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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, 2019

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 x

Accelerated filer o

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 4, 2019, was 35,955,233 shares.


TABLE OF CONTENTS

Page

Commonly Used Defined Terms

2

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Cash Flows

6

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

41

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

55

Item 4.

Controls and Procedures

57

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

58

Item 1A.

Risk Factors

58

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

 

Item 6.

Exhibits

60

Signatures

61

1


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

Fleischmann’s Vinegar

Fleischmann’s Vinegar Company, Inc.

Green Plains Cattle; GPCC

Green Plains Cattle Company LLC

Green Plains Grain

Green Plains Grain Company LLC

Green Plains Partners; the partnership

Green Plains Partners LP

Green Plains Trade

Green Plains Trade Group LLC

Accounting Defined Terms:

ASC

Accounting Standards Codification

Bgy

Billion gallons per year

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 Defined Terms:

CAFE

Corporate Average Fuel Economy

D.C.

District of Columbia

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

MmBtu

Million British Thermal Units

Mmg

Million gallons

MTBE

Methyl tertiary-butyl ether

RFS II

Renewable Fuels Standard II

RIN

Renewable identification number

RVO

Renewable volume obligation

USDA

U.S. Department of Agriculture


2


PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements.

GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

September 30,
2019

December 31,
2018

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

235,537 

$

251,681 

Restricted cash

18,502 

31,603 

Accounts receivable, net of allowances of $203 and $147, respectively

64,322 

88,501 

Income taxes receivable

12,933 

12,418 

Inventories

250,614 

302,600 

Prepaid expenses and other

10,578 

14,125 

Derivative financial instruments

29,569 

26,315 

Current assets of discontinued operations

-

479,399 

Total current assets

622,055 

1,206,642 

Property and equipment, net of accumulated depreciation
and amortization of $469,216 and $418,652, respectively

809,041 

815,235 

Operating lease right-of-use assets

56,437 

-

Goodwill

34,689 

34,689 

Investment in equity method investees

93,029 

29,714 

Deferred income taxes

22,578 

-

Other assets

54,242 

57,092 

Noncurrent assets of discontinued operations

-

73,060 

Total assets

$

1,692,071 

$

2,216,432 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

126,815 

$

135,829 

Accrued and other liabilities

43,440 

52,563 

Derivative financial instruments

14,564 

7,852 

Operating lease current liabilities

16,954 

-

Short-term notes payable and other borrowings

149,143 

163,751 

Current maturities of long-term debt

132,999 

54,769 

Current liabilities of discontinued operations

-

418,936 

Total current liabilities

483,915 

833,700 

Long-term debt

248,289 

298,110 

Deferred income taxes

1,903 

10,123 

Operating lease long-term liabilities

42,142 

-

Other liabilities

9,360 

11,428 

Noncurrent liabilities of discontinued operations

-

82 

Total liabilities

785,609 

1,153,443 

Commitments and contingencies (Note 14)

 

 

Stockholders' equity

Common stock, $0.001 par value; 75,000,000 shares authorized;
46,914,764 and 46,637,549 shares issued, and 36,519,306
and 41,101,975 shares outstanding, respectively

47 

47 

Additional paid-in capital

730,808 

696,222 

Retained earnings

187,899 

324,728 

Accumulated other comprehensive loss

(11,754)

(16,016)

Treasury stock, 10,395,458 and 5,535,574 shares, respectively

(114,046)

(58,162)

Total Green Plains stockholders' equity

792,954 

946,819 

Noncontrolling interests

113,508 

116,170 

Total stockholders' equity

906,462 

1,062,989 

Total liabilities and stockholders' equity

$

1,692,071 

$

2,216,432 

See accompanying notes to the consolidated financial statements.

3


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,

2019

2018

2019

2018

Revenues

Product revenues

$

631,032

$

787,750

$

1,696,245

$

2,395,877

Service revenues

1,318

1,298

5,315

4,546

Total revenues

632,350

789,048

1,701,560

2,400,423

Costs and expenses

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

632,129

733,080

1,700,481

2,233,914

Operations and maintenance expenses

6,216

7,271

19,314

23,564

Selling, general and administrative expenses

18,542

23,215

56,450

75,751

Depreciation and amortization expenses

17,828

29,266

52,963

80,170

Total costs and expenses

674,715

792,832

1,829,208

2,413,399

Operating loss from continuing operations

(42,365)

(3,784)

(127,648)

(12,976)

Other income (expense)

Interest income

767

745

2,813

2,053

Interest expense

(10,548)

(19,703)

(31,528)

(58,330)

Other, net

88

133

630

260

Total other expense

(9,693)

(18,825)

(28,085)

(56,017)

Loss from continuing operations before income taxes and income (loss) from equity method investees

(52,058)

(22,609)

(155,733)

(68,993)

Income tax benefit

12,530

14,973

40,692

34,524

Income (loss) from equity method investees, net of income taxes

644

(250)

534

(489)

Net loss from continuing operations including noncontrolling interest

(38,884)

(7,886)

(114,507)

(34,958)

Net income from discontinued operations, net of income taxes

3,393

467

966

11,835

Net loss

(35,491)

(7,419)

(113,541)

(23,123)

Net income attributable to noncontrolling interests

3,479

5,050

13,570

14,457

Net loss attributable to Green Plains

$

(38,970)

$

(12,469)

$

(127,111)

$

(37,580)

Earnings (loss) per share - basic and diluted:

Net loss from continuing operations

$

(1.15)

$

(0.32)

$

(3.28)

$

(1.23)

Net income from discontinued operations

0.09

0.01

0.03

0.29

Net loss attributable to Green Plains

$

(1.06)

$

(0.31)

$

(3.25)

$

(0.94)

Weighted average shares outstanding:

Basic

36,913

40,229

39,092

40,189

Diluted

36,913

40,229

39,092

40,189

See accompanying notes to the consolidated financial statements.


4


GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited and in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net loss

$

(35,491)

$

(7,419)

$

(113,541)

$

(23,123)

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on derivatives arising during the period, net of tax benefit (expense) of ($5,149), $4,314, ($12,953) and $343, respectively

28,095

(14,395)

54,472

(1,522)

Reclassification of realized losses (gains) on derivatives, net of tax expense (benefit) of $13,445, ($420), $9,358 and ($55), respectively

(53,255)

1,427

(39,439)

243

Other comprehensive income (loss), net of tax

(25,160)

(12,968)

15,033

(1,279)

Share of equity method investees other comprehensive loss arising during the period, net of tax benefit of $3,555, $0, $3,555, and $0, respectively

(10,771)

-

(10,771)

-

Total other comprehensive income (loss), net of tax

(35,931)

(12,968)

4,262

(1,279)

Comprehensive loss

(71,422)

(20,387)

(109,279)

(24,402)

Comprehensive income attributable to noncontrolling interests

3,479

5,050

13,570

14,457

Comprehensive loss attributable to Green Plains

$

(74,901)

$

(25,437)

$

(122,849)

$

(38,859)

See accompanying notes to the consolidated financial statements.


5


GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Nine Months Ended
September 30,

2019

2018

Cash flows from operating activities:

Net loss from continuing operations including noncontrolling interest

$

(114,507)

$

(34,958)

Net income from discontinued operations, net of income taxes

966

11,835

Net loss

(113,541)

(23,123)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

52,963

80,170

Amortization of debt issuance costs and debt discount

15,633

10,617

Deferred income taxes

(38,918)

(37,980)

Stock-based compensation

7,406

8,726

Income (loss) from equity method investees, net of income taxes

(534)

489

Other

1,245

(152)

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

Accounts receivable

21,106

24,684

Inventories

52,400

52,966

Derivative financial instruments

7,208

(10,395)

Prepaid expenses and other assets

3,900

2,137

Accounts payable and accrued liabilities

(22,359)

(78,758)

Current income taxes

(2,175)

31,220

Other

(2,167)

(2,539)

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

(17,833)

58,062

Net cash provided by operating activities - discontinued operations

17,469

26,326

Net cash provided by (used in) operating activities

(364)

84,388

Cash flows from investing activities:

Purchases of property and equipment, net

(43,372)

(29,892)

Proceeds from sale of discontinued operations, net of cash divested

77,240

-

Proceeds from the sale of assets, net

3,469

-

Contribution to equity method investees

(100)

(2,446)

Other investing activities

-

7,500

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

37,237

(24,838)

Net cash used in investing activities - discontinued operations

(4,169)

(125,629)

Net cash provided (used in) investing activities

33,068

(150,467)

Cash flows from financing activities:

Proceeds from the issuance of long-term debt

180,100

58,700

Payments of principal on long-term debt

(68,235)

(62,537)

Proceeds from short-term borrowings

1,994,777

2,758,767

Payments on short-term borrowings

(2,070,273)

(2,834,617)

Payments for repurchase of common stock

(55,884)

-

Payments of cash dividends and distributions

(26,189)

(30,921)

Proceeds from disgorgement of shareholder short-swing profits

6,699

-

Payments of loan fees

(5,290)

(3,373)

Payments related to tax withholdings for stock-based compensation

(2,101)

(3,215)

Proceeds from exercise of stock options

-

150

Net cash used in financing activities - continuing operations

(46,396)

(117,046)

Net cash provided by (used in) financing activities - discontinued operations

(50,464)

105,236

Net cash used in financing activities

(96,860)

(11,810)

Net change in cash, cash equivalents and restricted cash

(64,156)

(77,889)

Cash, cash equivalents and restricted cash, beginning of period

283,284

289,667

Discontinued operations cash activity included above:

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

34,911

22,693

Less: Cash balance included in current assets of discontinued operations at end of period

-

(40,461)

Cash, cash equivalents and restricted cash, end of period

$

254,039

$

194,010

Continued on the following page


6


GREEN PLAINS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)

Continued from the previous page

Nine Months Ended
September 30,

2019

2018

Reconciliation of total cash, cash equivalents and restricted cash:

Cash and cash equivalents

$

235,537

$

171,674

Restricted cash

18,502

62,797

Discontinued operations cash activity included above:

Less: Cash, cash equivalents and restricted cash balance included in current assets of discontinued operations at end of period

-

(40,461)

Total cash, cash equivalents and restricted cash

$

254,039

$

194,010

Non-cash financing activity:

Modification of 3.25% convertible notes due 2019

$

-

$

4,660

Exchange of common stock held in treasury stock for 3.25%
convertible notes due 2018

$

-

$

1

Supplemental investing and financing activities of discontinued operations:

Assets acquired in acquisitions, net of cash

$

-

$

124,525

Less: liabilities assumed

-

(118)

Net assets acquired

$

-

$

124,407

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

$

640

$

(23,568)

Cash paid for interest of continuing operations

$

21,777

$

49,853

Cash paid for interest of discontinued operations

$

11,556

$

8,444

See accompanying notes to the consolidated financial statements.


7


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 49.1% limited partner interest and a 2.0% general partner interest in Green Plains Partners LP. Public investors own the remaining 48.9% 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, 2019 and December 31, 2018, excluding intercompany balances, are $102.5 million and $67.3 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, 2019 and December 31, 2018, excluding intercompany balances, are $194.3 million and $152.9 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.

On September 9, 2019, Green Plains, TGAM Agribusiness Fund Holdings-B LP (“TGAM”) and StepStone Atlantic Fund, L.P. (“StepStone”) announced the formation of a joint venture. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”) of Green Plains Cattle Company LLC (“GPCC”) on September 6, 2019, effective as of September 1, 2019. 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. 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. Under this method, the investment is recorded at the acquisition cost plus the company’s share of equity in undistributed earnings or losses since acquisition and the company’s share of equity method investees other comprehensive income arising during the period, reduced by distributions received and the amortization of excess net investment. The company recognizes this investment on a separate line item in the consolidated balance sheet and recognizes its proportionate share of earnings on a separate line item in the consolidated statement of operations. The company does not consolidate any part of the assets or liabilities or operating results of its equity method investees. 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 current and prior period consolidated financial statements. See Note 3 - Acquisitions, Dispositions and Discontinued Operations 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, 2018, as filed with the SEC on February 20, 2019.

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

8


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 were reclassified to conform to the current year presentation, including the discontinued operations of GPCC. These reclassifications affected total revenues, costs and expenses.

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, depreciation of property and equipment, carrying value of intangible assets, operating leases, impairment of long-lived assets and goodwill, derivative financial instruments, accounting for income taxes and assets acquired and liabilities assumed in acquisitions, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.

Description of Business

The company operates within four business segments: (1) ethanol production, which includes the production of ethanol, distillers grains and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018 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 statements of cash flows.

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

9


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 when 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 and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018. 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

10


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. 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 other 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.

Investments in Equity Method Investees

The company accounts for investments in which the company exercises significant influence using the equity method so long as the company (i) does not control the investee and (ii) is not the primary beneficiary of the entity. The company recognizes these investments as a separate line item in the consolidated balance sheets and its proportionate share of earnings on a separate line item in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the consolidated balance sheet.

The company recognizes losses in the value of equity method investments when there is evidence of an other-than-temporary decrease in value. Evidence of a loss might include, but would not necessarily be limited to, the inability to recover the carrying amount of the investment or the inability of the equity method investee to sustain an earnings capacity that justifies the carrying amount of the investment. The current fair value of an investment that is less than its carrying amount may indicate a loss in value of the investment. The company evaluates equity method investments for impairment when there is evidence an investment may be impaired.

Distributions paid to the company from unconsolidated affiliates are classified as operating activities in the consolidated statements of cash flows until the cumulative distributions exceed the company’s proportionate share of income from the unconsolidated affiliate since the date of initial investment. The amount of cumulative distributions paid to the company that exceeds the cumulative proportionate share of income in each period represents a return of investment, which is classified as an investing activity in the consolidated statements of cash flows.

Discontinued Operations

In determining whether a disposal group should be presented as discontinued operations, the company makes a determination of whether such a group being disposed of comprises a component of the entity, or a group of components of the entity, that represents a strategic shift that has, or will have, a major effect on the company's operations and financial results. If these determinations are made affirmatively, the results of operations of the group being disposed of are aggregated for separate presentation apart from the continuing operations of the company for all periods presented in the consolidated financial statements. General corporate overhead is not allocated to discontinued operations.

Net income from discontinued operations, net of income taxes, relates to the operations of GPCC, which was previously a wholly owned subsidiary of Green Plains until the formation of the GPCC joint venture and partial sale during the third quarter of 2019. The assets and liabilities of GPCC have been reclassified as assets and liabilities of discontinued operations

11


in the prior year. All assets and liabilities of GPCC were disposed of during the three months ended September 30, 2019. See Note 3 - Acquisitions, Dispositions and Discontinued Operations for further details.

The company entered into a shared service agreement whereby they will continue to provide certain administrative services to GPCC and will receive $400 thousand on a quarterly basis through September 1, 2024, with the option for automatic renewal for successive one year periods thereafter and the quarterly fee subject to adjustments annually based on services rendered or market rates. The company will continue to sell distillers grains and corn to GPCC, and will recognize these sales and related cost of goods in continuing operations within their consolidated results, whereas previously these were eliminated as intercompany transactions.

Recent Accounting Pronouncements

Effective January 1, 2019, the company adopted the amended guidance in ASC 842, Leases. Please refer to Note 14 – Commitments and Contingencies for further details.

