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Kinder Morgan2018 ANNUAL REPORT
Green Plains Partners LP (NASDAQ:GPP) is a fee-based
Delaware limited partnership formed by Green Plains Inc.
to provide fuel storage and transportation services by
owning, operating, developing and acquiring ethanol and fuel
storage tanks, terminals, transportation assets and other
related assets and businesses. For more information about
Green Plains Partners, visit www.greenplainspartners.com.
2018 Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ___ to ___
Commission File Number 001-37469
GREEN PLAINS PARTNERS LP
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
47-3822258
(I.R.S. Employer Identification No.)
1811 Aksarben Drive, Omaha, NE 68106
(Address of principal executive offices, including zip code)
(402) 884-8700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common Units Representing Limited Partnership Interest
Name of exchanges on which registered: Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ Yes xNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨ Yes xNo
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 ¨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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Non-accelerated filer ¨
Smaller reporting company o
Accelerated filer x
Emerging growth company x
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. x
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 aggregate market value of the registrant’s common units held by non-affiliates of the registrant as of June 30, 2018, based upon the last
sale price of the common units on such date, was approximately $270.1 million. For purposes of this calculation, executive officers and
directors are deemed to be affiliates of the registrant.
As of February 14, 2019, the registrant had 23,137,695 common units outstanding.
TABLE OF CONTENTS
PART I
Commonly Used Defined Terms
Item 1.
Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2.
Item 3.
Item 4.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Item 6.
Selected Financial Data.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Item 9.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 10.
Directors, Executive Officers and Corporate Governance.
Item 11.
Executive Compensation.
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13.
Certain Relationships and Related Transactions and Director Independence.
Item 14.
Principal Accounting Fees and Services.
Item 15. Exhibits, Financial Statement Schedules.
Item 16.
Form 10-K Summary.
Signatures.
PART IV
Page
2
5
14
39
39
39
39
40
41
44
56
56
56
56
57
58
62
66
67
71
72
75
76
1
Commonly Used Defined Terms
The abbreviations, acronyms and industry terminology used in this annual report are defined as follows:
Green Plains Partners LP, Subsidiaries, and Partners:
z
Birmingham BioEnergy
BlendStar
DKGP
Green Plains Ethanol Storage
Green Plains Operating Company
Green Plains Partners; the partnership
Green Plains Trucking II
MLP predecessor
NLR
Green Plains Inc. and Subsidiaries:
Birmingham BioEnergy Partners LLC, a subsidiary of BlendStar LLC
BlendStar LLC and its subsidiaries, the partnership’s predecessor for
accounting purposes
DKGP Energy Terminals LLC
Green Plains Ethanol Storage LLC
Green Plains Operating Company LLC
Green Plains Partners LP and its subsidiaries
Green Plains Trucking II LLC
BlendStar LLC and its subsidiaries, and the assets, liabilities and
results of operations of the ethanol storage and leased railcar assets
contributed by Green Plains
NLR Energy Logistics LLC
Green Plains; the parent or sponsor
Green Plains Holdings; the general partner
Green Plains Obion
Green Plains Trade
Green Plains Trucking
Green Plains Inc. and its subsidiaries
Green Plains Holdings LLC
Green Plains Obion LLC
Green Plains Trade Group LLC
Green Plains Trucking LLC
Other Defined Terms:
ARO
ASC
Bgy
BNSF
CAFE
CARB
Clean Water Act
CSX
D.C.
DOT
E10
E15
E85
EBITDA
EIA
EISA
EPA
EVWR
Exchange Act
FRA
GAAP
ILUC
IPO
IRA
IRS
JOBS Act
KCS
LCFS
LIBOR
Asset retirement obligation
Accounting Standards Codification
Billion gallons per year
BNSF Railway Company
Corporate Average Fuel Economy
California Air Resources Board
Water Pollution Control Act of 1972
CSX Transportation, Inc.
District of Columbia
U.S. Department of Transportation
Gasoline blended with up to 10% ethanol by volume
Gasoline blended with up to 15% ethanol by volume
Gasoline blended with up to 85% ethanol by volume
Earnings before interest, taxes, depreciation and amortization
U.S. Energy Information Administration
Energy Independence and Security Act of 2007, as amended
U.S. Environmental Protection Agency
Evansville Western Railway, Inc.
