UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 20212022
Commission File Number 001-32924
Green Plains Inc.
(Exact name of registrant as specified in its charter)
Iowa | 84-1652107 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1811 Aksarben Drive, Omaha, NE 68106 | (402) 884-8700 |
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | GPRE | The Nasdaq Stock Market LLC |
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.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
x Yes o No
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 o | |
Smaller reporting company o | Emerging growth company o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
The number of shares ofregistrant had 53,821,745 common stock par value $0.001 per share, outstanding as of April 29, 2021, was 44,626,860 shares.28, 2022.
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PART I – FINANCIAL INFORMATION | ||
Item 1. |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II – OTHER INFORMATION | ||
Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Commonly Used Defined Terms
Green Plains Inc. and Subsidiaries:
Green Plains; the company | Green Plains Inc. and its subsidiaries |
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FQT | Fluid Quip Technologies, |
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Green Plains Commodity Management | Green Plains Commodity Management LLC |
Green Plains Finance Company | Green Plains Finance Company LLC |
Green Plains Grain | Green Plains Grain Company LLC |
Green Plains Mount Vernon; Mount Vernon | Green Plains Mount Vernon LLC |
Green Plains Obion; Obion | Green Plains Obion LLC |
Green Plains Partners; the partnership | Green Plains Partners LP |
Green Plains Shenandoah; Shenandoah | Green Plains Shenandoah LLC |
Green Plains Trade | Green Plains Trade Group LLC |
Green Plains Wood River; Wood River | Green Plains Wood River LLC |
Accounting Defined Terms:
ASC | Accounting Standards Codification |
EBITDA | Earnings before interest, income taxes, depreciation and amortization |
EPS | Earnings per share |
Exchange Act | Securities Exchange Act of 1934, as amended |
GAAP | U.S. Generally Accepted Accounting Principles |
LIBOR | London Interbank Offered Rate |
SEC | Securities and Exchange Commission |
SOFR | Secured Overnight Financing Rate |
Industry and Other Defined Terms:
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the CARES Act | Coronavirus Aid, Relief, and Economic Security Act |
COVID-19 | Coronavirus Disease 2019 |
CST | Clean Sugar TechnologyTM |
DOE | Department of Energy |
E10 | Gasoline blended with up to 10% ethanol by volume |
E15 | Gasoline blended with up to 15% ethanol by volume |
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EIA | U.S. Energy Information Administration |
EPA | U.S. Environmental Protection Agency |
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LCFS | Low Carbon Fuel Standard |
MmBtu | Million British Thermal Units |
Mmg | Million gallons |
MSCTM | Maximized Stillage Coproducts produced using process technology developed by Fluid Quip Technologies LLC |
MTBE | Methyl tertiary-butyl ether |
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RFS | Renewable Fuels Standard |
RIN | Renewable identification number |
RVO | Renewable volume obligation |
SRE | Small refinery exemption |
U.S. | United States |
USDA | U.S. Department of Agriculture |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, | December 31, | March 31, | December 31, | |||||||
(unaudited) | (unaudited) | |||||||||
ASSETS | ASSETS | ASSETS | ||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 446,833 | $ | 233,860 | $ | 509,195 | $ | 426,220 | ||
Restricted cash | 207,593 | 40,950 | 95,070 | 134,739 | ||||||
Accounts receivable, net of allowances of $198 and $143, respectively | 62,519 | 55,568 | ||||||||
Marketable securities | 24,942 | 124,859 | ||||||||
Accounts receivable, net of allowances of $282 and $682, respectively | 142,041 | 119,961 | ||||||||
Income taxes receivable | 483 | 661 | 646 | 911 | ||||||
Inventories | 258,759 | 269,491 | 313,950 | 267,838 | ||||||
Prepaid expenses and other | 14,988 | 16,531 | 20,675 | 16,483 | ||||||
Derivative financial instruments | 19,365 | 25,292 | 56,087 | 26,738 | ||||||
Total current assets | 1,010,540 | 642,353 | 1,162,606 | 1,117,749 | ||||||
Property and equipment, net of accumulated depreciation | 799,546 | 801,690 | ||||||||
Property and equipment, net of accumulated depreciation | 940,912 | 893,517 | ||||||||
Operating lease right-of-use assets | 64,597 | 61,883 | 64,376 | 64,042 | ||||||
Other assets | 69,943 | 72,991 | 84,607 | 84,447 | ||||||
Total assets | $ | 1,944,626 | $ | 1,578,917 | $ | 2,252,501 | $ | 2,159,755 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||||
Accounts payable | $ | 92,972 | $ | 140,058 | $ | 106,308 | $ | 146,063 | ||
Accrued and other liabilities | 36,236 | 38,471 | 46,979 | 56,980 | ||||||
Derivative financial instruments | 41,098 | 20,265 | 64,620 | 43,244 | ||||||
Operating lease current liabilities | 15,627 | 14,902 | 16,859 | 16,814 | ||||||
Short-term notes payable and other borrowings | 174,104 | 140,808 | 310,190 | 173,418 | ||||||
Current maturities of long-term debt | 61,442 | 98,052 | 35,701 | 35,285 | ||||||
Total current liabilities | 421,479 | 452,556 | 580,657 | 471,804 | ||||||
Long-term debt | 537,880 | 287,299 | 557,937 | 514,006 | ||||||
Operating lease long-term liabilities | 51,682 | 49,549 | 50,233 | 49,795 | ||||||
Other liabilities | 13,056 | 12,849 | 21,067 | 22,131 | ||||||
Total liabilities | 1,024,097 | 802,253 | 1,209,894 | 1,057,736 | ||||||
Commitments and contingencies (Note 13) |
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Stockholders' equity | ||||||||||
Common stock, $0.001 par value; 75,000,000 shares authorized; | 56 | 47 | ||||||||
Common stock, $0.001 par value; 75,000,000 shares authorized; | 62 | 62 | ||||||||
Additional paid-in capital | 882,949 | 740,889 | 1,067,651 | 1,069,573 | ||||||
Retained earnings | 44,248 | 39,375 | ||||||||
Retained deficit | (76,673) | (15,199) | ||||||||
Accumulated other comprehensive loss | (8,398) | (2,172) | (8,889) | (12,310) | ||||||
Treasury stock, 11,813,161 shares | (131,287) | (131,287) | ||||||||
Treasury stock, 8,244,456 shares | (91,626) | (91,626) | ||||||||
Total Green Plains stockholders' equity | 787,568 | 646,852 | 890,525 | 950,500 | ||||||
Noncontrolling interests | 132,961 | 129,812 | 152,082 | 151,519 | ||||||
Total stockholders' equity | 920,529 | 776,664 | 1,042,607 | 1,102,019 | ||||||
Total liabilities and stockholders' equity | $ | 1,944,626 | $ | 1,578,917 | $ | 2,252,501 | $ | 2,159,755 | ||
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
Three Months Ended | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Revenues | ||||||||||
Product revenues | $ | 551,980 | $ | 631,581 | $ | 776,690 | $ | 551,980 | ||
Service revenues | 1,660 | 1,288 | 4,745 | 1,660 | ||||||
Total revenues | 553,640 | 632,869 | 781,435 | 553,640 | ||||||
Costs and expenses | ||||||||||
Cost of goods sold (excluding depreciation and amortization expenses reflected below) | 509,233 | 617,228 | 772,509 | 509,233 | ||||||
Operations and maintenance expenses | 5,754 | 6,160 | 5,566 | 5,754 | ||||||
Selling, general and administrative expenses | 23,518 | 21,638 | 30,863 | 23,518 | ||||||
Gain on sale of assets, net | (36,893) | - | - | (36,893) | ||||||
Goodwill impairment | - | 24,091 | ||||||||
Depreciation and amortization expenses | 20,681 | 18,080 | 20,399 | 20,681 | ||||||
Total costs and expenses | 522,293 | 687,197 | 829,337 | 522,293 | ||||||
Operating income (loss) | 31,347 | (54,328) | (47,902) | 31,347 | ||||||
Other income (expense) | ||||||||||
Interest income | 30 | 593 | 71 | 30 | ||||||
Interest expense | (31,679) | (9,697) | (8,806) | (31,679) | ||||||
Other, net | 10 | 836 | 411 | 10 | ||||||
Total other expense | (31,639) | (8,268) | (8,324) | (31,639) | ||||||
Loss before income taxes and income from equity method investees | (292) | (62,596) | ||||||||
Loss before income taxes and income (loss) from equity method investees | (56,226) | (292) | ||||||||
Income tax benefit (expense) | (1,862) | 44,283 | 1,153 | (1,862) | ||||||
Income from equity method investees, net of income taxes | 175 | 7,966 | ||||||||
Income (loss) from equity method investees | (799) | 175 | ||||||||
Net loss | (1,979) | (10,347) | (55,872) | (1,979) | ||||||
Net income attributable to noncontrolling interests | 4,566 | 6,098 | 5,602 | 4,566 | ||||||
Net loss attributable to Green Plains | $ | (6,545) | $ | (16,445) | $ | (61,474) | $ | (6,545) | ||
Earnings per share: | ||||||||||
Net loss attributable to Green Plains - basic and diluted | $ | (0.17) | $ | (0.47) | $ | (1.16) | $ | (0.17) | ||
Weighted average shares outstanding: | ||||||||||
Basic and diluted | 37,695 | 34,665 | 52,887 | 37,695 | ||||||
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
Three Months Ended | |||||
2021 | 2020 | ||||
Net loss | $ | (1,979) | $ | (10,347) | |
Other comprehensive income (loss), net of tax: | |||||
Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of $1,527 and ($1,447), respectively | (4,849) | 4,532 | |||
Reclassification of realized gains on derivatives, net of tax expense of $434 and $1,432, respectively | (1,377) | (4,485) | |||
Other comprehensive income (loss), net of tax | (6,226) | 47 | |||
Share of equity method investees other comprehensive income (loss) arising during the period, net of tax benefit (expense) of $0 and ($13,359), respectively | - | 41,956 | |||
Total other comprehensive income (loss), net of tax | (6,226) | 42,003 | |||
Comprehensive income (loss) | (8,205) | 31,656 | |||
Comprehensive income attributable to noncontrolling interests | 4,566 | 6,098 | |||
Comprehensive income (loss) attributable to Green Plains | $ | (12,771) | $ | 25,558 | |
Three Months Ended | |||||
2022 | 2021 | ||||
Net loss | $ | (55,872) | $ | (1,979) | |
Other comprehensive income (loss), net of tax: | |||||
Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of ($1,921) and $1,527, respectively | 5,386 | (4,849) | |||
Reclassification of realized losses (gains) on derivatives, net of tax expense of $701 and $434, respectively | (1,965) | (1,377) | |||
Total other comprehensive income (loss), net of tax | 3,421 | (6,226) | |||
Comprehensive loss | (52,451) | (8,205) | |||
Comprehensive income attributable to noncontrolling interests | 5,602 | 4,566 | |||
Comprehensive loss attributable to Green Plains | $ | (58,053) | $ | (12,771) | |
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Three Months Ended | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||||
Net loss | $ | (1,979) | $ | (10,347) | $ | (55,872) | $ | (1,979) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
Depreciation and amortization | 20,681 | 18,080 | 20,399 | 20,681 | ||||||
Amortization of debt issuance costs and debt discount | 2,672 | 5,099 | 1,846 | 2,672 | ||||||
Gain on sale of assets, net | (36,303) | - | - | (36,303) | ||||||
Loss on extinguishment of convertible notes | 22,100 | - | ||||||||
Goodwill impairment | - | 24,091 | ||||||||
Loss on extinguishment of debt | - | 22,100 | ||||||||
Deferred income taxes | 1,960 | (23,895) | (1,219) | 1,960 | ||||||
Stock-based compensation | 882 | 1,324 | 1,875 | 882 | ||||||
Income from equity method investees, net of income taxes | (175) | (7,966) | ||||||||
Distribution from equity method investees, net of income taxes | - | 3,247 | ||||||||
Loss (income) from equity method investees | 799 | (175) | ||||||||
Other | (82) | 6 | (442) | (82) | ||||||
Changes in operating assets and liabilities before effects of business combinations and dispositions: | ||||||||||
Accounts receivable | (6,874) | 72,684 | (22,783) | (6,874) | ||||||
Inventories | 332 | 38,626 | (46,112) | 332 | ||||||
Derivative financial instruments | 18,574 | (32,290) | (3,788) | 18,574 | ||||||
Prepaid expenses and other assets | 917 | 1,135 | (4,192) | 917 | ||||||
Accounts payable and accrued liabilities | (62,032) | (58,652) | (52,661) | (62,032) | ||||||
Current income taxes | 177 | (13,251) | 265 | 177 | ||||||
Other | 2,169 | (114) | (655) | 2,169 | ||||||
Net cash provided by (used in) operating activities | (36,981) | 17,777 | ||||||||
Net cash used in operating activities | (162,540) | (36,981) | ||||||||
Cash flows from investing activities: | ||||||||||
Purchases of property and equipment, net | (31,524) | (38,792) | (61,984) | (31,524) | ||||||
Proceeds from the sale of assets, net | 73,846 | - | ||||||||
Other investing activities | - | (1,098) | ||||||||
Net cash provided by (used in) investing activities | 42,322 | (39,890) | ||||||||
Proceeds from the sale of assets | - | 73,846 | ||||||||
Proceeds from the sale of marketable securities | 99,917 | - | ||||||||
Net cash provided by investing activities | 37,933 | 42,322 | ||||||||
Cash flows from financing activities: | ||||||||||
Proceeds from the issuance of long-term debt | 355,000 | - | 45,000 | 355,000 | ||||||
Payments of principal on long-term debt | (135,835) | (21) | (1,177) | (135,835) | ||||||
Proceeds from short-term borrowings | 686,486 | 820,264 | 1,075,119 | 686,486 | ||||||
Payments on short-term borrowings | (691,166) | (844,316) | (939,647) | (691,166) | ||||||
Payments on extinguishment of convertible debt | (20,861) | - | - | (20,861) | ||||||
Payments for repurchase of common stock | - | (11,479) | ||||||||
Payments of cash distributions | (1,395) | (5,498) | (5,122) | (1,395) | ||||||
Proceeds from issuance of common stock, net | 191,134 | - | - | 191,134 | ||||||
Payments of loan fees | (8,614) | - | (2,522) | (8,614) | ||||||
Payments related to tax withholdings for stock-based compensation | (3,804) | (1,209) | (3,738) | (3,804) | ||||||
Other financing activities | 3,330 | - | - | 3,330 | ||||||
Net cash provided by (used in) financing activities | 374,275 | (42,259) | ||||||||
Net cash provided by financing activities | 167,913 | 374,275 | ||||||||
Net change in cash, cash equivalents and restricted cash | 379,616 | (64,372) | 43,306 | 379,616 | ||||||
Cash, cash equivalents and restricted cash, beginning of period | 274,810 | 269,896 | 560,959 | 274,810 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 654,426 | $ | 205,524 | $ | 604,265 | $ | 654,426 | ||
Continued on the following page | ||||||||||
GREEN PLAINS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Continued from the previous page | ||||||||||
Three Months Ended | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Reconciliation of total cash, cash equivalents and restricted cash: | ||||||||||
Cash and cash equivalents | $ | 446,833 | $ | 194,333 | $ | 509,195 | $ | 446,833 | ||
Restricted cash | 207,593 | 11,191 | 95,070 | 207,593 | ||||||
Total cash, cash equivalents and restricted cash | $ | 654,426 | $ | 205,524 | $ | 604,265 | $ | 654,426 | ||
Supplemental investing activities: | ||||||||||
Assets disposed of in sale | $ | 35,317 | $ | - | $ | - | $ | 35,317 | ||
Less: liabilities relinquished | (415) | - | - | (415) | ||||||
Net assets disposed | $ | 34,902 | $ | - | $ | - | $ | 34,902 | ||
Supplemental disclosures of cash flow: | ||||||||||
Cash refunded for income taxes | $ | (106) | $ | (4,663) | ||||||
Cash paid for interest | $ | 8,688 | $ | 8,683 | ||||||
Cash refunded for income taxes, net | $ | (198) | $ | (106) | ||||||
Cash paid for interest of continuing operations | $ | 10,212 | $ | 8,688 | ||||||
Capital expenditures in accounts payable | $ | 14,620 | $ | 15,569 | ||||||
Cash premium paid for extinguishment of convertible notes | $ | 20,861 | $ | - | $ | - | $ | 20,861 | ||
See accompanying notes to the consolidated financial statements.
GREEN PLAINS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
References to the Company
References to “Green Plains” or the “company” in the consolidated financial statements and in these notes to the consolidated financial statements refer to Green Plains Inc., an Iowa corporation, and its subsidiaries.
Consolidated Financial Statements
The consolidated financial statements include the company’s accounts and all significant intercompany balances and transactions are eliminated. Unconsolidated entities are included in the financial statements on an equity basis. TAs of March 31, 2022, hethe company owns a 48.9% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 49.1% limited partner interest in the partnership. The company determined that the limited partners in the partnership with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact the partnership’s economic performance; therefore, the partnership is considered a variable interest entity. The company, through its ownership of the general partner interest in the partnership, has the power to direct the activities that most significantly affect economic performance and is obligated to absorb losses and has the right to receive benefits that could be significant to the partnership. Therefore, the company is considered the primary beneficiary and consolidates the partnership in the company’s financial statements. The assets of the partnership cannot be used by the company for general corporate purposes. The partnership’s consolidated total assets as of March 31, 20212022 and December 31, 2020,2021, excluding intercompany balances, are $91.3$98.7 million and $91.2$100.3 million, respectively, and primarily consist of property and equipment, operating lease right-of-use assets and goodwill.goodwill. The partnership’s consolidated total liabilities as of March 31, 20212022 and December 31, 2020,2021, excluding intercompany balances, are $116.0$112.5 million and $151.2$111.4 million, respectively, which primarily consist of current maturities of long-term debt as discussed in Note 8 – Debtand operating lease liabilities. The liabilities recognized as a result of consolidating the partnership do not represent additional claims on ourthe company’s general assets.
The company also owns a majority interest in BioProcess Algae, a joint venture formed in 2008 as well as a majority interest in Fluid Quip Technologies, LLCFQT, with their results being consolidated in our consolidated financial statements.
The accompanying unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Because they do not include all of the information and notes required by GAAP, the consolidated financial statements should be read in conjunction with the company’s annual report on Form 10-K for the year ended December 31, 2020,2021, filed with the SEC on February 16, 2021.18, 2022.
The unaudited financial information reflects adjustments, which are, in the opinion of management, necessary for a fair presentation of results of operations, financial position and cash flows for the periods presented. The adjustments are normal and recurring in nature, unless otherwise noted. Interim period results are not necessarily indicative of the results to be expected for the entire year.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did not affect total revenues, costs and expenses or net income. See Note 8 – Debt and Note 11 – Stockholders’ Equity for further details.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The company bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances and regularly evaluates the appropriateness of its estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including but not limited to those relating to revenue recognition, carrying value of intangible assets, operating leases, impairment of long-lived assets and goodwill, derivative
financial instruments, accounting for income taxes and assets acquired and liabilities assumed in acquisitions, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.
Description of Business
The company operates within four business3 operating segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities (3) food and ingredients, which includes food-grade corn oil and (4)(3) partnership, which includes fuel storage and transportation services.The food and ingredients segment, had no activity during the three months ended March 31, 2021 and 2020.
Cash and Cash Equivalents
Cash and cash equivalents includes bank deposits as well as short-term, highly liquid investments with original maturities of three months or less.
Restricted Cash
The company has restricted cash, which can only be used for funding letters of credit, for payment towards a revolving credit agreement, or for capital expenditures as specified in certain credit facility agreements. Restricted cash also includes cash margins and securities pledged to commodity exchange clearinghouses and at times, funds in escrow related to acquisition and disposition activities. To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated balance sheets.
Marketable Securities
Marketable securities include highly liquid, fixed maturity investments with original maturities ranging from three to twelve months and are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity.
Revenue Recognition
The company recognizes revenue when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.
Sales of ethanol, distillers grains, Ultra-High Protein, corn oil, natural gas and other commodities by the company’s marketing business are recognized when obligations under the terms of a contract with a customer are satisfied. Generally, this occurs with the transfer of control of products or services. Revenues related to marketing for third parties are presented on a gross basis as the company controls the product prior to the sale to the end customer, takes title of the product and has inventory risk. Unearned revenue is recorded for goods in transit when the company has received payment but control has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the product is delivered to the customer.
The company routinely enters into physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than delivering the physical commodity. Energy trading transactions are reported net as a component of revenue. Revenues include net gains or losses from derivatives related to products sold while cost of goods sold includes net gains or losses from derivatives related to commodities purchased. Revenues also include realized gains and losses on related derivative financial instruments and reclassifications of realized gains and losses on cash flow hedges from accumulated other comprehensive income or loss.
Sales of products, including agricultural commodities, are recognized when control of the product is transferred to the customer, which depends on the agreed upon shipment or delivery terms. Revenues related to grain merchandising are presented gross and include shipping and handling, which is also a component of cost of goods sold. Revenues from grain storage are recognized over time as the services are rendered.
Revenues related to the design, engineering and installation of equipment are recognized over the term of the related contracts as equipment is delivered and installed and services are performed.
A substantial portion of the partnership revenues are derived from fixed-fee commercial agreements for storage, terminal or transportation services. The partnership recognizes revenue upon transfer of control of product from its storage tanks and fuel terminals, when railcar volumetric capacity is provided, and as truck transportation services are performed. To the extent shortfalls associated with minimum volume commitments in the previous four quarters continue to exist, volumes in excess
of the minimum volume commitment are applied to those shortfalls. Remaining excess volumes generating operating lease revenue are recognized as incurred.
Shipping and Handling Costs
The company accounts for shipping and handling activities related to contracts with customers as costs to fulfill its promise to transfer the associated products. Accordingly, the company records customer payments associated with shipping and handling costs as a component of revenue, and classifies such costs as a component of cost of goods sold.
Cost of Goods Sold
Cost of goods sold includes direct labor, materials, shipping and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol production. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also included in cost of goods sold. Materials include the cost of corn feedstock, denaturant, and process chemicals. Corn feedstock costs include gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs, as well as reclassifications of gains and losses on cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant utilities, repairs and maintenance and outbound freight charges. Shipping costs incurred by the company, including railcar costs, are also reflected in cost of goods sold.
The company uses exchange-traded futures and options contracts and forward purchase and sale contracts to attempt to minimize the effect of price changes on ethanol, grain and natural gas. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forwardForward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for basis differences, primarily in transportation, between the exchange-traded market and local market where the terms of the contract is based. Changes in forward purchase contracts and exchange-traded futures and options contracts are recognized as a component of cost of goods sold.
Operations and Maintenance Expenses
In the partnership segment, transportation expenses represent the primary component of operations and maintenance expenses. Transportation expenses include railcar leases, freight and shipping of the company’s ethanol and co-products, as well as costs incurred storing ethanol at destination terminals.
Derivative Financial Instruments
The company uses various derivative financial instruments, including exchange-traded futures and exchange-traded and over-the-counter options contracts, to attempt to minimize risk and the effect of commodity price changes including but not limited to, corn, ethanol, natural gas soybean meal and soybean oil.other agricultural and energy products. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk; however, there may be situations when these hedging activities themselves result in losses.