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 for the three and nine months ended September 30, 2019 and 2018 excluding amounts related to discontinued operations (in thousands):

Three Months Ended September 30, 2019 (1)

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 (2):

Ethanol

389,847 

111,454 

-

-

-

501,301 

Distillers grains

62,698 

6,077 

-

-

-

68,775 

Corn oil

14,308 

5,509 

-

-

-

19,817 

Grain

2 

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 (3):

-

-

-

16,833 

(16,790)

43 

Total Revenues

$

484,406 

$

153,943 

$

-

$

20,154 

$

(26,153)

$

632,350 


12


Nine Months Ended September 30, 2019 (1)

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 (2):

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 842 (3):

-

-

-

51,833 

(51,484)

349 

Total Revenues

$

1,206,182 

$

508,119 

$

1,451 

$

62,066 

$

(76,258)

$

1,701,560 

Three Months Ended September 30, 2018 (1)

Ethanol Production

Agribusiness & Energy Services

Food & Ingredients

Partnership

Eliminations

Total

Revenues:

Revenues from contracts with customers under ASC 606:

Ethanol

$

291 

$

-

$

-

$

-

$

-

$

291 

Distillers grains

55,370 

-

-

-

-

55,370 

Vinegar

-

-

29,032 

-

-

29,032 

Service revenues

-

-

-

983 

-

983 

Other

238 

680 

-

-

-

918 

Intersegment revenues

37 

23 

-

2,597 

(2,657)

-

Total revenues from contracts with customers

55,936 

703 

29,032 

3,580 

(2,657)

86,594 

Revenues from contracts accounted for as derivatives under ASC 815 (2):

Ethanol

440,333 

93,166 

-

-

-

533,499 

Distillers grains

59,195 

45,645 

-

-

-

104,840 

Corn oil

17,088 

10,275 

4,411 

-

-

31,774 

Grain

30 

23,921 

-

-

-

23,951 

Other

3,930 

4,145 

-

-

-

8,075 

Intersegment revenues

-

9,127 

-

-

(9,127)

-

Total revenues from contracts accounted for as derivatives

520,576 

186,279 

4,411 

-

(9,127)

702,139 

Leasing revenues under ASC 840 (3):

-

-

-

22,190 

(21,875)

315 

Total Revenues

$

576,512 

$

186,982 

$

33,443 

$

25,770 

$

(33,659)

$

789,048 


13


Nine Months Ended September 30, 2018 (1)

Ethanol Production

Agribusiness & Energy Services

Food & Ingredients

Partnership

Eliminations

Total

Revenues:

Revenues from contracts with customers under ASC 606:

Ethanol

$

3,391 

$

-

$

-

$

-

$

-

$

3,391 

Distillers grains

176,690 

-

-

-

-

176,690 

Vinegar

-

-

90,229 

-

-

90,229 

Service revenues

-

-

-

3,430 

-

3,430 

Other

1,570 

2,012 

-

-

-

3,582 

Intersegment revenues

157 

23 

-

7,286 

(7,466)

-

Total revenues from contracts with customers

181,808 

2,035 

90,229 

10,716 

(7,466)

277,322 

Revenues from contracts accounted for as derivatives under ASC 815 (2):

Ethanol

1,333,989 

321,824 

-

-

-

1,655,813 

Distillers grains

154,230 

101,678 

-

-

-

255,908 

Corn oil

52,690 

22,433 

12,048 

-

-

87,171 

Grain

500 

67,085 

-

-

-

67,585 

Other

12,486 

43,022 

-

-

-

55,508 

Intersegment revenues

-

26,323 

-

-

(26,323)

-

Total revenues from contracts accounted for as derivatives

1,553,895 

582,365 

12,048 

-

(26,323)

2,121,985 

Leasing revenues under ASC 840 (3):

-

-

-

66,779 

(65,663)

1,116 

Total Revenues

$

1,735,703 

$

584,400 

$

102,277 

$

77,495 

$

(99,452)

$

2,400,423 

(1)Revenues include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue transactions are now presented on a gross basis in product revenues. These revenue transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.

(2)Revenues from contracts accounted for as derivatives represent physically settled derivative sales that are outside the scope of ASC 606, Revenue from Contracts with Customers (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 the Derecognition of Nonfinancial Assets.

(3)Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases for 2019 and ASC 840, Leases for 2018.

Payment Terms

The company has standard payment terms, which vary depending upon the nature of the services provided, with the majority falling within 10 to 30 days after transfer of control or completion of services. In instances where the timing of revenue recognition differs from the timing of invoicing, the company has determined that contracts generally do not include a significant financing component.

Contract Liabilities

The company records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of service and lease agreements. Unearned revenue from service agreements, which represents a contract liability, is recorded for fees that have been charged to the customer prior to the completion of performance obligations. Unearned revenue is generally recognized in the subsequent quarter and is not material to the company. The company expects to recognize all of the unearned revenue associated with service agreements as of September 30, 2019, in the subsequent quarter when the inventory is withdrawn from the partnership’s tank storage.

3. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS

ACQUISITIONS

Acquisition of Cattle Feeding Operations – Bartlett Cattle Company, L.P.

On August 1, 2018, the company acquired two cattle-feeding operations from Bartlett Cattle Company, L.P. for $16.2 million, plus working capital of approximately $106.6 million primarily consisting of work-in-process inventory. The transaction included the feed yards located in Sublette, Kansas and Tulia, Texas, which added combined feedlot capacity of 97,000 head of cattle to the company’s operations. The transaction was financed using cash on hand and proceeds from the

14


Green Plains Cattle senior secured asset-based revolving credit facility. There were no material acquisition costs recorded for the acquisition.

The following is a summary of the assets acquired and liabilities assumed (in thousands):

Amounts of Identifiable Assets Acquired and Liabilities Assumed

Accounts receivable

$

1,897

Inventory

104,809

Property and equipment, net

16,190

Current liabilities

(118)

Total identifiable net assets

$

122,778

The amounts above reflect the final purchase price allocation, which included working capital true-up payments by the company of $0.9 million made during the third quarter of 2018. After the disposition of GPCC, the assets and liabilities of the acquired feedlots were reclassified as discontinued operations. See Disposition of Green Plains Cattle Company LLC described below.

DISPOSITIONS

Disposition of Fleischmann’s Vinegar

On November 27, 2018, the company and Green Plains II LLC, an indirect wholly-owned subsidiary of the company, completed the sale of Fleischmann’s Vinegar Company, Inc. to Kerry Holding Co. (“Kerry”). The company received as net consideration from Kerry $354.0 million in cash and restricted cash, including net working capital adjustments. The divested assets were reported within the company’s food and ingredients segment. The company recorded a pre-tax gain on the sale of Fleischmann’s Vinegar of $58.2 million, including offsetting related transaction costs of $7.4 million within the corporate segment.

The assets and liabilities of Fleischmann’s Vinegar at closing on November 27, 2018 were as follows (in thousands):

Amounts of Identifiable Assets Disposed and Liabilities Relinquished

Cash

$

2,107

Accounts receivable, net

16,142

Inventory

15,167

Prepaid expenses and other

853

Property and equipment

64,552

Other assets

79,389

Current liabilities

(8,837)

Deferred tax liabilities

(26,617)

Total identifiable net assets

142,756

Goodwill

142,002

Net assets disposed

$

284,758

The amounts above reflect the preliminary working capital true-up payments made to and received from Kerry, including a working capital payment made to and received from Kerry of $0.3 million and $0.3 million during the first and third quarters of 2019, respectively.

Disposition of Bluffton, Lakota and Riga Ethanol Plants

On November 15, 2018, the company completed the sale of three ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan, and certain related assets from subsidiaries, to Valero Renewable Fuels Company, LLC (“Valero”) for the sale price of $323.2 million, including net working capital and other adjustments. Correspondingly, the partnership’s storage assets located adjacent to such plants were sold to Green Plains Inc. for $120.9 million. The company received as consideration from Valero approximately $323.2 million, while the partnership received as consideration from the company 8.7 million partnership units and a portion of the general partner interest equating to 0.2 million equivalent limited

15


partner units to maintain the general partner’s 2% interest. In addition, the partnership also received additional consideration of approximately $2.7 million from Valero for the assignment of certain railcar operating leases. The divested assets were reported within the company’s ethanol production, agribusiness and energy services and partnership segments. The company recorded a pre-tax gain on the sale of the three ethanol plants of $92.2 million, of which $89.5 million was recorded within the corporate segment and $2.7 million was recorded within the partnership segment, including offsetting transaction costs of $4.2 million, of which $3.7 million were recorded within the corporate segment and $0.5 million were recorded within the partnership segment.

The assets and liabilities of the Bluffton, Lakota and Riga ethanol plants at closing on November 15, 2018 are as follows (in thousands):

Amounts of Identifiable Assets Disposed and Liabilities Relinquished

Inventory

$

36,812

Prepaid expenses and other

189

Property and equipment

184,970

Other assets

1,717

Current liabilities

(746)

Other liabilities

(4,706)

Total identifiable net assets

218,236

Goodwill

6,188

Net assets disposed

$

224,424

The amounts above reflect the final working capital true-up payments by Valero of $3.4 million received during the first quarter of 2019.

Disposition of Green Plains Cattle Company LLC

On September 9, 2019, Green Plains, TGAM and StepStone announced the formation of a joint venture. Such parties entered into the LLC Agreement, effective as of September 1, 2019. 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 $77.2 million in cash, plus post-closing adjustments. There was no gain or loss recorded as part of this transaction. The LLC Agreement contains certain earn-out or bonus provisions to be paid by or received from GPCC if certain EBITDA thresholds are met. The company does not believe these are reasonably estimable and therefore has not recorded these amounts in the consolidated financial statements.

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.


16


The assets and liabilities of the GPCC at closing on September 1, 2019 are 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

DISCONTINUED OPERATIONS

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. As such, GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Furthermore, the related assets and liabilities of GPCC have been presented as discontinued operations on the December 31, 2018 consolidated balance sheet. Financial results of GPCC were previously recorded within the food and ingredients segment.

Assets and Liabilities in the Consolidated Balance Sheet Attributable to Discontinued Operations

The following table presents assets and liabilities associated with our discontinued operations.

December 31,
2018

Assets

Cash and cash equivalents

$

2

Restricted cash

34,909

Accounts receivable, net of allowances

11,860

Inventories

432,283

Prepaid expenses and other

345

Current assets of discontinued operations

$

479,399

Property and equipment, net of accumulated depreciation and amortization

$

71,341

Other assets

1,719

Noncurrent assets of discontinued operations

$

73,060

Liabilities

Accounts payable

$

21,072

Accrued and other liabilities

6,410

Derivative financial instruments

16,924

Short-term notes payable and other borrowings

374,492

Current maturities of long-term debt

38

Current liabilities of discontinued operations

$

418,936

Long-term debt

$

80

Other liabilities

2

Noncurrent liabilities of discontinued operations

$

82


17


Summarized Results of Discontinued Operations

The following table presents the results of our discontinued operations for the periods presented. 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,

Nine Months Ended
September 30,

2019 (1)

2018 (1)

2019 (1)

2018 (1)

Product revenues

$

160,113

$

217,708

$

638,122

$

652,950

Costs and expenses

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

150,214

209,922

614,671

622,461

Selling, general and administrative expenses

1,472

1,906

5,931

5,184

Depreciation and amortization expenses

1,004

1,447

4,199

3,840

Total costs and expenses

152,690

213,275

624,801

631,485

Operating income

7,423

4,433

13,321

21,465

Other income (expense)

Interest income

42

45

182

83

Interest expense

(3,001)

(3,696)

(12,417)

(9,218)

Other, net

-

-

-

2,591

Total other expense

(2,959)

(3,651)

(12,235)

(6,544)

Income before income taxes

4,464

782

1,086

14,921

Income tax expense

(1,071)

(315)

(120)

(3,086)

Net income

$

3,393

$

467

$

966

$

11,835

(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, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, 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.


18


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, 2019

Quoted Prices in
Active Markets for
Identical Assets

Significant Other
Observable Inputs

(Level 1)

(Level 2)

Total

Assets:

Cash and cash equivalents

$

235,537

$

-

$

235,537

Restricted cash

18,502

-

18,502

Inventories carried at market

-

62,230

62,230

Unrealized gains on derivatives

-

13,089

13,089

Other assets

113

4

117

Total assets measured at fair value

$

254,152

$

75,323

$

329,475

Liabilities:

Accounts payable (1)

$

-

$

27,038

$

27,038

Unrealized losses on derivatives

-

14,564

14,564

Other

-

1

1

Total liabilities measured at fair value

$

-

$

41,603

$

41,603

Fair Value Measurements at December 31, 2018

Quoted Prices in
Active Markets for
Identical Assets

Significant Other
Observable Inputs

(Level 1)

(Level 2)

Total

Assets:

Cash and cash equivalents

$

251,681

$

-

$

251,681

Restricted cash

31,603

-

31,603

Inventories carried at market

-

111,960

111,960

Unrealized gains on derivatives

-

9,976

9,976

Other assets

114

1

115

Cash, cash equivalents and restricted cash of discontinued operations (2)

34,911

-

34,911

Total assets measured at fair value

$

318,309

$

121,937

$

440,246

Liabilities:

Accounts payable (1)

$

-

$

16,573

$

16,573

Unrealized losses on derivatives

-

7,852

7,852

Other liabilities

-

2

2

Total liabilities measured at fair value

$

-

$

24,427

$

24,427

(1)Accounts payable is generally stated at historical amounts with the exception of $27.0 million and $16.6 million at September 30, 2019 and December 31, 2018, respectively, related to certain delivered inventory for which the payable fluctuates based on changes in commodity prices. These payables are hybrid financial instruments for which the company has elected the fair value option.

(2)Includes $2 thousand of cash and cash equivalents and $34.9 million of restricted cash which is classified as current assets of discontinued operations in the December 31, 2018 consolidated balance sheet.

The company believes the fair value of its debt approximated book value, which was $530.4 million at September 30, 2019 and $516.6 million at December 31, 2018. 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 $64.3 million and $88.5 million at September 30, 2019 and December 31, 2018, 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.


19


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, distillers grains and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018 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, excluding amounts related to discontinued operations (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 (1)

2018 (1)

2019 (1)

2018 (1)

Revenues:

Ethanol production:

Revenues from external customers

$

484,382

$

576,475

$

1,206,107

$

1,735,546

Intersegment revenues

24

37

75

157

Total segment revenues

484,406

576,512

1,206,182

1,735,703

Agribusiness and energy services:

Revenues from external customers

146,650

177,832

488,687

558,054

Intersegment revenues

7,293

9,150

19,432

26,346

Total segment revenues

153,943

186,982

508,119

584,400

Food and ingredients:

Revenues from external customers

-

33,443

1,451

102,277

Intersegment revenues

-

-

-

-

Total segment revenues

-

33,443

1,451

102,277

Partnership:

Revenues from external customers

1,318

1,298

5,315

4,546

Intersegment revenues

18,836

24,472

56,751

72,949

Total segment revenues

20,154

25,770

62,066

77,495

Revenues including intersegment activity

658,503

822,707

1,777,818

2,499,875

Intersegment eliminations

(26,153)

(33,659)

(76,258)

(99,452)

Revenues as reported

$

632,350

$

789,048

$

1,701,560

$

2,400,423

(1)Revenues include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue transactions are now presented on a gross basis in product revenues. These revenue transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.

