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GPRE Green Plains

Filed: 6 Nov 20, 1:18pm

         

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 September 30, 2020

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.

    

Large accelerated filer o

Accelerated filer x

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 of common stock, par value $0.001 per share, outstanding as of November 2, 2020, was 35,658,284 shares.

Commonly Used Defined Terms

The abbreviations, acronyms and industry terminology used in this quarterly report are defined as follows:

Green Plains Inc., Subsidiaries, and Partners:

Green Plains; the company

Green Plains Inc. and its subsidiaries

BioProcess Algae

BioProcess Algae LLC

Green Plains Cattle; GPCC

Green Plains Cattle Company LLC

Green Plains Commodity Management

Green Plains Commodity Management LLC

Green Plains Grain

Green Plains Grain Company 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

LTIP

Long-Term Incentive Plan

R&D Credits

Research and development tax credits

SEC

Securities and Exchange Commission

Industry and Other Defined Terms:

Bgy

Billion gallons per year

CAFE

Corporate Average Fuel Economy

the CARES Act

Coronavirus Aid, Relief, and Economic Security Act

COVID-19

Coronavirus Disease 2019

D.C.

District of Columbia

DOE

Department of Energy

E10

Gasoline blended with up to 10% ethanol by volume

E15

Gasoline blended with up to 15% ethanol by volume

E85

Gasoline blended with up to 85% ethanol by volume

EIA

U.S. Energy Information Administration

EPA

U.S. Environmental Protection Agency

GATT

General Agreement on Tariffs and Trade

MmBtu

Million British Thermal Units

Mmg

Million gallons

MTBE

Methyl tertiary-butyl ether

MVC

Minimum volume commitment

RFS II

Renewable Fuels Standard II

RIN

Renewable identification number

RVO

Renewable volume obligation

SRE

Small refinery exemption

U.S.

United States

USDA

U.S. Department of Agriculture

WTO

World Trade Organization

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

September 30,
2020

December 31,
2019

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

150,407

$

245,977 

Restricted cash

31,877

23,919 

Accounts receivable, net of allowances of $191 and $166, respectively

54,482

107,183 

Income taxes receivable

57,929

6,216 

Inventories

184,661

252,992 

Prepaid expenses and other

14,634

13,685 

Derivative financial instruments

14,687

17,941 

Total current assets

508,677

667,913 

Property and equipment, net of accumulated depreciation

and amortization of $541,690 and $486,677, respectively

858,490

827,271 

Operating lease right-of-use assets

56,904

52,476 

Investment in equity method investees

73,563

68,998 

Other assets

39,786

81,560 

Total assets

$

1,537,420

$

1,698,218 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

89,566

$

156,693 

Accrued and other liabilities

28,682

39,384 

Derivative financial instruments

17,577

8,721 

Operating lease current liabilities

14,663

16,626 

Short-term notes payable and other borrowings

146,614

187,812 

Current maturities of long-term debt

34,378

132,555 

Total current liabilities

331,480

541,791 

Long-term debt

345,056

243,990 

Operating lease long-term liabilities

45,360

38,314 

Other liabilities

11,969

8,837 

Total liabilities

733,865

832,932 

Commitments and contingencies (Note 14)

 

 

Stockholders' equity

Common stock, $0.001 par value; 75,000,000 shares authorized;
47,466,527 and 46,964,115 shares issued, and 35,653,366
and 36,031,933 shares outstanding, respectively

47 

47 

Additional paid-in capital

738,774

734,580 

Retained earnings

89,005

148,150 

Accumulated other comprehensive loss

(10,913)

(11,064)

Treasury stock, 11,813,161 and 10,932,182 shares, respectively

(131,287)

(119,808)

Total Green Plains stockholders' equity

685,626

751,905 

Noncontrolling interests

117,929

113,381 

Total stockholders' equity

803,555

865,286 

Total liabilities and stockholders' equity

$

1,537,420

$

1,698,218 

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
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Revenues

Product revenues

$

423,027

$

631,032

$

1,441,248

$

1,696,245

Service revenues

1,035

1,318

3,707

5,315

Total revenues

424,062

632,350

1,444,955

1,701,560

Costs and expenses

Cost of goods sold (excluding depreciation and amortization expenses reflected below)

393,933

632,129

1,372,057

1,700,481

Operations and maintenance expenses

6,647

6,216

19,410

19,314

Selling, general and administrative expenses

19,934

18,542

62,090

56,450

Goodwill impairment

-

-

24,091

-

Gain on sale of asset

(2,000)

-

(2,000)

-

Depreciation and amortization expenses

19,753

17,828

57,208

52,963

Total costs and expenses

438,267

674,715

1,532,856

1,829,208

Operating loss from continuing operations

(14,205)

(42,365)

(87,901)

(127,648)

Other income (expense)

Interest income

3

767

643

2,813

Interest expense

(10,169)

(10,548)

(29,536)

(31,528)

Other, net

12

88

862

630

Total other expense

(10,154)

(9,693)

(28,031)

(28,085)

Loss from continuing operations before income taxes and income from equity method investees

(24,359)

(52,058)

(115,932)

(155,733)

Income tax benefit (expense)

(7,280)

12,530

48,461

40,692

Income from equity method investees, net of income taxes

906

644

20,917

534

Net loss from continuing operations including noncontrolling interest

(30,733)

(38,884)

(46,554)

(114,507)

Net income from discontinued operations, net of income taxes

-

3,393

-

966

Net loss

(30,733)

(35,491)

(46,554)

(113,541)

Net income attributable to noncontrolling interests

3,753

3,479

12,591

13,570

Net loss attributable to Green Plains

$

(34,486)

$

(38,970)

$

(59,145)

$

(127,111)

Earnings per share - basic and diluted

Net loss from continuing operations

$

(1.00)

$

(1.15)

$

(1.71)

$

(3.28)

Net income from discontinued operations

-

0.09

-

0.03

Net loss attributable to Green Plains

$

(1.00)

$

(1.06)

$

(1.71)

$

(3.25)

Weighted average shares outstanding:

Basic

34,629

36,913

34,632

39,092

Diluted

34,629

36,913

34,632

39,092

See accompanying notes to the consolidated financial statements.

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Net loss

$

(30,733)

$

(35,491)

$

(46,554)

$

(113,541)

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of $859, ($5,149), ($160) and ($12,953), respectively

(2,696)

28,095

503

54,472

Reclassification of realized gains on derivatives, net of tax expense of $0, $13,445, $1,431 and $9,358, respectively

-

(53,255)

(4,492)

(39,439)

Other comprehensive income (loss), net of tax

(2,696)

(25,160)

(3,989)

15,033

Share of equity method investees other comprehensive income (loss) arising during the period, net of tax benefit (expense) of $6,705, $3,555, ($1,318) and $3,555, respectively

(21,057)

(10,771)

4,140

(10,771)

Total other comprehensive income (loss), net of tax

(23,753)

(35,931)

151

4,262

Comprehensive loss

(54,486)

(71,422)

(46,403)

(109,279)

Comprehensive income attributable to noncontrolling interests

3,753

3,479

12,591

13,570

Comprehensive loss attributable to Green Plains

$

(58,239)

$

(74,901)

$

(58,994)

$

(122,849)

See accompanying notes to the consolidated financial statements.


GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Nine Months Ended
September 30,

2020

2019

Cash flows from operating activities:

Net loss from continuing operations including noncontrolling interest

$

(46,554)

$

(114,507)

Net income from discontinued operations, net of income taxes

-

966

Net loss

(46,554)

(113,541)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

57,208

52,963

Amortization of debt issuance costs and debt discount

16,097

15,633

Goodwill impairment

24,091

-

Gain on sale of assets, net

(1,405)

-

Deferred income taxes

(10,569)

(38,918)

Stock-based compensation

5,720

7,406

Income from equity method investees, net of income taxes

(20,917)

(534)

Distribution from equity method investments

27,910

-

Other

18

1,245

Changes in operating assets and liabilities before effects of business combinations and dispositions:

Accounts receivable

54,683

21,106

Inventories

68,301

52,400

Derivative financial instruments

5,532

7,208

Prepaid expenses and other assets

2,051

3,900

Accounts payable and accrued liabilities

(78,091)

(22,359)

Current income taxes

(26,825)

(2,175)

Other

(802)

(2,167)

Net cash provided by (used in) operating activities - continuing operations

76,448

(17,833)

Net cash provided by operating activities - discontinued operations

-

17,469

Net cash provided by (used in) operating activities

76,448

(364)

Cash flows from investing activities:

Purchases of property and equipment, net

(85,376)

(43,372)