By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.
The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, cash flow hedge accounting treatment.
Certain qualifying derivatives related to ethanol production and agribusiness and energy services are designated as cash flow hedges. The company evaluates the derivative instrument to ascertain its effectiveness prior to entering into cash flow
hedges. Unrealized gains and losses are reflected in accumulated other comprehensive income or loss until the gain or loss from the underlying hedged transaction is realized and the physical transaction is completed. When it becomes probable a forecasted transaction will not occur, the cash flow hedge treatment is discontinued, which affects earnings. These derivative
financial instruments are recognized in current assets or current liabilities at fair value.
At times, the company hedges its exposure to changes in inventory values and designates qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted in the current period for changes in fair value. Estimated fair values carried at market are based on exchange-quoted prices, adjusted as appropriate for regional location basis values which represent differences in local markets including transportation as well as quality or grade differences. Basis values are generally determined using inputs from broker quotations or other market transactions. However, a portion of the value may be derived using unobservable inputs. Ineffectiveness of the hedges is recognized in the current period to the extent the change in fair value of the inventory is not offset by the change in fair value of the derivative.
Recent Accounting Pronouncements
On January 1, 2021, the company early adopted the amended guidance in ASC 470-20, Debt - Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity - Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity. The adoption of this guidance resulted in a $49.5 million decrease in additional paid-in capital, an $11.4 million increase in retained earnings and a $38.1 million increase in long-term debt, which included a $39.4 million increase in debt principal offset by a $1.3 million increase in debt issuance costs, resulting from amounts previously bifurcated to equity being reclassified to debt. See Note 8 – Debt and Note 11 – Stockholders’ Equity for further details.
In March 2020, the FASB issued amended guidance in ASC 848, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and a subsequent update in January 2021,which provides optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The guidance is effective upon issuance and to be applied prospectively from any date beginning March 12, 2020 through December 31, 2022. The amended guidance is not expected to have a material impact on the company’s consolidated financial statements.
In December 2019, the FASB issued amended guidance in ASC 740, Income Taxes - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. The company is evaluating the impact of this standard on its consolidated financial statements.
2. REVENUE
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.
Revenue by Source
The following tables disaggregate revenue by major source (in thousands):
Three Months Ended March 31, 2022 | ||||||||||||||
Ethanol Production | Agribusiness & Energy Services | Partnership | Eliminations | Total | ||||||||||
Revenues: | ||||||||||||||
Revenues from contracts with customers under ASC 606: | ||||||||||||||
Ethanol | $ | - | $ | - | $ | - | $ | - | $ | - | ||||
Distillers grains | 7,362 | - | - | - | 7,362 | |||||||||
Corn oil | - | - | - | - | - | |||||||||
Service revenues | 3,740 | - | 1,005 | - | 4,745 | |||||||||
Other | 9,621 | 1,288 | - | - | 10,909 | |||||||||
Intersegment revenues | - | - | 1,885 | (1,885) | - | |||||||||
Total revenues from contracts with customers | 20,723 | 1,288 | 2,890 | (1,885) | 23,016 | |||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (1): | ||||||||||||||
Ethanol | 471,922 | 95,660 | - | - | 567,582 | |||||||||
Distillers grains | 98,512 | 15,126 | - | - | 113,638 | |||||||||
Corn oil | 40,889 | 2,406 | - | - | 43,295 | |||||||||
Grain | - | 102 | - | - | 102 | |||||||||
Other | 5,507 | 28,295 | - | - | 33,802 | |||||||||
Intersegment revenues | - | 5,835 | - | (5,835) | - | |||||||||
Total revenues from contracts accounted for as derivatives | 616,830 | 147,424 | - | (5,835) | 758,419 | |||||||||
Leasing revenues under ASC 842 (2): | - | - | 16,210 | (16,210) | - | |||||||||
Total Revenues | $ | 637,553 | $ | 148,712 | $ | 19,100 | $ | (23,930) | $ | 781,435 | ||||
Three Months Ended March 31, 2021 | ||||||||||||||
Ethanol Production | Agribusiness & Energy Services | Partnership | Eliminations | Total | ||||||||||
Revenues: | ||||||||||||||
Revenues from contracts with customers under ASC 606: | ||||||||||||||
Ethanol | $ | - | $ | - | $ | - | $ | - | $ | - | ||||
Distillers grains | 3,613 | - | - | - | 3,613 | |||||||||
Corn oil | - | - | - | - | - | |||||||||
Service revenues | 563 | - | 1,057 | - | 1,620 | |||||||||
Other | 4,062 | 826 | - | - | 4,888 | |||||||||
Intersegment revenues | - | - | 2,006 | (2,006) | - | |||||||||
Total revenues from contracts with customers | 8,238 | 826 | 3,063 | (2,006) | 10,121 | |||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (1): | ||||||||||||||
Ethanol | 289,585 | 75,912 | - | - | 365,497 | |||||||||
Distillers grains | 95,694 | 9,239 | - | - | 104,933 | |||||||||
Corn oil | 14,540 | 4,811 | - | - | 19,351 | |||||||||
Grain | - | 12,170 | - | - | 12,170 | |||||||||
Other | 15,665 | 25,863 | - | - | 41,528 | |||||||||
Intersegment revenues | - | 5,123 | - | (5,123) | - | |||||||||
Total revenues from contracts accounted for as derivatives | 415,484 | 133,118 | - | (5,123) | 543,479 | |||||||||
Leasing revenues under ASC 842 (2): | - | - | 17,343 | (17,303) | 40 | |||||||||
Total Revenues | $ | 423,722 | $ | 133,944 | $ | 20,406 | $ | (24,432) | $ | 553,640 | ||||
Three Months Ended March 31, 2020 | ||||||||||||||
Ethanol Production | Agribusiness & Energy Services | Partnership | Eliminations | Total | ||||||||||
Revenues: | ||||||||||||||
Revenues from contracts with customers under ASC 606: | ||||||||||||||
Ethanol | $ | - | $ | - | $ | - | $ | - | $ | - | ||||
Distillers grains | 16,475 | - | - | - | 16,475 | |||||||||
Service revenues | - | - | 1,179 | - | 1,179 | |||||||||
Other | 2,959 | 390 | - | - | 3,349 | |||||||||
Intersegment revenues | 25 | - | 2,074 | (2,099) | - | |||||||||
Total revenues from contracts with customers | 19,459 | 390 | 3,253 | (2,099) | 21,003 | |||||||||
Revenues from contracts accounted for as derivatives under ASC 815 (1): | ||||||||||||||
Ethanol | 367,092 | 126,093 | - | - | 493,185 | |||||||||
Distillers grains | 72,527 | 4,709 | - | - | 77,236 | |||||||||
Corn oil | 14,684 | 5,730 | - | - | 20,414 | |||||||||
Grain | 6 | 7,950 | - | - | 7,956 | |||||||||
Other | 1,957 | 11,009 | - | - | 12,966 | |||||||||
Intersegment revenues | - | 7,308 | - | (7,308) | - | |||||||||
Total revenues from contracts accounted for as derivatives | 456,266 | 162,799 | - | (7,308) | 611,757 | |||||||||
Leasing revenues under ASC 842 (2): | - | - | 17,018 | (16,909) | 109 | |||||||||
Total Revenues | $ | 475,725 | $ | 163,189 | $ | 20,271 | $ | (26,316) | $ | 632,869 | ||||
(1)Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC 606, where the company recognizes revenue when control of the inventory is transferred within the meaning of ASC 606 as required by ASC 610-20, Gains and Losses from Derecognition of Nonfinancial Assets.
(2)Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases.
Major Customers
RevenueFor the three months ended March 31, 2022, 0 single customer’s revenue was over 10% of total revenues. Revenues from Customer A represented approximately 13% and 19% of total revenues for the three months ended March 31, 2021 and 2020, respectively.2021.
3. ACQUISITIONS AND DISPOSITIONS
Acquisition of a Majority Interest in Fluid Quip Technologies, LLC
On December 9, 2020, the company acquired a majority interest in Fluid Quip Technologies, LLC. During the three months ended March 31, 2021, there were no material changes to the preliminary purchase price allocation or assets acquired and liabilities assumed.
Disposition of Ord Ethanol Plant
On March 22, 2021, the company completed the sale of the plant located in Ord, Nebraska and certain related assets, to GreenAmerica Biofuels Ord LLC (the “Ord Transaction”) for a sale price of $64.0 million, plus working capital of $9.8 million. Correspondingly, the company entered into a separate asset purchase agreement with the Partnership to acquire the storage assets and assign the rail transportation assets to be disposed of in the Ord Transaction for $27.0$27.5 million, which was used to pay down a portion of the Partnership’spartnership’s credit facility.In addition, as of March 31, 2021, the company had a payable of $0.5 million for amounts owed to the Partnership as a result of a purchase price adjustment based on additional railcars being transferred to GreenAmerica Biofuels Ord LLC as part of the transaction. The divested assets were reported within the company’s ethanol production, agribusiness and energy services and partnership segments. The company recorded a pretax gain on the sale of the Ord plant of $36.9 million recorded within corporate activities.
The asset and liabilities of the Ord ethanol plant at closing on March 22, 2021 were as follows: (in thousands):
Amounts of Identifiable Assets Disposed and Liabilities Relinquished | ||||
Inventory | $ | 10,400 | ||
Prepaid expenses and other | 632 | |||
Property and equipment | 24,285 | |||
Accrued and other liabilities | (415) | |||
Total identifiable net assets disposed | $ | 34,902 | ||
The amounts reflected above represent working capital estimates, including an adjustment of $0.4 million subsequent to the initial sale, which are considered preliminary until contractual post-closing working capital adjustments are finalized. The operating lease right-of-use assets and lease liabilities associated with the railcar operating leases, currently estimated at approximately $2.0 million, respectively, will be extinguished upon the assignment of the associated leases to GreenAmerica Biofuels Ord LLC, which had not yet occurred as of March 31, 2021.
Disposition of Hereford Ethanol Plant
On December 28, 2020, the company completed the sale of the plant located in Hereford, Texas, and certain related assets, to Hereford Ethanol Partners, L.P. There were no material changes to the assets disposed and liabilities relinquished from the disposition of the Hereford plantactivities during the three months ended March 31, 2021.
Disposition of Equity Interest in Green Plains Cattle Company LLC
On October 1, 2020, the company sold its remaining 50% joint venture interest in GPCC to AGR Partners LLC, TGAM Agribusiness Fund LP and StepStone Atlantic Fund, LP.
4. FAIR VALUE DISCLOSURES
The following methods, assumptions and valuation techniques were used in estimating the fair value of the company’s financial instruments:
Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities the company can access at the measurement date.
Level 2 – directly or indirectly observable inputs such as quoted prices for similar assets or liabilities in active markets other than quoted prices included within Level 1, quoted prices for identical or similar assets in markets that are not active, and other inputs that are observable or can be substantially corroborated by observable market data through correlation or
other means. Grain inventories held forpurchase and sale contracts in the agribusiness and energy services segment are valued at nearby futures values, plus or minus nearby basis values, which represent differences in local markets, including transportation or commodity quality or grade differences.
Level 3 – unobservable inputs that are supported by little or no market activity and comprise a significant component of the fair value of the assets or liabilities. The company currently does not have any recurring Level 3 financial instruments.
Derivative contracts include exchange-traded commodity futures and options contracts and forward commodity purchase and sale contracts. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified in Level 1. The majority of the company’s exchange-traded futures and options contracts are cash-settled on a daily basis.
There have been no changes in valuation techniques and inputs used in measuring fair value. The company’s assets and liabilities by level are as follows (in thousands):
Fair Value Measurements at March 31, 2021 | Fair Value Measurements at March 31, 2022 | |||||||||||||||
Quoted Prices in | Significant Other | Quoted Prices in | Significant Other | |||||||||||||
(Level 1) | (Level 2) | Total | (Level 1) | (Level 2) | Total | |||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 446,833 | $ | - | $ | 446,833 | $ | 509,195 | $ | - | $ | 509,195 | ||||
Restricted cash | 207,593 | - | 207,593 | 95,070 | - | 95,070 | ||||||||||
Inventories carried at market | - | 69,132 | 69,132 | - | 70,460 | 70,460 | ||||||||||
Unrealized gains on derivatives | - | 19,365 | 19,365 | - | 54,149 | 54,149 | ||||||||||
Other assets | 111 | 42 | 153 | 110 | 464 | 574 | ||||||||||
Total assets measured at fair value | $ | 654,537 | $ | 88,539 | $ | 743,076 | $ | 604,375 | $ | 125,073 | $ | 729,448 | ||||
Liabilities: | ||||||||||||||||
Accounts payable (1) | $ | - | $ | 20,281 | $ | 20,281 | $ | - | $ | 5,488 | $ | 5,488 | ||||
Accrued and other liabilities (2) | - | 3,339 | 3,339 | |||||||||||||
Unrealized losses on derivatives | - | 6,313 | 6,313 | - | 34,206 | 34,206 | ||||||||||
Other liabilities (2) | - | 7,776 | 7,776 | |||||||||||||
Total liabilities measured at fair value | $ | - | $ | 26,594 | $ | 26,594 | $ | - | $ | 50,809 | $ | 50,809 | ||||
Fair Value Measurements at December 31, 2020 | Fair Value Measurements at December 31, 2021 | |||||||||||||||
Quoted Prices in | Significant Other | Quoted Prices in | Significant Other | |||||||||||||
(Level 1) | (Level 2) | Total | (Level 1) | (Level 2) | Total | |||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 233,860 | $ | - | $ | 233,860 | $ | 426,220 | $ | - | $ | 426,220 | ||||
Restricted cash | 40,950 | - | 40,950 | 134,739 | - | 134,739 | ||||||||||
Inventories carried at market | - | 77,900 | 77,900 | - | 72,320 | 72,320 | ||||||||||
Unrealized gains on derivatives | - | 21,956 | 21,956 | - | 26,738 | 26,738 | ||||||||||
Other assets | 112 | 29 | 141 | 111 | 8 | 119 | ||||||||||
Total assets measured at fair value | $ | 274,922 | $ | 99,885 | $ | 374,807 | $ | 561,070 | $ | 99,066 | $ | 660,136 | ||||
Liabilities: | ||||||||||||||||
Accounts payable (1) | $ | - | $ | 19,355 | $ | 19,355 | $ | - | $ | 12,617 | $ | 12,617 | ||||
Accrued and other liabilities (2) | - | 3,260 | 3,260 | |||||||||||||
Unrealized losses on derivatives | - | 10,997 | 10,997 | - | 26,117 | 26,117 | ||||||||||
Other liabilities (2) | - | 7,788 | 7,788 | |||||||||||||
Total liabilities measured at fair value | $ | - | $ | 30,352 | $ | 30,352 | $ | - | $ | 49,782 | $ | 49,782 | ||||
(1)Accounts payable is generally stated at historical amounts with the exception of $20.3$5.5 million and $19.4$12.6 million at March 31, 20212022 and December 31, 2020,2021, respectively, related to certain delivered inventory for which the payable fluctuates based on changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.
(2)As of both March 31, 2022 and December 31, 2021, respectively, accrued and other liabilities includes $3.3 million and $3.3 million and other liabilities includes $7.8 million and $7.6 million of consideration related to potential earn-out payments recorded at fair value.
The company believes the fair value
As of its debt approximated book value at March 31, 2021. The2022, the fair value of the company’s debt was approximately $535.9$1,023.5 million compared with a book value of $526.2 million at$903.8 million. At December 31, 2020.2021, the fair value of the company’s debt was approximately $891.1 million compared with a book value of $722.7 million. The company estimated the fair value of its outstanding debt using Level 2 inputsinputs.. The company believes the fair values of its marketable securities approximated book value, which was $24.9 million and $124.9 million at March 31, 2022 and December 31, 2021, respectively. The company believes the fair values of its accounts receivable approximated book value, which was $142.0 million and $120.0 million at March 31, 2022 and December 31, 2021, respectively.
accounts receivable approximated book value, which was $62.5 million and $55.6 million at March 31, 2021 and December 31, 2020, respectively.
Although the company currently does not have any recurring Level 3 financial measurements, the fair values of tangible and intangible assets and goodwill acquired represent Level 3 measurements which were derived using a combination of the income approach, market approach and cost approach for the specific assets or liabilities being valued.
5. SEGMENT INFORMATION
The company reports the financial and operating performance for the following fourthree operating segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and (4)(3) partnership, which includes fuel storage and transportation services.The food and ingredients segment had no activity during the three months ended March 31, 2021 and 2020.
Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment.
During the normal course of business, the operating segments conduct business with each other. For example, the agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains, Ultra-High Protein and corn oil for the ethanol production segment. The partnership segment provides fuel storage and transportation services for the ethanol production segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact the company’s consolidated results since the revenues and corresponding costs are eliminated.
The following tables set forth certain financial data for the company’s operating segments (in thousands):
Three Months Ended March 31, | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Revenues: | ||||||||||
Ethanol production: | ||||||||||
Revenues from external customers | $ | 423,722 | $ | 475,700 | $ | 637,553 | $ | 423,722 | ||
Intersegment revenues | - | 25 | - | - | ||||||
Total segment revenues | 423,722 | 475,725 | 637,553 | 423,722 | ||||||
Agribusiness and energy services: | ||||||||||
Revenues from external customers | 128,821 | 155,881 | 142,877 | 128,821 | ||||||
Intersegment revenues | 5,123 | 7,308 | 5,835 | 5,123 | ||||||
Total segment revenues | 133,944 | 163,189 | 148,712 | 133,944 | ||||||
Partnership: | ||||||||||
Revenues from external customers | 1,097 | 1,288 | 1,005 | 1,097 | ||||||
Intersegment revenues | 19,309 | 18,983 | 18,095 | 19,309 | ||||||
Total segment revenues | 20,406 | 20,271 | 19,100 | 20,406 | ||||||
Revenues including intersegment activity | 578,072 | 659,185 | 805,365 | 578,072 | ||||||
Intersegment eliminations | (24,432) | (26,316) | (23,930) | (24,432) | ||||||
Total Revenues | $ | 553,640 | $ | 632,869 | $ | 781,435 | $ | 553,640 | ||
Refer to Note 2 - Revenue, for further disaggregation of revenue by operating segment.
Three Months Ended March 31, | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Cost of goods sold: | ||||||||||
Ethanol production | $ | 415,525 | $ | 489,150 | $ | 661,560 | $ | 415,525 | ||
Agribusiness and energy services | 116,074 | 156,502 | 134,439 | 116,074 | ||||||
Intersegment eliminations | (22,366) | (28,424) | (23,490) | (22,366) | ||||||
$ | 509,233 | $ | 617,228 | $ | 772,509 | $ | 509,233 | |||
Three Months Ended March 31, | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Operating income (loss): | ||||||||||
Ethanol production (1) | $ | (20,320) | $ | (60,781) | $ | (51,158) | $ | (20,320) | ||
Agribusiness and energy services | 13,346 | 2,560 | 10,408 | 13,346 | ||||||
Partnership | 12,871 | 12,430 | 11,809 | 12,871 | ||||||
Intersegment eliminations | (2,066) | 2,133 | (440) | (2,066) | ||||||
Corporate activities (2) | 27,516 | (10,670) | (18,521) | 27,516 | ||||||
$ | 31,347 | $ | (54,328) | $ | (47,902) | $ | 31,347 | |||
(1)Operating loss for ethanol production includes a goodwill impairmentan inventory lower of cost or net realizable value adjustment charge of $24.1$13.2 million for the three months ended March 31, 2020.2022.
(2)Corporate activities for the three months ended March 31, 2021 includedinclude a $36.9 million pretax gain on sale of assets.
Three Months Ended March 31, | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Depreciation and amortization: | ||||||||||
Ethanol production | $ | 18,528 | $ | 15,898 | $ | 18,432 | $ | 18,528 | ||
Agribusiness and energy services | 607 | 553 | 464 | 607 | ||||||
Partnership | 887 | 961 | 898 | 887 | ||||||
Corporate activities | 659 | 668 | 605 | 659 | ||||||
$ | 20,681 | $ | 18,080 | $ | 20,399 | $ | 20,681 | |||
The following table sets forth total assets by operating segment (in thousands):
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||
Total assets (1): | ||||||||||
Ethanol production | $ | 1,028,817 | $ | 900,963 | $ | 1,093,026 | $ | 1,101,151 | ||
Agribusiness and energy services | 403,628 | 378,720 | 608,136 | 487,164 | ||||||
Partnership | 91,261 | 91,205 | 98,692 | 100,349 | ||||||
Corporate assets | 454,650 | 228,074 | 479,185 | 524,206 | ||||||
Intersegment eliminations | (33,730) | (20,045) | (26,538) | (53,115) | ||||||
$ | 1,944,626 | $ | 1,578,917 | $ | 2,252,501 | $ | 2,159,755 | |||
(1)Asset balances by segment exclude intercompany balances.
6. INVENTORIES
Inventories are carried at the lower of cost or net realizable value, except grain held for sale and fair-value hedged inventories. Commodities held for sale are reported at market value.As of March 31, 2022, the company recorded a $13.2 million lower of cost or net realized value inventory adjustment reflected in cost of goods sold within the ethanol production segment. There was 0 lower of cost or net realizable valuemarket inventory adjustment as of March 31, 2021 or December 31, 2020.2021.
The components of inventories are as follows (in thousands):
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||
Finished goods | $ | 87,591 | $ | 89,223 | $ | 132,198 | $ | 91,448 | ||
Commodities held for sale | 25,858 | 40,147 | 5,141 | 72,320 | ||||||
Raw materials | 94,154 | 90,800 | 119,122 | 50,604 | ||||||
Work-in-process | 16,206 | 13,201 | 22,255 | 19,783 | ||||||
Supplies and parts | 34,950 | 36,120 | 35,234 | 33,683 | ||||||
$ | 258,759 | $ | 269,491 | $ | 313,950 | $ | 267,838 | |||
7. DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 2021,2022, the company’s consolidated balance sheet reflected unrealized losses of $8.4$8.9 million, net of tax, in accumulated other comprehensive income.loss. The company expects these lossesitems will be reclassified toas operating income (loss) over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount realized in operating income (loss) will differ as commodity prices change.
Fair Values of Derivative Instruments
The fair values of the company’s derivative financial instruments and the line items on the consolidated balance sheets where they are reported are as follows (in thousands):
Asset Derivatives' | Liability Derivatives' | Asset Derivatives' | Liability Derivatives' | |||||||||||||||||||||||
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||
March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | March 31, | December 31, | |||||||||||||||||||
Derivative financial instruments | $ | 19,365 | $ | 21,956 | (1) | $ | 6,313 | (2) | $ | 10,997 | (3) | $ | 54,149 | (1) | $ | 26,738 | $ | 34,206 | (2) | $ | 26,117 | (3) | ||||
Other assets | 42 | 29 | - | - | 464 | 8 | - | - | ||||||||||||||||||
Other liabilities | - | - | 1 | 196 | ||||||||||||||||||||||
Total | $ | 19,407 | $ | 21,985 | $ | 6,313 | $ | 10,997 | $ | 54,613 | $ | 26,746 | $ | 34,207 | $ | 26,313 | ||||||||||
(1)At DecemberMarch 31, 2020, 2022, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $3.3$1.9 million, which include $2.8included $0.9 million of net unrealized gainslosses on derivative financial instruments designated as cash flow hedging instruments.