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


20


Three Months Ended
September 30,

Nine Months Ended
September 30,

2019 (1)

2018 (1)

2019 (1)

2018 (1)

Cost of goods sold:

Ethanol production

$

512,527

$

560,719

$

1,289,366

$

1,706,891

Agribusiness and energy services

150,465

179,432

486,305

546,318

Food and ingredients

3

26,228

1,526

79,894

Partnership

-

-

-

-

Intersegment eliminations

(30,866)

(33,299)

(76,716)

(99,189)

$

632,129

$

733,080

$

1,700,481

$

2,233,914

(2)Cost of goods sold include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These cost of goods sold transactions are now presented gross in cost of goods sold. These cost of goods sold transactions total $5.5 million and $14.4 million for the three and nine months ended September 30, 2019, respectively, and $6.6 million and $21.0 million for the three and nine months ended September 30, 2018, respectively.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Operating income (loss):

Ethanol production

$

(49,289)

$

(15,961)

$

(147,366)

$

(60,704)

Agribusiness and energy services

(461)

2,850

9,184

22,080

Food and ingredients

(6)

3,892

(76)

12,426

Partnership

12,322

16,725

38,029

48,214

Intersegment eliminations

4,738

(325)

533

(113)

Corporate activities

(9,669)

(10,965)

(27,952)

(34,879)

$

(42,365)

$

(3,784)

$

(127,648)

$

(12,976)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Depreciation and amortization:

Ethanol production

$

15,547

$

24,289

$

46,324

$

65,284

Agribusiness and energy services

541

675

1,642

1,923

Food and ingredients

-

2,333

-

6,788

Partnership

991

1,120

2,747

3,406

Corporate activities

749

849

2,250

2,769

$

17,828

$

29,266

$

52,963

$

80,170

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

September 30,
2019

December 31,
2018

Total assets (1):

Ethanol production

$

873,793

$

872,845

Agribusiness and energy services

368,146

399,633

Partnership

102,497

67,297

Corporate assets

354,371

334,236

Assets of discontinued operations

-

552,459

Intersegment eliminations

(6,736)

(10,038)

$

1,692,071

$

2,216,432

(1)Asset balances by segment exclude intercompany balances.

   


21


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.

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

September 30,
2019

December 31,
2018

Finished goods

$

119,711

$

99,566

Commodities held for sale

26,181

62,896

Raw materials

58,699

98,174

Work-in-process

13,640

12,680

Supplies and parts

32,383

29,284

$

250,614

$

302,600

7. GOODWILL

Effective January 1, 2018, we early adopted the amended guidance in ASC Topic 350, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amended guidance, an entity may first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any).

The company currently has two reporting units, to which goodwill is 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 and the decline in our stock price caused a decline in the company’s market capitalization during the three months ended September 30, 2019. 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 September 30, 2019. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are 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 exceeded its carrying value. As a result, we concluded that the goodwill assigned to the ethanol production reporting unit was not impaired, but could be at risk of future impairment. We continue to believe that our long-term financial goals will be achieved.

8. DERIVATIVE FINANCIAL INSTRUMENTS

At September 30, 2019, the company’s consolidated balance sheet reflected unrealized losses of $11.8 million, net of tax, in accumulated other comprehensive income. The company expects these amounts to be reclassified as operating income over the next 12 months as a result of hedged transactions that are forecasted to occur. The amount realized in operating income will differ as commodity prices change.


22


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,
2019 (1)

December 31,
2018 (2)

September 30,
2019

December 31,
2018

Derivative financial instruments

$

13,089

$

9,976

$

14,564

$

7,852

Other assets

4

1

-

-

Other liabilities

-

-

1

2

Total

$

13,093

$

9,977

$

14,565

$

7,854

(1)At September 30, 2019, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $16.5 million, which include $0.2 million of net unrealized losses on derivative financial instruments designated as cash flow hedging instruments.

(2)At December 31, 2018, derivative financial instruments, as reflected on the balance sheet, includes net unrealized gains on exchange traded futures and options contracts of $16.3 million.

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 or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income

Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income

Three Months Ended
September 30,

Nine Months Ended
September 30,

into Income

2019

2018

2019

2018

Revenues

$

-

$

4,766

$

-

$

3,648

Cost of goods sold

-

1,331

-

1,258

Net income from discontinued operations, net of income taxes

66,700

(7,944)

48,797

(5,204)

Net gain (loss) recognized in loss before tax

$

66,700

$

(1,847)

$

48,797

$

(298)

Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives

Gain (Loss) Recognized in Other

Three Months Ended
September 30,

Nine Months Ended
September 30,

Comprehensive Income on Derivatives

2019

2018

2019

2018

Commodity contracts

$

33,244

$

(18,709)

$

67,425

$

(1,865)

Amount of Gain or (Loss)

Recognized in Income on Derivatives

Derivatives Not Designated

Location of Gain or (Loss) Recognized in

Three Months Ended
September 30,

Nine Months Ended
September 30,

as Hedging Instruments

Income on Derivatives

2019

2018

2019

2018

Commodity contracts

Revenues

$

12,439

$

2,491

$

(12,034)

$

6,135

Commodity contracts

Costs of goods sold

5,465

9,987

(1,484)

12,550

Commodity contracts

Net income from discontinued operations, net of income taxes

(2,285)

(3,595)

(2,470)

(1,716)

Net gain (loss) recognized in loss before tax

$

15,619

$

8,883

$

(15,988)

$

16,969

23


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, 2019

December 31, 2018

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

$

41,356

$

(2,445)

$

89,188

$

2,430

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 or (Loss) Recognized in

Income on Cash Flow and Fair Value Hedging Relationships

for the Three Months Ended September 30,

2019

2018

Revenue

Cost of
Goods Sold

Income from Discontinued Operations, Net of Income Taxes

Revenue

Cost of
Goods Sold

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

$

-

$

-

$

66,700

$

4,766

$

1,331

$

(7,944)

Gain (loss) on fair value hedging relationships:

Commodity contracts:

Hedged item

-

1,155

-

-

(346)

-

Derivatives designated as hedging instruments

-

(3,263)

-

-

(186)

-

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

$

-

$

(2,108)

$

66,700

$

4,766

$

799

$

(7,944)


24


Location and Amount of Gain Recognized in

Income on Cash Flow and Fair Value Hedging Relationships

for the Nine Months Ended September 30,

2019

2018

Revenue

Cost of
Goods Sold

Income from Discontinued Operations, Net of Income Taxes

Revenue

Cost of
Goods Sold

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

$

-

$

-

$

48,797

$

3,648

$

1,258

$

(5,204)

Gain (loss) on fair value hedging relationships:

Commodity contracts:

Hedged item

-

324

-

-

10,150

-

Derivatives designated as hedging instruments

-

1,168

-

-

(9,064)

-

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

$

-

$

1,492

$

48,797

$

3,648

$

2,344

$

(5,204)

There were no gains or losses from discontinuing cash flow or fair value hedge treatment during the three and nine months ended September 30, 2019 and 2018.

The open commodity derivative positions as of September 30, 2019, are as follows (in thousands):

Exchange Traded (1)

Non-Exchange Traded (2)

Derivative
Instruments

Net Long &
(Short)

Long

(Short)

Unit of
Measure

Commodity

Futures

(12,185)

Bushels

Corn, Soybeans and Wheat

Futures

(4,620)

(3)

Bushels

Corn

Futures

136,206

Gallons

Ethanol

Futures

(6,300)

(4)

Gallons

Ethanol

Futures

(1,123)

MmBTU

Natural Gas

Futures

(11,045)

(3)

MmBTU

Natural Gas

Options

765

Bushels

Corn and Soybeans

Options

(55,815)

Gallons

Ethanol

Options

196

MmBTU

Natural Gas

Forwards

33,986

(518)

Bushels

Corn and Soybeans

Forwards

23,970

(478,004)

Gallons

Ethanol

Forwards

126

(730)

Tons

DDG

Forwards

192

(54,313)

Pounds

Corn Oil

Forwards

12,841

(3,095)

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 or non-exchange traded forwards used for fair value hedges.

(4)Futures used for cash flow hedges.


25


Energy trading contracts that do not involve physical delivery are presented net in revenues on the consolidated statements of operations. Included in revenues are net gains on energy trading contracts of $2.1 million and $11.4 million for the three and nine months ended September 30, 2019, respectively and net gains on energy trading contracts of $1.6 million and $12.4 million for the three and nine months ended September 30, 2018, respectively.

9. DEBT

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

September 30,
2019

December 31,
2018

Corporate:

3.25% convertible notes due 2019

$

-

$

53,457

4.125% convertible notes due 2022

147,562

142,708

4.00% convertible notes due 2024

82,191

-

Green Plains Partners:

$200.0 million revolving credit facility (1)

132,000

134,000

$8.1 million promissory note

8,100

8,100

Other

16,602

17,804

Total face value of long-term debt

386,455

356,069

Unamortized debt issuance costs

(5,167)

(3,190)

Less: current maturities of long-term debt

(132,999)

(54,769)

Total long-term debt

$

248,289

$

298,110

(1)The Green Plains Partners revolving credit facility is included in current maturities of long-term debt balance on the consolidated balance sheet as of September 30, 2019 as its maturity date is July 1, 2020.

The components of short-term notes payable and other borrowings are as follows:

September 30,
2019

December 31,
2018

Green Plains Cattle:

$500.0 million revolver (1)

$

-

$

-

Green Plains Trade:

$300.0 million revolver

119,625

108,485

Green Plains Grain:

$100.0 million revolver

20,000

41,000

$50.0 million inventory financing

4,040

-

Green Plains Commodity Management:

$20.0 million hedge line

5,478

14,266

$

149,143

$

163,751

(1)As part of the GPCC disposition during the three months ended September 30, 2019, the December 31, 2018 outstanding balance of the Green Plains Cattle revolver of $374.5 million has been reclassified to current liabilities of discontinued operations. Refer to Note 3 – Acquisitions, Dispositions and Discontinued Operations for further discussion on discontinued operations.

Corporate Activities

On June 21, 2019, the company issued $105.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The company used approximately $57.8 million of the net proceeds to repurchase the $56.8 million outstanding principal amount of its 3.25% convertible senior notes due October 1, 2019 in cash, including accrued and unpaid interest, in privately negotiated transactions concurrently with the offering of the 4.00% notes. On July 19, 2019, the company closed on the issuance of an additional $10.0 million aggregate principal amount of the 4.00% notes (the “Option Notes”) to the initial purchasers. The Option Notes have the same terms as the 4.00% notes issued on June 21, 2019, and were issued under the same Indenture dated as of June 21, 2019. After the issuance of the Option Notes, total aggregate principal of the 4.00% notes outstanding is $115.0 million.

At issuance, the company separately accounted for the liability and equity components of the 3.25% convertible notes by bifurcating the gross proceeds between the indebtedness, or liability component, and the embedded conversion option, or

26


equity component, by estimating an effective interest rate on the date of issuance for similar notes. The embedded conversion option was recorded in stockholders’ equity. Since the company did not exercise the embedded conversion option associated with the notes, pursuant to the guidance within ASC 470, Debt, the company recorded a loss upon extinguishment of $1.6 million, measured by the difference between the fair value and carrying value of the liability portion of the notes. As a result, the company recorded a charge to interest expense in the consolidated financial statements of approximately $1.6 million during the three months ended June 30, 2019. This charge included $0.1 million of unamortized debt issuance costs related to the principal balance extinguished. The remaining settlement consideration transferred was allocated to the reacquisition of the embedded conversion option and recognized as a reduction of additional paid-in capital.

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.

Ethanol Production Segment

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

Agribusiness and Energy Services Segment

Green Plains Trade has a $300.0 million senior secured asset-based revolving credit facility to finance working capital 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

27


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 senior secured asset-based revolving credit facility, which was amended on June 28, 2019, to extend the existing maturity date from July 26, 2019 to June 28, 2022 and lower the maximum commitment from $125.0 million to $100.0 million. 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%.  As of September 30, 2019, Green Plains Grain had no long-term indebtedness.

Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At September 30, 2019, 0.9 million bushels of corn had been designated as collateral under these agreements at initial values totaling $3.8 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, 2019, the short-term notes payable were valued at $4.0 million and were measured using Level 2 inputs.

Green Plains Commodity Management has an uncommitted $20.0 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%.

Food and Ingredients Segment

On August 28, 2019, GPCC entered into an amended and restated $500 million senior secured asset-based revolving credit facility with a group of lenders led by Bank of the West and ING Capital LLC which was conditional upon the closing and formation of the GPCC joint venture which became effective on September 1, 2019. The amended and restated agreement includes revisions to certain covenants including the calculations of tangible net worth, restricted payments and excess cash reserves. The amended and restated agreement also updated the definition of a change in control as Green Plains owning less than 35% of GPCC, which previously had been Green Plains owning less than 100% of GPCC.

The December 31, 2018 outstanding balance of GPCC’s senior secured asset-based revolving credit facility has been reclassified to current liabilities of discontinued operations. Upon the disposition of GPCC, the food and ingredient segment no longer records any forms of debt financing. Refer to Note 3 – Acquisitions, Dispositions and Discontinued Operations for further discussion on the disposition and discontinued operations classification.

Partnership Segment

Green Plains Partners, through a wholly owned subsidiary, has a $200.0 million revolving credit facility to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. The credit facility matures on July 1, 2020, and as a result, was reclassified to current maturities of long-term debt during the three months ended

28


September 30, 2019. Advances under the credit facility are subject to a floating interest rate based on the preceding fiscal quarter’s consolidated leverage ratio at a base rate plus 1.25% to 2.00% or LIBOR plus 2.25% to 3.00%. The credit facility can be increased by an additional $20.0 million without the consent of the lenders. The unused portion of the credit facility is also subject to a commitment fee of 0.35% to 0.50%, depending on the preceding fiscal quarter’s consolidated leverage ratio.

The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the capital stock 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 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. The terms impose affirmative and negative covenants including restricting 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 net leverage ratio of no more than 3.50x and a minimum consolidated interest coverage ratio of no less than 2.75x, 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 minus the lesser of cash in excess of $5.0 million or $30.0 million by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated interest coverage ratio is calculated by dividing the sum of the four preceding fiscal quarters’ consolidated EBITDA by the sum of the four preceding fiscal quarters’ interest charges.

The partnership, through a wholly owned subsidiary, has promissory notes payable of $8.1 million, which is recorded in long-term debt and current maturities of long-term debt, and a note receivable of $8.1 million, which is recorded in other assets, to execute a New Markets Tax Credit transaction related to the Birmingham, Alabama terminal. Beginning in March 2020, the promissory notes and note receivable each require quarterly principal and interest payments of approximately $0.2 million. The partnership retains the right to call the $8.1 million note receivable in June 2020, which would be correspondingly offset by forgiveness of the note payable. The promissory notes payable and note receivable will be fully amortized upon maturity in September 2031. Income tax credits were generated for the lender, which the company has guaranteed over their statutory life of seven years in the event the credits are recaptured or reduced. At the time of the transaction, the income tax credits were valued at $5.0 million. The partnership has not established a liability in connection with the guarantee because it believes the likelihood of recapture or reduction is remote.

Covenant Compliance

The company was in compliance with its debt covenants as of September 30, 2019.

Restricted Net Assets

At September 30, 2019, there were approximately $63.5 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 has an equity incentive plan that reserves 4,110,000 shares of common stock for issuance to its directors and employees. The plan provides for shares, including options to purchase shares of common stock, stock appreciation rights tied to the value of common stock, restricted stock, performance shares, and restricted and deferred stock unit awards, to be granted to eligible employees, non-employee directors and consultants. The company measures stock-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The company records noncash compensation expense related to equity awards in its consolidated financial statements over the requisite period on a straight-line basis.


29


Restricted Stock Awards and Deferred Stock Units

The non-vested stock award and deferred stock unit activity for the nine months ended September 30, 2019, 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, 2018

882,288

$

19.12

Granted

497,118

15.40

Forfeited

(83,811)

17.56

Vested

(444,054)

18.33

Non-Vested at September 30, 2019

851,541

$

17.52

1.7

Performance Shares

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. 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. Fifty 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 fifty 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 482,234 performance shares or 150% of the 321,489 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.