Proceeds from the sale of discontinued operations, net of cash divested

-

77,240

Proceeds from the sale of assets, net

-

3,469

Other investing activities

(4,098)

(100)

Net cash provided by (used in) investing activities - continuing operations

(89,474)

37,237

Net cash used in investing activities - discontinued operations

-

(4,169)

Net cash provided by (used in) investing activities

(89,474)

33,068

Cash flows from financing activities:

Proceeds from the issuance of long-term debt

13,000

180,100

Payments of principal on long-term debt

(12,933)

(68,235)

Proceeds from short-term borrowings

1,816,821

1,994,777

Payments on short-term borrowings

(1,866,526)

(2,070,273)

Payments for repurchase of common stock

(11,479)

(55,884)

Payments of cash dividends and distributions

(8,281)

(26,189)

Proceeds from disgorgement of shareholder short-swing profits

-

6,699

Payments of loan fees

(3,900)

(5,290)

Payments related to tax withholdings for stock-based compensation

(1,288)

(2,101)

Net cash used in financing activities - continuing operations

(74,586)

(46,396)

Net cash used in financing activities - discontinued operations

-

(50,464)

Net cash used in financing activities

(74,586)

(96,860)

Net change in cash, cash equivalents and restricted cash

(87,612)

(64,156)

Cash, cash equivalents and restricted cash, beginning of period

269,896

283,284

Discontinued operations cash activity included above:

Add: Cash balance included in current assets of discontinued operations at beginning of period

-

34,911

Cash, cash equivalents and restricted cash, end of period

$

182,284

$

254,039

Continued on the following page


GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Continued from the previous page

Nine Months Ended
September 30,

2020

2019

Reconciliation of total cash, cash equivalents and restricted cash:

Cash and cash equivalents

$

150,407

$

235,537

Restricted cash

31,877

18,502

Total cash, cash equivalents and restricted cash

$

182,284

$

254,039

Assets disposed of in sale

$

-

$

527,614

Less: liabilities disposed

-

(373,846)

Net assets disposed

$

-

$

153,768

Supplemental disclosures of cash flow:

Cash paid (refunded) for income taxes

$

(4,533)

$

640

Cash paid for interest of continuing operations

$

20,325

$

21,777

Cash paid for interest of discontinued operations

$

-

$

11,556

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. The company owns a 48.9% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 49.1% limited partner interest in the partnership. The company determined that the limited partners in the partnership with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact partnership’s economic performance; therefore, the partnership is considered a variable interest entity. The company, through its ownership of the general partner interest in the partnership, has the power to direct the activities that most significantly affect economic performance and is obligated to absorb losses and has the right to receive benefits that could be significant to the partnership. Therefore, the company is considered the primary beneficiary and consolidates the partnership in the company’s financial statements. The assets of the partnership cannot be used by the company for general corporate purposes. The partnership’s consolidated total assets as of September 30, 2020 and December 31, 2019, excluding intercompany balances, are $87.3 million and $90.0 million, respectively, and primarily consist of property and equipment, operating lease right-of-use assets and goodwill. The partnership’s consolidated total liabilities as of September 30, 2020 and December 31, 2019, excluding intercompany balances, are $165.1 million and $180.9 million, respectively, which primarily consist of long-term debt as discussed in Note 9 – Debt and operating lease liabilities. The liabilities recognized as a result of consolidating the partnership do not represent additional claims on our general assets.

GPCC, a previously a wholly owned subsidiary of Green Plains, was disposed of during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20 Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”) to be presented as discontinued operations. As such, GPCC results prior to its disposition are classified as discontinued operations in prior period consolidated financial statements. See Note 3 - Dispositions and Discontinued Operations and Note 17 – Subsequent Events for further details.

The company also owns a 90.0% interest in BioProcess Algae, a joint venture formed in 2008, and consolidates their results in its 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, 2019, filed with the SEC on February 20, 2020.

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, net income or stockholders’ equity.


Revision of Previously Issued Financial Statements

During the third quarter of 2020, the company identified an immaterial issue which resulted in the overstatement of both revenues and cost of goods sold by $30.0 million within the agribusiness and energy services segment as previously reported for the three and six months ended June 30, 2020. The second quarter revenues and cost of goods sold reflected in the year to date consolidated statement of operations have been revised to correct these amounts. The company will update revenues and cost of goods sold in future filings to properly reflect these amounts for the three and six months ended June 30, 2020.

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, operating leases, 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.

Description of Business

The company operates within 4 business segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, ultra-high protein and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and (4) partnership, which includes fuel storage and transportation services.

Cash and Cash Equivalents

Cash and cash equivalents includes bank deposits as well as short-term, highly liquid investments with original maturities of three months or less.

Restricted Cash

The company has restricted cash, which can only be used for funding letters of credit or for payment towards a revolving credit agreement. Restricted cash also includes cash margins and securities pledged to commodity exchange clearinghouses and at times, funds in escrow related to acquisition and disposition activities. To the degree these segregated balances are cash and cash equivalents, they are considered restricted cash on the consolidated balance sheets.

Revenue Recognition

The company recognizes revenue when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the transfer of control of products or services. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing services. Sales, value add, and other taxes the company collects concurrent with revenue-producing activities are excluded from revenue.

Sales of ethanol, distillers grains, corn oil, natural gas and other commodities by the company’s marketing business are recognized when obligations under the terms of a contract with a customer are satisfied. Generally, this occurs with the transfer of control of products or services. Revenues related to marketing for third parties are presented on a gross basis as the company controls the product prior to the sale to the end customer, takes title of the product and has inventory risk. Unearned revenue is recorded for goods in transit when the company has received payment but control has not yet been transferred to the customer. Revenues for receiving, storing, transferring and transporting ethanol and other fuels are recognized when the product is delivered to the customer.


The company routinely enters into physical-delivery energy commodity purchase and sale agreements. At times, the company settles these transactions by transferring its obligations to other counterparties rather than delivering the physical commodity. Energy trading transactions are reported net as a component of revenue. Revenues include net gains or losses from derivatives related to products sold while cost of goods sold includes net gains or losses from derivatives related to commodities purchased. Revenues also include realized gains and losses on related derivative financial instruments and reclassifications of realized gains and losses on cash flow hedges from accumulated other comprehensive income or loss.

Sales of products, including agricultural commodities, are recognized when control of the product is transferred to the customer, which depends on the agreed upon shipment or delivery terms. Revenues related to grain merchandising are presented gross and include shipping and handling, which is also a component of cost of goods sold. Revenues from grain storage are recognized over time as the services are rendered.

A substantial portion of the partnership revenues are derived from fixed-fee commercial agreements for storage, terminal or transportation services. The partnership recognizes revenue upon transfer of control of product from its storage tanks and fuel terminals, when railcar volumetric capacity is provided, and as truck transportation services are performed. To the extent shortfalls associated with minimum volume commitments in the previous four quarters continue to exist, volumes in excess of the minimum volume commitment are applied to those shortfalls. Remaining excess volumes generating operating lease revenue are recognized as incurred.

Shipping and Handling Costs

The company accounts for shipping and handling activities related to contracts with customers as costs to fulfill its promise to transfer the associated products. Accordingly, the company records customer payments associated with shipping and handling costs as a component of revenue, and classifies such costs as a component of cost of goods sold.

Cost of Goods Sold

Cost of goods sold includes direct labor, materials, shipping and plant overhead costs. Direct labor includes all compensation and related benefits of non-management personnel involved in ethanol production. Grain purchasing and receiving costs, excluding labor costs for grain buyers and scale operators, are also included in cost of goods sold. Materials include the cost of corn feedstock, denaturant, and process chemicals. Corn feedstock costs include gains and losses on related derivative financial instruments not designated as cash flow hedges, inbound freight charges, inspection costs and transfer costs, as well as reclassifications of gains and losses on cash flow hedges from accumulated other comprehensive income or loss. Plant overhead consists primarily of plant utilities, repairs and maintenance and outbound freight charges. Shipping costs incurred by the company, including railcar costs, are also reflected in cost of goods sold.

The company uses exchange-traded futures and options contracts and forward purchase and sale contracts to attempt to minimize the effect of price changes on ethanol, grain and natural gas. Exchange-traded futures and options contracts are valued at quoted market prices and settled predominantly in cash. The company is exposed to loss when counterparties default on forward purchase and sale contracts. Grain inventories held for sale and forward purchase and sale contracts are valued at market prices when available or other market quotes adjusted for differences, primarily in transportation, between the exchange-traded market and local market where the terms of the contract is based. Changes in forward purchase contracts and exchange-traded futures and options contracts are recognized as a component of cost of goods sold.