(2)At March 31, 2022, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of $30.4 million.
(3)At December 31, 2021, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of $34.8$17.1 million, which included $24.8include $1.3 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.
(3)At December 31, 2020, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of $9.3 million, none of which were designated as cash flow hedging instruments.
Refer to Note 4 - Fair Value Disclosures, which contains fair value information related to derivative financial instruments.
Effect of Derivative Instruments on Consolidated Balance Sheets, Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income
The gains or losses recognized in income and other comprehensive income related to the company’s derivative financial instruments and the line items on the consolidated financial statements where they are reported are as follows (in thousands):
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |||||||||||
Location of Gain (Loss) Reclassified from Accumulated Other | Three Months Ended March 31, | Three Months Ended | ||||||||||
Comprehensive Income into Income | 2021 | 2020 | 2022 | 2021 | ||||||||
Revenues | $ | (15,188) | $ | 8,818 | $ | (628) | $ | (15,188) | ||||
Cost of goods sold | 16,999 | (2,901) | 3,294 | 16,999 | ||||||||
Net gain recognized in loss before income taxes | $ | 1,811 | $ | 5,917 | ||||||||
Net gain (loss) recognized in income (loss) before income taxes | $ | 2,666 | $ | 1,811 | ||||||||
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives | |||||||||||
Gain (Loss) Recognized in Other Comprehensive Income on | Three Months Ended March 31, | Three Months Ended | ||||||||||
Derivatives | 2021 | 2020 | 2022 | 2021 | ||||||||
Commodity contracts | $ | (6,376) | $ | 5,979 | $ | 7,307 | $ | (6,376) | ||||
Amount of Gain (Loss) | ||||||||
Location of Gain (Loss) | Recognized in Income on Derivatives | |||||||
Derivatives Not Designated | Recognized in Income | Three Months Ended March 31, | ||||||
as Hedging Instruments | on Derivatives | 2021 | 2020 | |||||
Commodity contracts | Revenues | $ | (40,794) | $ | 45,407 | |||
Commodity contracts | Costs of goods sold | 8,563 | (2,679) | |||||
Net gain (loss) recognized in loss before income taxes | $ | (32,231) | $ | 42,728 | ||||
A portion of
includingexchangetradedcontractsandforwardcommoditypurchaseorsalecontracts,and inventoriesofcertainagriculturalproducts, whichincludeamountsacquiredunderdeferredpricingcontracts, are statedat fair value. Inventories are not considered a derivative, rather they are carried at the lower of cost or market. As such, changes in the fair value of inventories are not included in the table below.
Amount of Gain (Loss) | ||||||||
Recognized in Income on Derivatives | ||||||||
Derivatives Not Designated as | Location of Gain (Loss) Recognized in Income | Three Months Ended | ||||||
Hedging Instruments | on Derivatives | 2022 | 2021 | |||||
Commodity contracts | Revenues | $ | (5,358) | $ | (40,794) | |||
Commodity contracts | Costs of goods sold | (48,402) | 8,563 | |||||
Net gain (loss) recognized in income (loss) before income taxes | $ | (53,760) | $ | (32,231) | ||||
The following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||||||||||||||
Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included | Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | Carrying Amount of the Hedged Assets | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets | ||||||||||||||||
Inventories | $ | 45,378 | $ | 12,825 | $ | 53,963 | $ | 9,041 | $ | 70,460 | $ | 21,326 | $ | 72,320 | $ | 6,291 | ||||||||
Effect of Cash Flow and Fair Value Hedge Accounting on the Statements of Operations
The effect of cash flow and fair value hedges and the line items on the consolidated statements of operations where they are reported are as follows (in thousands):
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Three Months Ended March 31, | Location and Amount of Gain (Loss) Recognized in Income on Cash Flow and Fair Value Hedging Relationships for the Three Months Ended March 31, | |||||||||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||||||||
Revenue | Cost of | Revenue | Cost of | Revenue | Cost of | Revenue | Cost of | |||||||||||||||
Gain (loss) on cash flow hedging relationships: | ||||||||||||||||||||||
Commodity contracts: | ||||||||||||||||||||||
Amount of gain reclassified from accumulated other comprehensive income into income | $ | (15,188) | $ | 16,999 | $ | 8,818 | $ | (2,901) | ||||||||||||||
Amount of gain (loss) reclassified from accumulated other comprehensive income into income | $ | (628) | $ | 3,294 | $ | (15,188) | $ | 16,999 | ||||||||||||||
Gain (loss) on fair value hedging relationships: | ||||||||||||||||||||||
Commodity contracts: | ||||||||||||||||||||||
Hedged item | - | 7,967 | - | (7,594) | - | 18,386 | - | 7,967 | ||||||||||||||
Derivatives designated as hedging instruments | - | (7,108) | - | 8,114 | - | (17,244) | - | (7,108) | ||||||||||||||
Total amounts of income and expense line items presented in the statement of operations in which the effects of cash flow or fair value hedges are recorded | $ | (15,188) | $ | 17,858 | $ | 8,818 | $ | (2,381) | $ | (628) | $ | 4,436 | $ | (15,188) | $ | 17,858 | ||||||
There were 0 gains or losses from discontinuing cash flow or fair value hedge treatment during the three months ended March 31, 20212022 and 2020.2021.
The open commodity derivative positions as of March 31, 20212022, are as follows (in thousands):
Exchange Traded (1) | Non-Exchange Traded (2) | Exchange Traded (1) | Non-Exchange Traded (2) | |||||||||||||||||
Derivative | Net Long & | Long | (Short) | Unit of | Commodity | Net Long & | Long | (Short) | Unit of | Commodity | ||||||||||
Futures | (22,300) | Bushels | Corn and Soybeans | (19,985) | Bushels | Corn | ||||||||||||||
Futures | 28,965 | (3) | Bushels | Corn | (8,205) | (3) | Bushels | Corn | ||||||||||||
Futures | (7,255) | (4) | Bushels | Corn | (2,142) | Gallons | Ethanol | |||||||||||||
Futures | (119,490) | Gallons | Ethanol | 5,398 | MmBTU | Natural Gas | ||||||||||||||
Futures | (80,346) | (3) | Gallons | Ethanol | (960) | (3) | MmBTU | Natural Gas | ||||||||||||
Futures | 15,238 | MmBTU | Natural Gas | |||||||||||||||||
Futures | (848) | (4) | MmBTU | Natural Gas | ||||||||||||||||
Futures | 425 | Tons | Soybean Meal | |||||||||||||||||
Futures | (24,000) | Pounds | Soybean Oil | |||||||||||||||||
Options | 109 | Tons | Soybean Meal | |||||||||||||||||
Options | 63,159 | Pounds | Soybean Oil | |||||||||||||||||
Options | 10,995 | Bushels | Corn | 32,007 | Pounds | Soybean Oil | ||||||||||||||
Options | (10,719) | Gallons | Ethanol | 5,102 | Bushels | Corn | ||||||||||||||
Options | 76 | MmBTU | Natural Gas | 487 | MmBTU | Natural Gas | ||||||||||||||
Forwards | 49,595 | (62) | Bushels | Corn and Soybeans | 55,634 | (123) | Bushels | Corn | ||||||||||||
Forwards | - | (155,333) | Gallons | Ethanol | - | (274,797) | Gallons | Ethanol | ||||||||||||
Forwards | 126 | (398) | Tons | Distillers Grains | 173 | (381) | Tons | Distillers Grains | ||||||||||||
Forwards | 24,816 | (18,000) | Pounds | Corn Oil | - | (110,529) | Pounds | Corn Oil | ||||||||||||
Forwards | 15,658 | (1,029) | MmBTU | Natural Gas | 18,501 | (482) | MmBTU | Natural Gas | ||||||||||||
(1)Exchange traded futures and options are presented on a net long and (short) position basis. Options are presented on a delta-adjusted basis.
(2)Non-exchange traded forwards are presented on a gross long and (short) position basis including both fixed-price and basis contracts.
(3)Futures used for cash flow hedges.
(4)Futures used for fair value hedges.
Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Included in revenues are net gains on energy trading contracts of $0.4$0.8 million and $3.1$0.4 million for the three months ended March 31, 2022 and 2021, and 2020, respectively.respectively, on energy trading contracts.
8. DEBT
On January 1, 2021, the company early adopted the amended guidance in ASC 470-20, using the modified retrospective methodThe components of transition. The adoption of this guidance resulted in a $49.5 million decrease in additional paid-in capital, an $11.4 million increase in retained earnings and a $38.1 million increase in long-term debt which included a $39.4are as follows (in thousands):
March 31, 2022 | December 31, 2021 | ||||
Corporate: | |||||
2.25% convertible notes due 2027 (1) | $ | 230,000 | $ | 230,000 | |
4.00% convertible notes due 2024 (2) | 64,000 | 64,000 | |||
4.125% convertible notes due 2022 (3) | 34,316 | 34,316 | |||
Green Plains SPE LLC: | |||||
$125.0 million junior secured mezzanine notes due 2026 (4) | 125,000 | 125,000 | |||
Green Plains Wood River and Green Plains Shenandoah: | |||||
$75.0 million delayed draw loan agreement (5) | 75,000 | 30,000 | |||
Green Plains Partners: | |||||
$60.0 million term loan (6) (7) | 58,969 | 60,000 | |||
Other | 15,363 | 15,531 | |||
Total book value of long-term debt | 602,648 | 558,847 | |||
Unamortized debt issuance costs | (9,010) | (9,556) | |||
Less: current maturities of long-term debt | (35,701) | (35,285) | |||
Total long-term debt | $ | 557,937 | $ | 514,006 | |
(1)Includes $6.2 million increase in debt principal offset by a $1.3and $6.5 million increase inof unamortized debt issuance costs resultingas of March 31, 2022 and December 31, 2021, respectively.
(2)Includes $1.1 million and $1.2 million of unamortized debt issuance costs as of March 31, 2022 and December 31, 2021, respectively.
(3)Includes $0.1 million of unamortized debt issuance costs as of both March 31, 2022 and December 31, 2021, respectively.
(4)Includes $0.8 million and $0.9 million of unamortized debt issuance costs as of March 31, 2022 and December 31, 2021, respectively.
(5)On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a $75.0 million delayed draw loan agreement. Includes $0.3 million of unamortized debt issuance costs as of both March 31, 2022 and December 31, 2021, respectively.
(6)The Green Plains Partners credit facility was amended on July 20, 2021, to $60.0 million and includes $0.5 million of unamortized debt issuance costs as of both March 31, 2022 and December 31, 2021, respectively.
(7)On February 11, 2022, the term loan was modified to allow Green Plains Partners and its affiliates to repurchase outstanding notes. On the same day, the partnership purchased $1.0 million of the outstanding notes from amounts previously bifurcated to equity being reclassified to debt.accounts and funds managed by BlackRock and subsequently retired the notes.
The components of long-term debt are as follows (in thousands):
March 31, 2021 | December 31, 2020 | ||||
Corporate: (1) | |||||
2.25% convertible notes due 2027 (2) | $ | 230,000 | $ | - | |
4.00% convertible notes due 2024 (3) | 115,000 | 89,125 | |||
4.125% convertible notes due 2022 (4) | 34,316 | 156,441 | |||
Green Plains SPE LLC: | |||||
$125.0 million junior secured mezzanine notes due 2026 (5) | 125,000 | - | |||
Green Plains Wood River and Green Plains Shenandoah: | |||||
$75.0 million delayed draw loan agreement (6) | 30,000 | 30,000 | |||
Green Plains Partners: | |||||
$135.0 million credit facility (7) | 62,800 | 100,000 | |||
Other | 15,793 | 15,936 | |||
Total book value of long-term debt | 612,909 | 391,502 | |||
Unamortized debt issuance costs | (13,587) | (6,151) | |||
Less: current maturities of long-term debt | (61,442) | (98,052) | |||
Total long-term debt | $ | 537,880 | $ | 287,299 | |
(1)See discussion on early adoption of the amended guidance in ASC 470-20 on the previous page.
(2)Includes $7.4 million of unamortized debt issuance costs as of March 31, 2021.
(3)Includes $2.8 million and $2.2 million of unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively.
(4)See discussion below regarding the repurchase of convertible notes due in 2022. Includes $0.3 million and $1.3 million of unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively.
(5)Includes $1.0 million of unamortized debt issuance costs as of March 31, 2021.
(6)Includes $0.3 million of unamortized debt issuance costs as of both March 31, 2021 and December 31, 2020.
(7)Includes $1.7 million and $2.3 million of unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively.
The components of short-term notes payable and other borrowings are as follows (in thousands):
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||
Green Plains Finance Company, Green Plains Grain and Green Plains Trade: | ||||||||||
$350.0 million revolver | $ | 305,000 | $ | - | ||||||
Green Plains Commodity Management: | ||||||||||
$40.0 million hedge line | 5,190 | 16,210 | ||||||||
Green Plains Trade: | ||||||||||
$300.0 million revolver | $ | 70,270 | $ | 79,251 | - | 137,208 | ||||
Green Plains Grain: | ||||||||||
$100.0 million revolver | 49,000 | 38,700 | - | 20,000 | ||||||
$50.0 million inventory financing | 32,277 | - | ||||||||
Green Plains Commodity Management: | ||||||||||
$30.0 million hedge line | 22,557 | 21,682 | ||||||||
Other | - | 1,175 | ||||||||
$ | 174,104 | $ | 140,808 | $ | 310,190 | $ | 173,418 | |||
Corporate Activities
In March 2021, the company issued an aggregate $230.0 million of 2.25% convertible senior notes due in 2027, or the 2.25% notes. The 2.25% notes bear interest at a rate of 2.25% per year, payable on March 15 and September 15 of each year, beginning September 15, 2021, and mature on March 15, 2027. The 2.25% notes are senior, unsecured obligations of the company. The 2.25% notes are convertible, at the option of the holders, into consideration consisting of, at the company’s election, cash, shares of the company’s common stock, or a combination of cash and stock (and cash in lieu of fractional shares). However, before September 15, 2026, the 2.25% notes will not be convertible unless certain conditions are satisfied. The initial conversion rate is 31.6206 shares of the company’s common stock per $1,000 principal amount of 2.25% notes (equivalent to an initial conversion price of approximately $31.62 per share of the company’s common stock), representing an approximately 37.5% premium over the offering price of the company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering. In addition, the company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the company’s calling the 2.25% notes for redemption.
On and after March 15, 2024, and prior to the maturity date, the company may redeem, for cash, all, but not less than all, of the 2.25% notes if the last reported sale price of the company’s common stock equals or exceeds 140% of the applicable conversion price on (i) at least 20 trading days during a 30 consecutive trading day period ending on the trading day
immediately prior to the date the company delivers notice of the redemption; and (ii) the trading day immediately before the date of the redemption notice. The redemption price will equal 100% of the principal amount of the 2.25% notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a “fundamental change” (as defined in the indenture for the 2.25% notes), holders of the 2.25% notes will have the right, at their option, to require the company to repurchase their 2.25% notes for cash at a price equal to 100% of the principal amount of the 2.25% notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
During June 2019, the company issued an aggregate $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations of the company, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The 4.00% notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased. The 4.00% notes will be convertible, at the option of the holders, into consideration consisting of, at the company’s election, cash, shares of the company’s common stock, or a combination of cash and shares of the company’s common stock until the close of business on the scheduled trading day immediately preceding the maturity date. However, before January 1, 2024, the 4.00% notes will not be convertible unless certain conditions are satisfied. The initial conversion rate is 64.1540 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $15.59 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering. In addition, the company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the company’s calling the 4.00% notes for redemption.
On and after July 1, 2022, and prior to the maturity date, the company may redeem all, but not less than all, of the 4.00% notes for cash if the sale price of the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal amount of the 4.00% notes to be redeemed, plus any
accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change, holders of the 4.00% notes will have the right, at their option, to require the company to repurchase the 4.00% notes in cash at a price equal to 100% of the principal amount of the 4.00% notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
During May 2021, the company entered into a privately negotiated agreement with certain noteholders of the company’s 4.00% notes. Under this agreement, 3,568,705 shares of the company’s common stock were exchanged for $51.0 million in aggregate principal amount of the 4.00% notes. Common stock held as treasury shares were exchanged for the 4.00% notes. Pursuant to the guidance within ASC 470, Debt, the company recorded a loss of $9.5 million which was recorded as a charge to interest expense in the consolidated financial statements during the three months ended June 30, 2021, of which $1.2 million related to unamortized debt issuance costs.
In August 2016, the company issued $170.0 million of 4.125% convertible senior notes due in 2022, or the 4.125% notes. In March 2021, concurrent with the issuance of the 2.25% notes, the company used approximately $156.5 million of the net proceeds of the 2.25% notes to repurchase approximately $135.7 million aggregate principal amount of the 4.125% notes, in privately negotiated transactions. Pursuant to the guidance within ASC 470, Debt, the company recorded a loss upon extinguishment of $22.1 million, measured by the difference between the fair value and carrying value of the notes, which was recorded to interest expense. This charge included $1.2 million of unamortized debt issuance costs related to the principal balance extinguished.
The 4.125% notes are senior, unsecured obligations of the company, with interest payable on March 1 and September 1 of each year. The company mayanticipates it will settle the 4.125% notes in cash, common stock or a combination of cash and common stock. Prior to March 1, 2022, the 4.125%The notes are not convertible unless certain conditions are satisfied.at the Holder’s option. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $28.00 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering.
The company may redeem all, but not less than all, of the 4.125% notes at any time on or after September 1, 2020, if the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal plus any accrued and unpaid interest. Holders of the 4.125% notes have the option to require the company to repurchase the 4.125% notes in cash at a price equal to 100% of the principal plus accrued and unpaid interest when there is a fundamental change, such as change in control. If an event of default occurs, it could result in the 4.125% notes being declared due and payable.
Agribusiness and Energy Services Segment
On March 25, 2022, Green Plains Finance Company, Green Plains Grain and Green Plains Trade (collectively, the “Borrowers”), all wholly owned subsidiaries of the company, together with the company, as guarantor, entered into a five-year, $350.0 million senior secured sustainability-linked revolving Loan and Security Agreement (the “Facility”) with a group of financial institutions. This transaction refinanced the separate credit facilities previously held by Green Plains Grain and Green Plains Trade. The Facility matures on March 25, 2027.
The Facility includes revolving commitments totaling $350.0 million and an accordion feature whereby amounts available under the Facility may be increased by up to $100.0 million of new lender commitments subject to certain conditions. Each SOFR rate loan shall bear interest for each day at a rate per annum equal to the Term SOFR rate for the outstanding period plus a Term SOFR adjustment and an applicable margin of 2.25% to 2.50%, which is dependent on undrawn availability under the Facility. Each base rate loan shall bear interest at a rate per annum equal to the base rate plus the applicable margin of 1.25% to 1.50%, which is dependent on undrawn availability under the Facility. The unused portion of the Facility is also subject to a commitment fee of 0.275% to 0.375%, dependent on undrawn availability. Additionally, the applicable margin and commitment fee are subject to certain increases or decreases of up to 0.10% and 0.025%, respectively, tied to the company’s achievement of certain sustainability criteria, including the reduction of greenhouse gas emissions, recordable incident rate reduction, increased corn oil production and the implementation of technology to produce sustainable ingredients.
The Facility contains customary affirmative and negative covenants, as well as the following financial covenants to be calculated as of the last day of any month: the current ratio of the Borrowers shall not be less than 1.00 to 1.00; the collateral coverage ratio of the Borrowers shall not be less than 1.20 to 1.00; and the debt to capitalization ratio of the company shall
Agribusiness and Energy Services Segment
Green Plains Trade has a $300.0 million senior secured asset-based revolving credit facilitynot be greater than 0.60 to finance working capital for marketing and distribution activities based on eligible collateral equal to the sum of percentages of eligible receivables and inventories, less miscellaneous adjustments. The credit facility matures on July 28, 2022 and consists of a $285 million credit facility and a $15 million first-in-last-out (FILO) credit facility, and includes an accordion feature that enables the credit facility to be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal to daily LIBOR plus 2.25% on the credit facility and daily LIBOR plus 3.25% on the FILO credit facility. The total unused portion of the revolving credit facility is also subject to a commitment fee of 0.375% per annum.1.00.
The terms impose affirmativeFacility also includes customary events of default, including without limitation, failure to make required payments of principal or interest, material incorrect representations and negativewarranties, breach of covenants, for Green Plains Trade, including maintaining a minimum fixed charge coverage ratioevents of 1.15 to 1.00. Capital expenditures are limited to $1.5 million per year underbankruptcy and other certain matters. The Facility is secured by the credit facility. The credit facility also restricts distributions related to capital stock, with an exception for distributions up to 50% of net income if, on a pro forma basis, (a) availability has been greater than $10.0 million for the last 30 days and (b) the borrower would be in compliance with the fixed charge coverage ratio on the distribution date.
Green Plains Grain has a $100.0 million senior secured asset-based revolving credit facility, which matures on June 28, 2022. The credit facility finances working capital up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible cash, receivables and inventories, less miscellaneous adjustments. Advances are subject to an interest rate equal to LIBOR plus 3.00% or the lenders’ base rate plus 2.00%. The credit facility also includes an accordion feature that enables the facility to be increased by up to $75.0 million with agent approval. The credit facility can also be increased by up to $50.0 million for seasonal borrowings. Total commitments outstanding cannot exceed $225.0 million. Depending on utilization, the total unused portionassets of the $100.0 million revolving credit facilityBorrowers and is also subject to a commitment fee ranging from 0.375% to 0.50%.
Lenders receive a first priority lien on certain cash, inventory, accounts receivable and other assets ownedguaranteed by Green Plains Grain. The terms impose affirmative and negative covenants for Green Plains Grain, including maintaining minimum working capital to be the greater of (i) $18,000,000 and (ii) 18% of the sum of the then total commitment plus the aggregate seasonal line commitments. Minimum tangible net worth is required to be greater than 21% of the sum of the then total commitment plus the aggregate seasonal line commitments. The credit facility also requires the company to maintain a maximum annual leverage of 6.00 to 1.00. Capital expenditures are limited to $8.0 million per year under the credit facility, plus equity contributions from the company and unused amounts of up to $8.0 million from the previous year. In addition, if the company has long-term indebtedness on the date of calculation of greater than $10.0 million, the credit facility requires the company to maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum long term debt capitalization of 40%.
Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At March 31, 2021, 5.5 million bushels of corn had been designated as collateral under these agreements at initial values totaling $32.3 million. The company has accounted for the agreements as short-term notes, rather than sales, and has elected the fair value option to offset fluctuations in market prices of the inventory. At March 31, 2021, the short-term notes payable were valued at $32.3 million and were measured using Level 2 inputs.company.
Green Plains Commodity Management has an uncommitted $30.0$40.0 million revolving credit facility which matures April 30, 2023, to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBORSOFR plus 1.75%. The company had $5.2 million short-term notes payable related to this credit facility as of March 31, 2022.