Securities Exchange Act of 1934, as amended
Federal Railroad Administration
U.S. Generally Accepted Accounting Principles
Indirect land usage charge
Initial public offering of Green Plains Partners LP
Individual retirement account
Internal Revenue Service
Jumpstart Our Business Startups Act of 2012
Kansas City Southern Railway Company
Low Carbon Fuel Standard
London Interbank Offered Rate
2
LTIP
Mmg
Mmgy
MTBE
Nasdaq
NEO
NMTC
OSHA
Partnership agreement
PCAOB
PHMSA
RFS II
RIN
RVO
Securities Act
SEC
U.S.
USDA
Green Plains Partners LP 2015 Long-Term Incentive Plan
Million gallons
Million gallons per year
Methyl tertiary-butyl ether
The Nasdaq Global Market
Named executive officer
New markets tax credits
U.S. Occupational Safety and Health Administration
First Amended and Restated Agreement of Limited Partnership of
Green Plains Partners LP, dated as of July 1, 2015, between Green
Plains Holdings LLC and Green Plains Inc.
Public Company Accounting Oversight Board
Pipeline and Hazardous Materials Safety Administration
Renewable Fuels Standard II
Renewable identification number
Renewable volume obligation
Securities Act of 1933
Securities and Exchange Commission
United States
U.S. Department of Agriculture
3
Cautionary Statement Regarding Forward-Looking Statements
The SEC encourages companies to disclose forward-looking information so investors can better understand future
prospects and make informed investment decisions. As such, forward-looking statements are included in this report or
incorporated by reference to other documents filed with the SEC.
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 which 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 include words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “outlook,” “plan,”
“predict,” “may,” “could,” “should,” “will” and similar words and phrases 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 are discussed in this report under Item 1A
– Risk Factors or incorporated by reference. Specifically, we may experience fluctuations in future operating results due to
changes in general economic, market or business conditions; foreign imports of ethanol; fluctuations in demand for ethanol
and other fuels; risks of accidents or other unscheduled shutdowns affecting our assets, including mechanical breakdown of
equipment or infrastructure; risks associated with changes to federal policy or regulation; ability to comply with changing
government usage mandates and regulations affecting the ethanol industry; price, availability and acceptance of alternative
fuels and alternative fuel vehicles, and laws mandating such fuels or vehicles; changes in operational costs at our facilities
and for our railcars; failure to realize the benefits projected for capital projects; competition; inability to successfully
implement growth strategies; the supply of corn and other feedstocks; unusual or severe weather conditions and natural
disasters; ability and willingness of parties with whom we have material relationships, including Green Plains Trade, to fulfill
their obligations; labor and material shortages; changes in the availability of unsecured credit and changes affecting the credit
markets in general; and other risk factors detailed in our reports filed with the SEC.
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.
4
Item 1. Business.
PART I
References to “we,” “our,” “us” or the “partnership” used in present tense for periods beginning on or after July 1, 2015,
refer to Green Plains Partners LP and its subsidiaries. References to the “MLP predecessor” used in a historical context for
periods ended on or before June 30, 2015, refer to BlendStar LLC and its subsidiaries, the partnership’s predecessor for
accounting purposes, and the assets, liabilities and results of operations of the ethanol storage and leased railcar assets
contributed by Green Plains in connection with the IPO on July 1, 2015. References to our “sponsor” in transactions
subsequent to the IPO refer to Green Plains.
Partnership History
We are a master limited partnership formed by our parent on March 2, 2015. On July 1, 2015, we completed our IPO of
11,500,000 common units representing limited partner interests. Our common units are traded under the symbol “GPP” on
Nasdaq. After completing the IPO, in addition to the interests of BlendStar, we obtained the ethanol storage and leased railcar
assets and liabilities previously owned and operated by our parent, in a transfer between entities under common control.
On January 1, 2016, we acquired the ethanol storage and leased railcar assets of the Hereford, Texas and Hopewell,
Virginia ethanol production facilities from our sponsor in a transfer between entities under common control. The assets were
recognized at historical cost and reflected retroactively along with related expenses for periods prior to the effective date of
the acquisition, subsequent to the initial dates the assets were acquired by our sponsor, on October 23, 2015, and November
12, 2015, for Hopewell and Hereford, respectively. There were no revenues related to these assets for periods before January
1, 2016, when the amendments to our commercial agreements related to the drop down became effective.
On September 23, 2016, we acquired the ethanol storage assets located in Madison, Illinois, Mount Vernon, Indiana and
York, Nebraska related to three ethanol plants, which occurred concurrently with the acquisition of these facilities by Green
Plains from subsidiaries of Abengoa S.A. The transaction was accounted for as a transfer between entities under common
control and the assets were recognized at the preliminary value recorded in Green Plains’ purchase accounting. No retroactive
adjustments were required.