Operations and Maintenance Expenses

In the partnership segment, transportation expenses represent the primary component of operations and maintenance expenses. Transportation expenses include railcar leases, freight and shipping of the company’s ethanol and co-products, as well as costs incurred storing ethanol at destination terminals.

Derivative Financial Instruments

The company uses various derivative financial instruments, including exchange-traded futures and exchange-traded and over-the-counter options contracts, to attempt to minimize risk and the effect of commodity price changes including but not limited to, corn, ethanol, natural gas and crude oil. The company monitors and manages this exposure as part of its overall risk management policy to reduce the adverse effect market volatility may have on its operating results. The company may hedge these commodities as one way to mitigate risk; however, there may be situations when these hedging activities themselves result in losses.

By using derivatives to hedge exposures to changes in commodity prices, the company is exposed to credit and market risk. The company’s exposure to credit risk includes the counterparty’s failure to fulfill its performance obligations under the terms of the derivative contract. The company minimizes its credit risk by entering into transactions with high quality counterparties, limiting the amount of financial exposure it has with each counterparty and monitoring their financial condition. Market risk is the risk that the value of the financial instrument might be adversely affected by a change in commodity prices or interest rates. The company manages market risk by incorporating parameters to monitor exposure within its risk management strategy, which limits the types of derivative instruments and strategies the company can use and the degree of market risk it can take using derivative instruments.

The company evaluates its physical delivery contracts to determine if they qualify for normal purchase or sale exemptions which are expected to be used or sold over a reasonable period in the normal course of business. Contracts that do not meet the normal purchase or sale criteria are recorded at fair value. Changes in fair value are recorded in operating income unless the contracts qualify for, and the company elects, cash flow hedge accounting treatment.

Certain qualifying derivatives related to ethanol production and agribusiness and energy services are designated as cash flow hedges. The company evaluates the derivative instrument to ascertain its effectiveness prior to entering into cash flow hedges. Unrealized gains and losses are reflected in accumulated other comprehensive income or loss until the gain or loss from the underlying hedged transaction is realized and the physical transaction is completed. When it becomes probable a forecasted transaction will not occur, the cash flow hedge treatment is discontinued, which affects earnings. These derivative financial instruments are recognized in current assets or current liabilities at fair value.

At times, the company hedges its exposure to changes in inventory values and designates qualifying derivatives as fair value hedges. The carrying amount of the hedged inventory is adjusted in the current period for changes in fair value. 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

In December 2019, the FASB issued amended guidance in ASC 740, Income Taxes - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. The company is evaluating the impact of this standard on its consolidated financial statements.

In March 2020, the FASB issued amended guidance in ASC 848, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the LIBOR and other interbank offered rates to alternative reference rates. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The guidance is effective upon issuance and to be applied prospectively from any date beginning March 12, 2020 through December 31, 2022. The amended guidance is not expected to have a material impact on the company’s consolidated financial statements.

In August 2020, the FASB issued amended guidance in ASC 470-20, Debt - Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity - Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity. The amended guidance simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The amended guidance also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. The amended guidance is effective for fiscal periods beginning after December 15, 2021, including interim periods within those fiscal periods. Early adoption is permitted, but no earlier than fiscal periods beginning after December 15, 2020. The amended guidance permits the use of either the modified retrospective or fully retrospective method of transition. The company is currently evaluating the timing of adoption and impact of this standard on its consolidated financial statements however anticipates it will result in an increase to long-term debt and a decrease in additional paid-in-capital as well as a reduction in non-cash interest expense related to the company’s convertible notes. 


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 September 30, 2020

Ethanol Production

Agribusiness & Energy Services

Food & Ingredients

Partnership

Eliminations

Total

Revenues:

Revenues from contracts with customers under ASC 606:

Ethanol

$

-

$

-

$

-

$

-

$

-

$

-

Distillers grains

4,095 

-

-

-

-

4,095 

Corn oil

-

2,938 

-

-

-

2,938 

Service revenues

-

-

-

920 

-

920 

Other

66 

1,408 

-

-

-

1,474 

Intersegment revenues

25 

-

-

2,289 

(2,314)

-

Total revenues from contracts with customers

4,186 

4,346 

-

3,209 

(2,314)

9,427 

Revenues from contracts accounted for as derivatives under ASC 815 (1):

Ethanol

263,390 

56,895 

-

-

-

320,285 

Distillers grains

51,692 

10,696 

-

-

-

62,388 

Corn oil

12,433 

5,805 

-

-

-

18,238 

Grain

11,099 

-

-

-

11,100 

Other

1,276 

1,233 

-

-

-

2,509 

Intersegment revenues

-

5,354 

-

-

(5,354)

-

Total revenues from contracts accounted for as derivatives

328,792 

91,082 

-

-

(5,354)

414,520 

Leasing revenues under ASC 842 (2):

-

-

-

18,173 

(18,058)

115 

Total Revenues

$

332,978 

$

95,428 

$

-

$

21,382 

$

(25,726)

$

424,062 

Nine Months Ended September 30, 2020

Ethanol Production

Agribusiness & Energy Services

Food & Ingredients

Partnership

Eliminations

Total

Revenues:

Revenues from contracts with customers under ASC 606:

Ethanol

$

-

$

-

$

-

$

-

$

-

$

-

Distillers grains

25,159 

-

-

-

-

25,159 

Corn oil

-

2,938 

-

-

-

2,938 

Service revenues

-

-

-

3,366 

-

3,366 

Other

4,257 

3,668 

-

-

-

7,925 

Intersegment revenues

75 

-

-

6,201 

(6,276)

-

Total revenues from contracts with customers

29,491 

6,606 

-

9,567 

(6,276)

39,388 

Revenues from contracts accounted for as derivatives under ASC 815 (1):

Ethanol

849,298 

243,930 

-

-

-

1,093,228 

Distillers grains

179,854 

28,960 

-

-

-

208,814 

Corn oil

36,621 

23,681 

-

-

-

60,302 

Grain

26,773 

-

-

-

26,780 

Other

3,974 

12,128 

-

-

-

16,102 

Intersegment revenues

-

17,030 

-

-

(17,030)

-

Total revenues from contracts accounted for as derivatives

1,069,754 

352,502 

-

-

(17,030)

1,405,226 

Leasing revenues under ASC 842 (2):

-

-

-

52,467 

(52,126)

341 

Total Revenues

$

1,099,245 

$

359,108 

$

-

$

62,034 

$

(75,432)

$

1,444,955 


Three Months Ended September 30, 2019

Ethanol Production

Agribusiness & Energy Services

Food & Ingredients

Partnership

Eliminations

Total

Revenues:

Revenues from contracts with customers under ASC 606:

Ethanol

$

-

$

-

$

-

$

-

$

-

$

-

Distillers grains

16,455 

-

-

-

-

16,455 

Service revenues

-

-

-

1,275 

-

1,275 

Other

127 

895 

-

-

-

1,022 

Intersegment revenues

24 

-

-

2,046 

(2,070)

-

Total revenues from contracts with customers

16,606 

895 

-

3,321 

(2,070)

18,752 

Revenues from contracts accounted for as derivatives under ASC 815 (1):

Ethanol

389,847 

111,454 

-

-

-

501,301 

Distillers grains

62,698 

6,077 

-

-

-

68,775 

Corn oil

14,308 

5,509 

-

-

-

19,817 

Grain

19,056 

-

-

-

19,058 

Other

945 

3,659 

-

-

-

4,604 

Intersegment revenues

-

7,293 

-

-

(7,293)

-

Total revenues from contracts accounted for as derivatives

467,800 

153,048 

-

-

(7,293)

613,555 

Leasing revenues under ASC 842 (2):

-

-

-

16,833 

(16,790)

43 

Total Revenues

$

484,406 

$

153,943 

$

-

$

20,154 

$

(26,153)

$

632,350 

Nine Months Ended September 30, 2019

Ethanol Production

Agribusiness & Energy Services

Food & Ingredients

Partnership

Eliminations

Total

Revenues:

Revenues from contracts with customers under ASC 606:

Ethanol

$

620 

$

-

$

-

$

-

$

-

$

620 

Distillers grains

47,860 

-

-

-

-

47,860 

Service revenues

-

-

-

4,966 

-

4,966 

Other

2,135 

1,515 

-

-

-

3,650 

Intersegment revenues

75 

-

-

5,267 

(5,342)

-

Total revenues from contracts with customers

50,690 

1,515 

-

10,233 

(5,342)

57,096 

Revenues from contracts accounted for as derivatives under ASC 815 (1):

Ethanol

946,390 

324,756 

-

-

-

1,271,146 

Distillers grains

165,436 

32,165 

-

-

-

197,601 

Corn oil

35,915 

22,943 

1,451

-

-

60,309

Grain

138 

59,140 

-

-

-

59,278 

Other

7,613 

48,168 

-

-

-

55,781 

Intersegment revenues

-

19,432 

-

-

(19,432)

-

Total revenues from contracts accounted for as derivatives

1,155,492 

506,604 

1,451

-

(19,432)

1,644,115

Leasing revenues under ASC 840 (2):

-

-

-

51,833 

(51,484)

349 

Total Revenues

$

1,206,182 

$

508,119 

$

1,451

$

62,066 

$

(76,258)

$

1,701,560

(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

Revenue from Customer A represented 10% of total revenues for the nine months ended September 30, 2020 and 10% and 11% of total revenues for the three and nine months ended September 30, 2019, respectively. Revenue from Customer B represented 11% and 10% of total revenues for the three and nine months ended September 30, 2019, respectively. Revenues from these customers are reported in the ethanol production segment.