Ethanol Production Segment
On February 9, 2021, Green Plains SPE LLC, a wholly-owned special purpose subsidiary and parent of Green Plains Obion and Green Plains Mount Vernon, issued $125.0 million of junior secured mezzanine notes due 2026 (the “Junior Notes”) with four funds and accounts managed by BlackRock, a holder of a portion of the company’s common stock, for the purchase of all notes issued.
The Junior Notes will mature on February 9, 2026 and are secured by a pledge of the membership interests in and the real property owned by Green Plains Obion and Green Plains Mount Vernon. The proceeds of the Junior Notes will beare being used to construct highMSCTM protein processing systemstechnology at the Green Plains Obion and Green Plains Mount Vernon facilities. The Junior Notes accrue interest at an annual rate of 11.75%. However, subject to the satisfaction of certain conditions, the Green Plains SPE LLC may elect to pay an amount in cash equal to interest accruing at a rate of 6.00% per annum plus an amount equal to interest accruing at a rate of 6.75% per annum to be paid in kind. The entire outstanding principal balance, plus any accrued and unpaid interest is due upon maturity. Green Plains SPE LLC is required to comply with certain financial covenants
regarding minimum liquidity at Green Plains and a maximum aggregate loan to value. The Junior Notes can be retired or refinanced after 42 months with no prepayment premium. The Junior Notes have an unsecured parent guarantee from the company and have certain limitations on distributions, dividends or loans to the company unless there will not exist any event of default. Funds associated with the Junior Notes are administered by a trustee and are included in the balance of restricted cash as of March 31, 2021.2022.
On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a delayed draw loan agreement with MetLife Real Estate Lending LLC. The $75.0 million delayed draw loan matures on September 1, 2035 and is secured by substantially all of the assets of the Wood River and Shenandoah facilities. The proceeds from the loan will bewere used to add highMSCTM protein processing systemstechnology at the Wood River and Shenandoah facilities as well as other capital expenditures.
The delayed draw loan bears interest at a fixed rate of 5.02%, plus an interest rate premium of 1.5% until the loan is fully drawn. The remaining availability was drawn which must occur withinin the 18 month draw period. Afterfirst quarter of 2022. Beginning in the earliersecond quarter of the 18 month draw period or the loan being fully drawn,2022, the interest rate premium may be adjusted quarterly from 0.00% to 1.50% based on the leverage ratio of total funded debt to EBITDA of Wood River and Shenandoah. Principal payments of $1.5 million per year begin 24 months from the closing date. Prepayments are prohibited until September 2024. Financial covenants of the delayed draw loan agreement include a minimum loan to value ratio of 50%, a minimum fixed charge coverage ratio of 1.25x commencing on June 30, 2021, a total debt service reserve of six months of future principal and interest payments and a minimum working capital requirement at Green Plains of not less than $0.10 per gallon of nameplate capacity or $95.8 million. The loan is guaranteed by the company and has certain limitations on distributions, dividends or loans to Green Plains by Wood River and Shenandoah unless immediately after giving effect to such action, there will not exist any event of default.
The company also has small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.
Partnership Segment
Green Plains Partners has a $135.0 million credit facilityterm loan to fund working capital, capital expenditures and other general partnership purposes. TheOn July 20, 2021, the prior credit facility includes a $130.0was amended to $60.0 million, term loan and a $5.0 million revolver, and matures on December 31, 2021. The partnership made $37.5 million in principal payments onextending the term loan during the three months ended March 31, 2021, including $7.5 million of scheduled repayments, $27.0 million related to the sale of the storage assets located adjacent to the Ord, Nebraska ethanol plant and a $3.0 million prepayment made with excess cash. As of March 31, 2021, 0 additional prepayments on the term loan were required or paid. Monthly principal payments of $2.5 million are required through April 15, 2021, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity. In addition, if at any time subsequentmaturity to July 15, 2020, the partnership’s cash balance exceeds $2.5 million for more than 5 consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. The partnership is also required to prepay outstanding principal on20, 2026, and converting the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment.
The term loan balance, and any advances on the revolver, are subject to a floating interest rate based on a 1.0% LIBOR floor plus 4.50% to 5.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. Prepayments of $40.0 million in excess of the scheduled monthly payments were made prior to April 1, 2021, and as such, the interest rate associated with the term loan balance will not be increased to a floating rate based on a 1.00% LIBOR floor plus 5.00% to 5.75%. The unused portion of the revolver is also subject to a commitment fee of 0.50%. The credit facility also allows for swing line loans subject to the revolver availability. Swing line loans are subject to a floating interest rate based on the Prime Rate plus 3.5% to 4.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio.loan. Under the terms of the amended agreement, BlackRock purchased the outstanding balance of the prior credit facility swing line loans must be repaid within 10 daysfrom the previous lenders. Interest on the amended term loan is based on 3-month LIBOR plus 8.00%, with a 0% LIBOR floor. Interest is payable on the 15th day of each March, June, September and December during the term with the first interest payment being September 15, 2021. The amended term loan does not require any principal payments; however, the partnership has the option to prepay $1.5 million per quarter beginning twelve months after the closing date. On February 11, 2022, the amended term loan was modified to allow Green Plains Partners and its
affiliates to repurchase outstanding notes. On the same day, the partnership purchased $1.0 million of the date ofoutstanding notes from accounts and funds managed by BlackRock and subsequently retired the advance. As of March 31, 2021, the term loan had a balance of $62.5 million and an interest rate of 5.75% and the revolver had a balance outstanding of $0.3 million at an interest rate of 7.00%.notes.
The partnership’s obligations under the credit facilityterm loan are secured by a first priority lien on (i) the equity interests of the partnership’s present and future subsidiaries, (ii) all of the partnership’s present and future personal property, such as investment property, general intangibles and contract rights, including rights under any agreements with Green Plains Trade, and (iii) all proceeds and products of the equity interests of the partnership’s present and future subsidiaries and its personal property and (iv) substantially all of the partnership’s real property and material leases of real property. The terms impose affirmative and negative covenants, including restrictions on the partnership’s ability to incur additional debt, acquire and sell assets, create liens, invest capital, pay distributions and materially amend the partnership’s commercial agreements with
Green Plains Trade. The credit facilityterm loan also requires the partnership to maintain a maximum consolidated leverage ratio and a minimum consolidated debt service coverage ratio,, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures occurring during the applicable period. The maximum consolidated leverage ratio required, as of the end of any fiscal quarter, is no more than 3.00x and decreases 0.25x each quarter to 1.50x by December 31, 2021. The minimum consolidated debt service coverage ratio for the three months ended March 31, 2021, was set to 1.05x due to the partnership having completed prepayment of at least $40 million of the outstanding principal balance on the credit facility as specified in the loan agreement.2.50x. The minimum debt service coverage ratio will resume being set to 1.10x for subsequent quarters.required, as of the end of any fiscal quarter, is no less 1.10x. The consolidated leverage ratio is calculated by dividing total funded indebtedness by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated debt service coverage ratio is calculated by taking the sum of the four preceding fiscal quarters’ consolidated EBITDA minus income taxes and consolidated capital expenditures for such period divided by the sum of the four preceding fiscal quarters’ consolidated interest charges plus consolidated scheduled funded debt payments for such period.
Under the amended terms of the credit facility,loan, the partnership may makehas no restrictions on the amount of quarterly distribution payments, in an aggregate amount not to exceed $0.12 per outstanding unit, so long as (i) no default has occurred and is continuing, or would result from payment of the distribution, and (ii) the partnership and its subsidiaries are in compliance with its financial covenants and remain in compliance after payment of the distribution. The credit facilityterm loan is not guaranteed by the company.
The facility, which is supported by a group of financial institutions, will mature on December 31, 2021 unless extended by agreement of the lenders or replaced by another funding source. While the partnership has not yet finalized renegotiations of the credit facility or secured additional funding necessary to repay the loan, the partnership believes it is probable that it will source appropriate funding given the partnership’s consistent and stable fee-based cash flows, ongoing profitability, low debt leverage and history of obtaining financing on reasonable commercial terms. In the unlikely scenario that the partnership is unable to refinance its debt with the lenders prior to its maturity, the partnership will consider other financing sources, including but not limited to, the restructuring or issuance of new debt with a different lending group, the issuance of additional partnership units, other strategic actions to extinguish the debt, or support from the company.
Covenant Compliance
The company was in compliance with its debt covenants as of March 31, 2021.2022.
Restricted Net Assets
At March 31, 2021,2022, there were approximately $152.7$108.8 million of net assets at the company’s subsidiaries that could not be transferred to the parent company in the form of dividends, loans or advances due to restrictions contained in the credit facilities of these subsidiaries.
9. STOCK-BASED COMPENSATION
The company has an equity incentive plan which reserved a total of 5.7 million shares of common stock for issuance pursuant to the plan.plan, of which 1.7 million shares remain outstanding and available. The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, restricted and deferred stock unit awards and performance share awards to eligible employees, non-employee directors and consultants. The company measures stock-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The company records noncash compensation expense related to equity awards in its consolidated financial statements over the requisite period on a straight-line basis.
Restricted Stock Awards and Deferred Stock Units
The non-vested stock award and deferred stock unit activity for the three months ended March 31, 2021,2022, is as follows:
Non-Vested | Weighted- | Weighted-Average | Non-Vested | Weighted- | Weighted-Average | |||||||
Non-Vested at December 31, 2020 | 1,028,739 | $ | 9.15 | |||||||||
Non-Vested at December 31, 2021 | 793,337 | $ | 14.64 | |||||||||
Granted | 295,878 | 26.25 | 257,002 | 29.91 | ||||||||
Forfeited | (6,221) | 11.79 | (5,954) | 20.12 | ||||||||
Vested | (293,715) | 13.71 | (240,223) | 13.65 | ||||||||
Non-Vested at March 31, 2021 | 1,024,681 | $ | 12.76 | 2.4 | ||||||||
Non-Vested at March 31, 2022 | 804,162 | $ | 19.77 | 2.5 | ||||||||
Performance Shares
On March 14, 2022, February 18, 2021 and March 18, 2020, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the level of achievement of certain performance goals, including the incremental value achieved from various metrics including but not limited to the company’s high-protein initiatives, annual production levels and return on investment (ROI). Performance shares granted in 2021 and 2020 do not contain market based factors requiring a Monte Carlo valuation model. The performance shares were granted at a target of 100%, but each performance share will reducecan be reduced or increaseincreased depending on results for the performance period. If the company achieves the maximum performance goals, the maximum amount of shares available to be issued pursuant to the 2022, 2021 and 2020 awards are 1,122,2431,210,935 performance shares which represents approximately 272%251% of the 412,121482,811 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual performance targets achieved at the end of theeach performance period.
On February 19, 2019, and March 19, 2018, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the company’s average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on the third anniversary of the grant, if the RONA and TSR criteria are achieved and the participant is then employed by the company. NaN percent of the performance shares vest based upon the company’s ability to achieve a predetermined RONA during the three year performance period. The remaining 50 percent of the performance shares vest based upon the company’s total TSR during the three year performance period relative to that of the company’s performance peer group.
The performance shares were granted at a target of 100%, but each performance share will reducewas reduced or increaseincreased depending on results for the performance period for the company's RONA,company’s average return on net assets, and the company’s TSRtotal shareholder return relative to that of the company’s performance peer group. On MarchFebruary 19, 2021,2022, based on the criteria discussed above, the 2018149,933 2019 performance shares vested at a target of 75%. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to the 2019 awards are 252,279 performance shares or 150% of the 168,186 performance shares, which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.
For performance shares which include market based factors, the company uses the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant.The weighted average assumptions used by the company in applying the Monte Carlo valuation model for performance share grants and related valuation are illustratedresulted in the following table:issuance of 112,450 shares of common stock.
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The non-vested performance share award activity for the three months ended March 31, 2021,2022, is as follows:
Performance | Weighted- | Weighted-Average | ||||
Non-Vested at December 31, 2020 | 517,969 | $ | 10.82 | |||
Granted | 179,555 | 26.27 | ||||
Forfeited | (29,302) | 18.15 | ||||
Vested | (87,915) | 17.68 | ||||
Non-Vested at March 31, 2021 | 580,307 | $ | 14.17 | 2.5 | ||
Performance | Weighted- | Weighted-Average | ||||
Non-Vested at December 31, 2021 | 486,155 | $ | 13.93 | |||
Granted | 146,589 | 29.47 | ||||
Vested | (149,933) | 15.31 | ||||
Non-Vested at March 31, 2022 | 482,811 | $ | 18.22 | 2.5 | ||
Green Plains Partners
Green Plains Partners has a long-term incentive plan (LTIP) intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation awards to employees, consultants and directors to encourage superior performance. The LTIP reserves 2,500,000 common limited partner units for issuance in the form of
options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profit interest units or other unit-based awards. The partnership measures unit-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The partnership records noncash compensation expense related to theequity awards in its consolidated financial statements over the requisite service period on a straight-line basis.
There was 0no change in the number of non-vested basedunit-based awards duringfor the three months ended March 31, 2021.2022.
Stock-Based and Unit Based Compensation Expense
Compensation costs for stock-based stock-based and unit-based payment plans were $0.9$1.9 million and $1.3$0.9 million for the three months ended March 31, 20212022 and 2020,2021, respectively. At March 31, 2021,2022, there was $16.5$19.2 million of unrecognized compensation costs from stock-based and unit-based compensation related to non-vested awards. This compensation is expected to be recognized over a weighted-average period of approximately 2.5 years. The potential tax benefit related to stock-based payment is approximately 23.9%21.4% of of these expenses.
10. EARNINGS PER SHARE
Basic earnings per share, or EPS, is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.
The company computed diluted EPS by dividing net income on an if-converted basis, adjusted to add back net interest expense related to the convertible debt instruments, by the weighted average number of common shares outstanding during the period, adjusted to include the shares that would be issued if the convertible debt instruments were converted to common shares and the effect of any outstanding dilutive securities.
The basic and diluted EPS are calculated as follows (in thousands, except per share amounts)thousands):
Three Months Ended March 31, | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
EPS - basic and diluted: | ||||||||||
Net loss attributable to Green Plains | $ | (6,545) | $ | (16,445) | $ | (61,474) | $ | (6,545) | ||
Weighted average shares outstanding - basic and diluted | 37,695 | 34,665 | 52,887 | 37,695 | ||||||
EPS - basic and diluted | $ | (0.17) | $ | (0.47) | ||||||
EPS - basic and diluted: | $ | (1.16) | $ | (0.17) | ||||||
Anti-dilutive weighted-average convertible debt and stock-based compensation (1) | 13,714 | 13,926 | ||||||||
Anti-dilutive weighted-average convertible debt, warrants and stock-based compensation (1) | 13,823 | 13,714 | ||||||||
(1)The effect related to the company’s convertible debt, outstanding warrants and certain stock-based compensation awards havehas been excluded from diluted EPS for the periods presented as the inclusion of these shares would have been anti-dilutive.antidilutive.
11. STOCKHOLDERS’ EQUITY
Early Adoption of ASC 470-20
On January 1, 2021, the company early adopted the amended guidance in ASC 470-20, using the modified retrospective method of transition. The adoption of this guidance resulted in a $49.5 million decrease in additional paid-in capital, an $11.4 million increase in retained earnings and a $38.1 million increase in long-term debt, which included a $39.4 million increase in debt principal offset by a $1.3 million increase in debt issuance costs, resulting from amounts previously bifurcated to equity being reclassified to debt.
Upon adoption of amended guidance in ASC 470-20, the company reversed the remaining deferred tax liability of $9.2 million associated to the equity portion of previously issued convertible debt. As the company had recorded a full valuation allowance against its deferred tax assets, the reversal of the $9.2 million deferred tax liability would require an increase to the existing valuation allowance by the same amount which would normally be recorded through current income tax expense. However, because the change in the deferred tax liability is directly linked to the adoption of ASC 470-20, which is accounted for as a cumulative effect adjustment, the required increase to the valuation allowance is recorded as part of the cumulative adjustment to stockholders’ equity and has no effect on the income statement.
Public OfferingOfferings of Common Stock
On March 1, 2021, the company completed an offering of 8,751,500 shares of our common stock, par value $0.001 per share, in a public offering at a price of $23.00 per share (the “Common“March Common Stock Offering”). The March Common Stock Offering resulted in net proceeds of $191.1 million, after deducting underwriting discounts and commissions as well asand the company’s offering expenses.
On August 9, 2021, the company completed an offering of 5,462,500 shares of our common stock, par value $0.001 per share, in a public offering at a price of $32.00 per share (the “August Common Stock Offering”). The August Common Stock Offering resulted in net proceeds of $164.9 million, after deducting underwriting discounts and commissions and the company’s offering expenses.
Warrants
During the three months ended March 31, 2021, in connection with certain arrangements,agreements, the company issued warrants to purchase shares of its common stock. The company measures the fair value of the warrants using the Black-Scholes option pricing model as of the issuance date. Exercisable warrants are equity based and recorded as a reduction in additional paid-in capital.
The company has reserved 2,550,000 shares of common stock for the exercise of warrants to non-employees, of which 2,275,000 are exercisable.exercisable, and are treated as equity based awardsand recorded as a reduction in additional paid-in capital. The remaining 275,000 warrants, of which 55,555 are exercisable as a result of achieving certain earn-out provisions and 219,445 are contingent upon certain earn-out provisions, are treated as liability based awards, and valued quarterly using the company’s stock price. These warrants could potentially dilute basic earnings per share in future years.periods. The exercise price of the warrants is $22.00 and expiration dates are December 8, 2025 for 275,000 warrants, February 9, 2026 for 275,000 warrants and April 28, 2026 for 2,000,000 warrants.
Components of stockholders’ equity for the three months ended March 31, 2021 and 2020 are as follows (in thousands):Convertible Note Exchange
On May 18, 2021, the company completed a privately negotiated exchange agreement with certain noteholders of the company’s 4.00% notes, pursuant to which the noteholders agreed to exchange $51.0 million in aggregate principal for 3,568,705 shares of the company’s common stock at an implied price of $26.80.
Accum. | Total | |||||||||||||||||
Additional | Other | Green Plains | Non- | Total | ||||||||||||||
Common Stock | Paid-in | Retained | Comp. | Treasury Stock | Stockholders' | Controlling | Stockholders' | |||||||||||
Shares | Amount | Capital | Earnings | Income | Shares | Amount | Equity | Interests | Equity | |||||||||
Balance, December 31, 2020 | 47,471 | $ | 47 | $ | 740,889 | $ | 39,375 | $ | (2,172) | 11,813 | $ | (131,287) | $ | 646,852 | $ | 129,812 | $ | 776,664 |
Impact of ASC 470-20 adoption (1) | - | - | (49,496) | 11,418 | - | - | - | (38,078) | - | (38,078) | ||||||||
Balance, January 1, 2021 | 47,471 | 47 | 691,393 | 50,793 | (2,172) | 11,813 | (131,287) | 608,774 | 129,812 | 738,586 | ||||||||
Net income (loss) | - | - | - | (6,545) | - | - | - | (6,545) | 4,566 | (1,979) | ||||||||
Cash distributions declared | - | - | - | - | - | - | - | - | (1,395) | (1,395) | ||||||||
Other comprehensive loss | - | - | - | - | (4,849) | - | - | (4,849) | - | (4,849) | ||||||||
Amounts reclassified from | - | - | - | - | (1,377) | - | - | (1,377) | - | (1,377) | ||||||||
Other comprehensive income, | - | - | - | - | (6,226) | - | - | (6,226) | - | (6,226) | ||||||||
Investment in subsidiary | - | - | - | - | - | - | - | - | 3,330 | 3,330 | ||||||||
Issuance of warrants | - | - | 3,431 | - | - | - | - | 3,431 | (3,431) | - | ||||||||
Issuance of common stock for cash at $23.00 per share, net of fees | 8,752 | 9 | 191,125 | - | - | - | - | 191,134 | - | 191,134 | ||||||||
Stock-based compensation | 230 | - | (3,000) | - | - | - | - | (3,000) | 79 | (2,921) | ||||||||
Balance, March 31, 2021 | 56,453 | $ | 56 | $ | 882,949 | $ | 44,248 | $ | (8,398) | 11,813 | $ | (131,287) | $ | 787,568 | $ | 132,961 | $ | 920,529 |
(1)See Note 1 – Recent Accounting Pronouncements and Note 8 – Debt for discussion on adoption of ASC 470-20.