On August 13, 2018, the requirements under the partnership agreement for the conversion of all of the outstanding
subordinated units into common units were satisfied. Accordingly, all of the 15,889,642 outstanding subordinated units were
converted into common units on a one-for-one basis.
On November 15, 2018, our parent closed on the sale of three of its ethanol plants located in Bluffton, Indiana, Lakota,
Iowa, and Riga, Michigan to Valero Renewable Fuels Company, LLC (“Valero”). Correspondingly, the storage assets located
adjacent to such plants were sold to our parent for $120.9 million. As consideration, we received from our parent 8.7 million
Green Plains units and a portion of the general partner interest equating to 0.2 million equivalent limited partner units to
maintain the general partner’s 2% interest. These units were retired upon receipt. In addition, we also received cash
consideration of $2.7 million from Valero for the assignment of certain railcar operating leases.
On November 15, 2018, our parent announced the permanent closure of its ethanol plant located in Hopewell, Virginia.
The closure did not affect our quarterly storage and throughput minimum volume commitment with Green Plains Trade or
the current transload operations at that location.
Overview
Green Plains Partners provides fuel storage and transportation services by owning, operating, developing and acquiring
ethanol and fuel storage facilities, terminals, transportation assets and other related assets and businesses. We were formed by
Green Plains, a vertically integrated ethanol producer, to support its marketing and distribution activities as its primary
downstream logistics provider.
We generate a substantial portion of our revenues under fee-based commercial agreements with Green Plains Trade for
receiving, storing, transferring and transporting ethanol and other fuels, which are supported by minimum volume or take-or-
pay capacity commitments. We do not take ownership or receive any payments based on the value of ethanol or other fuels
we handle. As a result, we do not have direct price exposure to fluctuating commodity prices.
5
As of December 31, 2018, our parent owns a 49.1% limited partner interest in us, consisting of 11,586,548 common
units, a 2.0% general partner interest and all of our incentive distribution rights. The public owns the remaining 48.9%
limited partner interest. The following diagram depicts our simplified organizational structure at December 31, 2018:
Our Assets and Operations
Ethanol Storage. Our ethanol storage assets are the principal method of storing ethanol produced at our parent’s ethanol
production plants. Most of our parent’s ethanol production plants are located near major rail lines. Ethanol can be distributed
from our storage facilities to bulk terminals via truck, railcar or barge.
In the fourth quarter of 2018, we sold the storage assets associated with the ethanol plants located in Bluffton, Indiana,
Lakota, Iowa, and Riga, Michigan to our parent. We currently own or lease 32 ethanol storage facilities and approximately 49
acres of land. Our storage tanks are located at or near our parent’s 13 operational ethanol production plants in Illinois,
Indiana, Iowa, Minnesota, Nebraska, Tennessee, and Texas, as well as our parent’s non-operational ethanol production plant
in Virginia.
6
Our ethanol storage tanks have combined storage capacity of 31.9 mmg and aggregate throughput capacity sufficient to
support our parent’s revised annual production capacity of 1,123 mmgy. For the year ended December 31, 2018, our parent
operated its ethanol production facilities at an average daily production capacity of approximately 75% resulting in ethanol
storage and throughput of 1,135 mmgy. The following table presents additional ethanol production plant details by location:
Plant Location
Atkinson, Nebraska
Central City, Nebraska
Fairmont, Minnesota
Hereford, Texas
Hopewell, Virginia
Madison, Illinois
Mount Vernon, Indiana
Obion, Tennessee
Ord, Nebraska
Otter Tail, Minnesota
Shenandoah, Iowa
Superior, Iowa
Wood River, Nebraska
York, Nebraska
Total
Initial Operation or
Acquisition Date
June 2013
July 2009
Nov. 2013
Nov. 2015
Oct. 2015
Sept. 2016
Sept. 2016
Nov. 2008
July 2009
Mar. 2011
Aug. 2007
July 2008
Nov. 2013
Sept. 2016
Major Rail Line
Access
BNSF
Union Pacific
Union Pacific
BNSF
Norfolk Southern
Port Harbor
EVWR
Canadian National
Union Pacific
BNSF
BNSF
Union Pacific
Union Pacific
BNSF
Plant Production
Capacity (mmgy)
55
116
119
100
-
90
90
120
65
55
82
60
121
50
1,123
On-Site Ethanol Storage
Capacity (thousands of
gallons)
2,074
2,250
3,124
4,406
761
2,855
2,855
3,000
1,550
2,000
1,524
1,238
3,124
1,100
31,861
Terminal and Distribution Services. We own and operate seven fuel terminals in Alabama, Arkansas, Louisiana,
Mississippi, Kentucky and Oklahoma with combined total storage capacity of approximately 7.3 mmg and access to major
rail lines. We also own approximately five acres of land and lease approximately 18 acres of land where our fuel terminals
are located. Ethanol and other products are transported to our terminals primarily by rail, and shipped from our terminals by
truck to third parties, including refiners, blenders and other obligated and non-obligated parties. For the year ended December
31, 2018, the aggregate throughput at these facilities was approximately 249.9 mmg.