3. DISPOSITIONS AND DISCONTINUED OPERATIONS

DISPOSITIONS

Disposition of Green Plains Cattle Company LLC

On September 1, 2019, the company, TGAM Agribusiness Fund Holdings-B LP (“TGAM”) and StepStone Atlantic Fund, L.P. (“StepStone”) formed a joint venture and entered into a LLC Agreement. GPCC was previously a wholly owned subsidiary of Green Plains. Green Plains also entered into a Securities Purchase Agreement with TGAM and StepStone, whereby TGAM and StepStone purchased an aggregate of 50% of the membership interests of GPCC from Green Plains for approximately $76.9 million in cash. There was 0 gain or loss recorded as part of this initial transaction. The LLC Agreement contained certain earn-out or bonus provisions to be paid by or received from GPCC if certain EBITDA thresholds were met. Pursuant to the bonus provision, on August 31, 2020, Green Plains earned $2.0 million which has been recorded within “Gain on sale of asset” on the consolidated statements of operations for the three and nine months ended September 30, 2020.

Under the LLC Agreement, Green Plains has certain rights and obligations, including but not limited to, the right or obligation: (i) to designate two Managers to the Board of Managers of GPCC (the “Board”), or in the event the size of the Board is increased, the number of Managers equal to two-fifths of the Board, rounded up, and (ii) to fund additional capital contributions in accordance with their percentage interest upon mutual agreement by Green Plains, TGAM and StepStone. Additionally, TGAM and StepStone both have the right or obligation to designate one Manager, or in the event the size of the Board is increased, the number of Managers equal to one-fifths of the Board, rounded up. Each Manager serving on the Board shall have one vote and a majority of the Managers serving on the Board shall constitute a quorum for the transaction of business of the Board. Green Plains’ allocation under the LLC Agreement will be subject to certain adjustments.

The assets and liabilities of the GPCC at closing on September 1, 2019 were as follows (in thousands):

Amounts of Identifiable Assets Disposed and Liabilities Relinquished

Cash

$

2

Accounts receivable, net

17,920

Inventory

387,534

Derivative financial instruments

48,189

Property and equipment

71,678

Other assets

2,291

Current liabilities

(49,297)

Short-term notes payable and other borrowings

(38)

Current maturities of long-term debt

(324,028)

Long-term debt

(80)

Other liabilities

(403)

Total identifiable net assets disposed

$

153,768

Subsequent to September 30, 2020, the company sold its remaining interest in GPCC. Refer to Note 17 – Subsequent Events for further discussion.

DISCONTINUED OPERATIONS

GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. Additionally, the company concluded that the disposition of GPCC met the requirements under ASC 205-20. As such, GPCC results prior to its disposition are classified as discontinued operations for all applicable periods. Financial results of GPCC were previously recorded within the food and ingredients segment.


Summarized Results of Discontinued Operations

The following table presents the results of our discontinued operations (in thousands). GPCC was disposed of on September 1, 2019, as such operational results through August 31, 2019 are included in the fiscal year 2019 amounts presented below.

Three Months Ended September 30, 2019 (1)

Nine Months Ended September 30, 2019 (1)

Product revenues

$

160,113

$

638,122

Costs and expenses

Cost of goods sold (excluding depreciation and amortization expenses reflected below)

150,214

614,671

Selling, general and administrative expenses

1,472

5,931

Depreciation and amortization expenses

1,004

4,199

Total costs and expenses

152,690

624,801

Operating income

7,423

13,321

Other income (expense)

Interest income

42

182

Interest expense

(3,001)

(12,417)

Total other expense

(2,959)

(12,235)

Income before income taxes

4,464

1,086

Income tax expense

(1,071)

(120)

Net income

$

3,393

$

966

(1)Product revenues, costs of goods sold and selling, general and administrative expenses include certain revenue and expense items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue and costs of goods sold transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively.

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 for sale in the agribusiness and energy services segment are valued at nearby futures values, plus or minus nearby basis.

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 September 30, 2020

Quoted Prices in
Active Markets for
Identical Assets

Significant Other
Observable Inputs

(Level 1)

(Level 2)

Total

Assets:

Cash and cash equivalents

$

150,407

$

-

$

150,407

Restricted cash

31,877

-

31,877

Inventories carried at market

-

29,963

29,963

Unrealized gains on derivatives

-

14,687

14,687

Other assets

112

3,008

3,120

Total assets measured at fair value

$

182,396

$

47,658

$

230,054

Liabilities:

Accounts payable (1)

$

-

$

24,074

$

24,074

Unrealized losses on derivatives

-

8,325

8,325

Total liabilities measured at fair value

$

-

$

32,399

$

32,399

Fair Value Measurements at December 31, 2019

Quoted Prices in
Active Markets for
Identical Assets

Significant Other
Observable Inputs

(Level 1)

(Level 2)

Total

Assets:

Cash and cash equivalents

$

245,977

$

-

$

245,977

Restricted cash

23,919

-

23,919

Inventories carried at market

-

73,318

73,318

Unrealized gains on derivatives

-

14,515

14,515

Other assets

113

-

113

Total assets measured at fair value

$

270,009

$

87,833

$

357,842

Liabilities:

Accounts payable (1)

$

-

$

37,294

$

37,294

Unrealized losses on derivatives

-

7,771

7,771

Total liabilities measured at fair value

$

-

$

45,065

$

45,065

(1)Accounts payable is generally stated at historical amounts with the exception of $12.3 million and $37.3 million at September 30, 2020 and December 31, 2019, respectively, related to certain delivered inventory for which the payable fluctuates based on changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.

The fair value of the company’s debt was approximately $536.7 million compared with a book value of $526.0 million at September 30, 2020. The fair value of the company’s debt approximated book value, which was $564.4 million at December 31, 2019. The company estimated the fair value of its outstanding debt using Level 2 inputs. The company believes the fair values of its accounts receivable approximated book value, which was $54.5 million and $107.2 million at September 30, 2020 and December 31, 2019, respectively.

Although the company currently does not have any recurring Level 3 financial measurements, the fair values of tangible assets and goodwill acquired and the equity component of convertible debt represent Level 3 measurements which were derived using a combination of the income approach, market approach and cost approach for the specific assets or liabilities being valued.


5. SEGMENT INFORMATION

The company reports the financial and operating performance for the following four operating segments: (1) ethanol production, which includes the production of ethanol, including industrial-grade alcohol, distillers grains, ultra-high protein and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and (4) partnership, which includes fuel storage and transportation services.

Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment.

During the normal course of business, the operating segments conduct business with each other. For example, the agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil for the ethanol production segment. The partnership segment provides fuel storage and transportation services for the ethanol production segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact the company’s consolidated results since the revenues and corresponding costs are eliminated.

The following tables set forth certain financial data for the company’s operating segments (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Revenues:

Ethanol production:

Revenues from external customers

$

332,953

$

484,382

$

1,099,170

$

1,206,107

Intersegment revenues

25

24

75

75

Total segment revenues

332,978

484,406

1,099,245

1,206,182

Agribusiness and energy services:

Revenues from external customers

90,074

146,650

342,078

488,687

Intersegment revenues

5,354

7,293

17,030

19,432

Total segment revenues

95,428

153,943

359,108

508,119

Food and ingredients:

Revenues from external customers

-

-

-

1,451

Intersegment revenues

-

-

-

-

Total segment revenues

-

-

-

1,451

Partnership:

Revenues from external customers

1,035

1,318

3,707

5,315

Intersegment revenues

20,347

18,836

58,327

56,751

Total segment revenues

21,382

20,154

62,034

62,066

Revenues including intersegment activity

449,788

658,503

1,520,387

1,777,818

Intersegment eliminations

(25,726)

(26,153)

(75,432)

(76,258)

Total Revenues

$

424,062

$

632,350

$

1,444,955

$

1,701,560

Refer to Note 2 - Revenue, for further disaggregation of revenue by operating segment.


Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Cost of goods sold:

Ethanol production

$

330,162

$

512,527

$

1,103,486

$

1,289,366

Agribusiness and energy services

87,027

150,465

339,332

486,305

Food and ingredients

-

3

-

1,526

Intersegment eliminations

(23,256)

(30,866)

(70,761)

(76,716)

$

393,933

$

632,129

$

1,372,057

$

1,700,481

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Operating income (loss):

Ethanol production (1)

$

(21,351)

$

(49,289)

$

(100,924)

$

(147,366)

Agribusiness and energy services

4,296

(461)

7,207

9,184

Food and ingredients

-

(6)

-

(76)

Partnership

12,986

12,322

37,641

38,029

Intersegment eliminations

(2,447)

4,738

(4,597)

533

Corporate activities

(7,689)

(9,669)

(27,228)

(27,952)

$

(14,205)

$

(42,365)

$

(87,901)

$

(127,648)

(1)For the nine months ended September 30, 2020, operating loss for ethanol production includes a goodwill impairment charge of $24.1 million.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Depreciation and amortization:

Ethanol production

$

17,493

$

15,547

$

50,575

$

46,324

Agribusiness and energy services

655

541

1,764

1,642

Partnership

940

991

2,867

2,747

Corporate activities

665

749

2,002

2,250

$

19,753

$

17,828

$

57,208

$

52,963

The following table sets forth total assets by operating segment (in thousands):

September 30, 2020

December 31, 2019

Total assets (1):

Ethanol production

$

916,168

$

884,293

Agribusiness and energy services

293,868

410,400

Partnership

87,299

90,011

Corporate assets

256,063

324,280

Intersegment eliminations

(15,978)

(10,766)

$

1,537,420

$

1,698,218

(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. There was 0 lower of cost or net realizable value inventory adjustment as of September 30, 2020. As of December 31, 2019, the company recorded a $6.6 million lower of cost or net realized value inventory adjustment reflected in cost of goods sold within the ethanol production segment.

The components of inventories are as follows (in thousands):

September 30, 2020

December 31, 2019

Finished goods

$

64,803

$

85,975

Commodities held for sale

19,979

42,836

Raw materials

53,637

77,900

Work-in-process

10,124

13,523

Supplies and parts

36,118

32,758

$

184,661

$

252,992

7. GOODWILL

The company had 2 reporting units, to which goodwill was assigned. We are required to perform impairment tests related to our goodwill annually, which we perform as of October 1, or sooner if an indicator of impairment occurs. Near term industry outlook due to the significant decrease in crude oil prices, lower gasoline demand, general uncertainty due to the COVID-19 outbreak and the subsequent decline in our stock price caused a decline in the company’s market capitalization during the three months ended March 31, 2020. As such, the company determined a triggering event had occurred that required an interim impairment assessment for its ethanol production reporting unit. Due to the impairment indicators noted as a result of these triggering events, we evaluated our goodwill as of March 31, 2020. Significant assumptions inherent in the valuation methodologies for goodwill were employed and included, but were not limited to, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on our quantitative evaluation, we determined that the fair value of the ethanol production reporting unit did not exceed its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was impaired and recorded a non-cash impairment charge of $24.1 million.

During the first half of 2020, a decline in the partnership’s stock price resulted in a decrease in the partnership’s market capitalization. As such, the company determined a triggering event had occurred that required an interim impairment assessment for both the three months ended March 31, 2020 as well as the three months ended June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill impairment testing were employed and include, but are not limited to, market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the partnership’s quantitative evaluation as of June 30, 2020, it was determined that the fair value of the partnership reporting unit exceeded its carrying value, and the partnership concluded that the goodwill was not impaired, but could be at risk of future impairment. During the three months ended September 30, 2020, the partnership did not identify any triggering events, and as such, no impairment assessment was deemed necessary.

Changes in the carrying amount of goodwill attributable to each business segment were as follows (in thousands):

Ethanol

Production

Partnership

Total

Balance, December 31, 2019 (1)

$

24,091

$

10,598

$

34,689

Impairment charge

(24,091)

-

(24,091)

Balance, September 30, 2020 (1)

$

-

$

10,598

$

10,598

(1)The company records goodwill within “Other assets” on the consolidated balance sheets.   


8. DERIVATIVE FINANCIAL INSTRUMENTS

At September 30, 2020, the company’s consolidated balance sheet reflected unrealized losses of $10.9 million, net of tax, in accumulated other comprehensive income which primarily related to our share of equity method investees other comprehensive income. The company expects these items will be reclassified as income from equity method investees, net of income taxes over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount realized in income from equity method investees, net of income taxes will differ as commodity prices change.

Fair Values of Derivative Instruments

The fair values of the company’s derivative financial instruments and the line items on the consolidated balance sheets where they are reported are as follows (in thousands):

Asset Derivatives'

Liability Derivatives'

Fair Value

Fair Value

September 30,
2020

December 31,
2019

September 30,
2020

December 31,
2019

Derivative financial instruments

$

14,687

$

14,515

(1)

$

8,325

(2)

$

7,771

Other assets

8

-

-

-

Total

$

14,695

$

14,515

$

8,325

$

7,771

(1)At December 31, 2019, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $3.4 million, which include $0.1 million of net unrealized gains on derivative financial instruments designated as cash flow hedging instruments.

(2)At September 30, 2020, derivative financial instruments, as reflected on the balance sheet, includes net unrealized losses on exchange traded futures and options contracts of $9.6 million, which included $2.5 million of net unrealized losses on derivative financial instruments 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

Location of Gain (Loss) Reclassified from Accumulated Other

Three Months Ended
September 30,

Nine Months Ended
September 30,

Comprehensive Income into Income

2020

2019

2020

2019

Revenues

$

-

$

-

$

8,824

$

-

Cost of goods sold

-

-

(2,901)

-

Net loss from discontinued operations, net of income taxes

-

66,700

-

48,797

Net gain recognized in loss before income taxes

$

-

$

66,700

$

5,923

$

48,797

Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives

Gain (Loss) Recognized in Other Comprehensive Income on

Three Months Ended
September 30,

Nine Months Ended
September 30,

Derivatives

2020

2019

2020

2019

Commodity contracts

$

(3,555)

$

33,244

$

663

$

67,425


Amount of Gain (Loss)

Recognized in Income on Derivatives

Derivatives Not Designated

Location of Gain (Loss)
Recognized in Income

Three Months Ended
September 30,

Nine Months Ended
September 30,

as Hedging Instruments

on Derivatives

2020

2019

2020

2019

Commodity contracts

Revenues

$

(21,128)

$

12,439

$

8,681

$

(12,034)

Commodity contracts

Costs of goods sold

4,184

5,465

10,678

(1,484)

Commodity contracts

Net loss from discontinued operations, net of income taxes

-

(2,285)

-

(2,470)

Net gain (loss) recognized in loss before income taxes

$

(16,944)

$

15,619

$

19,359

$

(15,988)

The following amounts were recorded on the consolidated balance sheets related to cumulative basis adjustments for the fair value hedged items (in thousands):

September 30, 2020

December 31, 2019

Line Item in the Consolidated Balance Sheet in Which the Hedged Item is Included

Carrying Amount of the Hedged Assets

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets

Carrying Amount of the Hedged Assets

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets

Inventories

$

26,172

$

1,639

$

55,021

$

(2,808)


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 September 30,

2020

2019

Revenue

Cost of
Goods Sold

Net Income from Discontinued Operations, Net of Income Taxes

Revenue

Cost of
Goods Sold

Net Income from Discontinued Operations, Net of Income Taxes

Gain (loss) on cash flow hedging relationships:

Commodity contracts:

Amount of gain reclassified from accumulated other comprehensive income into income

$

-

$

-

$

-

$

-

$

-

$

66,700

Gain (loss) on fair value hedging relationships:

Commodity contracts:

Hedged item

-

4,264

-

-

1,155

-

Derivatives designated as hedging instruments

-

(5,380)

-

-

(3,263)

-

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

$

-

$

(1,116)

$

-

$

-

$

(2,108)

$

66,700


Location and Amount of Gain (Loss) Recognized in

Income on Cash Flow and Fair Value Hedging Relationships

for the Nine Months Ended September 30,

2020

2019

Revenue

Cost of
Goods Sold

Net Income from Discontinued Operations, Net of Income Taxes

Revenue

Cost of
Goods Sold

Net Income from Discontinued Operations, Net of Income Taxes

Gain (loss) on cash flow hedging relationships:

Commodity contracts:

Amount of gain (loss) reclassified from accumulated other comprehensive income into income

$

8,824

$

(2,901)

$

-

$

-

$

-

$

48,797

Gain (loss) on fair value hedging relationships:

Commodity contracts:

Hedged item

-

(3,665)

-

-

324

-

Derivatives designated as hedging instruments

-

3,220

-

-

1,168

-

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

$

8,824

$

(3,346)

$

-

$

-

$

1,492

$

48,797

There were 0 gains or losses from discontinuing cash flow or fair value hedge treatment during the three and nine months ended September 30, 2020 and 2019.