The company used 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 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, 2019, is as follows:

Performance
Shares

Weighted-
Average Grant-
Date Fair Value

Weighted-Average
Remaining
Vesting Term
(in years)

Non-Vested at December 31, 2018

134,022

$

17.92

Granted

216,703

15.43

Forfeited

(29,236)

16.23

Non-Vested at September 30, 2019

321,489

$

16.39

2.1

30


Stock Options

There remains 128,750 exercisable stock options outstanding at September 30, 2019, with a weighted-average exercise price of $12.72. The weighted average exercise price for options exercisable at September 30, 2019 was above the company’s stock price at September 30, 2019. The weighted-average remaining contractual term of exercisable options was 0.2 years at September 30, 2019.

Option awards allow employees to exercise options through cash payment for the shares of common stock or simultaneous broker-assisted transactions in which the employee authorizes the exercise and immediate sale of the shares in the open market. The company uses newly issued shares of common stock to satisfy its stock-based payment obligations.

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, 2019, 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, 2018

18,582

$

16.96

Granted

22,856

14.00

Vested

(18,582)

16.96

Non-Vested at September 30, 2019

22,856

$

14.00

0.8

Stock-Based and Unit-Based Compensation Expense

Compensation costs for stock-based and unit-based payment plans during the three and nine months ended September 30, 2019 were approximately $2.6 million and $7.4 million, respectively, and $3.3 million and $8.7 million during the three and nine months ended September 30, 2018. At September 30, 2019, there was $13.6 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 24.8% 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.


31


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,

2019

2018

2019

2018

Numerator:

Net loss from continuing operations (1)

$

(42,363)

$

(12,936)

$

(128,077)

$

(49,415)

Net income from discontinued operations

3,393

467

966

11,835

Net loss attributable to Green Plains

$

(38,970)

$

(12,469)

$

(127,111)

$

(37,580)

Denominator:

Weighted-average shares outstanding - basic

36,913

40,229

39,092

40,189

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

-

-

-

-

Weighted-average shares outstanding - diluted

36,913

40,229

39,092

40,189

EPS - basic and diluted: (3)

EPS from continuing operations

$

(1.15)

$

(0.32)

$

(3.28)

$

(1.23)

EPS from discontinued operations

0.09

0.01

0.03

0.29

EPS

$

(1.06)

$

(0.31)

$

(3.25)

$

(0.94)

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

13,983

10,348

9,397

10,154

(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. 

(3)GAAP requires the denominator used in the diluted net EPS calculation for discontinued operations to be the same as that of continuing operations, regardless of net earnings (loss) from continuing operations. 

   


32


12. STOCKHOLDERS’ EQUITY

Components of stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 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, 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)

-

(25,160)

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

-

-

-

-

(10,771)

-

-

(10,771)

-

(10,771)

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

-

-

2,231 

-

-

-

-

2,231 

-

2,231 

Repurchase of common stock

-

-

-

-

-

1,663 

(16,014)

(16,014)

(16,014)

Stock-based compensation

(4)

-

2,509 

-

-

-

-

2,509 

81 

2,590 

Balance, September 30, 2019

46,915 

$

47 

$

730,808 

$

187,899 

$

(11,754)

10,396 

$

(114,046)

$

792,954 

$

113,508 

$

906,462 


33


Accum.

Total

Additional

Other

Green Plains

Non-

Total

Common Stock

Paid-in

Retained

Comp.

Treasury Stock

Stockholders'

Controlling

Stockholders'

Shares

Amount

Capital

Earnings

Income

Shares

Amount

Equity

Interests

Equity

Balance, December 31, 2017

46,410 

$

46 

$

685,019 

$

325,411 

$

(13,110)

5,326 

$

(55,184)

$

942,182 

$

116,954 

$

1,059,136 

Reclassification of certain
tax effects from other
comprehensive loss(2)

-

-

-

2,787 

(2,787)

-

-

-

-

-

Balance, January 1, 2018

46,410 

46 

685,019 

328,198 

(15,897)

5,326 

(55,184)

942,182 

116,954 

1,059,136 

Net income (loss)

-

-

-

(24,117)

-

-

-

(24,117)

4,662 

(19,455)

Cash dividends and
distributions declared

-

-

-

(4,831)

-

-

-

(4,831)

(5,420)

(10,251)

Other comprehensive income
before reclassification

-

-

-

-

17,150 

-

-

17,150 

-

17,150 

Amounts reclassified from
accumulated other
comprehensive income

-

-

-

-

(603)

-

-

(603)

-

(603)

Other comprehensive income
net of tax

-

-

-

-

16,547 

-

-

16,547 

-

16,547 

Stock-based compensation

284 

1 

(512)

-

-

-

-

(511)

60 

(451)

Stock options exercised

5 

-

50 

-

-

-

-

50 

-

50 

Balance, March 31, 2018

46,699 

47 

684,557 

299,250 

650 

5,326 

(55,184)

929,320 

116,256 

1,045,576 

Net income (loss)

-

-

-

(994)

-

-

-

(994)

4,745 

3,751 

Cash dividends and
distributions declared

-

-

-

(4,851)

-

-

-

(4,851)

(5,478)

(10,329)

Other comprehensive income
before reclassification

-

-

-

-

(4,277)

-

-

(4,277)

-

(4,277)

Amounts reclassified from
accumulated other
comprehensive income

-

-

-

-

(581)

-

-

(581)

-

(581)

Other comprehensive income
net of tax

-

-

-

-

(4,858)

-

-

(4,858)

-

(4,858)

Exchange of 3.25% convertible
notes due 2018

-

-

-

-

-

-

1 

1 

-

1 

Stock-based compensation

52 

-

2,812 

-

-

-

-

2,812 

60 

2,872 

Stock options exercised

10 

-

100 

-

-

-

-

100 

-

100 

Balance, June 30, 2018

46,761 

47 

687,469 

293,405 

(4,208)

5,326 

(55,183)

921,530 

115,583 

1,037,113 

Net income (loss)

-

-

-

(12,469)

-

-

-

(12,469)

5,050 

(7,419)

Cash dividends and
distributions declared

-

-

-

(4,854)

-

-

-

(4,854)

(5,487)

(10,341)

Other comprehensive income
before reclassification

-

-

-

-

(14,395)

-

-

(14,395)

-

(14,395)

Amounts reclassified from
accumulated other
comprehensive income

-

-

-

-

1,427 

-

-

1,427 

-

1,427 

Other comprehensive income
net of tax

-

-

-

-

(12,968)

-

-

(12,968)

-

(12,968)

Modification of 3.25% convertible
notes due 2019

-

-

4,660 

-

-

-

-

4,660 

4,660 

Exchange of 3.25% convertible
notes due 2018

-

-

-

-

-

-

-

-

-

-

Stock-based compensation

(15)

-

3,014 

-

-

-

-

3,014 

76 

3,090 

Stock options exercised

-

-

-

-

-

-

-

-

-

-

Balance, September 30, 2018

46,746 

$

47 

$

695,143 

$

276,082 

$

(17,176)

5,326 

$

(55,183)

$

898,913 

$

115,222 

$

1,014,135 

(1)During the three months ended March 31, 2019, the company received $6.7 million from a shareholder of the company for disgorgement of shareholder short-swing profits under Section 16(b) under the Exchange Act. The amount was recorded as an increase to additional paid-in capital, net of tax.

(2)Effective January 1, 2018, the company early adopted the amended guidance in ASC 220, Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendment eliminates the stranded tax effects resulting from the Tax Cuts and Jobs Act and is intended to improve the usefulness of information reported. As a result, the company recorded a $2.8 million reclassification from accumulated other comprehensive income to retained earnings during the first quarter of 2018.


34


Amounts reclassified from accumulated other comprehensive income are as follows (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

Statements of
Operations

2019

2018

2019

2018

Classification

Gains (losses) on cash flow hedges:

Commodity derivatives

$

-

$

4,766

$

-

$

3,648

(1)

Commodity derivatives

-

1,331

-

1,258

(2)

Total gains on cash flow hedges from continuing operations

-

6,097

-

4,906

(3)

Gains (losses) on cash flow hedges from discontinued operations, net of income taxes

53,255

(6,109)

39,439

(4,247)

(4)

Income tax expense

-

1,415

-

902

(5)

Amounts reclassified from accumulated other comprehensive income (loss)

$

53,255

$

(1,427)

$

39,439

$

(243)

(1)Revenues

(2)Costs of goods sold

(3)Loss from continuing operations before income taxes and income (loss) from equity method investees

(4)Net income from discontinued operations, net of income taxes

(5)Income tax benefit

    

13. INCOME TAXES

The company records actual income tax expense or benefit during interim periods rather than on an annual effective tax rate method. Certain items are given discrete period treatment and the tax effect of those items are reported in full in the relevant interim period. Green Plains Partners is a limited partnership, which is treated as a flow-through entity for federal income tax purposes and is not subject to federal income taxes. As a result, the consolidated financial statements do not reflect income taxes on pre-tax income or loss attributable to the noncontrolling interest in the partnership.

The company recorded income tax benefit of $12.5 million and $40.7 million for the three and nine months ended September 30, 2019, compared with $15.0 million and $34.5 million for the same periods in 2018. The amount of unrecognized tax benefits for uncertain tax positions was $51.6 million as of September 30, 2019 and December 31, 2018.

The 2019 effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the company’s assessment of its liability for uncertain tax positions.

14. COMMITMENTS AND CONTINGENCIES

Adoption of ASC 842

On January 1, 2019, the company adopted the amended guidance in ASC 842, Leases, and all related amendments (“new lease standard”) and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The standard does not require the guidance to be applied to the earliest comparative period presented in the financial statements. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The new lease standard had a material impact on the company’s consolidated balance sheets, increasing total assets and total liabilities by $60.9 million upon adoption. It did not have an impact on the consolidated statement of operations for the nine months ended September 30, 2019.


35


The impact on the consolidated balance sheet as of December 31, 2018 for the adoption of the new lease standard was as follows (in thousands):

Balance at

Adjustments

Balance at

December 31,

Due to

January 1,

2018

ASC 842

2019

(audited)

Assets

Operating lease right-of-use assets

$

-

$

61,268

$

61,268

Other assets

365

(365)

-

Liabilities

Accounts payable

196

(196)

-

Operating lease current liabilities

-

18,315

18,315

Operating lease long-term liabilities

-

46,024

46,024

Other liabilities

3,240

(3,240)

-

The company’s leases do not specify an implicit interest rate. Therefore, the incremental borrowing rate was used based on information available at commencement date to determine the present value of future payments.

Practical Expedients

Under the new lease standard, companies may elect various practical expedients upon adoption. The company elected the package of practical expedients related to transition, which states that an entity need not reassess initial direct costs for existing leases, the lease classification for any expired or existing leases, and whether any expired or existing contracts are or contain leases.

The company elected to utilize a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For railcar leases, the company elected to combine the railcars within each rider and account for each rider as an individual lease.

The company also elected the practical expedient for lessees to include both the lease and non-lease components as a single component and account for them as a lease. Certain of the company’s railcar agreements provide for maintenance costs to be the responsibility of the company as incurred or charged by the lessor. This maintenance cost is a non-lease component that the company elected to combine with the monthly rental payment and account for the total cost as operating lease expense. In addition, the company has a land lease that contains a non-lease component for the handling and unloading services the landlord provides. The company elected to combine the cost of services with the land lease cost and account for the total as operating lease expense.

A lessee may elect not to apply the recognition requirements in the new lease standard for short-term leases. Instead, the lease payments may be recognized into profit or loss on a straight-line basis over the lease term. The company has elected to use this short-term lease exemption, and therefore will not record a lease liability or right-of-use asset for leases with a term of one year or less. The company did not incur any short-term lease expense for the three and nine months ended September 30, 2019.

Lease Expense

The company leases certain facilities, parcels of land, and equipment, with remaining terms ranging from less than one year to 18.2 years. The land and facility leases include renewal options. The renewal options are included in the lease term only for those sites or locations in which they are reasonably certain to be renewed. Equipment renewals are not considered reasonably certain to be exercised as they typically renew with significantly different underlying terms.

The company may sublease certain of its railcars to third parties on a short-term basis. The subleases are classified as operating leases, with the associated sublease income being recognized on a straight-line basis over the lease term.


36


The components of lease expense are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2019

September 30, 2019

Lease expense

Operating lease expense

$

4,944

$

15,899

Variable lease expense (1)

250

643

Total lease expense

$

5,194

$

16,542

(1)Represents amounts incurred in excess of the minimum payments required for the handling and unloading of railcars for a certain land lease, offset by railcar lease abatements provided by the lessor when railcars are out of service during periods of maintenance or upgrade.

Supplemental cash flow information related to operating leases is as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2019

September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

4,977

$

15,913

Right-of-use assets obtained in exchange for lease obligations:

4,427

10,634

Operating leases

Right-of-use assets and lease obligations derecognized due to lease modifications:

Operating leases

1,405

1,405

Supplemental balance sheet information related to operating leases is as follows:

September 30,

2019

Weighted average remaining lease term

6.7 years

Weighted average discount rate

5.44%

Aggregate minimum lease payments under the operating lease agreements for the remainder of 2019 and in future years are as follows (in thousands):

Year Ending December 31,

Amount

2019

$

5,272

2020

18,822

2021

10,885

2022

8,924

2023

5,707

Thereafter

21,864

Total

71,474

Less: Present value discount

(12,378)

Lease liabilities

$

59,096

Aggregate minimum lease payments remaining under the operating lease agreements under ASC 840, Leases as of December 31, 2018 are as follows (in thousands):

Year Ending December 31,

Amount

2019

$

23,552

2020

17,473

2021

9,812

2022

7,325

2023

3,594

Thereafter

28,542

Total

$

90,298

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Lease Revenue

As described in Note 2 – Revenue, the majority of the partnership’s segment revenue is generated though their storage and throughput services and rail transportation services agreements with Green Plains Trade and are accounted for as lease revenue. Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, and are accounted for under ASC 842, Leases. Lease revenue associated with agreements with Green Plains Trade are eliminated upon consolidation. The remaining lease revenue is not material to the company.

Refer to Note 2 – Revenue for further discussion on lease revenue.

Commodities

As of September 30, 2019, the company had contracted future purchases of grain, corn oil, natural gas, crude oil, ethanol and distillers grains, valued at approximately $271.7 million.

Legal

The company is currently involved in litigation that has arisen during the ordinary course of business, but does not believe any pending litigation will have a material adverse effect on its financial position, results of operations or cash flows.

15. RELATED PARTY TRANSACTIONS

Green Plains Cattle Company LLC

The company engages in certain related party transactions with GPCC. The company provides a variety of shared services to GPCC, including general management, accounting and finance, payroll and human resources, information technology, legal, communications and treasury activities. The company reduced selling, general and administrative expenses by $0.1 million related to shared services provided for the three and nine months ended September 30, 2019. The company had $0.5 million outstanding receivables related to the shared service agreement and expenses paid on behalf of GPCC as of September 30, 2019.

Green Plains Trade Group, a subsidiary of the company, enters into certain sale contracts with GPCC during the normal course of business. Revenues subsequent to the disposition of GPCC were $0.7 million for both the three and nine months ended September 30, 2019. 

Aircraft Leases

Effective January 1, 2015, the company entered into two agreements with an entity controlled by Wayne Hoovestol for the lease of two aircrafts. Mr. Hoovestol is chairman of the company’s board of directors. The company agreed to pay $9,766 per month for the combined use of up to 125 hours per year of the aircrafts. Flight time in excess of 125 hours per year will incur additional hourly charges. Payments related to these leases totaled $37 thousand and $106 thousand during the three and nine months ended September 30, 2019, and $39 thousand and $126 thousand during the three and nine months ended September 30, 2018, respectively. The company had no outstanding payables related to these agreements as of September 30, 2019 and December 31, 2018.