The following table presents additional fuel terminal details by location:
Fuel Terminal Facility Location
Birmingham, Alabama - Unit Train Terminal
Other Fuel Terminal Facilities
Major
Rail Line Access
BNSF
(1)
On-Site Storage Capacity
(thousands of gallons)
Throughput Capacity
(mmgy)
6,542
720
7,262
300
462
762
(1) Access to our six other fuel terminal facilities is available from BNSF, KCS, Canadian National, Union Pacific, Norfolk Southern and CSX.
Transportation and Delivery. Ethanol deliveries to distant markets are shipped using major U.S. rail carriers that can
switch cars to other major railroads or barge delivery to national or international ports. Our railcar volumetric capacity is used
to transport product primarily from our ethanol storage facilities and third-party production facilities to other fuel terminals,
including our own, international export terminals and refineries located throughout the United States. In the fourth quarter of
2018, we assigned certain railcar operating leases associated with the ethanol plants in Bluffton, Indiana, Lakota, Iowa, and
Riga, Michigan to Valero. Currently, our leased railcar fleet consists of approximately 2,840 railcars with an aggregate
capacity of 85.2 mmg. We expect our railcar volumetric capacity to fluctuate over the normal course of business as our
existing railcar leases expire and we enter into or acquire new railcar leases.
We also own and operate a fleet of 19 trucks and tankers that transport ethanol and other products.
Segments
Our operations consist of one reportable segment and are conducted solely in the U.S. See Item 8 - Financial Statements
and Supplementary Data for financial information about our operations and assets.
7
Our Relationship with Green Plains
Our parent is a diversified commodity processor with operations related to ethanol production, grain handling and
storage, cattle feedlots, and commodity marketing and logistics services. The company is one of the largest ethanol producers
in North America with 13 operating dry mill plants, with the capacity to produce approximately 1.1 billion gallons of ethanol
per year.
We benefit significantly from our relationship with our parent. Our assets are the principal method of storing and
delivering the ethanol our parent produces. Our commercial agreements with Green Plains Trade account for a substantial
portion of our revenues.
Our parent has a majority interest in us through the ownership of our general partner and a 49.1% limited partner interest,
as well as all of our incentive distribution rights. We believe our parent will continue to support the successful execution of
our business strategies given its significant ownership in us and the importance of our assets to Green Plains’ operations.
We have entered into several agreements with our parent, which were established in conjunction with the IPO, including:
an omnibus agreement; a contribution, conveyance and assumption agreement; an operational services and secondment
agreement; and various commercial agreements described below. For all material agreements and subsequent amendments
required to be filed, please refer to Item 15 – Exhibits, Financial Statement Schedules.
Commercial Agreements with Affiliate
A substantial portion of our revenues and cash flows are derived from our commercial agreements with Green Plains
Trade, our primary customer, including a (1) fee-based storage and throughput agreement, (2) Birmingham terminal services
agreement, (3) fee-based rail transportation services agreement and (4) various other transportation and terminal services
agreements.
Minimum Volume Commitments. Our storage and throughput agreement and certain terminal services agreements with
Green Plains Trade are supported by minimum volume commitments. Our rail transportation services agreement is supported
by minimum take-or-pay capacity commitments. Green Plains Trade is required to pay us fees for these minimum
commitments regardless of actual throughput volume, capacity used, or the amount of product tendered for transport, which
is intended to provide some assurance that we will receive a certain amount of revenue during the terms of these agreements.
These arrangements are intended to provide stable and predictable cash flows over time.
Storage and Throughput Agreement. Under our storage and throughput agreement, as amended, Green Plains Trade is
obligated to deliver a minimum of 235.7 mmg of product per calendar quarter at our storage facilities. In addition, Green
Plains Trade is obligated to pay $0.05 per gallon on all volume it throughputs associated with the agreement. If Green Plains
Trade fails to meet its minimum volume commitment during any quarter, Green Plains Trade will pay us a deficiency
payment equal to the deficient volume multiplied by the applicable fee. The deficiency payment may be applied as a credit
toward volumes delivered by Green Plains Trade in excess of the minimum volume commitment during the following four
quarters, after which time any unused credits will expire.