Components of stockholders’ equity for the three months ended March 31, 2022 and 2021 are as follows (in thousands):
Accum. | Total | |||||||||||||||||
Additional | Other | Green Plains | Non- | Total | ||||||||||||||
Common Stock | Paid-in | Retained | Comp. | Treasury Stock | Stockholders' | Controlling | Stockholders' | |||||||||||
Shares | Amount | Capital | Earnings | Income | Shares | Amount | Equity | Interests | Equity | |||||||||
Balance, January 1, 2020 | 46,964 | $ | 47 | $ | 734,580 | $ | 148,150 | $ | (11,064) | 10,932 | $ | (119,808) | $ | 751,905 | $ | 113,381 | $ | 865,286 |
Net income (loss) | - | - | - | (16,445) | - | - | - | (16,445) | 6,098 | (10,347) | ||||||||
Distributions declared | - | - | - | - | - | - | - | - | (5,498) | (5,498) | ||||||||
Other comprehensive loss | - | - | - | - | 4,532 | - | - | 4,532 | - | 4,532 | ||||||||
Amounts reclassified from | - | - | - | - | (4,485) | - | - | (4,485) | - | (4,485) | ||||||||
Other comprehensive income, | - | - | - | - | 47 | - | - | 47 | - | 47 | ||||||||
Share of equity method investees other comprehensive loss arising during the period, net of tax | - | - | - | - | 41,956 | - | - | 41,956 | - | 41,956 | ||||||||
Repurchase of common stock | - | - | - | - | - | 881 | (11,479) | (11,479) | - | (11,479) | ||||||||
Stock-based compensation | 343 | - | 36 | - | - | - | - | 36 | 79 | 115 | ||||||||
Balance, March 31, 2020 | 47,307 | 47 | 734,616 | 131,705 | 30,939 | 11,813 | (131,287) | 766,020 | 114,060 | 880,080 | ||||||||
Total | ||||||||||||||||||
Additional | Retained | Accum. Other | Green Plains | Non- | Total | |||||||||||||
Common Stock | Paid-in | Earnings | Comp. Income | Treasury Stock | Stockholders' | Controlling | Stockholders' | |||||||||||
Shares | Amount | Capital | (Deficit) | (Loss) | Shares | Amount | Equity | Interests | Equity | |||||||||
Balance, December 31, 2021 | 61,840 | $ | 62 | $ | 1,069,573 | $ | (15,199) | $ | (12,310) | 8,244 | $ | (91,626) | $ | 950,500 | $ | 151,519 | $ | 1,102,019 |
Net income (loss) | - | - | - | (61,474) | - | - | - | (61,474) | 5,602 | (55,872) | ||||||||
Distributions declared | - | - | - | - | - | - | - | - | (5,122) | (5,122) | ||||||||
Other comprehensive income (loss) before reclassification | - | - | - | - | 5,386 | - | - | 5,386 | - | 5,386 | ||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | - | - | - | - | (1,965) | - | - | (1,965) | - | (1,965) | ||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | 3,421 | - | - | 3,421 | - | 3,421 | ||||||||
Investment in subsidiary | - | - | - | - | - | - | - | - | 24 | 24 | ||||||||
Stock-based compensation | 226 | - | (1,922) | - | - | - | - | (1,922) | 59 | (1,863) | ||||||||
Balance, March 31, 2022 | 62,066 | $ | 62 | $ | 1,067,651 | $ | (76,673) | $ | (8,889) | 8,244 | $ | (91,626) | $ | 890,525 | $ | 152,082 | $ | 1,042,607 |
Total | ||||||||||||||||||
Additional | Retained | Accum. Other | Green Plains | Non- | Total | |||||||||||||
Common Stock | Paid-in | Earnings | Comp. Income | Treasury Stock | Stockholders' | Controlling | Stockholders' | |||||||||||
Shares | Amount | Capital | (Deficit) | (Loss) | Shares | Amount | Equity | Interests | Equity | |||||||||
Balance, December 31, 2020 | 47,471 | $ | 47 | $ | 691,393 | $ | 50,793 | $ | (2,172) | 11,813 | $ | (131,287) | $ | 608,774 | $ | 129,812 | $ | 738,586 |
Net income (loss) | - | - | - | (6,545) | - | - | - | (6,545) | 4,566 | (1,979) | ||||||||
Distributions declared | - | - | - | - | - | - | - | - | (1,395) | (1,395) | ||||||||
Other comprehensive income (loss) before reclassification | - | - | - | - | (4,849) | - | - | (4,849) | - | (4,849) | ||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | - | - | - | - | (1,377) | - | - | (1,377) | - | (1,377) | ||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | (6,226) | - | - | (6,226) | - | (6,226) | ||||||||
Investment in subsidiaries | - | - | - | - | - | - | - | - | 3,330 | 3,330 | ||||||||
Issuance of warrants | - | - | 3,431 | - | - | - | - | 3,431 | (3,431) | - | ||||||||
Issuance of common stock for cash at $23.00 per share, net of fees | 8,752 | 9 | 191,125 | - | - | - | - | 191,134 | - | 191,134 | ||||||||
Stock-based compensation | 230 | - | (3,000) | - | - | - | - | (3,000) | 79 | (2,921) | ||||||||
Balance, March 31, 2021 | 56,453 | $ | 56 | $ | 882,949 | $ | 44,248 | $ | (8,398) | 11,813 | $ | (131,287) | $ | 787,568 | $ | 132,961 | $ | 920,529 |
Amounts reclassified from accumulated other comprehensive income are as follows (in thousands):
Three Months Ended March 31, | Statements of | Three Months Ended | Statements of | |||||||||||
2021 | 2020 | Classification | 2022 | 2021 | Classification | |||||||||
Gains (losses) on cash flow hedges: | ||||||||||||||
Commodity derivatives | $ | (15,188) | $ | 8,818 | (1) | $ | (628) | $ | (15,188) | (1) | ||||
Commodity derivatives | 16,999 | (2,901) | (2) | 3,294 | 16,999 | (2) | ||||||||
Total gains on cash flow hedges | 1,811 | 5,917 | (3) | 2,666 | 1,811 | (3) | ||||||||
Income tax expense | 434 | 1,432 | (4) | (701) | (434) | (4) | ||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | $ | 1,377 | $ | 4,485 | $ | 1,965 | $ | 1,377 | ||||||
(1)Revenues
(2)Costs of goods sold
(3)Loss before income taxes and income (loss) from equity method investees
(4)Income tax benefit (expense)
12. INCOME TAXES
The company records actual income tax expense or benefit during interim periods rather than on an annual effective tax rate method. Certain items are given discrete period treatment and the tax effect of those items are reported in full in the relevant interim period. Green Plains Partners is a limited partnership, which is treated as a flow-through entity for federal income tax purposes and is not subject to federal income taxes. As a result, the consolidated financial statements do not reflect income taxes on pre-tax income or loss attributable to the noncontrolling interest in the partnership.
The CARES Act was signed into law on March 27, 2020. The CARES Act includes several significant business tax provisions including elimination of the taxable limit for certain net operating losses (“NOL”), allowing businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior tax years, accelerating refunds of previously generated corporate AMT credits, and loosening the business interest limitation under §163(j) from 30% to 50%. The CARES Act also contains an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to the COVID-19. In the first quarter of 2020, the company recorded an income tax benefit related to the expected NOL carry back claim of $28.4$1.2 million which was an estimate based on the amount of NOL rated to the 2019 year-end tax provision. NaN additional tax benefit was recorded related to the CARES Act duringfor the three months ended March 31, 2021.
The company recorded 2022, compared with income tax expense of $1.9 million for the same period in 2021.The increase in income tax benefit was primarily due to the release of a valuation allowance against decreases in certain deferred tax assets for the three months ended March 31, 2021,2022 compared with income tax benefit of $44.3 million for the same period in 2020.The increase into income tax expense recorded for the three months ended March 31, 2021, was primarily due to reflect the recording of a valuation allowance against increases in deferred tax assets for the three months ended March 31, 2021 compared to the tax benefit recorded for the same period in 2020 to reflect the benefit associated with the carry back of the tax NOL generated in 2019 to the 2014 tax year under the CARES Act of 2020, as well as the release of a previously recorded valuation allowance against the 2019 NOL and othercertain deferred tax assets.
The amount of unrecognized tax benefits for uncertain tax positions was $51.4 million as of March 31, 20212022 and $51.6 million as of December 31, 2020.2021.
The effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the company’s assessment of its liability for uncertain tax positions.
Upon adoption of amended guidance in ASC 470-20, the company reversed the remaining deferred tax liability of $9.2 million associated to the equity portion of previously issued convertible debt. As the company had recorded a full valuation allowance against its deferred tax assets, the reversal of the $9.2 million deferred tax liability would require an increase to the existing valuation allowance by the same amount which would normally be recorded through current income tax expense. However, as the change in the deferred tax liability is directly linked to the adoption of ASC 470-20, which is accounted for as a cumulative effect adjustment, the required increase to the valuation allowance is recorded as part of the cumulative adjustment to stockholders’ equity and has no effect on the statement of operations.
13. COMMITMENTS AND CONTINGENCIES
Lease Expense
The company leases certain facilities, parcels of land, and equipment, with remaining terms ranging from less than one year to 16.6approximately 15.6 years. The land and facility leases include renewal options. The renewal options are included in the lease term only for those sites or locations in which theythat are reasonably certain to be renewed. Equipment renewals are not considered reasonably certain to be exercised as they typically renew with significantly different underlying terms.
The company may sublease certain of its railcars to third parties on a short-term basis. The subleases are classified as operating leases, with the associated sublease income being recognized on a straight-line basis over the lease term.
The components of lease expense are as follows (in thousands):
Three Months Ended March 31, | Three Months Ended | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||
Lease expense | ||||||||||||||
Operating lease expense | $ | 4,934 | $ | 4,945 | $ | 4,998 | $ | 4,934 | ||||||
Variable lease expense (1) | 69 | 269 | 179 | 69 | ||||||||||
Total lease expense | $ | 5,003 | $ | 5,214 | $ | 5,177 | $ | 5,003 | ||||||
(1)Represents amounts incurred in excess of the minimum payments required for a certain building lease and for the handling and unloading of railcars for a certain land lease, offset by railcar lease abatements provided by the lessor when railcars are out of service during periods of maintenance or upgrade.
Supplemental cash flow information related to operating leases is as follows (in thousands):
Three Months Ended March 31, | Three Months Ended | |||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
Operating cash flows from operating leases | $ | 4,832 | $ | 4,849 | $ | 4,845 | $ | 4,832 | ||||||
Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||
Operating leases | 6,464 | 5,675 | 4,709 | 6,464 | ||||||||||
Right-of-use assets and lease obligations derecognized due to lease modifications: | ||||||||||||||
Operating leases | 51 | - | - | 51 | ||||||||||
Supplemental balance sheet information related to operating leases is as follows:
March 31, 2021 | December 31, 2020 | March 31, 2022 | December 31, 2021 | |||||||||
Weighted average remaining lease term | 6.0 years | 6.2 years | 5.5 years | 5.5 years | ||||||||
Weighted average discount rate | 4.35% | 4.55% | 4.11% | 4.16% | ||||||||
Aggregate minimum lease payments under the operating lease agreements for the remainder of 20212022 and in future years are as follows (in thousands):
Year Ending December 31, | Amount | Amount | ||||
2021 | $ | 14,354 | ||||
2022 | 17,175 | $ | 14,455 | |||
2023 | 13,488 | 17,315 | ||||
2024 | 11,395 | 14,774 | ||||
2025 | 7,849 | 10,405 | ||||
2026 | 4,844 | |||||
Thereafter | 15,634 | 14,353 | ||||
Total | 79,895 | 76,146 | ||||
Less: Present value discount | (12,586) | (9,054) | ||||
Lease liabilities | $ | 67,309 | $ | 67,092 | ||
The company has additional railcar operating leases that will commence in the second quarter of 2021 to replace expiring leases, with estimated future minimum lease commitments of approximately $1.7 million and lease terms of three to five years. The undiscounted amounts are not included in the tables above.
Lease Revenue
As described in Note 2 – Revenue, the majority of the partnership’s segment revenue is generated thoughthrough their storage and throughput services and rail transportation services agreements with Green Plains Trade and are accounted for as lease revenue. Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases. Lease revenue associated with agreements with Green Plains Trade areis eliminated upon consolidation. The remaining lease revenue is not material to the company. Refer to Note 2 – Revenue for further discussion on lease revenue.
Commodities, Storage and Transportation
As of March 31, 2021,2022, the company had contracted future purchases of grain, corn oil, natural gas, ethanol and distillers grains, valued at approximately $400.7$532.4 million and future commitments for storage and transportation, valued at approximately $31.4 million.
Legal
The company is currently involved in litigation that has arisen during the ordinary course of business, but does not believe any pending litigation will have a material adverse effect on its financial position, results of operations or cash flows.
14. RELATED PARTY TRANSACTIONS
Aircraft Leases
The company entered into 2 agreements with an entity controlled by Wayne Hoovestol for the lease of 2 aircraft. Mr. Hoovestol is chairman of the company’s board of directors. Given the limited amount of travel during fiscal year 2020, the companies have agreed to defer the monthly payment until excess carryover hours are used. As of March 31, 2021, the company has approximately 54 hours of flight time available to be used. Once used, the company agreed to pay $11,588 per month for the combined use of up to 125 hours per year for the aircraft. Flight time in excess of 125 hours per year will incur additional hourly charges. Payments related to these leases totaled $21 thousand and $6 thousand during the three months ended March 31, 2021 and 2020, respectively. The company had $3 thousandin outstanding payables related to these agreements as of March 31, 2021 and $0 in outstanding payables related to these agreements as of December 31, 2020.
Green Plains Cattle Company LLC
The company engaged in certain related party transactions with GPCC, which was considered a related party until the fourth quarter of 2020 at which time the company’s remaining 50% interest was sold. The company provided a variety of shared services to GPCC, including accounting and finance, payroll and human resources, information technology, legal, communications and treasury activities. The company reduced selling, general and administrative expenses by $0.4 million and related to shared services provided for the three months ended March 31, 2020.
Green Plains Trade Group, a subsidiary of the company, enters into certain sale contracts with GPCC during the normal course of business. Revenues were $2.9 million for the three months ended March 31, 2020.
Mr. Ejnar Knudsen, a member of the company’s board of directors, has an indirect ownership interest in GPCC of 0.0736% by reason of his ownership in TGAM Agribusiness Fund LP. Based on the purchase price, the value of that ownership interest is approximately $0.1 million. Mr. Knudsen also is the CEO and partial owner of AGR Partners LLC which provides investment advisory services to TGAM Agribusiness Fund LP pursuant to a sub-advisory agreement between AGR Partners LLC and Nuveen Alternative Advisors LLC, which is the investment manager for TGAM Agribusiness Fund LP and receives usual and customary advisory fees.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion and analysis provides information we believe is relevant to understand our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this report together with our annual report on Form 10-K for the year ended December 31, 2020.2021.
Cautionary Information Regarding Forward-Looking Statements
Forward-looking statements are made in accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that involve a number of risks and uncertainties and do not relate strictly to historical or current facts, but rather to plans and objectives for future operations. These statements may be identified by words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “outlook,” “plan,” “predict,” “may,” “could,” “should,” “will” and similar expressions, as well as statements regarding future operating or financial performance or guidance, business strategy, environment, key trends and benefits of actual or planned acquisitions.
Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A – Risk Factors of our annual report on Form 10-K for the year ended December 31, 2020,2021, Part II, Item 1A – Risk Factors in this report, or incorporated by reference. Specifically, we may experience fluctuations in future operating results due to a number of economic conditions, including: disruption caused by health epidemics, such as the COVID-19 outbreak; competition in the ethanol industry and other industries in which we operate; commodity market risks, including those that may result from weather conditions; financial market risks; counterparty risks; risks associated with changes to government policy or regulation, including changes to tax laws; risks related to acquisition and disposition activities and achieving anticipated results; risks associated with merchant trading; risks related to our equity method investees and other factors detailed in reports filed with the SEC. Additional risks related to Green Plains Partners LP include compliance with commercial contractual obligations, potential tax consequences related to our investment in the partnership and risks disclosed in the partnership’s SEC filings associated with the operation of the partnership as a separate, publicly traded entity.
We believe our expectations regarding future events are based on reasonable assumptions; however, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated and do not intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report or documents incorporated by reference.
Overview
Green Plains is an Iowa corporation founded in June 2004 as a producer of low carbon fuels and has grown to be one of the leading corn processors in the world. We continue the transition from a commodity-processing business to a value-add agricultural technology company focusing on creating diverse, non-cyclical, higher margin products. In addition, we are currently undergoing a number of project initiatives to improve margins. Through our Project 24 initiative,Total Transformation Plan to a value-add agricultural technology company discussed below, we anticipate reductions in operating expensebelieve we can further increase margin per gallon across our non-ICM plants and with our high-protein initiative, we expect to produce variousby producing additional value-added ingredients, such as Ultra-High Protein, feed ingredients and greater amounts ofwhile expanding corn oil further increasing margins per gallon.yields.
Our first Ultra-High Protein installation was completed at our Shenandoah plant during the first quarter ofIn December 2020, with shipments of dried product beginning in April 2020. Installation at our Wood River plant began during the third quarter 2020 with shipments expected to begin in the third quarter of 2021. We anticipate that additional locations will be completed over the course of the next several years beginning with the Mount Vernon and Obion locations. Through our Ultra-High Protein initiative we expect to produce feed ingredients with protein concentration of 50% or greater, increase production of corn oil as well produce other higher value products, such as post-MSC distillers grains.
We have upgraded our York facility to include USP grade alcohol capabilities and continue to review the timing of upgrading to GNS grade alcohol at York and USP grade alcohol at Wood River by adding additional distillation and processing capabilities to serve other high-value markets. The CST production facility at the York Innovation Center was installed during the first quarter and came online in the second quarter of 2021, which now allows for the production of industrial grade dextrose with the addition of food grade production near-term. We are working with a number of prospective
customers on product validation and anticipate modifying one or more biorefineries with CST production capabilities to meet anticipated future demand.
We recently completed the purchase of a majority interest in Fluid Quip Technologies, LLC.FQT. The acquisition capitalizes on the core strengths of each company to develop and implement proven, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production of Ultra-High Protein across Green Plains facilities, as well as offer these technologies to partnering biofuel facilities. Through developmental efforts with Fluid Quip and other innovation partners, the company continues to develop capabilities to produce higher protein concentration and purity levels on a full commercial scale.
In February 2021, we announced a carbon sequestration partnership with Summit Carbon Solutions. Eight of our biorefineries have entered into long term carbon offtake agreements, which will lower greenhouse gas emissions at each of the biorefineries through the capturing and storing of carbon dioxide, significantly lowering their carbon footprint. The project is anticipated to be begin operation in late 2024.biofuels industry.
Additionally, we have taken advantage of opportunities to divest certain assets in recent years.years to reallocate capital toward our current growth initiatives. We are focused on generating stable operating margins through our business segments and risk management strategy. We own and operate assets throughout the ethanol value chain: upstream, with grain handling and storage; through our ethanol production facilities; and downstream, with marketing and distribution services to mitigate commodity price volatility. Our other businesses leverage our supply chain, production platform and expertise.
We formed Green Plains Partners LP, a master limited partnership, to be our primary downstream storage and logistics provider since its assets are the principal method of storing and delivering the ethanol we produce. The partnership completed its initial public offering on July 1, 2015. As of March 31, 2022, we own a 48.9% limited partner interest, a 2.0% general partner interest and all of the partnership’s incentive distribution rights. The public owns the remaining 49.1% limited partner interest. The partnership is consolidated in our financial statements.
We group our business activities into the following three operating segments to manage performance:
Ethanol Production. Our ethanol production segment includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil at 11 ethanol plants in Illinois, Indiana, Iowa, Minnesota, Nebraska and Tennessee. At capacity, our facilities are capable of processing approximately 330 million bushels of corn per year and producing approximately 1.0 billion gallons of ethanol, 2.5 million tons of distillers grains and Ultra-High Protein and 290 million pounds of industrial grade corn oil, making us one of the largest ethanol producers in North America.
Agribusiness and Energy Services. Our agribusiness and energy services segment includes grain procurement, with approximately 27.0 million bushels of grain storage capacity, and our commodity marketing business, which markets, sells and distributes ethanol, distillers grains, Ultra-High Protein and corn oil produced at our ethanol plants. We also market ethanol for a third-party producer as well as buy and sell ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein, corn oil, grain, natural gas and other commodities in various markets.
Partnership. Our master limited partnership provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. The partnership’s assets include 29 ethanol storage facilities, four fuel terminal facilities and approximately 2,300 leased railcars.
As part of our transformation to a value-add agricultural technology company, we completed our first MSC™ Ultra-High Protein installation our Shenandoah biorefinery during the first quarter of 2020. Our Wood River plant began operations in October 2021. Three additional locations are slated to begin operating by mid-2022, and installation at our remaining biorefineries is expected over the course of the next several years. Through our value-added ingredients initiative, we expect to produce Ultra-High Protein, a feed ingredient with protein concentrations of 50% or greater, increase production of corn oil as well produce other higher value products, such as post-MSC distillers grains.
We have also upgraded our York facility to include USP grade alcohol capabilities. We began pilot scale batch operations at the CST production facility at our York Innovation Center in the second quarter of 2021, which may allow for the production of both food and industrial grade dextrose to target applications in food production, renewable chemicals and synthetic biology. We announced the Shenandoah biorefinery as the first location to deploy FQT CSTTM at commercial scale. We also anticipate modifying additional biorefineries to include FQT CSTTM production capabilities to meet anticipated future customer demands.
In February and April 2021, as part of our carbon reduction strategy, we have committed our Nebraska, Iowa and Minnesota plants to the Summit Carbon Solutions Midwest Carbon Express project to capture and store carbon dioxide produced through the fermentation process. In total, eight of our biorefineries have entered into long-term carbon offtake agreements, which will lower greenhouse gas emissions through the capturing and storing of carbon dioxide at each of the biorefineries, significantly lowering their carbon intensity. This project is expected to be completed in 2024.
Our profitability is highly dependent on commodity prices, particularly for ethanol, industrial alcohol, distillers grains, corn oil, soybean meal, corn, and natural gas. Since market price fluctuations of these commodities are not always correlated, our operations may be unprofitable at times. We use a variety of risk management tools and hedging strategies to monitor price risk exposure at our ethanol plants and lock in favorable margins or reduce production when margins are compressed.
Green Plains Partners LP is our primary downstream logistics provider, storing and delivering the ethanol we produce. We own a 48.9% limited partner interest, a 2.0% general partner interest and all Our profitability could be significantly impacted by price movements of the partnership’s incentive distribution rights. The public ownsaforementioned commodities, specifically including market volatility related to corn as a result of current geopolitical events, including the remaining 49.1% limited partner interest. The partnership is consolidatedwar in our financial statements.Ukraine.
Recent Developments
Disposition of Ord Ethanol PlantNew Financing to Replace Existing Working Capital Facilities
On March 22, 2021,25, 2022, Green Plains Ord LLC, a wholly owned subsidiaryFinance Company, Green Plains Grain and Green Plains Trade, all of the company, entered into an asset purchase agreement to sell the plant located in Ord, Nebraska to GreenAmerica Biofuels Ord LLC (the “Ord Transaction”) for a sale price of $64.0 million, plus working capital of $9.8 million. Correspondingly, we entered into a separate asset purchase agreement with the Partnership to acquire the storage assets and assign the rail transportation assets to be disposed of in the Ord Transaction for $27.0 million, which were used to pay down a portion of the Partnership’s credit facility. In addition, as of March 31, 2021, the company had a payable of $0.5 million for amounts owed to the Partnership as a result of a purchase price adjustment based on additional railcars transferred as part of the transaction. The divested assets were reported within the company’s ethanol production, agribusiness and energy services and partnership segments. We recorded a pretax gain on the sale of the Ord plant of $36.9 million recorded within corporate activities.
For additional information related to the disposition of the Ord ethanol plant, see Note 3 – Acquisition and Dispositions included as part of the notes to consolidated financial statements.
2.25% Convertible Notes due in 2027
On March 1, 2021, we issued $230.0 million of 2.25% convertible senior notes due in 2027, or the 2.25% notes. Concurrent with the issuance of the 2.25% notes, we used approximately $156.5 million of the net proceeds of the 2.25% notes to repurchase approximately $135.7 million aggregate principal amount of its 4.125% notes due 2022. We intend to use the proceeds from the 2.25% notes to repurchase the remaining 4.125% notes remaining outstanding at their maturity and for general corporate purposes.
The 2.25% notes are convertible, at the option of the holders, into consideration consisting of, at our election, cash, shares of our common stock, or a combination of cash and stock (and cash in lieu of fractional shares). However, before September 15, 2026, the 2.25% notes will not be convertible unless certain conditions are satisfied. The initial conversion
rate is 31.6206 shareswholly owned subsidiaries, together with the company, as guarantor, entered into a five-year, $350.0 million senior secured sustainability-linked revolving Loan and Security Agreement (the “Facility”) with a group of financial institutions led by ING Capital LLC (“ING”) as Agent and ING, PNC Capital Markets LLC, Fifth Third Bank, National Association, Bank of America, N.A. and BMO Harris Bank, N.A., as Joint Lead Arrangers. This transaction refinanced the company’s common stock per $1,000 principal amount of 2.25% notes (equivalent to an initial conversion price of approximately $31.62 per share of the company’s common stock), representing an approximately 37.5% premium over the offering price of the company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain events. In addition, we may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including our calling the 2.25% notes for redemption. For additional information related to the 2.25% notes, see Note 8 – Debt included as part of the notes to consolidated financial statements.