16. EQUITY METHOD INVESTMENTS

Green Plains Cattle Company LLC

On September 9, 2019, Green Plains, TGAM and StepStone announced the formation of a joint venture. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement of GPCC effective as of September 1, 2019. 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. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. GPCC results prior to its disposition are classified as discontinued operations in our current and prior period financials.

The GPCC investment is accounted for using the equity method of accounting. GPCC conducts the business of the joint venture, including (i) owning and operating the cattle feeding operations (as defined below), and (ii) any other activities approved by GPCC’s board of managers. GPCC continues to have the capacity to support 355,000 head of cattle and has

38


approximately 11.7 million bushels of grain storage capacity. Historical GPCC operational results prior to its disposition are recorded as discontinued operations in the consolidated balance sheet and statements of operations.

The company does not consolidate any part of the assets or liabilities or operating results of its equity method investee. The company’s share of net income or loss in the investee increases or decreases, as applicable, the carrying value of the investment. With respect to GPCC, the company determined that this entity does not represent a variable interest entity and consolidation is not required. In addition, although the company has the ability to exercise significant influence over the joint venture through board representation and voting rights, all significant decisions require the consent of the other investors without regard to economic interest.

Summarized Financial Information

During the periods ended September 30, 2019 and December 31, 2018, our equity method investees were considered related parties and included:

Green Plains Cattle Company LLC, a joint venture formed on September 1, 2019, in which we have a 50% noncontrolling interest. See description of GPCC above.

JGP Energy Partners LLC, in which we have a 50% noncontrolling interest. JGP Energy Partners LLC operates an intermodal export and import fuels terminal in Beaumont, Texas, with storage capacity of 550 thousand barrels to support various export and domestic grades of ethanol.

Optimal Aqua LLC, in which we have a 50% noncontrolling interest. Optimal Aqua LLC produces high-quality aquaculture feeds utilizing proprietary techniques and high-protein feed ingredients.

NLR Energy Logistics LLC, in which the partnership has a 50% noncontrolling interest. NLR Energy Logistics LLC operates a unit train terminal in the Little Rock, Arkansas area with capacity to unload 110-unit cars and provide approximately 100,000 barrels of storage.

Our equity method investments are summarized in the following table (in thousands):

Ownership as of September 30, 2019

September 30, 2019

December 31, 2018

Green Plains Cattle Company LLC

50%

$

63,066

$

-

JGP Energy Partners LLC

50%

25,145

25,362

Optimal Aqua LLC

50%

640

704

NLR Energy Logistics LLC

50%

4,178

3,648

Total

$

93,029

$

29,714

Earnings from equity method investments were as follows:

Three Months Ended September 30,

Nine Months Ended September 30

2019

2018

2019

2018

Green Plains Cattle Company LLC

$

504

$

-

$

504

$

-

NLR Energy Logistics LLC

173

48

530

(82)

All others

(33)

(298)

(500)

(407)

Total income (loss) from equity method investments

$

644

$

(250)

$

534

$

(489)

Distributions from equity method investments

$

-

$

-

$

-

$

-

Earnings from equity method investments, net of distributions

$

644

$

(250)

$

534

$

(489)

The company reports its proportional share of equity method investment income (loss) in the consolidated statements of operations. The company’s share of equity method investees other comprehensive income arising during the period is included in accumulated other comprehensive loss in the accompanying balance sheet.


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The following tables present summarized financial information of GPCC.

One Month Ended September 30,

2019

Total revenues

$

86,932

Total operating expenses

85,925

Net income

$

1,007

September 30, 2019

Balance sheet:

Current assets

$

452,604

Noncurrent assets

75,046

Current liabilities

401,034

Noncurrent liabilities

484

Net assets

$

126,132


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion and analysis provides information we believe is relevant to understand our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this report together with our annual report on Form 10-K for the year ended December 31, 2018.

Cautionary Information Regarding Forward-Looking Statements

Forward-looking statements are made in accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that involve a number of risks and uncertainties and do not relate strictly to historical or current facts, but rather to plans and objectives for future operations. These statements may be identified by words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “outlook,” “plan,” “predict,” “may,” “could,” “should,” “will” and similar expressions, as well as statements regarding future operating or financial performance or guidance, business strategy, environment, key trends and benefits of actual or planned acquisitions.

Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A – Risk Factors of our annual report on Form 10-K for the year ended December 31, 2018, or incorporated by reference. Specifically, we may experience fluctuations in future operating results due to a number of economic conditions, including: competition in the ethanol industry and other industries in which we operate; commodity market risks, including those that may result from weather conditions; financial market risks; counterparty risks; risks associated with changes to government policy or regulation, including changes to tax laws; risks related to acquisition and disposition activities and achieving anticipated results; risks associated with merchant trading, cattle feeding operations; risks related to our equity method investees and other factors detailed in reports filed with the SEC. Additional risks related to Green Plains Partners LP include compliance with commercial contractual obligations, potential tax consequences related to our investment in the partnership and risks disclosed in the partnership’s SEC filings associated with the operation of the partnership as a separate, publicly traded entity.

We believe our expectations regarding future events are based on reasonable assumptions; however, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated and do not intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report or documents incorporated by reference.

Overview

Green Plains is a diversified commodity-processing business with operations that include corn processing, grain handling and storage and commodity marketing and logistics services. The company is one of the leading corn processors in the world and, through its adjacent businesses, is focused on the production of high-protein feed ingredients and export growth opportunities. We are also focused on generating stable operating margins through our risk management strategy. Green Plains Partners LP is our primary downstream logistics provider, storing and delivering the ethanol we produce. We own a 49.1% limited partner interest, a 2.0% general partner interest and all of the partnership’s incentive distribution rights. The public owns the remaining 48.9% limited partner interest. The partnership is consolidated in our financial statements. In addition, Green Plains owns a 50% interest in Green Plains Cattle Company LLC.

We are currently undergoing a number of project initiatives to improve margins. Through our Project 24 initiative, we anticipate reductions in operating expense per gallon across our non-ICM plants as a result of these investments. In addition, through our high-protein initiative, we expect to achieve increased margins per gallon as a result of the ability to produce various high protein animal feed products. The first installation is expected to be completed at our Shenandoah plant towards the end of 2019, with dried product available for distribution during the first quarter of 2020. The remaining locations will be completed over the course of the next three to four years.


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Recent Developments

Disposition of Green Plains Cattle Company LLC

On September 9, 2019, the company, TGAM Agribusiness Fund Holdings-B LP (“TGAM”) and StepStone Atlantic Fund, L.P. (“StepStone”) announced the formation of a joint venture. Such parties entered into the Second Amended and Restated Limited Liability Company Agreement of Green Plains Cattle Company LLC (“GPCC”) on September 6, 2019, effective as of September 1, 2019. GPCC was previously a wholly owned subsidiary of Green Plains. The company 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 the company. After closing, GPCC is no longer included in the consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. Under this method, an investment is recorded at the acquisition cost plus the company’s share of equity in undistributed earnings or losses since acquisition and the company’s share of equity method investees other comprehensive income arising during the period, reduced by distributions received and the amortization of excess net investment. The company recognizes this investment on a separate line item in the consolidated balance sheet and recognizes its proportionate share of earnings on a separate line item in the consolidated statement of operations. The company does not consolidate any part of the assets or liabilities or operating results of its equity method investees. 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”). As such, GPCC results prior to its disposition are classified as discontinued operations in our current and prior period consolidated financial statements. See Note 3 - Acquisitions, Dispositions and Discontinued Operations for further details.

Under the LLC Agreement, the company 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 the company 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. The company’s allocation under the LLC Agreement will be subject to certain adjustments.

Disposition of JGP Energy Partners

On October 28, 2019, the company signed a definitive agreement to sell its 50% joint venture interest in Jefferson Energy Companies fuels terminal to its partner Jefferson Energy Holdings LLC, a subsidiary of Fortress Transportation and Infrastructure Investors LLC for $29 million, plus the company’s proportional share of working capital. The transaction is expected to close on or before December 15, 2019.

Increase of Share Repurchase Authorization

On October 30, 2019, the company’s board of directors authorized an additional $100 million share repurchase taking the previously authorized amount from $100 million to $200 million.

Results of Operations

During the third quarter of 2019, we continued to experience a weak ethanol margin environment. Our operating strategy, including the operating cost savings initiative, is to increase utilization rates and efficiency while reducing operating expenses to achieve improved margins in the current environment. As a result, capacity utilization increased from an average of 80.0% of capacity in the second quarter to 84.2% of capacity in the third quarter. Ethanol production was 238.5 mmg for the third quarter of 2019, compared with 304.8 mmg for the same quarter last year. We expect to continue to run at higher average utilization rates to achieve the cost savings anticipated. Additionally, overall performance at our ethanol plants was negatively impacted by severe weather and associated flooding in areas where we transport products during the first half of 2019. The weather also drove corn prices up, negatively impacting margins.

U.S. Ethanol Supply and Demand

According to the EIA, domestic ethanol production averaged 1.02 million barrels per day during the third quarter of 2019, which was 4% lower than the 1.06 million barrels for the third quarter of last year. Refiner and blender input volume increased 1% to 941 thousand barrels per day for the third quarter of 2019, compared with 932 thousand barrels per day for the same quarter last year. Gasoline demand for the third quarter of 2019 increased slightly by 7 thousand barrels per day, or

42


0.1% compared to the same quarter last year. U.S. domestic ethanol ending stocks decreased by approximately 0.2 million barrels, or 1%, to 23.2 million barrels for the third quarter of 2019. At the end of May 2019, the EPA finalized regulatory changes to apply the 1 pound per square inch Reid Vapor Pressure (RVP) waiver that currently applies to E10 during the summer months so that it applies to E15 as well. This removes a significant barrier to wider sales of E15 in the summer months, thus expanding the market for ethanol in transportation fuel. As of September 30, 2019, there were approximately 1,970 retail stations selling E15 in 30 states, up from 1,700 at the beginning of the year, according to Growth Energy.

Global Ethanol Supply and Demand

According to the USDA Foreign Agriculture Service, domestic ethanol exports through August 31, 2019 were approximately 1.00 bg, down 13% from 1.15 bg for the same period of 2018. Brazil remained the largest export destination for U.S. ethanol, which accounted for 25% of domestic ethanol export volume despite the 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter, imposed in September 2017 by Brazil’s Chamber of Foreign Trade, or CAMEX. In a resolution published August 31, 2019, Brazil raised the annual import quota to 750 million liters, or 198 million gallons per year from the expiring 600 million-liter limit. The final resolution awaits approval of the Brazilian government. In addition, Canada, India, South Korea, and the Philippines accounted for 21%, 13%, 6%, and 5%, respectively, of U.S. ethanol exports.

On April 1, 2018, China announced it would add an additional 15% tariff to the existing 30% tariff it had earlier imposed on ethanol imports from the United States and Brazil. China later raised the tariff further to 70% as the trade war escalated. There continues to be negotiations between the U.S. and China with no certainty of when a trade agreement may be reached.

The cost to produce the equivalent amount of starch found in sugar from $3.50-per-bushel corn is 7 cents per pound. The average price of sugar remained at approximately 13 cents per pound during the third quarter of 2019. We currently estimate that net ethanol exports will reach between 1.4 billion gallons and 1.5 billion gallons in 2019 based on historical demand from a variety of countries and certain countries who seek to improve their air quality and eliminate MTBE from their own fuel supplies.

Co-Product Supply and Demand

During the third quarter of 2019, the market sentiment for cattle feeding came under pressure as beef packing capacity contracted due to the loss of a Kansas packing plant after a fire in August. However, as other packing plants increased hours of operations, the effects from the loss of the Kansas plant have been reduced. Feeder supplies have remained robust following a brief slowdown when cattle prices weakened following the plant fire, and it looks like feeder supplies for the fourth quarter will be sufficient. Domestic beef consumption per capita in 2019 is projected to be steady with 2018 at 57.2 pounds, but that number is expected to increase in 2020 to 57.7 pounds according to the USDA. Export demand for beef is forecasted to decrease approximately 1.1% in 2019 compared with 2018 according to the USDA. Total fed cattle marketings through the end of August 2019 increased 1.5% compared with the first eight months of 2018.

Cow-calf operations continue to be profitable, which has supported a period of expansion. Excellent pasture conditions after a wet winter and spring will help the profitability of stocker operations. As of September 1, 2019, cattle on feed numbers decreased 1.3% to 10.98 million head compared to the same period last year.

The U.S. looks poised to grow its global market share for animal protein while Australia continues to struggle with drought conditions, and African Swine Fever (“ASF”) issues in China should result in larger world export demand for animal protein from the U.S.

Year-to-date U.S. distillers grains exports through August 31, 2019, were 7.3 million metric tons, or 8.6% lower than the same period last year, according to the USDA Foreign Agriculture Service. Mexico, South Korea, Vietnam, Indonesia, Canada, and Turkey, accounted for approximately 62% of total U.S. distillers export volumes.

While ASF may have a positive impact on animal protein demand from the U.S., it may have a negative impact on distillers grains exports and domestic usage. ASF may depress soybean meal demand in China which could make the animal feed more price competitive to distillers grains and allow for substitution of high-protein soybean meal worldwide.

Legislation and Regulation

We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. Various bills have been discussed in the House

43


and Senate which would eliminate the RFS entirely, eliminate the corn based ethanol portion of the mandate, or make it more difficult to sell fuel blends with higher levels of ethanol. However, we believe it is unlikely that any of these bills would become law in a divided Congress. In addition, the manner in which the EPA administers the RFS can have a significant impact on the actual amount of ethanol blended into the domestic fuel supply.

Federal mandates supporting the use of renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by concerns for the environment, diversifying our fuel supply, and reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehicles and higher ethanol blends of ethanol in non-flex-fuel vehicles may be necessary before ethanol can achieve further growth in U.S. market share. Congress first enacted Corporate Average Fuel Economy (CAFE) in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks. It provides a 54% efficiency bonus to flexible-fuel vehicles, which can operate on ethanol blends up to E85.

Another important factor is a waiver in the Clean Air Act, known as the One-Pound Waiver, which allows E10 to be sold year-round, even though it exceeds the Reid Vapor Pressure limitation of nine pounds per square inch. At the end of May 2019, the EPA finalized a rule which extended the One-Pound Waiver to E15 expanding it beyond flex-fuel vehicles during the June 1 to September 15 summer driving season. This rule is being challenged in an action filed in Federal District Court for the DC Circuit. However, the One-Pound Waiver is in effect, and for the first time ever E15 was legally sold to all vehicles model year 2001 and newer during the 2019 summer driving season.

When the RFS II was passed in 2007 and rulemaking finalized in October 2010, the required volume of conventional renewable fuel to be blended with gasoline was to increase each year until it reached 15.0 billion gallons in 2015. In November 2018, the EPA announced it would maintain the 15.0 billion gallon mandate for conventional ethanol in 2019. On July 5, 2019, the EPA released their annual proposal for RFS volumes, which included 15.0 billion gallons for conventional renewable fuel in 2020. On October 15, 2019, the EPA issued a supplemental proposal for RFS volumes, seeking additional comment on projecting the volume of fuels to be exempted by small refinery exemptions and including those volumes in the annual calculation. These proposals are expected to be finalized by the end of the year.

The EPA has the authority to waive the mandates in whole or in part if there is inadequate domestic renewable fuel supply or the requirement severely harms the economy or environment. According to the RFS II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through 2022. While conventional ethanol maintained 15 billion gallons, 2019 was the second year that the total proposed RVOs were more than 20% below statutory volumes levels. Thus, the EPA Administrator has directed his staff to initiate a reset rulemaking, wherein the EPA will modify statutory volumes through 2022, based on the same factors used to set the RVOs post-2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development.

The EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. Obligated parties use RINs to show compliance with RFS-mandated volumes. Ethanol producers assign RINs to renewable fuels and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties.

The EPA can, in consultation with the Department of Energy, waive the obligation for individual refineries that are suffering “disproportionate economic hardship” due to compliance with the RFS. To qualify, the refineries must have total throughput of under 75,000 barrels per day and state their case for an exemption in an application to the EPA for each compliance year.

The EPA waived the obligation for 19 of 20 applicants for compliance year 2016, totaling 790 million gallons of renewable fuels. They also waived the obligation for 35 of 37 applicants for compliance year 2017, totaling 1.82 billion gallons of renewable fuels. They waived the obligation for 31 of 42 applicants for compliance year 2018, totaling 1.43 billion gallons of renewable fuels. These waivers effectively reduced the annual RVO by that amount, since the EPA has not accounted for the lost gallons by allocating them to other obligated parties.

The resulting surplus of RINs in the market brought values down significantly to under $0.20. Since higher RIN values help to make higher blends of ethanol more cost competitive at the pump, lower RIN values could hinder or at least slow retailer and consumer adoption of E15 and other higher blends of ethanol. It is reasonable to assume there will be 30-40 waiver applications submitted for compliance year 2019, which, if handled as in years past, could represent approximately 1.5 to 2 billion gallons of renewable fuels.

44


Biofuels groups and biofuels opposition groups each have filed lawsuits related to RFS II. In addition to the E15 litigation discussed previously, biofuels groups have filed in the U.S. Federal District Court for the D.C. Circuit, challenging the 2019 RVO rule over the EPA’s failure to address small refinery exemptions in the rulemaking. Biofuel opposition groups have filed also in the DC Circuit, with such action consolidated with similar cases, to review the EPA’s 2018 RVO rulemaking. Biofuel groups have filed an action in the DC Circuit to compel the EPA to produce information under the Freedom of Information Act related to small refinery exemptions. Certain biofuel groups have further filed suit in the Tenth Circuit Court of Appeals challenging small refinery exemptions. Numerous other suits on related RFS II matters are also pending, namely involving RVOs and small refinery exemptions.

On October 4, 2019 the White House announced that they would start accounting for gallons lost to refinery exemptions in annual RVO rulemakings, beginning with a supplemental rule to the 2020 RVO which is due to be finalized before the end of 2019. They propose to add into the formula for the RVO a rolling average of the past three years’ waived gallons, so when additional waivers are granted, the total volume of renewable fuels required remains largely intact. This directive will also eliminate barriers to adoption of E15 and higher blends, including labeling changes and allowing E15 to be sold through E10 infrastructure.

In 2017, the D.C. Circuit ruled in favor of biofuel groups against the EPA related to its decision to lower the 2016 volume requirements by 500 million gallons. As a result, the Court remanded to the EPA to make up for the 500 million gallons. Despite this, in the proposed 2020 RVO rulemaking released in July 2019, the EPA stated it does not intend to make up the 500 million gallons as the court directed, citing potential burden on obligated parties. It is anticipated that additional litigation will ensue from this matter.

Government actions abroad can significantly impact the demand for U.S. ethanol. In September 2017, China’s National Development and Reform Commission, the National Energy Board and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. China, the number three importer of U.S. ethanol in 2016, imported negligible volumes during fiscal year 2018 due to a 30% tariff on U.S. ethanol, which increased to 70% in early 2018. There is no assurance that China’s joint plan will lead to increased imports of U.S. ethanol in the near term. Our exports also face tariffs, rate quotas, countervailing duties, and other hurdles in Brazil, the European Union, India, Peru, and elsewhere, which limits our ability to compete in some markets.

In Brazil, the Secretary of Foreign Trade issued an official written resolution, imposing a 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter in September 2017. The initial ruling was valid for two years; however, it was extended at the end of August 2019 for an additional year. On an annual basis, Brazil will now allow into the country 750 million duty free liters distributed on a quarterly basis as follows: September to November 100 million liters, December to February 100 million liters, March to May 275 million liters and June to August 275 million liters.

In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which was challenged by ten lawsuits, of which five cases were dismissed. The five remaining cases follow one of two tracks: 1) to determine the constitutionality of the CRE regulation, or 2) to determine the benefits, or lack thereof, of introducing E10 to Mexico. An injunction was granted in October 2017, preventing the blending and selling of E10, but was overturned by a higher court in June 2018 making it legal to blend and sell E10 by PEMEX throughout Mexico except for its three largest metropolitan areas. U.S. ethanol exports to Mexico totaled 29.4 mmg in 2018.

Comparability of our Financial Results

We report the financial and operating performance for the following four operating segments: (1) ethanol production, which includes the production of ethanol, distillers grains and corn oil, (2) agribusiness and energy services, which includes grain handling and storage, commodity marketing and merchant trading for company-produced and third-party ethanol, distillers grains, corn oil, natural gas and other commodities, (3) food and ingredients, which includes food-grade corn oil and vinegar production until the sale of Fleischmann’s Vinegar during the fourth quarter of 2018 and (4) partnership, which includes fuel storage and transportation services.

The three and nine months ended September 30, 2019 do not include operations of the Bluffton, Lakota, Hopewell and Riga ethanol plants which were either permanently closed or sold during the fourth quarter of 2018. Additionally, the three and nine months ended September 30, 2019 do not include Fleischmann’s Vinegar operations, which was also sold in the fourth quarter of 2018.

45


Additionally, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. The company concluded that the disposition of GPCC met the requirements under ASC 205-20. Therefore, GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Furthermore, in accordance with ASC 205-20, the related assets and liabilities of GPCC have been presented as discontinued operations in the December 31, 2018 consolidated balance sheet.

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

Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment. When we evaluate segment performance, we review the following segment information as well as earnings before interest, income taxes, depreciation and amortization, excluding amortization of operating lease right-of-use assets and amortization of debt issuance costs, or EBITDA.

As of September 30, 2019, we, together with our subsidiaries, own a 49.1% limited partner interest and a 2.0% general partner interest in the partnership and own all of the partnership’s incentive distribution rights, with the remaining 48.9% limited partner interest owned by public common unitholders. We consolidate the financial results of the partnership, and record a noncontrolling interest for the economic interest in the partnership held by the public common unitholders.

Segment Results

The selected operating segment financial information are as follows (in thousands):

Three Months Ended
September 30,

%

Nine Months Ended
September 30,

%

2019 (1)

2018 (1)

Variance

2019 (1)

2018 (1)

Variance

Revenues:

Ethanol production:

Revenues from external customers

$

484,382

$

576,475

(16.0%)

$

1,206,107

$

1,735,546

(30.5%)

Intersegment revenues

24

37

(35.1)

75

157

(52.2)

Total segment revenues

484,406

576,512

(16.0)

1,206,182

1,735,703

(30.5)

Agribusiness and energy services:

Revenues from external customers

146,650

177,832

(17.5)

488,687

558,054

(12.4)

Intersegment revenues

7,293

9,150

(20.3)

19,432

26,346

(26.2)

Total segment revenues

153,943

186,982

(17.7)

508,119

584,400

(13.1)

Food and ingredients:

Revenues from external customers

-

33,443

(100.0)

1,451

102,277

(98.6)

Intersegment revenues

-

-

-

-

-

-

Total segment revenues

-

33,443

(100.0)

1,451

102,277

(98.6)

Partnership:

Revenues from external customers

1,318

1,298

1.5

5,315

4,546

16.9

Intersegment revenues

18,836

24,472

(23.0)

56,751

72,949

(22.2)

Total segment revenues

20,154

25,770

(21.8)

62,066

77,495

(19.9)

Revenues including intersegment activity

658,503

822,707

(20.0)

1,777,818

2,499,875

(28.9)

Intersegment eliminations

(26,153)

(33,659)

(22.3)

(76,258)

(99,452)

(23.3)

Revenues as reported

$

632,350

$

789,048

(19.9%)

$

1,701,560

$

2,400,423

(29.1%)

(1)Revenues include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These revenue transactions are now presented gross in product revenues. These revenue transactions total $5.5 million and $14.5 million for the three and nine months ended September 30, 2019, respectively, and $6.7 million and $21.1 million for the three and nine months ended September 30, 2018, respectively.

46


Three Months Ended
September 30,

%

Nine Months Ended
September 30,

%

2019 (1)

2018 (1)

Variance

2019 (1)

2018 (1)

Variance

Cost of goods sold:

Ethanol production

$

512,527

$

560,719

(8.6%)

$

1,289,366

$

1,706,891

(24.5%)

Agribusiness and energy services

150,465

179,432

(16.1)

486,305

546,318

(11.0)

Food and ingredients

3

26,228

(100.0)

1,526

79,894

(98.1)

Partnership

-

-

*

-

-

*

Intersegment eliminations

(30,866)

(33,299)

(7.3)

(76,716)

(99,189)

(22.7)

$

632,129

$

733,080

(13.8%)

$

1,700,481

$

2,233,914

(23.9%)

(1)Cost of goods sold include certain items which were previously considered intercompany transactions prior to the disposition of GPCC and therefore eliminated upon consolidation. These cost of goods sold transactions are now presented gross in cost of goods sold. These cost of goods sold transactions total $5.5 million and $14.4 million for the three and nine months ended September 30, 2019, respectively, and $6.6 million and $21.0 million for the three and nine months ended September 30, 2018, respectively.

Three Months Ended
September 30,

%

Nine Months Ended
September 30,

%

2019

2018

Variance

2019

2018

Variance

Operating income (loss):

Ethanol production

$

(49,289)

$

(15,961)

(208.8%)

$

(147,366)

$

(60,704)

(142.8%)

Agribusiness and energy services

(461)

2,850

(116.2)

9,184

22,080

(58.4)

Food and ingredients

(6)

3,892

(100.2)

(76)

12,426

(100.6)

Partnership

12,322

16,725

(26.3)

38,029

48,214

(21.1)

Intersegment eliminations

4,738

(325)

*

533

(113)

*

Corporate activities

(9,669)

(10,965)

11.8

(27,952)

(34,879)

19.9

$

(42,365)

$

(3,784)

*

$

(127,648)

$

(12,976)

*

Three Months Ended
September 30,

%

Nine Months Ended
September 30,

%

2019

2018

Variance

2019

2018

Variance

Depreciation and amortization:

Ethanol production

15,547

24,289

(36.0%)

46,324

65,284

(29.0%)

Agribusiness and energy services

541

675

(19.9)

1,642

1,923

(14.6)

Food and ingredients

-

2,333

*

-

6,788

*

Partnership

991

1,120

(11.5)

2,747

3,406

(19.3)

Corporate activities

749

849

(11.8)

2,250

2,769

(18.7)

$

17,828

$

29,266

(39.1%)

$

52,963

$

80,170

(33.9%)

We use EBITDA and adjusted EBITDA as segment measures of profitability to compare the financial performance of our reportable segments and manage those segments. EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization excluding the amortization of right-of-use assets and debt issuance costs. Adjusted EBITDA includes adjustments related to operational results of Green Plains Cattle prior to its disposition which are recorded as discontinued operations and our proportional share of EBITDA adjustments of our equity method investees. We believe EBITDA and adjusted EBITDA are useful measures to compare our performance against other companies. EBITDA and adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, which is prepared in accordance with GAAP. EBITDA and adjusted EBITDA calculations may vary from company to company. Accordingly, our computation of EBITDA and adjusted EBITDA may not be comparable with a similarly titled measure of other companies.


47


The following table reconciles net loss from continuing operations including noncontrolling interest to adjusted EBITDA (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net loss from continuing operations including noncontrolling interest

$

(38,884)

$

(7,886)

$

(114,507)

$

(34,958)

Interest expense

10,548

19,703

31,528

58,330

Income tax benefit

(12,530)

(14,973)

(40,692)

(34,524)

Depreciation and amortization (1)

17,828

29,266

52,963

80,170

EBITDA

(23,038)

26,110

(70,708)

69,018

EBITDA adjustments related to discontinued operations

8,469

5,925

17,703

27,979

Proportional share of EBITDA adjustments to equity method investees

1,186

311

1,827

745

Adjusted EBITDA

$

(13,383)

$

32,346

$

(51,178)

$

97,742

(1)Excludes the amortization of operating lease right-of-use assets and amortization of debt issuance costs.

Three Months Ended
September 30,

%

Nine Months Ended
September 30,

%

2019

2018

Variance

2019

2018

Variance

Adjusted EBITDA:

Ethanol production

$

(33,787)

$

8,475

*

$

(101,027)

$

4,742

*

Agribusiness and energy services

(75)

3,537

*

10,686

24,035

(55.5)

Food and ingredients

(7)

6,226

*

(76)

19,213

*

Partnership

13,594

17,913

(24.1)

41,382

51,674

(19.9)

Intersegment eliminations

4,738

(325)

*

533

(113)

*

Corporate activities

(7,501)

(9,716)

22.8

(22,206)

(30,533)

27.3

EBITDA

(23,038)

26,110

*

(70,708)

69,018

*

EBITDA adjustments related to discontinued operations

8,469

5,925

42.9

17,703

27,979

(36.7)

Proportional share of EBITDA adjustments to equity method investees

1,186

311

281.4

1,827

745

145.2

Adjusted EBITDA

$

(13,383)

$

32,346

*

$

(51,178)

$

97,742

*

* Percentage variance not considered meaningful.

Three Months Ended September 30, 2019 Compared with the Three Months Ended September 30, 2018

Consolidated Results

Consolidated revenues decreased $156.7 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily due to the disposition of three ethanol plants and the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.

Operating income decreased $38.6 million and adjusted EBITDA decreased $45.7 million for the three months ended September 30, 2019 compared with the same period last year primarily due to decreased margins on ethanol production as well as the disposition of Fleischmann’s Vinegar during the fourth quarter of 2018. Interest expense decreased $9.2 million for the three months ended September 30, 2019, compared with the same period in 2018, primarily due to the repayment of the $500 million senior secured term loan during the fourth quarter of 2018. Income tax benefit was $12.5 million for the three months ended September 30, 2019 compared with $15.0 million for the same period in 2018.


48


The following discussion provides greater detail about our third quarter segment performance.

Ethanol Production Segment

Key operating data for our ethanol production segment is as follows:

Three Months Ended
September 30,

2019

2018

% Variance

Ethanol sold

(thousands of gallons)

238,473

304,826

(21.8)

Distillers grains sold

(thousands of equivalent dried tons)

617

811

(23.9)

Corn oil sold

(thousands of pounds)

60,607

78,304

(22.6)

Corn consumed

(thousands of bushels)

82,730

105,965

(21.9)

Revenues in our ethanol production segment decreased $92.1 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower average realized prices for ethanol and distillers grains.

Operating income decreased $33.3 million and EBITDA decreased $42.3 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily as a result of decreased margins. Depreciation and amortization expense decreased $8.7 million for the three months ended September 30, 2019 compared with the same period last year, primarily due to the disposition of three ethanol plants during the fourth quarter of 2018.

Agribusiness and Energy Services Segment

Revenues in our agribusiness and energy services segment decreased $33.0 million while operating income decreased by $3.3 million and EBITDA decreased by $3.6 million for the three months ended September 30, 2019 compared with the same period in 2018. The decrease in revenues was primarily due to a decrease in ethanol, distillers grain and corn oil production and trading activity, as well as lower average realized prices for ethanol. Operating income and EBITDA decreased primarily as a result of decreased margins.

Food and Ingredients Segment

Revenues in our food and ingredients segment decreased $33.4 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily due to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.