The open commodity derivative positions as of September 30, 2020, are as follows (in thousands):

Exchange Traded (1)

Non-Exchange Traded (2)

Derivative
Instruments

Net Long &
(Short)

Long

(Short)

Unit of
Measure

Commodity

Futures

26,520

Bushels

Corn and Soybeans

Futures

13,500

(3)

Bushels

Corn

Futures

(2,390)

(4)

Bushels

Corn

Futures

(21,420)

Gallons

Ethanol

Futures

(45,360)

(3)

Gallons

Ethanol

Futures

(33,042)

MmBTU

Natural Gas

Futures

(7,048)

(4)

MmBTU

Natural Gas

Futures

25

Tons

Soybean Meal

Options

7

Tons

Soybean Meal

Options

(18,433)

Bushels

Corn

Options

(25,411)

Gallons

Ethanol

Options

(100)

MmBTU

Natural Gas

Forwards

25,434

(498)

Bushels

Corn and Soybeans

Forwards

13,492

(161,575)

Gallons

Ethanol

Forwards

98

(385)

Tons

Distillers Grains

Forwards

6,048

(62,919)

Pounds

Corn Oil

Forwards

5,607

(561)

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 or non-exchange traded forwards 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 losses on energy trading contracts of $0.9 million and net gains on energy trading contracts of $2.1 million for the three and nine months ended September 30, 2020, respectively, and net gains on energy trading contracts of $2.1 million and $11.4 million for the three and nine months ended September 30, 2019, respectively.

9. DEBT

The components of long-term debt are as follows (in thousands):

September 30, 2020

December 31, 2019

Corporate:

$170.0 million convertible notes due 2022 (1)

$

154,582

$

149,256

$115.0 million convertible notes due 2024 (2)

87,655

83,497

Green Plains Partners:

$135.0 million credit facility (3)

118,200

132,100

Green Plains Wood River and Green Plains Shenandoah:

$75.0 million delayed draw loan agreement (4)

10,000

-

Other

16,012

16,512

Total book value of long-term debt

386,449

381,365

Unamortized debt issuance costs

(7,015)

(4,820)

Less: current maturities of long-term debt

(34,378)

(132,555)

Total long-term debt

$

345,056

$

243,990

(1)Includes $1.5 million and $2.0 million of unamortized debt issuance costs as of September 30, 2020 and December 31, 2019, respectively.

(2)Includes $2.4 million and $2.8 million of unamortized debt issuance costs as of September 30, 2020 and December 31, 2019, respectively.

(3)The Green Plains Partners revolving credit facility was amended on June 4, 2020 and includes $2.8 million of unamortized debt issuance costs as of September 30, 2020. See below for further discussion.

(4)On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a $75.0 million delayed draw loan agreement. The delayed draw loan includes $0.3 million of unamortized debt issuance costs as of September 30, 2020.


The components of short-term notes payable and other borrowings are as follows (in thousands):

September 30, 2020

December 31, 2019

Green Plains Trade:

$300.0 million revolver

$

79,488

$

138,204

Green Plains Grain:

$100.0 million revolver

40,000

40,000

$50.0 million inventory financing

5,920

-

Green Plains Commodity Management:

$30.0 million hedge line

21,206

9,608

$

146,614

$

187,812

Corporate Activities

During 2019, the company issued an aggregate $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations of the company, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The 4.00% notes will mature on July 1, 2024, unless earlier converted, redeemed or repurchased. The 4.00% notes will be convertible, at the option of the holders, into consideration consisting of, at the company’s election, cash, shares of the company’s common stock, or a combination of cash and shares of the company’s common stock until the close of business on the scheduled trading day immediately preceding the maturity date. However, before January 1, 2024, the 4.00% notes will not be convertible unless certain conditions are satisfied. The initial conversion rate is 64.1540 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $15.59 per share. The conversion rate will be subject to adjustment upon the occurrence of certain events. In addition, the company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the company’s calling the 4.00% notes for redemption.

On and after July 1, 2022, and prior to the maturity date, the company may redeem all, but not less than all, of the 4.00% notes for cash if the sale price of the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal amount of the 4.00% notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date. In addition, upon the occurrence of a fundamental change, holders of the 4.00% notes will have the right, at their option, to require the company to repurchase the 4.00% notes in cash at a price equal to 100% of the principal amount of the 4.00% notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In August 2016, the company issued $170.0 million of 4.125% convertible senior notes due in 2022, or the 4.125% notes. The 4.125% notes are senior, unsecured obligations of the company, with interest payable on March 1 and September 1 of each year. The company may settle the 4.125% notes in cash, common stock or a combination of cash and common stock. Prior to March 1, 2022, the 4.125% notes are not convertible unless certain conditions are satisfied. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal, which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including upon redemption of the 4.125% notes.

The company may redeem all, but not less than all, of the 4.125% notes at any time on or after September 1, 2020, if the company’s common stock equals or exceeds 140% of the applicable conversion price for a specified time period ending on the trading day immediately prior to the date the company delivers notice of the redemption. The redemption price will equal 100% of the principal plus any accrued and unpaid interest. Holders of the 4.125% notes have the option to require the company to repurchase the 4.125% notes in cash at a price equal to 100% of the principal plus accrued and unpaid interest when there is a fundamental change, such as change in control. If an event of default occurs, it could result in the 4.125% notes being declared due and payable.

Agribusiness and Energy Services Segment

Green Plains Trade has a $300.0 million senior secured asset-based revolving credit facility to finance working capital for marketing and distribution activities based on eligible collateral equal to the sum of percentages of eligible receivables and inventories, less miscellaneous adjustments. The credit facility matures on July 28, 2022 and consists of a $285 million credit facility and a $15 million first-in-last-out (FILO) credit facility, and includes an accordion feature that enables the credit facility to be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal

to daily LIBOR plus 2.25% on the credit facility and daily LIBOR plus 3.25% on the FILO credit facility. The total unused portion of the revolving credit facility is also subject to a commitment fee of 0.375% per annum.

The terms impose affirmative and negative covenants for Green Plains Trade, including maintaining a minimum fixed charge coverage ratio of 1.15 to 1.00. Capital expenditures are limited to $1.5 million per year under the credit facility. The credit facility also restricts distributions related to capital stock, with an exception for distributions up to 50% of net income if, on a pro forma basis, (a) availability has been greater than $10.0 million for the last 30 days and (b) the borrower would be in compliance with the fixed charge coverage ratio on the distribution date.

Green Plains Grain has a $100.0 million senior secured asset-based revolving credit facility, which matures on June 28, 2022. The credit facility finances working capital up to the maximum commitment based on eligible collateral equal to the sum of percentages of eligible cash, receivables and inventories, less miscellaneous adjustments. Advances are subject to an interest rate equal to LIBOR plus 3.00% or the lenders’ base rate plus 2.00%. The credit facility also includes an accordion feature that enables the facility to be increased by up to $75.0 million with agent approval. The credit facility can also be increased by up to $50.0 million for seasonal borrowings. Total commitments outstanding cannot exceed $225.0 million. Depending on utilization, the total unused portion of the $100.0 million revolving credit facility is also subject to a commitment fee ranging from 0.375% to 0.50%.

Lenders receive a first priority lien on certain cash, inventory, accounts receivable and other assets owned by Green Plains Grain. The terms impose affirmative and negative covenants for Green Plains Grain, including maintaining minimum working capital to be the greater of (i) $18,000,000 and (ii) 18% of the sum of the then total commitment plus the aggregate seasonal line commitments. Minimum tangible net worth is required to be greater than 21% of the sum of the then total commitment plus the aggregate seasonal line commitments. The credit facility also requires the company to maintain a maximum annual leverage of 6.00 to 1.00. Capital expenditures are limited to $8.0 million per year under the credit facility, plus equity contributions from the company and unused amounts of up to $8.0 million from the previous year. In addition, if the company has long-term indebtedness on the date of calculation of greater than $10.0 million, the credit facility requires the company to maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum long term debt capitalization of 40%.  

Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At September 30, 2020, 1.3 million bushels of corn had been designated as collateral under these agreements at initial values totaling $5.6 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 September 30, 2020, the short-term notes payable were valued at $5.9 million and were measured using Level 2 inputs.

Green Plains Commodity Management has an uncommitted $30.0 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 LIBOR plus 1.75%.

Ethanol Production Segment

On September 3, 2020, Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, entered into a delayed draw loan agreement with MetLife Real Estate Lending LLC. The $75.0 million delayed draw loan matures on September 1, 2035 and is secured by substantially all of the assets of the Wood River and Shenandoah facilities. The proceeds from the loan will be used to add high protein processing systems at the Wood River and Shenandoah facilities as well as other capital expenditures.

The delayed draw loan bears interest at a fixed rate of 5.02%, plus an interest rate premium of 1.5% until the loan is fully drawn, which must occur within the 18 month draw period. After the earlier of the 18 month draw period or the loan being fully drawn, the interest rate premium may be adjusted quarterly from 0.00% to 1.50% based on the leverage ratio of total funded debt to EBITDA of Wood River and Shenandoah. Principal payments of $1.5 million per year begin 24 months from the closing date. Prepayments are prohibited until September 2024. Financial covenants of the delayed draw loan agreement include a minimum loan to value ratio of 50%, a minimum fixed charge coverage ratio of 1.25x commencing on June 30, 2021, a total debt service reserve of six months of future principal and interest payments and a minimum working capital requirement at Green Plains of not less than $0.10 per gallon of nameplate capacity or $112.3 million. The loan is guaranteed by the company and has certain limitations on distributions, dividends or loans to Green Plains by Wood River and Shenandoah unless immediately after giving effect to such action, there will not exist any event of default.

The company also has small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.

Partnership Segment

Green Plains Partners has a $135.0 million credit facility to fund working capital, capital expenditures and other general partnership purposes. The credit facility was amended on June 4, 2020, decreasing the amount available under the facility from $200.0 million to $135.0 million. The amended credit facility includes a $130.0 million term loan and a $5.0 million revolver, and matures on December 31, 2021. The partnership made $12.5 million in principal payments on the term loan during the three and nine months ended September 30, 2020. Monthly principal payments of $2.5 million are required October 15, 2020 through April 15, 2021, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity. In addition, if at any time subsequent 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 on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment.

The term loan balance, and any advances on the revolver, are subject to a floating interest rate based on a 1.0% LIBOR floor plus 4.50% to 5.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. The unused portion of the revolver is also subject to a commitment fee of 0.50%. The credit facility also allows for swing line loans subject to the revolver availability. Swing line loans are subject to a floating interest rate based on the Prime Rate plus 3.5% to 4.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. Under the terms of the credit facility, swing line loans must be repaid within 10 days of the date of the advance. As of September 30, 2020, the term loan had a balance of $117.5 million and an interest rate of 6.00% and the revolver had a balance outstanding of $0.7 million at an interest rate of 7.25%.

The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the equity interests of the partnership’s present and future subsidiaries, (ii) all of the partnership’s present and future personal property, such as investment property, general intangibles and contract rights, including rights under any agreements with Green Plains Trade, and (iii) all proceeds and products of the equity interests of the partnership’s present and future subsidiaries and its personal property and (iv) substantially all of the partnership’s real property and material leases of real property. The terms impose affirmative and negative covenants, including restrictions on the partnership’s ability to incur additional debt, acquire and sell assets, create liens, invest capital, pay distributions and materially amend the partnership’s commercial agreements with Green Plains Trade. The credit facility also requires the partnership to maintain a maximum consolidated leverage ratio, as of the end of any fiscal quarter, of no more than 3.0x that decreases 0.25x each quarter to 1.50x by December 31, 2021, and a minimum consolidated debt service coverage ratio of 1.1x, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures occurring during the applicable period. The consolidated leverage ratio is calculated by dividing total funded indebtedness by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated debt service coverage ratio is calculated by taking the sum of the four preceding fiscal quarters’ consolidated EBITDA minus income taxes and consolidated capital expenditures for such period divided by the sum of the four preceding fiscal quarters’ consolidated interest charges plus consolidated scheduled funded debt payments for such period.

Under the amended terms of the credit facility, the partnership may make quarterly distribution payments in an aggregate amount not to exceed $0.12 per outstanding unit, so long as (i) no default has occurred and is continuing, or would result from payment of the distribution, and (ii) the partnership and its subsidiaries are in compliance with its financial covenants and remain in compliance after payment of the distribution. The credit facility is not guaranteed by the company.

Covenant Compliance

The company was in compliance with its debt covenants as of September 30, 2020.

Restricted Net Assets

At September 30, 2020, there were approximately $67.5 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.


10. STOCK-BASED COMPENSATION

The company had a 2009 Equity Incentive Plan which reserved a total of 4.1 million shares of common stock for issuance pursuant to the plan. On May 6, 2020, the shareholders of the company approved the 2019 Equity Incentive Plan which granted an additional 1.6 million shares for stock-based compensation, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, restricted stock unit awards and performance share awards to eligible employees, non-employee directors and consultants. All shares remaining under the 2009 Equity Incentive Plan rolled into the 2019 Equity Incentive Plan effective May 6, 2020. 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 nine months ended September 30, 2020, is as follows:

Non-Vested
Shares and
Deferred Stock
Units

Weighted-
Average Grant-
Date Fair Value

Weighted-Average
Remaining
Vesting Term
(in years)

Non-Vested at December 31, 2019

751,315

$

17.48

Granted

645,827

9.75

Forfeited

(20,301)

16.26

Vested

(352,080)

18.83

Non-Vested at September 30, 2020

1,024,761

$

12.17

1.8

Performance Shares

On March 18, 2020, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the level of achievement of certain performance goals, including the incremental value achieved from the company’s high-protein initiatives, annual production levels and return on investment (ROI). Performance shares granted in 2020 do not contain market based factors requiring a Monte Carlo valuation model. The performance shares were granted at a target of 100%, but each performance share will reduce or increase depending on results for the performance period. If the company achieves the maximum performance goals, the maximum amount of shares available to be issued pursuant to the 2020 awards are 641,823 performance shares which represents approximately 276% of the 232,566 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual performance targets achieved at the end of the performance period.

On February 19, 2019 and March 19, 2018, the board of directors granted performance shares to be awarded in the form of common stock to certain participants of the plan. These performance shares vest based on the company’s average return on net assets (RONA) and the company’s total shareholder return (TSR), as further described herein. The performance shares vest on the third anniversary of the grant, if the RONA and TSR criteria are achieved and the participant is then employed by the company. 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 reduce or increase depending on results for the performance period for the company's RONA, and the company’s TSR relative to that of the performance peer group. If the company’s RONA and TSR achieve the maximum goals, the maximum amount of shares available to be issued pursuant to the 2018 and 2019 awards are 428,104 performance shares or 150% of the 285,403 performance shares which remain outstanding. The actual number of performance shares that will ultimately vest is based on the actual percentile ranking of the company’s RONA, and the company’s TSR compared to the peer performance at the end of the performance period.


For performance shares which include market based factors, the company uses the Monte Carlo valuation model to estimate the fair value of the performance shares on the date of the grant. The weighted average assumptions used by the company in applying the Monte Carlo valuation model for performance share grants and related valuation are illustrated in the following table:

FY 2019

Performance Awards

FY 2018 Performance Awards

Risk-free interest rate

2.45

%

2.44

%

Dividend yield

3.13

%

2.64

%

Expected volatility

41.69

%

45.11

%

Monte Carlo valuation

99.62

%

97.39

%

Closing stock price on the date of grant

$

15.34

$

18.15

The non-vested performance share award activity for the nine months ended September 30, 2020, is as follows:

Performance
Shares

Weighted-
Average Grant-
Date Fair Value

Weighted-Average
Remaining
Vesting Term
(in years)

Non-Vested at December 31, 2019

285,403

$

16.38

Granted

232,566

10.64

Non-Vested at September 30, 2020

517,969

$

13.80

2.0

Stock Options

The fair value of the stock options is estimated on the date of the grant using the Black-Scholes option-pricing model, a pricing model acceptable under GAAP. The expected life of the options is the period of time the options are expected to be outstanding. The company did 0t grant any stock option awards during the nine months ended September 30, 2020 and 2019.