On November 15, 2018, as part of the sale of ethanol storage assets associated with the ethanol plants located in
Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan, the storage and throughput agreement was amended to reduce the
minimum volume commitment from 296.6 mmg of product per calendar quarter to 235.7 mmg. In addition, we agreed with
our parent to extend the storage and throughput agreement with Green Plains Trade an additional three years to June 30,
2028. The storage and throughput agreement will automatically renew for successive one-year terms unless either party
provides written notice of its intent to terminate the agreement at least 360 days prior to the end of the remaining primary or
renewal term.
Terminal Services Agreement. Under our terminal services agreement for the Birmingham facility, Green Plains Trade is
obligated to throughput a minimum volume commitment of approximately 2.8 mmg per month of ethanol and other fuels,
equivalent to 33.2 mmgy, and pay associated throughput fees, as well as fees for ancillary services through December 31,
2019. The agreement will automatically renew for successive one-year renewal terms unless either party provides written
notice of its intent to terminate the agreement at least 90 days prior to the end of the remaining primary or renewal term.
Several of our other terminal services agreements with Green Plains Trade also contain minimum volume commitments with
various remaining terms.
8
Rail Transportation Service Agreement. Under our rail transportation services agreement, as amended, Green Plains
Trade is obligated to use the partnership to transport ethanol and other fuels from receipt points identified by Green Plains
Trade, to nominated delivery points, and pay an average monthly fee of approximately $ 0.0186 per gallon for all railcar
volumetric capacity provided over the remaining life of the agreement. The minimum railcar capacity commitment we
provide to Green Plains Trade for our leased railcar fleet is currently 85.2 mmg and the weighted average remaining term of
all railcar lease agreements is 2.9 years. At December 31, 2018, the remaining term of our rail transportation services
agreement was 6.5 years. The rail transportation services agreement will automatically renew for successive one-year renewal
terms unless either party provides written notice of its intent to terminate the agreement at least 360 days prior to the end of
the remaining primary or renewal term.
Green Plains Trade is also obligated to use the partnership for logistical operations management and other services
related to railcar volumetric capacity provided by Green Plains Trade and pay a monthly fee of approximately $0.0014 per
gallon for these services. In addition, Green Plains Trade reimburses us for costs related to: (1) railcar switching and
unloading fees; (2) increased costs related to changes in law or governmental regulation related to the specification, operation
or maintenance of railcars; (3) demurrage charges, except when the charges are due to our gross negligence or willful
misconduct; and (4) fees related to rail transportation services under transportation contracts with third-party common
carriers. Green Plains Trade frequently contracts with us for additional railcar volumetric capacity during the normal course
of business at comparable margins.
We lease our railcars from third parties under multiple operating lease agreements with various terms. The minimum
take-or-pay capacity commitment under the rail transportation services agreement is closely aligned with our existing railcar
lease agreements. As a result, when current railcar lease agreements expire, the volumetric capacity provided under the rail
transportation services agreement declines accordingly. We enter new lease agreements to replace scheduled capacity
reductions under the rail transportation services agreement or provide incremental capacity as requested by Green Plains
Trade. We do not speculate on capacity by leasing additional railcars that are not covered by the rail transportation services
agreement.
Trucking Transportation Agreement. Under our trucking transportation agreement, Green Plains Trade pays us to
transport ethanol and other fuels by truck from identified receipt points to various delivery points. Green Plains Trade is
obligated to pay a monthly trucking transportation services fee equal to the aggregate amount of product volume transported
in a calendar month multiplied by the applicable rate for each truck lane, which is defined as a specific route between point of
origin and point of destination. Rates for each truck lane are negotiated based on product, location, mileage and other factors,
including competitive factors. At December 31, 2018, the remaining term of our trucking transportation agreement was five
months. The trucking transportation agreement will automatically renew for successive one-year renewal terms unless either
party provides written notice of its intent to terminate the agreement at least 30 days prior to the end of the remaining primary
or renewal term.
Competitive Strengths
We believe that the following competitive strengths position us to successfully execute our business strategies:
Stable and Predictable Cash Flows. A substantial portion of our revenues and cash flows are derived from long-term,
fee-based commercial agreements with Green Plains Trade, including a storage and throughput agreement, rail transportation
services agreement, terminal services agreement and other transportation agreements. Our storage and throughput agreement
and certain terminal services agreements are supported by minimum volume commitments, and our rail transportation
services agreement is supported by minimum take-or-pay capacity commitments. Green Plains Trade is obligated to pay us
fees for these minimum commitments regardless of actual throughput or volume, capacity used or the amount of product
tendered for transport.