Public Offering of Common Stock
On March 1, 2021, we completed the public offering of 8,751,500 shares of our common stock, par value $0.001 per share, at a public offering price of $23.00 per share (the “Common Stock Offering”). The Common Stock Offering resulted in net proceeds of approximately $191.1 million, after deducting underwriting discounts and commissions and the company’s estimated offering expenses. We intend to use the proceeds from the Common Stock Offering for general corporate purposes. For additional information related to the Common Stock Offering, see Note 11 – Stockholders’ Equity included as part of the notes to consolidated financial statements.
Junior Secured Mezzanine Notes due 2026
On February 9, 2021,separate credit facilities previously held by Green Plains SPE LLC, a wholly-owned special purpose subsidiary and parent of Green Plains ObionGrain and Green Plains Mount Vernon issued $125.0 million of junior secured mezzanine notes due 2026 (the “Junior Notes”) with four funds and accounts managed by BlackRock for the purchase of all notes issued.Trade. The Junior Notes will matureFacility matures on February 9, 2026 and are secured by a pledge of the membership interests in and the real property owned by Green Plains Obion and Green Plains Mount Vernon. For additional information related to the Junior Notes, see Note 8 – Debt included as part of the notes to consolidated financial statements.March 25, 2027.
Results of Operations
During the first quarter of 2021,2022, we continued to experienceexperienced a weak ethanol margin environment.environment due to industry overproduction, combined with larger ethanol stocks, and a surge in COVID variants that hindered driving demand. We maintained an average utilization rate of approximately 71.1%83.1% of capacity, resulting in ethanol production of 178.0196.3 mmg for the first quarter of 2021,2022, compared with 240.5178.0 mmg, or 85.9%71.1% of capacity, for the same quarter last year. The reductionincrease in the average utilization rate was primarily due to capacity offline due to Project 24 constructionnearing the completion of our plant modernization and permitting as compared toupgrade program during the prior year.current quarter. Our operating strategy is to reduce operating expenses, energy usage and water consumption throughtransform our Project 24 initiative while running at higher utilization rates in ordercompany to achieve improved margins.a value-add agricultural technology company. However, in the current environment, we may continue to exercise operational discretion that results in reductions in production. Additionally, we may experienceoperate at less than our capacity resulting in lower runproduction rates due to thevarious construction of various projects. It is possible that production could be below minimum volume commitments in the future, depending on various factors that drive each biorefineries variable contribution margin, including future driving and gasoline demand for the industry. We are currently producing Ultra-High Protein at two locations and have also deployed FQT MSCTM Ultra-High Protein process technology at three additional locations, which we expect to be operational by the middle to last half of 2022. We are striving to deploy the MSC™ protein technology across our platform to take advantage of the world’s growing demand for protein feed ingredients and low-carbon renewable corn oil.
U.S. Ethanol Supply and Demand
According to the EIA, domestic ethanol production averaged 0.911.02 million barrels per day during the first quarter of 2021,2022, which was 12% lower12.5% higher than the 1.030.91 million barrels per day for the same quarter last year. Refiner and blender input volume decreased 8%increased 6.1% to 792840 thousand barrels per day for the first quarter of 2021,2022, compared with 858792 thousand barrels per day for the same quarter last year. Gasoline demand decreased 0.6increased 0.5 million barrels per day, or 7%6.3% during the first quarter of 2021.2022 compared to the prior year. U.S. domestic ethanol ending stocks decreasedincreased by approximately 4.65.4 million barrels compared to the prior year, or 18%25.6%, to 21.126.5 million barrels during the first quarteras of 2021.March 31, 2022. As of March 31, 2021,2022, according to Prime the Pump, there were approximately 2,3602,630 retail stations selling E15 in 3031 states, up from 2,3002,555 at the beginning of the year, and over 200267 pipeline terminal locations now offering E15 to wholesale customers.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports through February 28, 20212022, were approximately 266267 mmg, down 22.9% from 345in line with the 266 mmg for the same period of 2020. India2021. Canada was the largest export destination for U.S. ethanol accounting for 25% of domestic ethanol export volume. Canada,India, South Korea, ChinaBrazil and BrazilMexico accounted for 14%17%, 12%11%, 10%8% and 10%7%, respectively, of U.S. ethanol exports. We currently estimate that net ethanol exports will range from 1.21.3 to 1.41.5 billion gallons in 2021,2022, based on historical demand from a variety of countries and certain countries whothat seek to improve their air quality and eliminate MTBE from their own fuel supplies.
In January 2020, China and the United States struck a “Phase I” trade agreement, which included commitments on agricultural commodity purchases. Ethanol, corn and distillers grains were included as potential purchases in the agreement. China has been purchasing large quantities of corn, which has raised domestic prices of this feedstock for our ethanol production process. In addition, in October 2020 it was announced that China had purchased a shipment of U.S. ethanol for the first time since March 2018. Total ethanol exports to China in 2020 were 21.3 million gallons, and through February 2021 were 27.4 million gallons, according to the USDA Foreign Agriculture Service.
Year-to-date U.S. distillers grains exports through February 28, 2021, were 1.7 million metric tons, or 7% lower than the same period last year, according to the USDA Foreign Agriculture Service. Mexico, South Korea, Indonesia, Vietnam, Ireland and Japan accounted for approximately 58.5% of total U.S. distillers export volumes.
Legislation and Regulation
We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. Over the past few years, various bills and amendments have been proposed in the House and Senate, which would eliminate the RFS II entirely, eliminate the corn based ethanol portion of the mandate, and make it more difficult to sell fuel blends with higher levels of ethanol. We believe it is unlikely that any of these bills will become law in the current Congress. In addition, the manner in which the EPA administers the RFS II and related regulations can have a significant impact on the actual amount of ethanol blended into the domestic fuel supply.
Federal mandates and state-level clean fuel programs supporting the use of renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by concerns for the environment, diversifying ourthe fuel supply, and reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehiclesFFV and higher ethanol blends of ethanol in non-flex-fuel vehiclesnon-FFVs may be necessary before ethanol can achieve further growth in U.S. market share. In addition, expansion of clean fuel programs in other states, or a national low carbon fuel standardLCFS could increase the demand for ethanol, depending on how it is structured.
The RFS II sets a floor for biofuels use in the United States. When the RFS II was established in 2010, the required volume of “conventional”conventional, or corn-based, ethanol to be blended with gasoline was to increase each year until it reached 15.015 billion gallons in 2015, which left the EPA to address existing limitations in both supply and demand. TheAs of this filing, the EPA has not yet released a draft RVO ruleproposed reducing the conventional ethanol RVOs for 2020 and 2021 to reflect lower fuel demand during the 2021 volumes, even though they typically release a draft mid-yearpandemic, and finalizeproposed the rule by November 30 of the preceding year. It is unclear when the EPA will release the RVOstatutory 15 billion gallons for 2021.2022.
According to the RFS, II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022, – the year through which the statutorily prescribed volumes run. While conventional ethanol maintained 15 billion gallons, 2019 was the second consecutive year that the total RVO was more than 20% below the statutory volumesvolume levels. Thus, the EPA was expected to initiate a reset rulemaking, and modify statutory volumes through 2022, and do so based on the same factors they are to use in setting the RVOs post-2022.post 2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development. However, in late 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020. It is unclear when or if the current EPA will propose a reset rulemaking.rulemaking, though they have stated an intention to propose a post 2022 set rulemaking as required by law.
Under the RFS, RINs and SREs are important tools impacting supply and demand. The EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use in each annual RVO based on their percentage of total domestic transportation fuel sales. Obligated parties use RINs to show compliance with the RFS II mandated volumes. Ethanol producers assign RINs to renewable fuels and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and can influence purchasing decisions by
obligated parties. As it relates to SREs, a small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day. Small refineries can petition the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements. The EPA, through consultation with the DOE and the USDA can grant them a full or partial waiver, or deny it outright within 90 days of submittal. The EPA granted significantly more of these waivers for the 2016, 2017 and 2018 reporting years than they had in the past,prior years, totaling 790 mmg of waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017 and 1.43 billion gallons for 2018. In doing so, the EPA effectively reduced the RFS II mandated volumes for those compliance years by those amounts respectively, and as a result, RIN values declined significantly. In the waning days of the Trumpprevious administration, the EPA approved three additional SREs, reversing one denial from 2018 and granting two from 2019. A total of 88 SREs were granted under the Trump Administration, totaling 4.3 billion gallons of potential blending demand erased. The EPA, under the current administration, reversed the three SREs issued in the final weeks of the previous administration, and in the RVO rulemaking they proposed denying all pending SREs. There are multiple legal challenges to how the EPA has handled SREs and RFS rulemakings. On April 22, 2022, the U.S. District Court for D.C. approved a consent decree agreement between Growth Energy and EPA that requires the agency to finalize the RVO proposals by no later than June 3, 2022.
The One-Pound Waiver, thatwhich was extended in May 2019 to allow E15 to be sold year-round to all vehicles model year 2001 and newer, is beingwas challenged in an action filed in Federal District Court for the D.C. Circuit. However,On July 2, 2021, the One-Pound Waiver remains in effect,Circuit Court vacated the EPA’s rule so the future of summertime, defined as June 1 to September 15, sales of E15 to non-FFVs is uncertain. The Supreme Court declined to hear a challenge to this ruling. On April 12, 2022, the President announced that he has directed the EPA to issue an emergency waiver to allow for the continued sale of E15 during the summer months, and that the temporary waiver should be extended as long as the gasoline supply emergency lasts. As of this filing, E15 is sold year-round in approximately 3031 states. In January 2021, the EPA announced it intended to begin a rulemaking regarding E15 labels and underground storage tank compatibility.
Biofuels groups have filed a lawsuit in the Court of Appeals for the D.C. Circuit, challenging the 2019 RVO rule over the EPA’s failure to address small refinery exemptions in the rulemaking. This was the first RFS II rulemaking since the expanded use of the exemptions came to light; however, the EPA had declined to cap the number of waivers it grants, and until late 2019, had declined to alter how it accounts for the retroactive waivers in its annual volume calculations. The EPA has a statutory mandate to ensure the volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The EPA’s recent approach accomplished the opposite. Even if all the obligated parties complied with their respective percentage obligations for 2019, the nation’s overall supply of renewable fuel would not meet the total volume requirements set by the EPA. This undermines Congressional intent to increase the consumption of renewable fuels in the domestic transportation fuel supply. Biofuels groups have argued the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and adjust the standards to account for any waivers it reasonably expects to grant in the future.
In 2017, the D.C. Circuit ruled in favor of biofuel groups against the EPA related to its decision to lower the 2016 volume requirements by 500 mmg. As a result, the Court remanded to the EPA to make up for the 500 mmg. Despite this, in the proposed 2020 RVO rulemaking released in July 2019, the EPA stated it does not intend to make up the 500 mmg as the court directed, citing potential burden on obligated parties. The EPA had indicated that it plans to address this court ordered remand in conjunction with the 2021 RVO rulemaking, however that rulemaking has been delayed indefinitely for political reasons, and whether these gallons will be accounted for is unclear.
In 2019, in a supplemental rulemaking to the 2020 RVO rule, the EPA changed their approach, and for the first time accounted for the gallons that they anticipate will be waived from the blending requirements due to small refinery exemptions. To accomplish this, they added in the trailing three year average of gallons the DOE recommended be waived, in effect raising the blending volumes across the board in anticipation of waiving the obligations in whole or in part for certain refineries that qualify for the exemptions. Though the EPA has often disregarded the recommendations of the DOE in years past, they stated in the rule their intent to adhere to these recommendations going forward, including granting partial waivers rather than an all or nothing approach.
In January 2020, the U.S. Court of Appeals for the 10th Circuit ruled on RFA et. al. vs. EPA in favor of biofuels interests, overturning EPA’s granting of refinery exemptions to three refineries on two separate grounds. The Court agreed that, under the Clean Air Act, refineries are eligible for SREs for a given RVO year only if such exemptions are extensions of exemptions granted in previous RVO years. In this case, the three refineries at issue did not qualify for SREs in the year prior to the year that EPA granted them. They were thus ineligible for additional SRE relief because there were no immediately prior SREs to extend. In addition, the Court agreed that the disproportionate economic hardship prong of SRE eligibility should be determined solely by reference to whether compliance with the RFS II creates such hardship, not whether compliance plus other issues create disproportionate economic hardship. The Court thus vacated EPA's grant of SREs for certain years and remanded the grants back to EPA. The refiners appealed for a rehearing which was denied. Two of the refiners appealed the decision to the U.S. Supreme Court and in January 2021, the Supreme Court announced they would hear the case, and oral arguments were held in late April 2021. If the decision against the EPA is upheld by the Supreme Court, it is uncertain how the EPA will propose to remedy the situation. The current EPA has indicated that they intend to adhere to the 10th Circuit ruling.
In light of the 10th Circuit ruling, a number of refineries have applied for “gap year” SREs in an effort to establish a continuous string of relief and to ensure they are able to qualify for SREs going forward. A total of 64 gap year requests were
filed with the EPA and reviewed by the DOE. In September 2020 the EPA announced that they were denying 54 of the gap year requests that had been scored and returned by DOE, regardless of how they had been scored. Without a string of continuous SRE approvals, we believe that almost no small refinery would be eligible to apply for hardship relief in this manner, unless the Supreme Court overturns the 10th Circuit ruling.
In October 2019, the White House directed the USDA and EPA to move forward with rulemaking to expand access to higher blends of biofuels. This includes funding for infrastructure, labeling changes and allowing E15 to be sold through E10 infrastructure. The USDA rolled out the Higher Blend Infrastructure Incentive Program in the summer of 2020, providing competitive grants to fuel terminals and retailers for installing equipment for dispensing higher blends of ethanol and biodiesel. In 2020, five Governors and 15 Republican Senators sent lettersDecember 2021, the USDA announced they would administer another infrastructure grant program. Congress is considering legislation that would provide for an additional $1 billion in USDA grants for biofuel infrastructure from 2022 to the EPA requesting a general waiver from the RFS due to the drop in demand caused by COVID-19 travel restrictions. Since then there have been additional petitions for waivers from the RFS requirements. As of this filing the EPA had indicated only that they are watching the situation closely and reviewing the various requests.2031.
To respond to the COVID-19 health crisis and attempt to offset the subsequent economic damage, Congress passed multiple relief measures, most notably the CARES Act in March 2020, which created and funded multiple programs that have impacted our industry. The USDA was given additional resources for the Commodity Credit Corporation (CCC) and they are using those funds to provide direct payments to farmers, including corn farmers from whom we purchase most of our feedstock for ethanol production. Similar to the trade aid payments made by the USDA over the past two years, this cash injection for farmers could cause them to delay marketing decisions and increase the price we have to pay to purchase corn. The CARES Act also allowed for certain net operating loss carrybacks, which has allowed us to receive certain tax refunds. In December 2020, Congress passed and then the President signed into law an annual spending package coupled with another COVID relief bill which included additional funds for the Secretary of Agriculture to distribute
to those impacted by the pandemic. The language of the bill specifically includes biofuels producers as eligible for some of this aid, and in MarchJune of 2021, the USDA indicated that biofuels would be ableannounced a $700.0 million Biofuel Producer Program to apply for a portion ofdistribute these funds in a forthcoming rulemaking.
The CARES Act provided a tax exclusion on the shipment of undenatured ethanol for use in manufacturing hand sanitizer, a key ingredient of which is undenatured ethanol of specific grades. The FDA has also provided expanded guidance to allow for more denaturants to be used in ethanol intended for hand sanitizer production, and has expanded the gradesimpacted producers of ethanol, allowedbiodiesel and other renewable fuels, and they provided the specifics for the duration of the public health crisis.
Government actions abroad can significantly impact the demand for U.S. ethanol. In September 2017, China’s National Development and Reform Commission, the National Energy Agency and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. China, the number three importer of U.S. ethanol in 2016, imported negligible volumes during 2018 and 2019 due to a 30% tariff on U.S. ethanol, which increased to 70% in early 2018. There is no assurance that China’s joint plan to expand blending to 10% will be carried to fruition, nor that it will lead to increased imports of U.S. ethanol in the near term. Ethanol is included as an agricultural commodity under the “Phase I” agreement with China, wherein they are to purchase upwards of $40 billion in agricultural commodities from the U.S. in both 2020 and 2021.
In Brazil, the Secretary of Foreign Trade had issued a tariff rate quota which expiredapplication process in December of 2020. All U.S. ethanol gallons now face a 20% tariff into Brazil. Exports to Brazil2021. Applications were 200 mmgdue in 2020. Our exports also face tariffs, rate quotas, countervailing duties,February 2022, and other hurdlesthe USDA has indicated they will calculate and distribute payments in the European Union, India, Peru, Colombia and elsewhere, which limits the ability to compete in some markets. We believe some countries are using the COVID-19 crisis as justification for raising duties on importsfirst half of U.S. ethanol, or blocking our imports entirely.
In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which was challenged by multiple lawsuits, of which several were dismissed. The remaining four cases follow one of two tracks: 1) to determine the constitutionality of the CRE regulation, or 2) to determine the benefits, or lack thereof, of introducing E10 to Mexico. An injunction was granted in October 2017, preventing the blending and selling of E10, but was overturned by a higher court in June 2018 making it legal to blend and sell E10 by PEMEX throughout Mexico except for its three largest metropolitan areas. On January 15, 2020, the Mexican Supreme Court ruled that the expedited process for the CRE regulation was unconstitutional, and that after a 180 day period the maximum ethanol blend allowed in the country would revert to 5.8%. There is an effort underway to go through the full regulatory process to allow for 10% blends countrywide, including in the three major metropolitan areas. The 180 day window has been extended multiple times due to COVID-19, and the new deadline is May 27, 2021.
In January 2020, the updated North American Free Trade Agreement, known as the United States Mexico Canada Agreement or USMCA was signed. The USMCA went into effect on July 1, 2020, and maintains the duty free access of U.S. agricultural commodities, including ethanol, into Canada and Mexico. According to the Department of Commerce, exports to Canada were 326 mmg and exports to Mexico were 64 mmg in 2020.
Impact of COVID-19 and Decline in Oil Demand
We continue to closely monitor the impact of COVID-19 on all aspects of our business, including how it will impact our employees, customers, vendors, and business partners. Although we did not incur significant disruptions during the three months ended March 31, 2021 from COVID-19, we are unable to predict the impact that COVID-19 will have on our future financial position and operating results due to numerous uncertainties.
The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the energy industry. The situation surrounding COVID-19 continues to evolve rapidly and the ultimate duration and impact of the outbreak as well as the continued decline in oil demand remains highly uncertain and subject to change.
There has been no material adverse effect on our ability to maintain operations, including our financial reporting systems, our internal controls over financial reporting or our disclosure controls and procedures. In addition, to date we have not incurred any material COVID-19 related contingencies.
For further information regarding the impact of COVID-19 and the decline in oil demand on the company, please see Part I, Item 1A, “Risk Factors,” of our 2020 annual report.2022.
Comparability of our Financial Results
There are various events that affect comparability of our operating results from 2022 to 2021, to 2020, including the sale of our 50% interest of GPCC in October 2020, the sale of our Hereford, Texas plant in December 2020, the acquisition of a majority interest in FQT in December 2020ethanol production rates and the disposition of our Ord, Nebraska plant in March 2021.
We report the financial and operating performance for the following four operating segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and (4) partnership, which includes fuel storage and transportation services. The food and ingredients segment had no activity during the three months ended March 31, 2021 and 2020.
During the normal course of business, our operating segments do business with each other. For example, our agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil of our ethanol production segment. Our partnership segment provides fuel storage and transportation services for our agribusiness and energy services segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact our consolidated results since the revenues and corresponding costs are eliminated.
Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment.segment and the loss (gain) on sale of assets. When we evaluate segment performance, we review the following segment information as well as earnings before interest, income taxes, depreciation and amortization, excluding amortization of operating lease right-of-use assetsor EBITDA, and amortization of debt issuance costs, oradjusted EBITDA.
As of March 31, 2021,2022, we, together with our subsidiaries, own a 48.9% limited partner interest and a 2.0% general partner interest in the partnership and own all of the partnership’s incentive distribution rights, with the remaining 49.1% limited partner interest owned by public common unitholders. We consolidate the financial results of the partnership, and record a noncontrolling interest for the economic interest in the partnership held by the public common unitholders.
Segment Results
The selected operating segment financial information are as follows (in thousands):
Three Months Ended March 31, | % | Three Months Ended | % | |||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||
Revenues: | ||||||||||||||
Ethanol production: | ||||||||||||||
Revenues from external customers | $ | 423,722 | $ | 475,700 | (10.9%) | $ | 637,553 | $ | 423,722 | 50.5% | ||||
Intersegment revenues | - | 25 | * | - | - | * | ||||||||
Total segment revenues | 423,722 | 475,725 | (10.9) | 637,553 | 423,722 | 50.5 | ||||||||
Agribusiness and energy services: | ||||||||||||||
Revenues from external customers | 128,821 | 155,881 | (17.4) | 142,877 | 128,821 | 10.9 | ||||||||
Intersegment revenues | 5,123 | 7,308 | (29.9) | 5,835 | 5,123 | 13.9 | ||||||||
Total segment revenues | 133,944 | 163,189 | (17.9) | 148,712 | 133,944 | 11.0 | ||||||||
Partnership: | ||||||||||||||
Revenues from external customers | 1,097 | 1,288 | (14.8) | 1,005 | 1,097 | (8.4) | ||||||||
Intersegment revenues | 19,309 | 18,983 | 1.7 | 18,095 | 19,309 | (6.3) | ||||||||
Total segment revenues | 20,406 | 20,271 | 0.7 | 19,100 | 20,406 | (6.4) | ||||||||
Revenues including intersegment activity | 578,072 | 659,185 | (12.3) | 805,365 | 578,072 | 39.3 | ||||||||
Intersegment eliminations | (24,432) | (26,316) | (7.2) | (23,930) | (24,432) | (2.1) | ||||||||
Revenues as reported | $ | 553,640 | $ | 632,869 | (12.5%) | $ | 781,435 | $ | 553,640 | 41.1% | ||||
Three Months Ended March 31, | % | ||||||
2021 | 2020 | Variance | |||||
Cost of goods sold: | |||||||
Ethanol production | $ | 415,525 | $ | 489,150 | (15.1%) | ||
Agribusiness and energy services | 116,074 | 156,502 | (25.8) | ||||
Intersegment eliminations | (22,366) | (28,424) | (21.3) | ||||
$ | 509,233 | $ | 617,228 | (17.5%) | |||
Three Months Ended March 31, | % | Three Months Ended | % | |||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||
Operating income (loss): | ||||||||||||||
Cost of goods sold: | ||||||||||||||
Ethanol production | $ | (20,320) | $ | (60,781) | (66.6%) | $ | 661,560 | $ | 415,525 | 59.2% | ||||
Agribusiness and energy services | 13,346 | 2,560 | * | 134,439 | 116,074 | 15.8 | ||||||||
Partnership | 12,871 | 12,430 | 3.5 | |||||||||||
Intersegment eliminations | (2,066) | 2,133 | * | (23,490) | (22,366) | 5.0 | ||||||||
Corporate activities (2) | 27,516 | (10,670) | * | |||||||||||
$ | 31,347 | $ | (54,328) | 157.7% | $ | 772,509 | $ | 509,233 | 51.7% | |||||
Three Months Ended | % | ||||||
2022 | 2021 | Variance | |||||
Operating income (loss): | |||||||
Ethanol production (1) | $ | (51,158) | $ | (20,320) | 151.8% | ||
Agribusiness and energy services | 10,408 | 13,346 | (22.0%) | ||||
Partnership | 11,809 | 12,871 | (8.3) | ||||
Intersegment eliminations | (440) | (2,066) | (78.7) | ||||
Corporate activities (2) | (18,521) | 27,516 | * | ||||
$ | (47,902) | $ | 31,347 | *% | |||
(1)Operating loss for ethanol production includes a goodwill impairment chargean inventory lower of $24.1cost or net realizable value adjustment of $13.2 million for the three months ended March 31, 2020.2022.