The activity related to the exercisable stock options for the nine months ended September 30, 2020, is as follows:

Shares

Weighted-Average
Exercise Price

Weighted-Average
Remaining
Contractual Term
(in years)

Aggregate Intrinsic Value
(in thousands)

Outstanding at December 31, 2019

10,000

$

16.95

0.2

$

-

Expired

(10,000)

16.95

-

-

Outstanding at September 30, 2020

-

$

-

-

$

-

Exercisable at September 30, 2020

-

$

-

-

$

-

Green Plains Partners

Green Plains Partners has a long-term incentive plan (LTIP) intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation awards to employees, consultants and directors to encourage superior performance. The LTIP reserves 2,500,000 common limited partner units for issuance in the form of options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profit interest units or other unit-based awards. The partnership measures unit-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The partnership records noncash compensation expense related to the awards over the requisite service period on a straight-line basis.


The non-vested unit-based awards activity for the nine months ended September 30, 2020, is as follows:

Non-Vested
Shares and
Deferred Stock
Units

Weighted-
Average Grant-
Date Fair Value

Weighted-Average
Remaining
Vesting Term
(in years)

Non-Vested at December 31, 2019

22,856

$

14.00

Granted

47,620

6.72

Vested

(22,856)

14.00

Non-Vested at September 30, 2020

47,620

$

6.72

0.8

Stock-Based and Unit Based Compensation Expense

Compensation costs for stock-based and unit-based payment plans were $2.1 million and $5.7 million for the three and nine months ended September 30, 2020, respectively, and $2.6 million and $7.4 million for the three and nine months ended September 30, 2019. At September 30, 2020, there was $11.7 million of unrecognized compensation costs from stock-based and unit-based compensation related to non-vested awards. This compensation is expected to be recognized over a weighted-average period of approximately 1.8 years. The potential tax benefit related to stock-based payment is approximately 24.2% of these expenses.

11. EARNINGS PER SHARE

Basic earnings per share, or EPS, is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period.

The company computed diluted EPS by dividing net income on an if-converted basis, adjusted to add back net interest expense related to the convertible debt instruments, by the weighted average number of common shares outstanding during the period, adjusted to include the shares that would be issued if the convertible debt instruments were converted to common shares and the effect of any outstanding dilutive securities. In addition, due to the presentation of GPCC as discontinued operations, the company has presented basic and diluted earnings per share from both continuing operations and from discontinued operations.

The basic and diluted EPS are calculated as follows (in thousands, except per share amounts):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Numerator:

Net loss from continuing operations (1)

$

(34,486)

$

(42,363)

$

(59,145)

$

(128,077)

Net income from discontinued operations

-

3,393

-

966

Net loss attributable to Green Plains

$

(34,486)

$

(38,970)

$

(59,145)

$

(127,111)

Denominator:

Weighted-average shares outstanding - basic

34,629

36,913

34,632

39,092

Dilutive effect of convertible debt and stock-based compensation (2)

-

-

-

-

Weighted-average shares outstanding - diluted

34,629

36,913

34,632

39,092

EPS - basic and diluted:

EPS from continuing operations

$

(1.00)

$

(1.15)

$

(1.71)

$

(3.28)

EPS from discontinued operations

-

0.09

-

0.03

EPS

$

(1.00)

$

(1.06)

$

(1.71)

$

(3.25)

Anti-dilutive weighted-average convertible debt and stock-based compensation (2)

14,187

13,983

14,059

9,397

(1)Net loss from continuing operations can be recalculated from our consolidated statements of operations by taking the net loss from continuing operations including noncontrolling interest less net income attributable to noncontrolling interests.

(2)The effect related to the company’s convertible debt and stock-based compensation awards have been excluded from diluted EPS for the periods presented as the inclusion of these shares would have been antidilutive.

12. STOCKHOLDERS’ EQUITY

Components of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 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
before reclassification

-

-

-

-

4,532 

-

-

4,532 

-

4,532 

Amounts reclassified from
accumulated other
comprehensive loss

-

-

-

-

(4,485)

-

-

(4,485)

-

(4,485)

Other comprehensive income,
net of tax

-

-

-

-

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 

Net income (loss)

-

-

-

(8,214)

-

-

-

(8,214)

2,740 

(5,474)

Distributions declared

-

-

-

-

-

-

-

-

(1,389)

(1,389)

Other comprehensive loss
before reclassification

-

-

-

-

(1,333)

-

-

(1,333)

-

(1,333)

Amounts reclassified from
accumulated other
comprehensive loss

-

-

-

-

(7)

-

-

(7)

-

(7)

Other comprehensive income,
net of tax

-

-

-

-

(1,340)

-

-

(1,340)

-

(1,340)

Share of equity method investees other comprehensive loss arising during the period, net of tax

-

-

-

-

(16,759)

-

-

(16,759)

-

(16,759)

Stock-based compensation

160 

-

2,072 

-

-

-

-

2,072 

80 

2,152 

Balance, June 30, 2020

47,467 

47 

736,688 

123,491 

12,840 

11,813 

(131,287)

741,779 

115,491 

857,270 

Net income (loss)

-

-

-

(34,486)

-

-

-

(34,486)

3,753 

(30,733)

Distributions declared

-

-

-

-

-

-

-

-

(1,394)

(1,394)

Other comprehensive loss
before reclassification

-

-

-

-

(2,696)

-

-

(2,696)

-

(2,696)

Amounts reclassified from
accumulated other
comprehensive loss

-

-

-

-

-

-

-

-

-

-

Other comprehensive income,
net of tax

-

-

-

-

(2,696)

-

-

(2,696)

-

(2,696)

Share of equity method investees other comprehensive loss arising during the period, net of tax

-

-

-

-

(21,057)

-

-

(21,057)

-

(21,057)

Stock-based compensation

-

-

2,086 

-

-

-

-

2,086 

79 

2,165 

Balance, September 30, 2020

47,467 

$

47 

$

738,774 

$

89,005 

$

(10,913)

11,813 

$

(131,287)

$

685,626 

$

117,929 

$

803,555 


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, 2019

46,638 

$

47 

$

696,222 

$

324,728 

$

(16,016)

5,536 

$

(58,162)

$

946,819 

$

116,170 

$

1,062,989 

Net income (loss)

-

-

-

(42,799)

-

-

-

(42,799)

4,928 

(37,871)

Cash dividends and
distributions declared

-

-

-

(4,847)

-

-

-

(4,847)

(5,487)

(10,334)

Other comprehensive loss
before reclassification

-

-

-

-

(6,883)

-

-

(6,883)

-

(6,883)

Amounts reclassified from
accumulated other
comprehensive loss

-

-

-

-

10,376 

-

-

10,376 

-

10,376 

Other comprehensive income,
net of tax

-

-

-

-

3,493 

-

-

3,493 

-

3,493 

Proceeds from disgorgement of shareholders short-swing profits, net (1)

-

-

5,023 

-

-

-

-

5,023 

-

5,023 

Stock-based compensation

284 

-

428 

-

-

-

-

428 

79 

507 

Balance, March 31, 2019

46,922 

47 

701,673 

277,082 

(12,523)

5,536 

(58,162)

908,117 

115,690 

1,023,807 

Net income (loss)

-

-

-

(45,342)

-

-

-

(45,342)

5,163 

(40,179)

Cash dividends and
distributions declared

-

-

-

(4,871)

-

-

-

(4,871)

(5,487)

(10,358)

Other comprehensive loss
before reclassification

-

-

-

-

33,260 

-

-

33,260 

-

33,260 

Amounts reclassified from
accumulated other
comprehensive loss

-

-

-

-

3,440 

-

-

3,440 

-

3,440 

Other comprehensive income,
net of tax

-

-

-

-

36,700 

-

-

36,700 

-

36,700 

Issuance of 4.00% convertible notes due 2024, net of tax

-

-

22,537 

-

-

-

-

22,537 

-

22,537 

Settlement of 3.25% convertible
notes due 2019, net of tax

-

-

(271)

-

-

-

-

(271)

-

(271)

Repurchase of common stock

-

-

-

-

-

3,197 

(39,870)

(39,870)

-

(39,870)

Stock-based compensation

(3)

-

2,129 

-

-

-

-

2,129 

79 

2,208 

Balance, June 30, 2019

46,919 

47 

726,068 

226,869 

24,177 

8,733 

(98,032)

879,129 

115,445 

994,574 

Net income (loss)

-

-

-

(38,970)

-

-

-

(38,970)

3,479 

(35,491)

Cash dividends and
distributions declared

-

-

-

-

-

-

-

-

(5,497)

(5,497)

Other comprehensive loss
before reclassification

-

-

-

-

28,095 

-

-

28,095 

-

28,095 

Amounts reclassified from
accumulated other
comprehensive loss

-

-

-

-

(53,255)

-

-

(53,255)

-

(53,255)

Other comprehensive income,
net of tax

-

-

-

-

(25,160)

-

-

(25,160)</