Advantageous Relationship with Our Parent. Our assets are the principal method of storing and delivering the ethanol
our parent produces, and the related agreements with Green Plains Trade include minimum volume or take-or-pay capacity
commitments. Furthermore, as general partner and owner of a 49.1% limited partner interest in us, as well as all of our
incentive distribution rights, our parent directly benefits from our growth, which provides an incentive to pursue projects that
directly or indirectly enhance the value of our business and assets. This can be accomplished through organic expansion,
accretive acquisitions or the development of downstream distribution services. Under the omnibus agreement, we are granted
the right of first offer, for a period of five years from the date of the IPO, on any ethanol storage asset, fuel terminal facility
or transportation asset our parent owns, constructs, acquires or decides to sell.
9
Quality Assets. Our portfolio of assets has an expected remaining weighted average useful life of approximately 12
years. Our ethanol storage and fuel terminal assets are strategically located in thirteen states near major rail lines and barge
service, which minimizes our exposure to weather-related downtime and transportation congestion and enables access to
markets across the United States. Given the nature of our assets, we expect to incur only modest maintenance-related
expenses and capital expenditures in the near future.
Financial Strength and Flexibility. Our borrowing capacity and ability to access debt and equity capital markets provide
financial flexibility necessary to achieve our organic and acquisition growth strategies.
Proven Management Team. Each member of our senior management team is an employee of our parent who also
devotes time to manage our business affairs. We believe the commercial, operational and financial expertise of our senior
management team, which averages approximately 25 years of industry experience, allows us to successfully execute our
business strategies.
Business Strategy
We believe ethanol could become an increasingly larger portion of the global fuel supply driven by volatile oil prices,
heightened environmental concerns, energy independence and national security concerns. We intend to further develop and
strengthen our business by pursuing the following growth strategies:
Generate Stable, Fee-Based Cash Flows. A substantial portion of our revenues and cash flows are derived from our
commercial agreements with Green Plains Trade. Under these agreements, we do not have direct exposure to fluctuating
commodity prices. We intend to continue to establish fee-based contracts with our parent and third parties that generate stable
and predictable cash flows.
Grow Organically. We will collaborate with our parent and other potential third parties to identify opportunities to
develop and construct assets that provide us long-term returns on our investments. Plant expansion that increases our parent’s
production capacity also increases the annual throughput volumes at our facilities. Capital expenditures associated with
expansion are minimal since our ethanol storage facilities have available capacity to accommodate volume growth.
Acquire Strategic Assets. We intend to pursue strategic acquisitions independently and jointly with our parent to grow
our business. Our parent has a proven history of identifying, acquiring and integrating assets that are accretive to its business.
Under the omnibus agreement, we have a right of first offer, for a period of five years from the date of the IPO, on any fuel
storage, terminal or transportation asset our parent owns, constructs, acquires or decides to sell. In addition, we intend to
continually monitor the marketplace to identify and pursue assets that complement or diversify our existing operations,
including fuel storage and terminal assets in close proximity to our existing asset base.
Development of Downstream Distribution Services. We will continue to use our logistical capabilities and expertise to
further develop downstream ethanol distribution services that leverage the strategic locations of our ethanol storage and fuel
terminal facilities.
Conduct Safe, Reliable and Efficient Operations. We are committed to maintaining safe, reliable and environmentally
compliant operations and conduct routine inspections of our assets in accordance with applicable laws and regulations. We
seek to improve our operating performance through preventive maintenance, employee training, and safety and development
programs.
Recent Developments
The following is a summary of our significant developments during 2018. Additional information about these items can
be found elsewhere in this report or in previous reports filed with the SEC.
Completion of Construction and Commencement of Operations – NLR Energy Logistics LLC
During the first quarter of 2018, construction of the NLR Energy Logistics LLC ethanol unit train terminal in Little
Rock, Arkansas was completed at a total cost of approximately $7.0 million. Operations commenced at the beginning of the
second quarter and we received our first unit train in July 2018.
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Termination of DKGP Energy Terminals LLC Membership Interest Purchase Agreement with AMID Merger LP
On February 16, 2018, we partnered with Delek Logistics Partners LP to form DKGP Energy Terminals LLC, a 50/50
joint venture, to acquire and manage light products terminal assets in Texas and Arkansas. In conjunction with the formation
of the joint venture, DKGP executed a membership interest purchase agreement with AMID Merger LP, to acquire all of the
membership interests of AMID Refined Products LLC (“AMID”) for approximately $138.5 million. Due to regulatory
obstacles, on August 1, 2018, DKGP Energy Terminals LLC notified AMID Merger LP of its termination of the membership
interest purchase agreement.