(2)Corporate activities for the three months ended March 31, 2021 included a $36.9 million pretax gain on sale of assets.
Three Months Ended March 31, | % | Three Months Ended | % | |||||||||||
2021 | 2020 | Variance | 2022 | 2021 | Variance | |||||||||
Depreciation and amortization: | ||||||||||||||
Ethanol production | $ | 18,528 | $ | 15,898 | 16.5% | $ | 18,432 | $ | 18,528 | (0.5%) | ||||
Agribusiness and energy services | 607 | 553 | 9.8 | 464 | 607 | (23.6) | ||||||||
Partnership | 887 | 961 | (7.7) | 898 | 887 | 1.2 | ||||||||
Corporate activities | 659 | 668 | (1.3) | 605 | 659 | (8.2) | ||||||||
$ | 20,681 | $ | 18,080 | 14.4% | $ | 20,399 | $ | 20,681 | (1.4%) | |||||
* Percentage variance not considered meaningful.
We use EBITDA and adjusted EBITDA as segment measures of profitability to compare the financial performance of our reportable segments and manage those segments. EBITDA is defined as earnings before interest expense, income tax expense, including related tax expense of equity method investments, depreciation and amortization excluding the amortization of right-of-use assets and debt issuance costs. Adjusted EBITDA includes adjustments related to gains or losses on sale of
assets and our proportional share of EBITDA adjustments of our equity method investees and noncash goodwill impairment.investees. We believe EBITDA and adjusted EBITDA are useful measures to compare our performance against other companies. EBITDA and adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, which is prepared in accordance with GAAP. EBITDA and adjusted EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA and adjusted EBITDA may not be comparable with a similarly titled measure of other companies.
The following table reconciles net loss including noncontrolling interest to adjusted EBITDA (in thousands):
Three Months Ended | Three Months Ended | |||||||||
2021 | 2020 | 2022 | 2021 | |||||||
Net loss | $ | (1,979) | $ | (10,347) | $ | (55,872) | $ | (1,979) | ||
Interest expense (1) | 31,679 | 9,697 | 8,806 | 31,679 | ||||||
Income tax expense (benefit), net of equity method income tax expense | 1,862 | (41,798) | ||||||||
Income tax expense (benefit) | (1,153) | 1,862 | ||||||||
Depreciation and amortization (2) | 20,681 | 18,080 | 20,399 | 20,681 | ||||||
EBITDA | 52,243 | (24,368) | (27,820) | 52,243 | ||||||
Gain on sale of assets, net | (36,893) | - | - | (36,893) | ||||||
Proportional share of EBITDA adjustments to equity method investees | 44 | 2,937 | 45 | 44 | ||||||
Noncash goodwill impairment | - | 24,091 | ||||||||
Adjusted EBITDA | $ | 15,394 | $ | 2,660 | $ | (27,775) | $ | 15,394 | ||
(1)Interest expense for the three months ended March 31, 2021 includes a loss upon extinguishment of convertible notes of $22.1 million.
(2)Excludes the change in operating lease right-of-use assets and amortization of debt issuance costs.
The following table reconciles segment EBITDA to consolidated adjusted EBITDA (in thousands):
Three Months Ended March 31, | Three Months Ended | % | ||||||||||
2021 | 2020 | 2022 | 2021 | Variance | ||||||||
Adjusted EBITDA: | ||||||||||||
Ethanol production | $ | (1,789) | $ | (44,125) | $ | (32,726) | $ | (1,789) | *% | |||
Agribusiness and energy services | 13,951 | 3,128 | 10,723 | 13,951 | (23.1) | |||||||
Partnership | 13,933 | 13,548 | 12,882 | 13,933 | (7.5) | |||||||
Intersegment eliminations | (2,066) | 2,133 | (919) | (2,066) | (55.5) | |||||||
Corporate activities | 28,214 | 948 | (17,780) | 28,214 | * | |||||||
EBITDA | 52,243 | (24,368) | (27,820) | 52,243 | * | |||||||
Gain on sale of assets, net | (36,893) | - | - | (36,893) | * | |||||||
Proportional share of EBITDA adjustments to equity method investees | 44 | 2,937 | 45 | 44 | 2.3 | |||||||
Noncash goodwill impairment | - | 24,091 | ||||||||||
Adjusted EBITDA | $ | 15,394 | $ | 2,660 | $ | (27,775) | $ | 15,394 | *% | |||
(1)Includes an inventory lower of cost or net realizable value adjustment of $13.2 million for the three months ended March 31, 2022.
(2)Includes corporate expenses, offset by the gain on sale of assets of $36.9 million for the three months ended March 31, 2021 and earnings from equity method investments of $7.8 million for the three months ended March 31, 2020.2021.
* Percentage variance not considered meaningful.
Three Months Ended March 31, 20212022 Compared with the Three Months Ended March 31, 20202021
Consolidated Results
Consolidated revenues decreased $79.2increased $227.8 million for the three months ended March 31, 20212022 compared with the same period in 20202021 primarily due to lower production volumes ofhigher prices on ethanol, distillers grains and corn oil and decreasedincreased trading revenues within our agribusiness and energy services segment.
Operating incomeloss increased $85.7$79.2 million and adjusted EBITDA decreased $43.2 million for the three months ended March 31, 20212022 compared with the same period last year primarily due to the $36.9 million gain on sale of assets as well as improved margins on ethanol production. Adjusted EBITDA increased $12.7 million due to improveddecreased margins on ethanol production. Interest expense increased $22.0decreased $22.9 million for the three months ended March 31, 20212022 compared with the same period in 20202021 primarily due to the loss upon extinguishment of convertible notes of $22.1 million recorded duringfor the quarter.three months ended March 31, 2021. Income tax expensebenefit was $1.9$1.2 million for the three months ended March 31, 20212022, compared with income tax benefitexpense of $44.3$1.9 million for the same period in 20202021 primarily due to benefitsthe release of a valuation allowance against decreases in certain deferred tax assets for the three months ended March 31, 2022, compared to a decrease of the valuation allowance recorded related to the CARES Actagainst certain deferred tax assets during the three months ended March 31, 2020.2021.
The following discussion provides greater detail about our first quarter segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||
2021 | 2020 | % Variance | 2022 | 2021 | % Variance | |||||||
Ethanol sold | ||||||||||||
(thousands of gallons) | 178,000 | 240,466 | (26.0) | 196,348 | 178,000 | 10.3% | ||||||
Distillers grains sold | ||||||||||||
(thousands of equivalent dried tons) | 465 | 642 | (27.6) | 516 | 465 | 11.0 | ||||||
Corn oil sold | ||||||||||||
(thousands of pounds) | 46,563 | 62,552 | (25.6) | 59,295 | 46,563 | 27.3 | ||||||
Corn consumed | ||||||||||||
(thousands of bushels) | 62,505 | 83,883 | (25.5) | 68,304 | 62,505 | 9.3% | ||||||
Revenues in our ethanol production segment decreased $52.0increased $213.8 million for the three months ended March 31, 20212022 compared with the same period in 20202021, primarily due to lower productionhigher volumes sold and higher prices of ethanol, distillers grains and corn oil.
Cost of goods sold for our ethanol production segment decreased $73.6increased $246.0 million for the three months ended March 31, 20212022 compared with the same period last year primarily due to lower productionhigher volumes as well as lower productionsold and corn costs. Operating loss decreased $40.5increased $30.8 million and EBITDA increased $42.3decreased $30.9 million for the three months ended March 31, 20212022 compared with the same period in 20202021 primarily due to the $24.1 million noncash impairment charge recorded during the three months ended March 31, 2020,decreased margins on ethanol production as well as improved margins.an inventory lower of cost or net realizable value adjustment of $13.2 million. Depreciation and amortization expense for the ethanol production segment was $18.5$18.4 million for the three months ended March 31, 20212022, compared with $15.9$18.5 million for the same period last year.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment decreased $29.2increased $14.8 million while operating income decreased $2.9 million and EBITDA increased $10.8decreased $3.2 million for the three months ended March 31, 20212022 compared with the same period in 2020.2021. The decreaseincrease in revenues was primarily due to a decreasean increase in ethanol, distillers grain and corn oil trading activity driven by lower production volumes.higher prices. Operating income and EBITDA increaseddecreased primarily as a result of higherlower trading margins.
Food and Ingredients Segment
The food and ingredients segment, which now represents food-grade corn oil production had no activity during the three months ended March 31, 2021 and 2020.
Partnership Segment
Revenues generated by our partnership segment increased $0.1decreased $1.3 million for the three months ended March 31, 2021,2022, compared with the same period for 2020.2021. Storage and throughput services revenue increased $0.5 million due to an increase in the rate per gallon charged to Green Plains Trade beginning on July 1, 2020. Terminal services revenue decreased $0.2 million as a result of lower throughput volume. Railcar transportation services revenue decreased $0.1 million primarily due to a decrease in railcar sublease revenue. Trucking and other revenue decreased $0.1$0.7 million due to a reduction in the contracted minimum volume commitment as a result of the sale of the Ord ethanol plant in the first quarter of 2021. Railcar transportation services revenue decreased $0.4 million primarily due to a reduction in average volumetric capacity provided. Trucking and other revenue decreased $0.3 million primarily as a result of lower affiliate freight loads.volume. Operating income increased and EBITDA increased $0.4both decreased $1.1 million for the three months ended March 31, 2021 2022 compared with the same period in 2020.2021.
Intersegment Eliminations
Intersegment eliminations of revenues decreased by $1.9$0.5 million for the three months ended March 31, 20212022 compared with the same period in 20202021 primarily due to decreased intersegment marketing and service fees within the agribusiness and energy services segment as a result of lower production volumes.partnership revenues.
Corporate Activities
Operating income was impacted by a decrease in corporate activities of $38.2$46.0 million for the three months ended March 31, 20212022 compared to the same period in 20202021, primarily due to the $36.9 million gain on sale of assets recorded in the same period last year as well as increased personnel costs and professional fees during the current quarter.three months ended March 31, 2022.
Income Taxes
We recorded income tax expensebenefit of $1.9$1.2 million for the three months ended March 31, 2021,2022, compared with income tax benefitexpense of $44.3$1.9 million for the same period in 2020.2021. The decrease in the amount of tax benefitexpense recorded for the three months ended March 31, 2021 compared to the same period in 20202022 was primarily due to a decrease in the recording of a valuation allowance recorded against increases incertain deferred tax assets forin the three months ended March 31, 2021 compared to the tax benefit recorded for the same period in 2020 to reflect the benefit associated with the carry back of the 2019 tax NOLs to the 2014 tax year under the CARES Act of 2020, as well as the release of a previously recorded valuation allowance against the 2019 NOL and other deferred tax assets.period.
Income (Loss) from Equity Method Investees
Income (loss) from equity method investees decreased $7.8$1.0 million for the three months ended March 31, 20212022 compared with the same period last year due primarily to the disposition of our GPCC joint venture during the fourth quarter of 2020.year.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities and bank credit facilities. We fund our operating expenses and service debt primarily with operating cash flows. Capital resources for maintenance and growth expenditures are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, or the issuance of senior notes or equity. Our ability to access capital markets for debt financing under reasonable terms depends on numerous factors, including our past performance, current financial condition, credit ratingsrisk profile and market conditions.conditions generally. We believe that our ability to obtain financing at reasonable ratesbased on these factors remains sufficient and history of positive cash flow from operating activities, which have been positive for seven of the previous ten years, provideprovides a solid foundation to meet our future liquidity and capital resource requirements.
On March 31, 2021,2022, we had $446.8$509.2 million in cash and equivalents, excluding restricted cash, consisting of $405.0 million held at our parent company and the remainder held at our subsidiaries.cash. Additionally, we had $207.6$95.1 million in restricted cash and $24.9 million in marketable securities at March 31, 2021.2022. We also had $330.4$45.0 million available under our committed revolving credit and term loan agreements, including $4.7 million available under the partnership’s revolving credit facility, some of which wereagreement, subject to restrictions orand other lending conditions. Funds at certain subsidiaries are generally required for their ongoing operational needs and restricted from distribution. At March 31, 2021,2022, our subsidiaries had approximately $152.7$108.8 million of net assets that were not available to use in the form of dividends, loans or advances due to restrictions contained in their credit facilities.
Net cash used in operating activities was $37.0$162.5 million for the three months ended March 31, 20212022 compared with net cash provided byused in operating activities of $17.8$37.0 million for the same period in 2020.2021. Operating activities compared to the prior year were primarily affected by changesa higher net loss due to weak ethanol crush margins as well as increases in working capital and deferred taxesinventory of $46.1 million primarily due to higher ethanol inventory when compared to the same period of the prior year. Net cash provided by investing activities was $42.3$37.9 million for the three months ended March 31, 20212022 compared with net cash used inprovided by investing activities of $39.9$42.3 million for the same period in 2020.2021. Investing activities compared to the prior year were primarily affected by proceeds from the sale of marketable securities during the first quarter of 2022, and proceeds from the sale of assets during the same period in 2021. Net cash provided by financing activities was $374.3$167.9 million for the three months ended March 31, 20212022 compared with net cash used in financing activities of $42.3$374.3 million for the same period in 2020,2021, primarily due to proceeds from the issuance of common stock and debt offerings during 2021.
Additionally, Green Plains Finance Company, Green Plains Trade, Green Plains Grain and Green Plains Commodity Management use revolving credit facilities to finance working capital requirements. We frequently draw from and repay these facilities, which results in significant cash movements reflected on a gross basis within financing activities as proceeds from and payments on short-term borrowings.
We incurred capital expenditures of approximately $31.5$62.0 million during the three months ended March 31, 2021,2022, primarily for Ultra High-Protein expansion projects at various facilities Project 24 operating expense reduction and for various maintenance projects. Capital spending for the remainder of 20212022 is expected to be between $170.0$190.0 million and $194.0$240.0 million for various projects, including the Ultra High-Protein expansion at our Wood River, Obion, Central City and Mount Vernon locations, which are expected to be financed with cash on hand and by cash provided by operating activities, as well as borrowings under our recently secured project based financing of $75.0 million and $125.0 million junior secured mezzanine notes.
activities.
Our business is highly sensitive to the price of commodities, particularly for corn, ethanol, distillers grains, corn oil and natural gas. We use derivative financial instruments to reduce the market risk associated with fluctuations in commodity prices. Sudden changes in commodity prices may require cash deposits with brokers for margin calls or significant liquidity with little advanced notice to meet margin calls, depending on our open derivative positions. We continuously monitor our exposure to margin calls and believe we will continue to maintain adequate liquidity to cover margin calls from our operating results and borrowings.
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement requires the partnership to distribute all available cash, as defined, to its partners, including us, within 45 days after the end of each calendar quarter. Available cash generally means all cash and cash equivalents on hand at the end of that quarter less cash reserves established by the general partner, including those for future capital expenditures, future acquisitions and anticipated future debt service requirements, plus all or any portion of the cash on hand resulting from working capital borrowings made subsequent to the end of that quarter. On April 22, 2021, the board of directors of the general partner of the partnership declared a cash distribution of $0.12 per unit on outstanding common and subordinated units. The distribution is payable on May 14, 2021, to unitholders of record at the close of business on May 7, 2021.
Our board of directors authorized a share repurchase program of up to $200$200.0 million of our common stock. Under the program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers or by other means. The timing and amount of repurchase transactions are determined by our management based on market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. We did not repurchase any shares during the first quarter of 2021.2022. To date, we have repurchased 7,396,936 of common stock for approximately $92.8 million under the program.
We believe we have sufficient working capital for our existing operations. A continued sustained period of unprofitable operations, however, may strain our liquidity. We may sell additional assets or equity or borrow capital to improve or preserve our liquidity, expand our business or acquire businesses. We cannot provide assurance that we will be able to secure funding necessary for additional working capital or these projects at reasonable terms, if at all.
Debt
For additional information related to our debt, see Note 8 – Debt included as part of the notes to consolidated financial statements and Note 12 – Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2020.2021.
We were in compliance with our debt covenants at March 31, 2021.2022. Based on our forecasts, we believe we will maintain compliance at each of our subsidiaries for the next twelve months or have sufficient liquidity available on a consolidated basis to resolve noncompliance. We cannot provide assurance that actual results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event a subsidiary is unable to comply with its debt covenants, the subsidiary’s lenders may determine that an event of default has occurred, and following notice, the lenders may terminate the commitment and declare the unpaid balance due and payable.
As outlined in Note 8 - Debt, we use LIBOR as a reference rate for ourvarious credit facility.facilities. The administrator of LIBOR has announced it will ceaseceased the publication of the one week and two month LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. ItThe U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a steering committee comprised of large U.S. financial institutions, is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will be established by the applicable phase out dates. We may need to amend our credit facility to determine the interest rate to replaceconsidering replacing U.S. dollar LIBOR with a new reference rate, the new standard that is established.SOFR, calculated using short-term repurchase agreements backed by Treasury securities. The potential effect of any such event on interest expense cannot yet be determined.
Corporate Activities
In March 2021, we issued $230.0 million of 2.25% convertible senior notes due in 2027, or the 2.25% notes. The 2.25% notes bear interest at a rate of 2.25% per year, payable on March 15 and September 15 of each year, beginning September 15, 2021. The initial conversion rate is 31.6206 shares of the company’s common stock per $1,000 principal amount of 2.25% notes (equivalent to an initial conversion price of approximately $31.62 per share of the company’s common stock), representing an approximately 37.5% premium over the offering price of the company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering. In addition, the company may be obligated to increase the conversion rate for
any conversion that occurs in connection with certain corporate events, including the company’s calling the 2.25% notes for redemption. We may settle the 2.25% notes in cash, common stock or a combination of cash and common stock. At March 31, 2021,2022, the outstanding principal balance on the 2.25% notes was $230.0 million.
In June 2019, we issued $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The initial conversion rate will be 64.1540 shares of our common stock per $1,000 principal amount of the 4.00% notes, which is equivalent to an initial conversion price of approximately $15.59 per share of
our common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering. In addition, we may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including our calling the 4.00% notes for redemption. We may settle the 4.00% notes in cash, common stock or a combination of cash and common stock.
In May 2021, we entered into a privately negotiated agreement with certain noteholders of the company’s 4.00% notes. Under this agreement, 3,568,705 shares of our common stock were exchanged for $51.0 million in aggregate principal amount of the 4.00% notes. Common stock held as treasury shares were exchanged for the 4.00% notes. At March 31, 2021,2022, the outstanding principal balance on the 4.00% notes was $115.0$64.0 million.
In August 2016, we issued $170.0 million of 4.125% convertible senior notes due in 2022, or 4.125% notes, which are senior, unsecured obligations with interest payable on March 1 and September 1 of each year. In March 2021, concurrent with the issuance of the 2.25% notes, we used approximately $156.5 million of the net proceeds of the 2.25% notes to repurchase approximately $135.7 million aggregate principal amount of its 4.125% notes due 2022, in privately negotiated transactions. Prior to March 1, 2022, the 4.125%The notes are not convertible unless certain conditions are satisfied.at the Holder’s option. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal which is equal to a conversion price of approximately $28.00 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering. We mayanticipate we will settle the 4.125% notes in cash, common stock or a combination of cash and common stock.
In March 2021, concurrent with the issuance of the 2.25% notes, we used approximately $156.5 million of the net proceeds of the 2.25% notes to repurchase approximately $135.7 million aggregate principal amount of its 4.125% notes due 2022, in privately negotiated transactions. At March 31, 2021,2022, the outstanding principal balance on the 4.125% notes was $34.3 million.
Agribusiness and Energy Services Segment
Green Plains TradeFinancing Company has a $300.0total revolving commitments of $350.0 million senior secured asset-based revolving credit facility to finance working capital up toand an accordion feature whereby amounts available under the maximum commitment based on eligible collateral, which matures in July of 2022. This facility canFacility may be increased by up to $70.0$100.0 million with agent approval. Advances areof new lender commitments subject to variablecertain conditions. Each SOFR rate loan shall bear interest ratesfor each day at a rate per annum equal to the Term SOFR rate for the outstanding period plus a daily LIBORTerm SOFR adjustment and an applicable margin of 2.25% to 2.50%, which is dependent on undrawn availability under the Facility. Each base rate plus 2.25% orloan shall bear interest at a rate per annum equal to the base rate plus the applicable margin of 1.25%. to 1.50%, which is dependent on undrawn availability under the Facility. The unused portion of the credit facilityFacility is also subject to a commitment fee of 0.275% to 0.375% per annum., dependent on undrawn availability. At March 31, 2021,2022, the outstanding principal balance was $70.3$305.0 million on the facility and the interest rate was 2.43%.
Green Plains Grain has a $100.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in June of 2022. This facility can be increased by up to $75.0 million with agent approval and up to $50.0 million for seasonal borrowings. Total commitments outstanding under the facility cannot exceed $225.0 million. At March 31, 2021, the outstanding principal balance was $49.0 million on the facility and the interest rate was 3.13%.
Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At March 31, 2021, 5.5 million bushels of corn had been designated as collateral under these agreements at initial values totaling $32.3 million. The company has accounted for the agreements as short-term notes, rather than sales, and has elected the fair value option to offset fluctuations in market prices of the inventory. At March 31, 2021, the short-term notes payable were valued at $32.3 million and the interest rate was 2.93%3.67%.
Green Plains Commodity Management has an uncommitted $30.0$40.0 million revolving credit facility which matures April 30, 2023, to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to LIBORSOFR plus 1.75%. At March 31, 2021,2022, the outstanding principal balance was $22.6$5.2 million on the facility and the interest rate was 1.84%1.83%.
Ethanol Production Segment
On February 9, 2021, Green Plains SPE LLC, a wholly-owned special purpose subsidiary and parent of Green Plains Obion and Green Plains Mount Vernon issued $125.0 million of junior secured mezzanine notes due 2026 with four funds and accounts managed by BlackRockfor the purchase of all notes issued. At March 31, 2021,2022, the outstanding principal balance was $125.0 million on the loan and the interest rate was 11.75%.
Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, hashave a $75.0 million delayed draw loan agreement, which matures on September 1, 2035. At March 31, 2021,2022, the outstanding principal balance was $30.0$75.0 million on the loan and the interest rate was 6.52%.
We also have small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.