As a result of factors identified above, operating income decreased by $3.9 million and EBITDA decreased $6.2 million for the three months ended September 30, 2019 compared with the same period in 2018.

Partnership Segment

Revenues generated by our partnership segment decreased $5.6 million for the three months ended September 30, 2019 compared to the same period of 2018, primarily due to lower storage and throughput volumes due to disposition of three ethanol plants during the fourth quarter of 2018 as well as lower revenues generated from rail transportation services due to the assignment of various railcar operating leases as part of the disposition. Operating income decreased $4.4 million and EBITDA decreased $4.3 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily due to the factors described above.

Intersegment Eliminations

Intersegment eliminations of revenues decreased by $7.5 million for the three months ended September 30, 2019 compared with the same period in 2018 due to a decrease in storage and throughput fees paid to the partnership segment due to the disposition of the three ethanol plants during the further quarter of 2018 as well as decreased intersegment marketing fees within the agribusiness and energy services segment.

49


Corporate Activities

Operating income was impacted by a decrease in operating expenses of $1.3 million for the three months ended September 30, 2019 compared with the same period in 2018 primarily as a result of a workforce reduction which occurred as part of our portfolio optimization program in the last half of 2018.

Income Taxes

We recorded income tax benefit of $12.5 million for the three months ended September 30, 2019, compared with $15.0 million for the same period in 2018. The change in income tax benefit was primarily due to the impact of R&D credits for the three months ended September 30, 2018, offset by a higher loss before income taxes for the three months ended September 30, 2019.

Net Income from Discontinued Operations

As previously discussed, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. The company concluded that the disposition of GPCC met the requirements under ASC 205-20. Therefore, GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Net income from discontinued operations increased by $2.9 million for the three months ended September 30, 2019 primarily due to increased cattle margins.

Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018

Consolidated Results

Consolidated revenues decreased $698.9 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily due to the disposition of three ethanol plants and the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.

Operating income decreased $114.7 million and adjusted EBITDA decreased $148.9 million for the nine months ended September 30, 2019 compared with the same period last year primarily due to lower volume and decreased margins on ethanol production as well as the disposition of Fleischmann’s Vinegar during the fourth quarter of 2018. Interest expense decreased $26.8 million for the nine months ended September 30, 2019 compared with the same period in 2018, primarily due to the repayment of the $500 million senior secured term loan during the fourth quarter of 2018. Income tax benefit was $40.7 million for the nine months ended September 30, 2019 compared with $34.5 million for the same period in 2018.

The following discussion provides greater detail about our year-to-date segment performance.

Ethanol Production Segment

Key operating data for our ethanol production segment is as follows:

Nine Months Ended
September 30,

2019

2018

% Variance

Ethanol produced

(thousands of gallons)

617,536

881,518

(29.9)

Distillers grains produced

(thousands of equivalent dried tons)

1,601

2,279

(29.7)

Corn oil produced

(thousands of pounds)

148,630

222,994

(33.3)

Corn consumed

(thousands of bushels)

214,734

306,395

(29.9)

Revenues in our ethanol production segment decreased $529.5 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower production volumes of ethanol, distillers grains and corn oil due to the depressed margin environment and lower average realized prices for ethanol and distillers grains.

50


Operating income decreased $86.7 million and EBITDA decreased $105.8 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily as a result of decreased margins. Depreciation and amortization expense decreased $19.0 million for the nine months ended September 30, 2019 compared with the same period last year, primarily due to the disposition of three ethanol plants during the fourth quarter of 2018.

Agribusiness and Energy Services Segment

Revenues in our agribusiness and energy services segment decreased $76.3 million while operating income decreased by $12.9 million and EBITDA decreased by $13.3 million for the nine months ended September 30, 2019 compared with the same period in 2018. The decrease in revenues was primarily due to a decrease in ethanol, distillers grain and corn oil production and trading activity, as well as lower average realized prices for ethanol. Operating income and EBITDA decreased primarily as a result of decreased margins.

Food and Ingredients Segment

Revenues in our food and ingredients segment decreased $100.8 million for the nine months ended September 30, 2019 compared with the same period in 2018 due to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.

Operating income decreased by $12.5 million and EBITDA decreased $19.3 million for the nine months ended September 30, 2019 compared with the same period in 2018 due to the sale of Fleischmann’s Vinegar during the fourth quarter of 2018.

Partnership Segment

Revenues generated by our partnership segment decreased $15.4 million for the nine months ended September 30, 2019 compared to the same period of 2018, primarily due to lower storage and throughput volumes due to the disposition of three ethanol plants during the fourth quarter of 2018 as well as lower production at our remaining plants and lower revenues generated from rail transportation services due to the assignment of various railcar operating leases as part of the disposition. Operating income decreased $10.2 million and EBITDA decreased $10.3 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily due to the factors described above.

Intersegment Eliminations

Intersegment eliminations of revenues decreased by $23.2 million for the nine months ended September 30, 2019 compared with the same period in 2018 due to a decrease in storage and throughput fees paid to the partnership segment as well as decreased intersegment marketing fees within the agribusiness and energy services segment.

Corporate Activities

Operating income was impacted by a decrease in operating expenses for corporate activities of $6.9 million for the nine months ended September 30, 2019 compared with the same period in 2018 primarily as a result of a workforce reduction which occurred as part of our portfolio optimization program in the last half of 2018.

Income Taxes

We recorded income tax benefit of $40.7 million for the nine months ended September 30, 2019, compared with $34.5 million for the same period in 2018. The change in income tax benefit was due to a higher loss before income taxes for the nine months ended September 30, 2019, as well as the impact of R&D credits for the same period in 2018.

Net Income from Discontinued Operations

As previously discussed, we sold an aggregate 50% membership interest in GPCC to TGAM and StepStone during the third quarter of 2019. After closing, GPCC is no longer consolidated in the company’s consolidated financial statements and the GPCC investment is accounted for using the equity method of accounting. The company concluded that the disposition of GPCC met the requirements under ASC 205-20. Therefore, GPCC results for the three and nine months ended September 30, 2019 and 2018 are classified as discontinued operations. Net income from discontinued operations decreased by $10.9 million for the nine months ended September 30, 2019 primarily due to severe winter weather and abnormally negative basis during the first quarter of 2019.

51


Liquidity and Capital Resources

Our principal sources of liquidity include cash generated from operating activities and bank credit facilities. We fund our operating expenses and service debt primarily with operating cash flows. Capital resources for maintenance and growth expenditures are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, or issuance of senior notes or equity. Our ability to access capital markets for debt under reasonable terms depends on our financial condition, credit ratings and market conditions. We believe that our ability to obtain financing at reasonable rates and history of consistent cash flow from operating activities provide a solid foundation to meet our future liquidity and capital resource requirements.

On September 30, 2019, we had $235.5 million in cash and equivalents, excluding restricted cash, consisting of $160.5 million held at our parent company and the remainder held at our subsidiaries. Additionally, we had $18.5 million in restricted cash at September 30, 2019. We also had $328.4 million available under our committed revolving credit agreements, some of which were subject to restrictions or other lending conditions. Funds at certain subsidiaries are generally required for their ongoing operational needs and restricted from distribution. At September 30, 2019, our subsidiaries had approximately $63.5 million of net assets that were not available to us in the form of dividends, loans or advances due to restrictions contained in their credit facilities.

Net cash used in operating activities for continuing operations was $17.8 million for the nine months ended September 30, 2019 compared with net cash provided by operating activities for continuing operations of $58.1 million for the same period in 2018. Operating activities compared to the prior year were primarily affected by changes in working capital as well as decreases in operating income when compared to the same period of the prior year. Net cash provided by investing activities for continuing operations was $37.2 million for the nine months ended September 30, 2019 compared with net cash used in investing activities for continuing operations of $24.8 million for the same period in 2018, due primarily to the receipt of $77.2 million for the disposition of GPCC offset by increased capital expenditures at our existing ethanol plants. Net cash used in financing activities for continuing operations was $46.4 million for the nine months ended September 30, 2019 compared with $117.0 million for the same period in 2018, resulting from an increase in net borrowings offset by payments for the repurchase of common stock.

Additionally, Green Plains Trade and Green Plains Grain use revolving credit facilities to finance working capital requirements. We frequently draw from and repay these facilities which results in significant cash movements reflected on a gross basis within financing activities as proceeds from and payments on short-term borrowings.

We incurred capital expenditures of $43.4 million during the nine months ended September 30, 2019, primarily related to our high-protein and Project 24 initiatives. We incurred capital expenditures for our discontinued operations of $4.2 million. Capital spending for the remainder of 2019 is expected to be between approximately $20.0 million and $25.0 million for various projects, which are expected to be financed with available borrowings under our credit facilities and cash provided by operating activities.

Our business is highly sensitive to the price of commodities, particularly for corn, ethanol, distillers grains, corn oil and natural gas. We use derivative financial instruments to reduce the market risk associated with fluctuations in commodity prices. Sudden changes in commodity prices may require cash deposits with brokers for margin calls or significant liquidity with little advanced notice to meet margin calls, depending on our open derivative positions. We continuously monitor our exposure to margin calls and believe we will continue to maintain adequate liquidity to cover margin calls from our operating results and borrowings.

On June 18, 2019, the company announced that its board of directors has decided to suspend its future quarterly cash dividend following the June 14, 2019 dividend payment, in order to retain and redirect cash flow to the company’s Project 24 operating expense equalization plan, the deployment of high-protein technology and its stock repurchase program.

For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement requires the partnership to distribute all available cash, as defined, to its partners, including us, within 45 days after the end of each calendar quarter. Available cash generally means all cash and cash equivalents on hand at the end of that quarter less cash reserves established by our general partner plus all or any portion of the cash on hand resulting from working capital borrowings made subsequent to the end of that quarter. On October 17, 2019, the board of directors of the general partner of the partnership declared a cash distribution of $0.475 per unit on outstanding common and subordinated units. The distribution is payable on November 8, 2019, to unitholders of record at the close of business on November 1, 2019.

52


In August 2014, we announced a share repurchase program of up to $100 million of our common stock. Under the program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers or by other means. The timing and amount of repurchase transactions are determined by our management based on market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. During the three months ended September 30, 2019, we purchased a total of 1,662,607 shares of our common stock for approximately $16.0 million. To date, we have repurchased 5,979,233 of common stock for approximately $75.6 million under the program. On October 30, 2019, the company’s board of directors authorized an additional $100 million share repurchase taking the previously authorized amount from $100 million to $200 million.

We believe we have sufficient working capital for our existing operations. Furthermore, our liquidity position has improved as a result of the partial sale of GPCC during the third quarter of 2019, as well as the sale of three of our ethanol plants and Fleischmann’s Vinegar during the fourth quarter of 2018. The majority of net cash proceeds from the sales of three of our ethanol plants and Fleischmann’s Vinegar, net of fees and taxes, were used to pay off the outstanding term loan balance. Net cash proceeds from the partial sale of GPCC, net of fees and taxes, were used to repurchase the company’s common stock as part of our share repurchase program, continued investment into our high-protein initiative and general corporate purposes. A continued sustained period of unprofitable operations, however, may strain our liquidity making it difficult to maintain compliance with our financing arrangements. We may sell additional assets or equity or borrow capital to improve or preserve our liquidity, expand our business or acquire existing businesses. We cannot provide assurance that we will be able to secure funding necessary for additional working capital or these projects at reasonable terms, if at all.

Debt

For additional information related to our debt, see Note 9 – Debt included as part of the notes to consolidated financial statements and Note 12 – Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2018.

We were in compliance with our debt covenants at September 30, 2019. Based on our forecasts, we believe we will maintain compliance at each of our subsidiaries for the next twelve months or have sufficient liquidity available on a consolidated basis to resolve noncompliance. We cannot provide assurance that actual results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event a subsidiary is unable to comply with its debt covenants, the subsidiary’s lenders may determine that an event of default has occurred, and following notice, the lenders may terminate the commitment and declare the unpaid balance due and payable.

As outlined in Note 9 - Debt, we use LIBOR as a reference rate for certain revolving credit facilities. LIBOR is currently set to be phased out at the end of 2021. At this time, it is not possible to predict the effect of this change or the alternative reference rate to be used. We will need to renegotiate certain credit facilities to determine the interest rate to replace LIBOR with the new standard that is established. As such, the potential effect of any such event on interest expense cannot yet be determined.

Corporate Activities

On June 21, 2019, we issued $105.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. We used approximately $57.8 million of the net proceeds to repurchase the $56.8 million outstanding principal amount of its 3.25% convertible senior notes due October 1, 2019 in cash, including accrued and unpaid interest, in privately negotiated transactions concurrently with the offering of 4.00% notes. On July 19, 2019, we closed on the issuance of an additional $10.0 million aggregate principal amount of the 4.00% notes (the “Option Notes”) to the initial purchasers. The Option Notes provided us with net proceeds, after deducting commissions and our offering expenses, of approximately $9.5 million. The Option Notes have the same terms as the 4.00% notes issued on June 21, 2019, and were issued under the same Indenture dated as of June 21, 2019. After the issuance of the Option Notes, total aggregate principal of the 4.00% notes outstanding is $115.0 million.

The 4.00% notes are senior, unsecured obligations, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The initial conversion rate will be 64.1540 shares of our common stock per $1,000 principal amount of the 4.00% notes, which is equivalent to an initial conversion price of approximately $15.59 per share of our common stock. The conversion rate will be subject to adjustment upon the occurrence of certain events. In addition, we may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including our calling the 4.00% notes for redemption. We may settle the 4.00% notes in cash, common

53


stock or a combination of cash and common stock. At September 30, 2019, the outstanding principal balance was $82.2 million on the 4.00% notes.

In August 2016, we issued $170.0 million of 4.125% convertible senior notes due in 2022, or 4.125% notes, which are senior, unsecured obligations with interest payable on March 1 and September 1 of each year. Prior to March 1, 2022, the 4.125% notes are not convertible unless certain conditions are satisfied. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal which is equal to a conversion price of approximately $28.00 per share. The conversion rate is subject to adjustment upon the occurrence of certain events, including when the quarterly cash dividend exceeds $0.12 per share. We may settle the 4.125% notes in cash, common stock or a combination of cash and common stock. At September 30, 2019, the outstanding principal balance was $147.6 million on the 4.125% notes.

Ethanol Production Segment

We have small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.

Agribusiness and Energy Services Segment

Green Plains Trade has a $300.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in July of 2022. This facility can be increased by up to $70.0 million with agent approval. Advances are subject to variable interest rates equal to a daily LIBOR rate plus 2.25% or the base rate plus 1.25%. The unused portion of the credit facility is also subject to a commitment fee of 0.375% per annum. At September 30, 2019, the outstanding principal balance was $119.6 million on the facility and the interest rate was 4.17%.

Green Plains Grain has a $100.0 million senior secured asset-based revolving credit facility to finance working capital up to the maximum commitment based on eligible collateral, which matures in June of 2022. This facility can be increased by up to $75.0 million with agent approval and up to $50.0 million for seasonal borrowings. Total commitments outstanding under the facility cannot exceed $225.0 million. On June 28, 2019, the company amended the credit facility to extend the existing maturity date from July 26, 2019 to June 28, 2022 and lower the maximum commitment from $125.0 million to $100.0 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% per annum. At September 30, 2019, the outstanding principal balance was $20.0 million and the interest rate was 5.06%.

Green Plains Grain has entered into short-term inventory financing agreements with a financial institution. At September 30, 2019, 0.9 million bushels of corn had been designated as collateral under these agreements at initial values totaling $3.8 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, 2019, the short-term notes payable were valued at $4.0 million and our interest rate was 4.68%.