Third Amendment to Credit Agreement
On October 12, 2018, we amended the revolving credit facility to allow the sale of the ethanol storage assets associated
with up to six ethanol plants owned by our parent, with no more than 600 million gallons of production capacity. In addition,
the lenders permitted the exchange of units as consideration for the transaction and also permitted modifications of various
key operating agreements. Upon close of the sale of the assets associated with the Bluffton, Indiana, Lakota, Iowa, and Riga,
Michigan ethanol plants, the revolving credit facility was decreased from $235.0 million to $200.0 million. There were no
other significant changes in other covenants.
Extension of Offer Period – JGP Energy Partners
Effective October 15, 2018, we agreed with our parent to extend the offer period related to the potential purchase of the
Green Plains interest in the JGP Energy Partners Beaumont, Texas terminal until June 30, 2019. The extension was reviewed
and approved by the conflicts committee.
Asset Purchase Agreement with Green Plains Inc.
On November 15, 2018, our parent closed on the sale of three of its ethanol plants located in Bluffton, Indiana, Lakota,
Iowa, and Riga, Michigan to Valero. Correspondingly, the storage assets located adjacent to such plants were sold to our
parent for $120.9 million. As consideration, we received from our parent 8.7 million Green Plains units and a portion of the
general partner interest equating to 0.2 million equivalent limited partner units to maintain the general partner’s 2% interest.
These units were retired upon receipt. In addition, we also received cash consideration of $2.7 million from Valero for the
assignment of certain railcar operating leases.
As part of this transaction, we amended the storage and throughput agreement with Green Plains Trade to reduce the
quarterly minimum volume commitment from 296.6 mmg of product per calendar quarter to 235.7 mmg. In addition, we
agreed with our parent to extend the storage and throughput agreement an additional three years to June 30, 2028. This
transaction was reviewed and approved by the conflicts committee.
Our Competition
Our contractual relationship with Green Plains Trade and the integrated nature of our storage tanks with our parent’s
production facilities minimizes potential competition for storage and distribution services provided under our commercial
agreements from other third-party operators.
We compete with independent fuel terminal operators and major fuel producers for terminal services based on terminal
location, services provided, safety and cost. While there are numerous fuel producers and distributors that own terminal
operations similar to ours, they often are not focused on providing services to third parties. Independent operators are often
located near key distribution points with cost advantages that provide more efficient services and distribution capabilities into
strategic markets with a variety of transportation options. Companies often rely on independent operators when their own
storage facilities cannot manage their volumes or throughput adequately due to lack of expertise, market congestion, size
constraints, optionality or the nature of the materials being stored.
We believe we are well-positioned to compete effectively in a growing market due to our expertise managing third-party
terminal services and logistics. We are a low-cost operator, focused on safety and efficiency, and capable of managing the
needs of multiple constituencies across geographical markets. While the competitiveness of our services may be impacted by
competition from new entrants, transportation constraints, industry production levels and related storage needs, we believe
there are significant barriers to entry that partially mitigate these risks, including significant capital costs, execution risk,
complex permitting requirements, development cycle, financial and working capital constraints, expertise and experience,
and ability to effectively capture strategic assets or locations.
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Seasonality
Our business is directly affected by the supply and demand for ethanol and other fuels in the markets served by our
assets. However, the effects of seasonality on our revenues are substantially mitigated through our fee-based commercial
agreements with Green Plains Trade, which include minimum volume or take-or-pay capacity commitments.
Major Customer
We are highly dependent on Green Plains Trade and anticipate deriving a substantial portion of our revenues from them
in the foreseeable future. Revenues from Green Plains Trade totaled approximately $94.3 million, or 93.6%, $100.8 million,
or 94.2%, and $95.5 million, or 92.0% of our consolidated revenues, during the years ended December 31, 2018, 2017 and
2016, respectively. Accordingly, we are indirectly subject to the business risks of Green Plains Trade and any development
that materially and adversely affects its operations, financial condition or market reputation. For additional information,
please refer to Risk Factors—Risks Related to Our Business and Industry and Risks Related to an Investment in Us.
Regulatory Matters
Government Ethanol Programs and Policies
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. In the United States, the federal government
mandates the use of renewable fuels under the RFS II. The EPA assigns individual refiners, blenders and importers the
volume of renewable fuels they are obligated to use based on their percentage of total fuel sales. 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.