Partnership Segment
Green Plains Partners, throughOn July 20, 2021, the partnership entered into an Amended and Restated Credit Agreement (“Amended Credit Agreement”) with funds and accounts managed by BlackRock and TMI Trust Company as administrative agent creating a wholly owned subsidiary, has a $135.0$60.0 million credit facilityterm loan to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. The credit facility includes a $130.0 million term loan and a $5.0 million revolving credit facility, maturing on December 31, 2021. During the three months ended March 31, 2021, principal payments of $37.5 million were made on the term loan, including $7.5 million of scheduled repayments, $27.0 million related to the sale of the storage assets located adjacent to the Ord, Nebraska ethanol plant and a $3.0 million prepayment made with excess cash. As of March 31, 2021, no additional prepayments on the term loan were required or paid. The term loan requires monthly principal payments of $2.5 million, with a step up to monthly payments of $3.2 million through maturity beginning May 15, 2021. As of March 31, 2021, the term loan had a balance of $62.5 million and an interest rate of 5.75% and the revolver had a balance outstanding of $0.3 million at an interest rate of 7.00%.
In certain situations we are required to make prepayments on the outstanding principal balance on the credit facility. If at any time our cash balance exceeds $2.5 million for more than five consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. We are also required to prepay outstanding principal on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment.
While the partnership has not yet renegotiated the credit facility or secured additional funding necessary to repay the loan, the partnership believes it is probable that it will source appropriate funding prior to August 2021 given the partnership’s consistent and stable fee-based cash flows, ongoing profitability, low leverage and history of obtaining financing on reasonable commercial terms. In the unlikely scenario that the partnership is unable to refinance its debt with the lenders prior to its maturity, the partnership will consider other financing sources, including but not limited to, the restructuring or issuance of new debt with a different lending group, the issuance of additional partnership units, other strategic actions to extinguish the debt, or support from the company.
Contractual Obligations
Contractual obligations as of March 31, 2021 were as follows (in thousands):
Payments Due By Period | ||||||||||||||
Contractual Obligations | Total | Less Than | 1-3 Years | 3-5 Years | More Than | |||||||||
Long-term and short-term debt obligations (1) | $ | 787,014 | $ | 237,242 | $ | 37,969 | $ | 348,636 | $ | 163,167 | ||||
Interest and fees on debt obligations (2) | 157,173 | 35,820 | 55,260 | 46,245 | 19,848 | |||||||||
Operating lease obligations (3) | 79,895 | 18,575 | 29,256 | 17,259 | 14,805 | |||||||||
Other | 20,309 | 4,019 | 3,379 | 6,648 | 6,263 | |||||||||
Purchase obligations: | ||||||||||||||
Forward grain purchase contracts (4) | 271,752 | 269,472 | 2,280 | - | - | |||||||||
Other commodity purchase contracts (5) | 128,996 | 104,387 | 20,065 | 4,544 | - | |||||||||
Other | 280 | 210 | 70 | - | - | |||||||||
Total contractual obligations | $ | 1,445,419 | $ | 669,725 | $ | 148,279 | $ | 423,332 | $ | 204,083 | ||||
(1)Includes the current portion of long-term debt and future finance lease obligations and excludes the effect of any debt issuance costs.
(2)Interest amounts are calculated over the terms of the loans using current interest rates, assuming scheduled principal and interest amounts are paid pursuant to the debt agreements. Includes administrative and/or commitment fees on debt obligations.
(3)Operating lease costs are primarily for railcars and office space and exclude leases not yet commenced with undiscounted future lease payments of approximately $1.7 million.
(4)Purchase contracts represent index-priced and fixed-price contracts. Index purchase contracts are valued at current quarter-end prices.
(5)Includes fixed-price ethanol, dried distillers grains and natural gas purchase contracts.
amended
term loan matures July 20, 2026. The amended term loan does not require any principal payments; however, the partnership has the option to prepay $1.5 million per quarter beginning twelve months after the closing date.
Under the terms of the Amended Credit Agreement, BlackRock purchased the outstanding balance of the existing notes from the previous lenders. Interest on the term loan is based on 3-month LIBOR plus 8.00%, with a 0% LIBOR floor and is payable on the 15th day of each March, June, September and December, during the term, with the first interest payment being September 15, 2021.
On February 11, 2022, the amended term loan was modified to allow Green Plains Partners and its affiliates to repurchase outstanding notes. On the same day, the partnership purchased $1.0 million of the outstanding notes from accounts and funds managed by BlackRock and subsequently retired the notes. As of March 31, 2022, the term loan had a balance of $59.0 million and an interest rate of 8.83%.
Contractual Obligations and Commitments
In addition to debt, our material future obligations include certain lease agreements and contractual and purchase commitments related to commodities, storage and transportation. Aggregate minimum lease payments under the operating lease agreements for future fiscal years as of March 31, 2022 totaled $76.1 million. As of March 31, 2022, we had contracted future purchases of grain, natural gas, and distillers grains valued at approximately $532.4 million and future commitments for storage and transportation valued at approximately $31.4 million. Refer to Note 13 – Commitments and Contingencies included in the notes to consolidated financial statements for more information.
Critical Accounting Policies and Estimates
Key accounting policies, including those relating to revenue recognition, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. Information about our critical accounting policies and estimates are included in our annual report on Form 10-K for the year ended December 31, 2020.2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We use various financial instruments to manage and reduce our exposure to various market risks, including changes in commodity prices and interest rates. We conduct allthe majority of our business in U.S. dollars and are not currently exposed to foreign currency risk.
Interest Rate Risk
We are exposed to interest rate risk through our loans which bear interest at variable rates. Interest rates on our variable-rate debt are based on the market rate for the lender’s prime rate, SOFR or LIBOR. At March 31, 2022, we had $903.8 million in debt, $369.2 million of which had variable interest rates. A 10% increase in interest rates would affect our interest cost by approximately $0.8$1.6 million per year. At March 31, 2021, we had $773.4 million in debt, $235.2 million of which had variable interest rates.
For additional information related to our debt, see Note 8 – Debt included as part of the notes to consolidated financial statements and Note 12 – Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2020.2021.
Commodity Price Risk
Our business is highly sensitive to commodity price risk, particularly for ethanol, corn, distillers grains, corn oil and natural gas. Ethanol prices are sensitive to world crude oil supply and demand, the price of crude oil, gasoline and corn, the price of substitute fuels, refining capacity and utilization, government regulation and consumer demand for alternative fuels. Corn prices are affected by weather conditions, yield, changes in domestic and global supply and demand, and government programs and policies. Distillers grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production. Natural gas prices are influenced by severe weather in the summer
and winter and hurricanes in the spring, summer and fall. Other factors include North American energy exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons.
To reduce the risk associated with fluctuations in the price of ethanol, corn, distillers grains, corn oil, and natural gas, at times we use forward fixed-price physical contracts and derivative financial instruments, such as futures and options executed on the Chicago Board of Trade, the New York Mercantile Exchange and the Chicago Mercantile Exchange. We focus on locking in favorable operating margins, when available, using a model that continually monitors market prices for corn, natural gas and other inputs relative to the price for ethanol and distillers grains at each of our production facilities. We create offsetting positions using a combination of forward fixed-price purchases, sales contracts and derivative financial instruments. As a result, we frequently have gains on derivative financial instruments that are offset by losses on forward fixed-price physical contracts or inventories and vice versa. Our results are impacted by a mismatch of gains or losses associated with the derivative instrument during a reporting period when the physical commodity purchases or sale has not yet occurred. During the three months ended March 31, 2021,2022, revenues included net losses of $56.0$6.0 million, and cost of goods sold included net gainslosses of $18.5$62.4 million associated with derivative financial instruments.
Ethanol Production Segment
In the ethanol production segment, net gains and losses from settled derivative instruments are offset by physical commodity purchases or sales to achieve the intended operating margins. To reduce commodity price risk caused by market fluctuations, we enter into exchange-traded futures and options contracts that serve as economic hedges.
Our exposure to market risk, which includes the impact of our risk management activities resulting from our fixed-price purchase and sale contracts and derivatives, is based on the estimated net income effect resulting from a hypothetical 10% change in price for the next 12 months starting on March 31, 2021,2022, which is as follows (in thousands):
Commodity | Estimated Total Volume | Unit of | Net Income Effect of | Estimated Total Volume | Unit of | Net Income Effect of | ||||||||
Ethanol | 958,000 | Gallons | $ | 116,059 | 958,000 | Gallons | $ | 173,309 | ||||||
Corn | 331,000 | Bushels | $ | 129,767 | 330,000 | Bushels | $ | 172,603 | ||||||
Distillers grains | 2,400 | Tons (2) | $ | 31,942 | 2,500 | Tons (2) | $ | 44,703 | ||||||
Corn oil | 258,000 | Pounds | $ | 10,907 | 290,000 | Pounds | $ | 8,717 | ||||||
Natural gas | 27,700 | MmBTU | $ | 2,903 | 27,700 | MmBTU | $ | 5,083 | ||||||
(1) Estimated volumes assume production at full capacity.
(2) Distillers grains quantities are stated on an equivalent dried ton basis.
Agribusiness and Energy Services Segment
In the agribusiness and energy services segment, our inventories, physical purchase and sale contracts and derivatives are marked to market. To reduce commodity price risk caused by market fluctuations for purchase and sale commitments of grain and grain held in inventory, we enter into exchange-traded futures and options contracts that serve as economic hedges.
The market value of exchange-traded futures and options used for hedging are highly correlated with the underlying market value of grain inventories and related purchase and sale contracts for grain. The less correlated portion of inventory and purchase and sale contract market values, known as basis, is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. Inventory values are affected by the month-to-month spread in the futures markets. These spreads are also less volatile than overall market value of our inventory and tend to follow historical patterns, but cannot be mitigated directly. Our accounting policy for futures and options, as well as the underlying inventory held for sale and purchase and sale contracts, is to reflect their current market values and include gains and losses in the consolidated statement of operations.
Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position was approximately $0.4 million for grain at March 31, 2021. Our market risk at that date, based on the estimated net income effect resulting from a hypothetical 10% change in price, was approximately $27 thousand.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure the information that must be disclosed in the reports
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and participation of our chief executive officer and chief financial officer, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 20212022 as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. There were no material changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We are currently involved in litigation that has arisen during the ordinary course of business. We do not believe this litigation will have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors.
Investors should carefully consider the discussion of risks and the other information in our annual report on Form 10-K for the year ended December 31, 2020,2021, in Part I, Item 1A, “Risk Factors,” and the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements,” of this report. Investors should also carefully consider the discussion of risks with the partnership under the heading “Risk Factors” and other information in their annual report on Form 10-K for the year ended December 31, 2020.2021. Although we have attempted to discuss key factors, our investors need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. The following risk factors supplement and/or update risk factors previously disclosed and should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.
Our margins are dependent on managing the spread between the price of corn, natural gas, ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil.
Our operating results are highly sensitive to the spread between the corn and natural gas we purchase, and the ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil we sell. Price and supply are subject to various market forces, such as weather, domestic and global demand, global political or economic issues, including but not limited to the war in Ukraine including sanctions associated therewith, shortages, export prices, crude oil prices, currency valuations and government policies in the United States and around the world, over which we have no control. Price volatility of these commodities may cause our operating results to fluctuate substantially. Increases in corn or natural gas prices or decreases in ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil prices may make it unprofitable to operate. No assurance can be given that we will purchase corn and natural gas or sell ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil at or near prices which would provide us with positive margins. Consequently, our results of operations and financial position may be adversely affected by increases in corn or natural gas prices or decreases in ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil prices.
We continuously monitor the margins at our ethanol plants using a variety of risk management tools and hedging strategies when appropriate. In recent years, the spread between ethanol and corn prices has fluctuated widely, narrowed significantly and been negative at times. Fluctuations are likely to continue. A sustained narrow spread or further reduction in the spread between ethanol and corn prices as a result of increased corn prices or decreased ethanol prices, would adversely affect our results of operations and financial position. Should our combined revenue from ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil fall below our cost of production, we could decide to slow or suspend production at some or all of our ethanol plants, which also could adversely affect our results of operations and financial position.
The commoditiesproducts we buy and sell are subject to price volatility and uncertainty.
Our operating results are highly sensitive to commodity prices.
Corn. We are generally unable to pass increased corn costs to our customers since ethanol competes with other fuels. We have seen considerable price volatility in corn prices not experienced in recent years. At certain corn prices, ethanol may be uneconomical to produce. Ethanol plants, livestock industries and other corn-consuming enterprises put significant price pressure on local corn markets. In addition, local corn supplies and prices could be adversely affected by, but not limited to, prices for alternative crops, increasing input costs, changes in government policies, shifts in global markets, supply or demand, global political or economic issues, including but not limited to the war in Ukraine including sanctions associated therewith, or global damaging growing conditions, such as plant disease or adverse weather, including drought.drought, as well as global conflicts.
Ethanol. Our revenues are dependent on market prices for ethanol which can be volatile as a result of a number of factors, including:including but not limited to: the price and availability of competing fuels; the overall supply and demand for ethanol and corn; the price of gasoline, crude oil and corn; global political or economic issues, including but not limited to the war in Ukraine including sanctions associated therewith, and government policies.
Ethanol is marketed as a fuel additive that reduces vehicle emissions, an economical source of octanes and, to a lesser extent, a gasoline substitute. Consequently, gasoline supply and demand affect the price of ethanol. Should gasoline prices or demand decrease significantly, our results of operations could be materially impacted.
Ethanol imports also affect domestic supply and demand. Imported ethanol is not subject to an import tariff and, under the RFS, II, sugarcane ethanol from Brazil is one of the most economical means for obligated parties to meet the advanced biofuel standard.
Industrial-grade alcohol is produced by further distillation processing of the 200-proof alcohol. Further distillation removes impurities from fuel-grade ethanolwhich allows it to allow for production of industrial-grade alcohol which can be used as an ingredient for sanitation products. Should industrial-grade alcohol prices or demand decrease significantly, or competition and supply increase, our results of operations could be negatively impacted.
Distillers Grains. Increased U.S. dry mill ethanol production has resulted in increased distillers grains production. Should this trend continue, distillers grains prices could fall unless demand increases or other market sources are found. The price of distillers grains has historically been correlated with the price of corn. Occasionally, the price of distillers grains will lag behind fluctuations in corn or other feedstock prices, lowering our cost recovery percentage. Additionally, exports of distiller grains could be impacted by the enactment of foreign policy.
Distillers grains compete with other protein-based animal feed products. Downward pressure on other commodity prices, such as corn and soybeans, will generally cause the price of competing animal feed products to decline, resulting in downward pressure on the price of distillers grains.
Natural Gas. The price and availability of natural gas are subject to volatile market conditions. These market conditions are often affected by factors beyond our control, such as weather, drilling economics, overall economic conditions and government regulations. Significant disruptions in natural gas supply could impair our ability to produce ethanol. Furthermore, increases in natural gas price or changes in our cost relative to our competitors cannot be passed on to our customers which may adversely affect our results of operations and financial position.
Corn Oil. Industrial corn oil is generally marketed as a renewable diesel and biodiesel feedstock; therefore, the price of corn oil is affected by demand for renewable diesel and biodiesel. Expanded profitability in the renewable diesel and biodiesel industry due to the extended blending tax credit and low carbon fuels standards could impact corn oil demand. In general, corn oil prices follow the prices of heating oil and soybean oil. Decreases in the price of corn oil could have an unfavorable impact on our business.
Business disruptions due to unforeseen operational failures or factors outside of our control could impact our ability to fulfill contractual obligations.
Natural disasters, pandemics, transportation issues, significant track damage resulting from a train derailment or strikes by our transportation providers could delay shipments of raw materials to our plants or deliveries of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil to our customers. If we are unable to meet customer demand or contract delivery requirements due to stalled operations caused by business disruptions, we could potentially lose customers.
Shifts in global markets, supply or demand changes, as well as adverse weather conditions, such as inadequate or excessive amounts of rain during the growing season, overly wet conditions, an early freeze or snowy weather during harvest could impact the supply of corn that is needed to produce ethanol. Corn stored in an open pile may be damaged by rain or warm weather before the corn is dried, shipped or moved into a storage structure.
Government mandates affecting ethanol could change and impact the ethanol market.
Under the provisions of the Energy Independence and Security Act (EISA),of 2007, as amended, Congress expanded the Renewable Fuel Standard (RFS II).RFS. The RFS II mandatedmandates the minimum volume of renewable fuels that must be blended into the transportation fuel supply each year which affects the domestic market for ethanol and eachethanol. Each year the Environmental Protection Agency (EPA) undertakesEPA is supposed to undertake rulemaking to set the Renewable Volume Obligation (RVO)RVO for the following year.year, though at times months or years pass without a finalized RVO. Further, the EPA has the authority to waive the requirements, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or the environment. After 2022, volumes shall be determined by the EPA in coordination with the Secretaries of Energy and Agriculture, taking into account such factors as impact on environment, energy security, future rates of production, cost to consumers, infrastructure, and other factors such as impact on commodity
prices, job creation, rural economic development, or impact on food prices.
According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022; the year through which the statutorily prescribed volumes run. While conventional ethanol maintained 15 billion gallons, 2019 was the second consecutive year that the total RVO was more than 20% below the statutory volumes levels. Thus, the EPA was expected to initiate a reset rulemaking, and modify statutory volumes through 2022, and do so based on the same factors they are to use in setting the RVOs post-2022. However, on December 19, 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020.rulemaking. It is unclear when or if they will propose a reset rulemaking. The EPA has stated an intention to propose a post-2022 ‘set’ rulemaking as required by statute.
Volumes can also be impacted as small refineries can petition the EPA for aan SRE which, if approved, waives their portion of the annual RVO requirements. The EPA, through consultation with the DOE and the USDA, can grant them a full or partial waiver, or deny it outright within 90 days of submittal. A small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day.
Our operations could be adversely impacted by legislation, administration actions, EPA actions, or lawsuits that may reduce the RFS II mandated volumes of conventional ethanol and other biofuels through the annual RVO, the 2022 reset rulemaking, EPA E15 or otherset rulemaking, the point of obligation for blending, or SREs. A recent Supreme Court ruling held that the small refinery exemptions.refineries can continue to apply for an extension of their waivers from the RFS, even if they have not been awarded a continuous string of exemptions, though the EPA has proposed denying all SRE applications. A numberrecent D.C. Circuit Court of lawsuits are pending involvingAppeals ruling held that the RVO,EPA overstepped its authority in extending the pointone pound Reid Vapor Pressure waiver for 10% ethanol blends to 15% ethanol blends in the summer, effectively limiting summertime sales of obligation,ethanol blends above 10% to FFVs from June 1 to September 15 each year. Notwithstanding, on April 12, 2022, the President announced that he has directed the EPA to issue an emergency waiver to allow for the continued sale of E15 and small refinery exemptions. during the June 1 to September 15 period.
Similarly, should federal mandates regarding oxygenated gasoline be repealed, the market for domestic ethanol could be adversely impacted. Economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the RFS II mandate, may affect future demand. A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices. Moreover, changes to RFS II could negatively impact the price of ethanol or cause imported sugarcane ethanol to become more economical than domestic ethanol. Likewise, national, state and regional low carbon fuel standards (LCFS)LCFS like that of California, Oregon, Brazil or Canada could be
favorable or harmful to conventional ethanol, depending on how it is crafted.the regulations are crafted, enforced and modified.
Future demand may be influenced by economic incentives to blend based on the relative value of gasoline versus ethanol, taking into consideration the octane value of ethanol, environmental requirements and the value of RFS II credits or Renewable Identification Numbers (RINs).RINs. A significant increase in supply beyond the RFS II mandate could have an adverse impact on ethanol prices. Moreover, any changes to RFS, II, whether by legislation, EPA action or lawsuit, originating from issues associated with the market price of RINs could negatively impact the demand for ethanol, discretionary blending of ethanol and/or the price of ethanol. Recent actions by the EPA to grant small refiner exemptionsSREs without accounting for the lost gallons, hasfor example, resulted in lower RIN prices. Similarly, proposals from the current EPA to reduce annual RVO levels could also lead to lower RIN prices.
Flexible-fuel vehicles (FFVs), which are designed to run on a mixture of fuels, including higher blends of ethanol such as E85, receive preferential treatment to meet corporate average fuel economy (CAFE) standards in the form of CAFE credits. There are approximately 21 million FFVs on the road in the U.S. today, 16 million of which are light duty trucks. FFV credits have been decreasing since 2014 and will be completely phased out in 2020. Absent CAFE preferences, auto manufacturers may not be willing to build flexible-fuel vehicles, which has the potential to slow the growth of E85 markets.
To the extent federal or state laws or regulations are modified and/or enacted, it may result in the demand for ethanol being reduced, which could negatively and materially affect our financial performance.
The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels and/or the impact of sanctions on Russia related to the war in Ukraine may have a significant impact on oil and natural gas commodity prices.
The Organization of Petroleum Exporting Countries and their allies (collectively, OPEC+), is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market. Actions taken by OPEC+ members, including those taken alongside other oil exporting nations, have a significant impact on global oil supply and pricing. For example, OPEC+ and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices. In March 2020, members of OPEC+ considered extending and potentially increasing these oil production cuts, however these negotiations were unsuccessful. As a result, Saudi Arabia announced an immediate reduction in export prices and Russia announced that all previously agreed oil production cuts expired on April 1, 2020. These actions led to an immediate and steep decrease in oil prices. Conversely, sanctions imposed on Russia in the last few months have increased prices. There can be no assurance that OPEC+ members and other oil exporting nations will agree to future production cuts or other actions to support and stabilize oil prices, nor can there be any assurance that sanctions or other global conflicts will not further impact oil prices. Uncertainty regarding future sanctions or actions to be taken by OPEC+ members or other oil exporting countries could lead to increased volatility in the price of oil, which could adversely affect our business, future financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Employees surrender shares when restricted stock grants are vested to satisfy statutory minimum required payroll tax withholding obligations.
The following table lists the shares that were surrendered during the first quarter of 2021:2022:
Period | Total Number of | Average Price | Total Number of | Average Price | ||||||
January 1 - January 31 | - | $ | - | - | $ | - | ||||
February 1 - February 28 | 34,548 | 27.27 | 81,501 | 26.93 | ||||||
March 1 - March 31 | 112,163 | 25.52 | 1,737 | 30.48 | ||||||
Total | 146,711 | $ | 25.93 | 83,238 | $ | 27.00 | ||||
Our board of directors authorized a share repurchase program of up to $200 million of our common stock. Under this program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated buyback programs, tender offers or by other means. The timing and amount of the transactions are determined by management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time, without prior notice. We did not repurchase any shares during the first quarter of 2021.2022. Since inception of the repurchase program, the company has repurchased 7,396,936 shares of common stock for approximately $92.8 million under the program.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit Index
Exhibit No. | Description of Exhibit |
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10.2 | |
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31.1 | |
31.2 | |
32.1 | |
32.2 |
101 | The following information from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, |
104 | The cover page from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, |
*Represents management compensatory contract |
SIGNATURES
Pursuant to the requirements 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.
| GREEN PLAINS INC. (Registrant) By: /s/ Todd A. Becker _ Todd A. Becker (Principal Executive Officer) |
| By: /s/ G. Patrich Simpkins Jr. _ G. Patrich Simpkins Jr. (Principal Financial Officer) |