Green Plains Commodity Management has an uncommitted $20.0 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%. At September 30, 2019, the outstanding principal balance was $5.5 million and the interest rate was 3.66%. The facility was amended in October 2019, increasing the maximum commitment from $20.0 million to $30.0 million.

Food and Ingredients Segment

Upon the disposition of Green Plains Cattle, the food and ingredient segment no longer has any forms of debt financing. Refer to Note 3 – Acquisitions, Dispositions and Discontinued Operations for further discussion on the disposition and discontinued operations classification.

Partnership Segment

Green Plains Partners, through a wholly owned subsidiary, has a $200.0 million revolving credit facility to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. The credit facility matures on July 1, 2020, and as a result, was reclassified to current maturities of long-term debt during the three months ended September 30, 2019. We intend to renew the revolving credit facility or replace it with a new another line of credit on or before the expiration date. The credit facility can be increased by an additional $20.0 million without the consent of the lenders. At September 30, 2019, the outstanding principal balance of the facility was $132.0 million and the interest rate was 5.04%.

54


Contractual Obligations

Contractual obligations as of September 30, 2019, were as follows (in thousands):

Payments Due By Period

Contractual Obligations

Total

Less Than
1 Year

1-3 Years

3-5 Years

More Than
5 Years

Long-term and short-term debt obligations (1)

$

590,845

$

282,142

$

172,028

$

117,021

$

19,654

Interest and fees on debt obligations (2)

67,644

24,705

24,987

10,297

7,655

Operating lease obligations (3)

71,474

19,329

21,968

10,865

19,312

Other

19,952

2,517

6,871

2,351

8,213

Purchase obligations:

Forward grain purchase contracts (4)

144,099

140,777

2,155

1,167

-

Other commodity purchase contracts (5)

127,570

108,900

16,577

2,093

-

Other

41

41

-

-

-

Total contractual obligations

$

1,021,625

$

578,411

$

244,586

$

143,794

$

54,834

(1)Includes the current portion of long-term debt and future finance lease obligations and excludes the effect of any debt discounts and issuance costs.

(2)Interest amounts are calculated over the terms of the loans using current interest rates, assuming scheduled principal and interest amounts are paid pursuant to the debt agreements. Includes administrative and/or commitment fees on debt obligations.

(3)Operating lease costs are primarily for railcars and office space.

(4)Purchase contracts represent index-priced and fixed-price contracts. Index purchase contracts are valued at current quarter-end prices.

(5)Includes fixed-price ethanol, dried distillers grains and natural gas purchase contracts.

Critical Accounting Policies and Estimates

Key accounting policies, including those relating to revenue recognition, depreciation of property and equipment, carrying value of intangible assets, impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. Information about our critical accounting policies and estimates are included in our annual report on Form 10-K for the year ended December 31, 2018.

Off-Balance Sheet Arrangements

With the exception of one director, none of our officers or employees holds an ownership interest in any of our joint ventures or entities. As of September 30, 2019, we owned a 50% interest in GPCC, a joint venture that owns and operates six cattle feeding operations. Mr. Ejnar Knudsen, a member of the company’s board of directors, has an indirect ownership interest in GPCC of 0.0736% by reason of his ownership in TGAM Agribusiness Fund LP.  Based on the purchase price, the value of that ownership interest is approximately $0.1 million.  Mr. Knudsen also is the CEO and partial owner of AGR Partners LLC (AGR) which provides investment advisory services to TGAM Agribusiness Fund LP pursuant to a sub-advisory agreement between AGR Partners LLC and Nuveen Alternative Advisors LLC, which is the investment manager for TGAM Agribusiness Fund LP.

At September 30, 2019, the outstanding principal balance of GPCC’s senior secured asset-based revolving credit facility was $355.7 million, of which our pro rata portion was $177.9 million, none of which is reflected as a liability on our consolidated balance sheet.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We use various financial instruments to manage and reduce our exposure to various market risks, including changes in commodity prices and interest rates. We conduct all of our business in U.S. dollars and are not currently exposed to foreign currency risk.

Interest Rate Risk

We are exposed to interest rate risk through our loans which bear interest at variable rates. Interest rates on our variable-rate debt are based on the market rate for the lender’s prime rate or LIBOR. A 10% increase in interest rates would affect our

55


interest cost by approximately $1.3 million per year. At September 30, 2019, we had $530.4 million in debt, $281.1 million of which had variable interest rates.

For additional information related to our debt, see Note 9 – Debt included as part of the notes to consolidated financial statements and Note 12 – Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2018.

Commodity Price Risk

Our business is highly sensitive to commodity price risk, particularly for ethanol, corn, distillers grains, corn oil and natural gas. Ethanol prices are sensitive to world crude oil supply and demand, the price of crude oil, gasoline and corn, the price of substitute fuels, refining capacity and utilization, government regulation and consumer demand for alternative fuels. Corn prices are affected by weather conditions, yield, changes in domestic and global supply and demand, and government programs and policies. Distillers grains prices are impacted by livestock numbers on feed, prices for feed alternatives and supply, which is associated with ethanol plant production. Natural gas prices are influenced by severe weather in the summer and winter and hurricanes in the spring, summer and fall. Other factors include North American energy exploration and production, and the amount of natural gas in underground storage during injection and withdrawal seasons.

To reduce the risk associated with fluctuations in the price of ethanol, corn, distillers grains, corn oil, and natural gas, at times we use forward fixed-price physical contracts and derivative financial instruments, such as futures and options executed on the Chicago Board of Trade, the New York Mercantile Exchange and the Chicago Mercantile Exchange. We focus on locking in favorable operating margins, when available, using a model that continually monitors market prices for corn, natural gas and other inputs relative to the price for ethanol and distillers grains at each of our production facilities. We create offsetting positions using a combination of forward fixed-price purchases, sales contracts and derivative financial instruments. As a result, we frequently have gains on derivative financial instruments that are offset by losses on forward fixed-price physical contracts or inventories and vice versa. Our results are impacted by a mismatch of gains or losses associated with the derivative instrument during a reporting period when the physical commodity purchases or sale has not yet occurred. During the three and nine months ended September 30, 2019, revenues included net gains of $12.4 million and net losses of $12.0 million, respectively, and cost of goods sold included net gains of $2.2 million and net losses of $0.3 million, respectively, associated with derivative financial instruments.

Ethanol Production Segment

In the ethanol production segment, net gains and losses from settled derivative instruments are offset by physical commodity purchases or sales to achieve the intended operating margins. To reduce commodity price risk caused by market fluctuations, we enter into exchange-traded futures and options contracts that serve as economic hedges.

Our exposure to market risk, which includes the impact of our risk management activities resulting from our fixed-price purchase and sale contracts and derivatives, is based on the estimated net income effect resulting from a hypothetical 10% change in price for the next 12 months starting on September 30, 2019, which is as follows (in thousands):

Commodity

Estimated Total Volume
Requirements for the
Next 12 Months (1)

Unit of
Measure

Net Income Effect of
Approximate 10%
Change in Price

Ethanol

1,123,000

Gallons

$

129,089

Corn

387,000

Bushels

$

114,112

Distillers grains

2,900

Tons (2)

$

26,532

Corn oil

292,000

Pounds

$

5,368

Natural gas

31,200

MmBTU

$

4,180

(1) Estimated volumes assume production at full capacity.

(2) Distillers grains quantities are stated on an equivalent dried ton basis.

Agribusiness and Energy Services Segment

In the agribusiness and energy services segment, our inventories, physical purchase and sale contracts and derivatives are marked to market. To reduce commodity price risk caused by market fluctuations for purchase and sale commitments of grain and grain held in inventory, we enter into exchange-traded futures and options contracts that serve as economic hedges.

56


The market value of exchange-traded futures and options used for hedging are highly correlated with the underlying market value of grain inventories and related purchase and sale contracts for grain. The less correlated portion of inventory and purchase and sale contract market values, known as basis, is much less volatile than the overall market value of exchange-traded futures and tends to follow historical patterns. We manage this less volatile risk by constantly monitoring our position relative to the price changes in the market. Inventory values are affected by the month-to-month spread in the futures markets. These spreads are also less volatile than overall market value of our inventory and tend to follow historical patterns, but cannot be mitigated directly. Our accounting policy for futures and options, as well as the underlying inventory held for sale and purchase and sale contracts, is to reflect their current market values and include gains and losses in the consolidated statement of operations.

Our daily net commodity position consists of inventories related to purchase and sale contracts and exchange-traded contracts. The fair value of our position was approximately $3.7 million for grain at September 30, 2019. Our market risk at that date, based on the estimated net income effect resulting from a hypothetical 10% change in price, was approximately $0.3 million.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure information that must be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and participation of our chief executive officer and chief financial officer, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

Management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. There were no material changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently involved in litigation that has arisen during the ordinary course of business. We do not believe this litigation will have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors.

Investors should carefully consider the discussion of risks and the other information in our annual report on Form 10-K for the year ended December 31, 2018, in Part I, Item 1A, “Risk Factors,” and the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements,” of this report. Investors should also carefully consider the discussion of risks with the partnership under the heading “Risk Factors” and other information in their annual report on Form 10-K for the year ended December 31, 2018. Although we have attempted to discuss key factors, our investors need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. The following risk factors supplement and/or updates risk factors previously disclosed and should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.

Financial performance of our equity method investments are subject to risks beyond our control and can vary substantially from period to period.

The company invests in certain limited liability companies, which are accounted for using the equity method of accounting. This means that the company’s share of net income or loss in the investee increases or decreases, as applicable, the carrying value of the investment. By operating a business through this arrangement, we do not have control over operating decisions as we would if we owned the business outright. Specifically, we cannot act on major business initiatives without the consent of the other investors.

The company recognizes these investments as a separate line item in the consolidated balance sheets its proportionate share of earnings on a separate line item in the consolidated statements of operations. As a result, the amount of net investment income recognized from these investments can vary substantially from period to period. Any losses experienced by these entities could adversely impact our results of operations and the value of our investment.

Our risk management and commodity trading strategies could be ineffective and expose us to decreased liquidity.

 

As market conditions warrant, we use forward contracts to sell some of our ethanol, distillers grains, corn oil, and live cattle or buy some of the corn, natural gas, or feeder cattle we need to partially offset commodity price volatility. We also engage in other hedging transactions and other commodity trading involving exchange-traded futures contracts for corn, natural gas, cattle and ethanol and other agricultural commodities. The financial impact of these activities depends on the price of the commodities involved and/or our ability to physically receive or deliver the commodities.

 

Hedging arrangements expose us to risk of financial loss when the counterparty defaults on its contract or, in the case of exchange-traded contracts, when the expected differential between the price of the underlying and physical commodity changes. Hedging activities can result in losses when a position is purchased in a declining market or sold in a rising market. Hedging losses may be offset by a decreased cash price for corn, natural gas and feeder cattle and an increased cash price for ethanol, distillers grains, live cattle and corn oil. We vary the amount of hedging and other risk mitigation strategies we undertake and sometimes choose not to engage in hedging transactions at all. We cannot provide assurance that our risk management and commodity trading strategies and decisions will be profitable or effectively offset commodity price volatility. If they are not our results of operations and financial position may be adversely affected.

 

The use of derivative financial instruments frequently involves cash deposits with brokers, or margin calls. Sudden changes in commodity prices may require additional cash deposits immediately. Depending on our open derivative positions, we may need additional liquidity with little advance notice to cover margin calls. While we continuously monitor our exposure to margin calls, we cannot guarantee we will be able to maintain adequate liquidity to cover margin calls in the future.

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The interest rates under our revolving credit facility may be impacted by the phase-out of LIBOR.

LIBOR is the basic rate of interest widely used as a reference for setting the interest rates on loans globally. We use LIBOR as a reference rate for our revolving credit facilities. In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, however, we are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such a possible transition to SOFR may be on our business, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Employees surrender shares when restricted stock grants are vested to satisfy statutory minimum required payroll tax withholding obligations.

The following table lists the shares that were surrendered during the third quarter of 2019:

Period

Total Number of
Shares Withheld for
Employee Awards

Average Price
Paid per Share

July 1 - July 31

-

$

-

August 1 - August 31

441

7.91

September 1 - September 30

489

8.67

Total

930

$

8.31

In August 2014, we announced a share repurchase program of up to $100 million of our common stock. Under this program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated buyback programs, tender offers or by other means. The timing and amount of the transactions are determined by management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time, without prior notice. On October 30, 2019, the company’s board of directors authorized an additional $100 million share repurchase taking the previously authorized amount from $100 million to $200 million.

The following table lists the shares repurchased under the share repurchase program during the third quarter of 2019.

Period

Number of Shares Purchased

Average Price Paid per Share

Number of Shares Repurchased as Part of Repurchase Program

Total Number of Shares Repurchased as Part of Repurchase Program

Approximate Dollar Value of Shares that may yet be Repurchased under the Program (2)
(in thousands)

July 1 - July 31

-

$

-

-

4,316,626

$

40,420

August 1 - August 31

315,932

(1)

7.67

300,932

4,617,558

38,097

September 1 - September 30

1,361,675

10.03

1,361,675

5,979,233

24,406

Total

1,677,607

$

9.59

1,662,607

5,979,233

$

24,406

(1)Includes 300,932 shares repurchased by the company under the share repurchase program. Also includes one open market purchase by Eugene S. Edwards, Director, of 15,000 shares at $7.15 per share on August 15, 2019, as previously disclosed in their Form 4 filing with the SEC.

(2)Shares that may be repurchased under the plan are not reflective of the increase in authorized share repurchases from $100 to $200 million as this increase was authorized by the board of directors subsequent to September 30, 2019.

Since inception, the company has repurchased 5,979,233 shares of common stock for approximately $75.6 million under the program.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6.  Exhibits.

Exhibit Index

Exhibit No.

Description of Exhibit

2.1

Securities Purchase Agreement, dated as of September 6, 2019, by and among Green Plains Inc., Green Plains Cattle Company LLC, TGAM Agribusiness Fund Holdings-B LP, and StepStone Atlantic Fund, L.P. (Certain schedules to the Securities Purchase Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 2.1 of the company’s Current Report on Form 8-K filed September 9, 2019)

10.1

Second Amended and Restated Limited Liability Company Agreement of Green Plains Cattle Company LLC, dated September 6, 2019 (Certain schedules to the Second Amended and Restated Limited Liability Company Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.1 of the company’s Current Report on Form 8-K filed September 9, 2019)

10.2

Promissory Note between Green Plains Inc. and StepStone Atlantic Fund, L.P., dated September 6, 2019 (incorporated herein by reference to Exhibit 10.2 of the company’s Current Report on Form 8-K filed September 9, 2019)

10.3

Amended and Restated Credit Agreement, dated as of August 28, 2019, by and among Green Plains Cattle Company LLC, Bank of the West and ING Capital LLC, as Joint Administrative Agents, and the lenders party to the Credit Agreement (Certain schedules to the Amended and Restated Credit Agreement have been omitted. The company will furnish such schedules to the SEC upon request.) (incorporated herein by reference to Exhibit 10.3 of the company’s Current Report on Form 8-K filed September 9, 2019)

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following information from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, formatted in Inline Extensible Business Reporting Language (iXBRL): i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements

104

The cover page from Green Plains Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, formatted in iXBRL.


60


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.





Date: November 7, 2019

GREEN PLAINS INC.

(Registrant)

By: /s/ Todd A. Becker _

Todd A. Becker
President and Chief Executive Officer

(Principal Executive Officer)




Date: November 7, 2019

By: /s/ G. Patrich Simpkins Jr. _

G. Patrich Simpkins Jr.
Chief Financial Officer

(Principal Financial Officer)

61