.29*† | | |
10.11†
10.30*† | | First Amended and Restated Employment Agreement between Stephen F. Reeves and Enviva Management Company, LLC, dated May 29, 2015 (Exhibit 10.1, Form 8‑K filed May 29, 2015, File No. 001‑37363)
|
10.12†
| | First Amended and Restated Employment Agreement between William H. Schmidt, Jr. and Enviva Management Company, LLC, dated May 29, 2015 (Exhibit 10.2, Form 8‑K filed May 29, 2015, File No. 001‑37363)
|
10.13†
| | |
| 10.31*† | | |
| 10.32*† | | |
| 16.1 | | |
| | |
Exhibit
Number
21.1* | | Exhibit
|
10.14 | | First Incremental Term Loan Assumption Agreement, by and among Enviva Partners, LP, certain subsidiaries of Enviva Partners, LP, as Guarantors, the Lenders party thereto, and Barclays Bank PLC, as administrative agent, dated as of December 11, 2015, (Exhibit 10.1, Form 8‑K filed December 17, 2015, File No. 001‑37363)
|
10.15†
| | Form of Assignment, Assumption and Amendment Agreement (relating to employment agreements) (Exhibit 10.19, Form S‑1 Registration Statement filed April 3, 2015, File No. 333‑199625)
|
10.16 | | Second Amended and Restated Employment Agreement between Edward R. Smith and Enviva Management Company, LLC, dated August 19, 2016 (Exhibit 10.1, Form 8‑K filed August 25, 2016, File No. 001‑37363)
|
10.17 | | First Amended and Restated Employment Agreement between John K. Keppler and Enviva Management Company, LLC, dated December 1, 2016 (Exhibit 10.1, Form 8‑K filed December 1, 2016, File No. 001‑37363)
|
10.18 | | Second Amendment to Credit Agreement and First Amendment to Guarantee and Collateral Agreement, dated as of October 17, 2016, by and among Enviva Partners, LP, as borrower, certain subsidiaries of Enviva Partners, LP, as guarantors, the lenders party thereto, the increasing revolving lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (Exhibit 10.2, Form 8‑K filed October 24, 2016, File No. 001‑37363)
|
10.19 | | Biomass Supply Agreement between Enviva Partners, LP and Enviva Wilmington Holdings, LLC, dated January 22, 2016 (Exhibit 10.22, Form 10‑K filed March 8, 2016, File No. 001‑37363)
|
10.20*
| | Terminal Services Agreement between Enviva, LP and Enviva Port of Wilmington, LLC, dated December 14, 2016
|
21.1*
| | List of Subsidiaries of Enviva Partners, LP |
23.1* | | |
24.1*
23.2* | | |
| 24.1* | | Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10‑K) |
31.1* | | |
| | | | | | | | |
31.2*
Exhibit Number | | Exhibit |
| 31.2* | | |
32.1** | | |
32.2** | | |
101.INS
101 | | The following financial information from Enviva Partners, LP’s Annual Report on Form 10-K for the year ended December 31, 2020 formatted in Inline XBRL Instance Document (Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Changes in Partners’ Capital, (v) the Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements. |
101.SCH
104 | | Cover Page Interactive Data File - (formatted as Inline XBRL Schema Document |
101.CAL
| | XBRL Calculation Linkbase Document
|
101.DEF
| | XBRL Definition Linkbase Document
|
101.LAB
| | XBRL Labels Linkbase Document.
|
101.PRE
| | XBRL Presentation Linkbase Document
and contained in Exhibit 101) |
____________________________________________
* Filed herewith.
† Management Contract or Compensatory Plan or Arrangement
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| | | | | | | | |
|
| |
| ENVIVA PARTNERS, LP |
| |
| By: | Enviva Partners GP, LLC, as its sole general partner |
| | |
Date: February 22, 2018 25, 2021 | By: | /s/ JOHN K. KEPPLER |
| | John K. Keppler |
| | John K. Keppler
|
| | Title: Chairman, President and Chief Executive Officer
|
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of William H. Schmidt, Jr. and
Stephen F. ReevesJason E. Paral as his true and lawful
attorney‑in‑factattorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys‑in‑factattorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said
attorneys‑in‑factattorneys-in-fact and agents, and each of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this reportAnnual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
| | Title
| | Date
| | | | | | | | | | |
| Name | | Title | | Date |
| | | | |
| /s/ JOHN K. KEPPLER | | Chairman, President and Chief Executive Officer (Principal Executive Officer) | | February 22, 2018 25, 2021 |
John K. Keppler | | (Principal Executive Officer) | |
| | | | |
/s/ STEPHEN F. REEVES SHAI S. EVEN | | Executive Vice President and Chief Financial Officer (Principal | | February 25, 2021 |
| Shai S. Even | | (Principal Accounting Officer and Principal Financial Officer) | | February 22, 2018
|
Stephen F. Reeves
| | | | |
| | | | |
/s/ JAMES P. GERAGHTY
| | Vice President and Controller (Principal Accounting Officer)
| | February 22, 2018
|
James P. Geraghty
| | |
| | | | |
/s/ MICHAEL B. HOFFMAN
| | Director
| | February 22, 2018
|
Michael B. Hoffman
| | |
| | | | |
/s/ RALPH ALEXANDER | | Director | | February 22, 2018 25, 2021 |
Ralph Alexander | | |
| | | | |
/s/ CARL L. WILLIAMS
| | Director
| | February 22, 2018
|
Carl L. Williams
| | |
| | | | |
/s/ ROBIN J. A. DUGGAN
| | Director
| | February 22, 2018
|
Robin J. A. Duggan
| | |
| | | | |
/s/ JOHN C. BUMGARNER, JR. | | Director | | February 22, 2018 25, 2021 |
John C. Bumgarner, Jr. | | |
| | | | |
/s/ JIM H. DERRYBERRY | | Director | | February 25, 2021 |
| Jim H. Derryberry | | |
| | | | |
| /s/ CHRISTOPHER B. HUNT | | Director | | February 25, 2021 |
| Christopher B. Hunt | | |
| | | | |
| /s/ GERRIT L. LANSING, JR. | | Director | | February 25, 2021 |
| Gerrit L. Lansing, Jr. | | |
| | | | |
| /s/ WILLIAM K. REILLY | | Director | | February 22, 2018 25, 2021 |
William K. Reilly | | |
| | | | |
/s/ JEFFREY W. UBBEN | | Director | | February 25, 2021 |
| Jeffrey W. Ubben | | |
| | | | |
| /s/ GARY L. WHITLOCK | | Director | | February 25, 2021 |
| Gary L. Whitlock | | |
| | | | |
| /s/ JANET S. WONG | | Director | | February 22, 2018 25, 2021 |
Janet S. Wong | | |
| | | | |
/s/ CHRISTOPHER B. HUNT
| | Director
| | February 22, 2018
|
Christopher B. Hunt
| | |
| | | | |
/s/ GARY L. WHITLOCK
| | Director
| | February 22, 2018
|
Gary L. Whitlock
| | |