The RFS II has been a driving factor in the growth of ethanol usage in the United States. When the RFS II was
established in October 2010, the required volume of “conventional” corn-based ethanol to be blended with gasoline was to
increase each year until it reached 15.0 billion gallons in 2015, which left the EPA to address existing limitations in both
supply (ethanol production) and demand (usage of ethanol blends in older vehicles). On November 30, 2018, the EPA
announced the final 2019 renewable volume obligations for conventional ethanol, which met the 15.0-billion-gallon
congressional target.
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 is the second consecutive year the total proposed RVOs are more than 20% below statutory volumes levels.
Thus, the EPA Administrator has directed his staff to initiate the reset rulemaking process, and 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.
Obligated parties use RINs to show compliance with the RFS-mandated volumes. RINs are attached to renewable fuels
by producers and detached when the renewable fuel is blended with transportation fuel or traded 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. Higher RIN prices encourage more blending of ethanol.
Under the RFS II, a small refinery, that processes less than 75,000 barrels per day, can petition the EPA for a waiver of
their requirement to submit RINs. The EPA, through consultation with the Department of Energy and the Department of
Agriculture, can grant them a full or partial waiver, or deny it within 90 days of submittal. The EPA granted significantly
more of these waivers for 2016 and 2017 than they had in the past, totaling 790 million gallons of waived requirements for
2016 and 1.46 billion gallons for 2017. This effectively reduced the RFS II mandated volumes for those compliance years by
those amounts, and has lowered RIN values significantly over the past calendar year.
Biofuels groups have filed a lawsuit 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. This is the first RFS rulemaking since the
expanded use of the exemptions came to light, however the EPA has refused to cap the number of waivers it grants or how it
accounts for the retroactive waivers in its percentage standard calculations. The EPA has a statutory mandate to ensure the
volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The current
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approach accomplishes the opposite. Even if all the obligated parties comply with their respective percentage obligations for
2019, the nation’s overall supply of renewable fuel will not meet the total volume requirements set by the EPA. This
undermines Congressional intent of demand pressure creation and an increased consumption of renewable fuels. Biofuels
groups argue the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and
adjust the standards to account for any waivers it reasonably expects to grant in the future.
See further discussion in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Environmental and Other Regulation
Under the omnibus agreement, our parent is required to indemnify us from all known and certain unknown
environmental liabilities associated with owning and operating our assets that existed on or before the closing of the IPO. In
turn, we agree to indemnify our parent from future environmental liabilities associated with the activities of the partnership.
Construction or maintenance of our terminal facilities and storage facilities may impact wetlands, which are regulated by the
EPA and the U.S. Army Corps of Engineers under the Clean Water Act.
Our parent’s ethanol production plants emit carbon dioxide as a by-product of the ethanol production process. In 2007,
the U.S. Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the
EPA to regulate carbon dioxide in vehicle emissions. On February 3, 2010, the EPA released its final regulations on the RFS
II. Our parent believes that these final regulations grandfather its ethanol production plants at their current authorized
capacity, though expansion of its ethanol production plants may need to meet a threshold of a 20% reduction in greenhouse
gas, or GHG, emissions from a 2005 baseline measurement for the ethanol over current capacity to be eligible for the RFS II
mandate.
Separately, CARB has adopted a LCFS, requiring a 10% reduction in average carbon intensity of gasoline and diesel
transportation fuels from 2010 to 2020. After a series of rulings that temporarily prevented CARB from enforcing these
regulations, the State of California Office of Administrative Law approved the LCFS in November 2012, and revised LCFS
regulations took effect in January 2013.
See further discussion in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Employees
We do not have any direct employees. We are managed and operated by the executive officers of our general partner,
who are also officers of our parent, and our general partner’s board of directors. Our general partner and its affiliates have
approximately 40 full-time equivalent employees under its direct management and supervision supporting our operations.
In addition, we have entered into service agreements with unaffiliated third-parties to provide railcar unloading and
terminal services for several of our terminal facilities. Under these service agreements, the third parties are responsible for
providing the personnel necessary to perform various railcar unloading and terminal services. The third parties are considered
independent contractors and none of their employees or contractors are considered employees, representatives or agents of
the partnership.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports are available on our website at www.greenplainspartners.com shortly after we file or furnish the information
with the SEC. You can also find the charter of our audit committee, as well as our code of ethics in the corporate governance
section of our website. The information found on our website is not part of this or any other report we file or furnish with the
SEC. For more information on our parent, please visit www.gpreinc.com. Alternatively, investors may visit the SEC website
at www.sec.gov to access our reports and information statements filed with the SEC.
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Item 1A. Risk Factors.
Investing in our common units involves a high degree of risk. You should carefully consider the risks described below
together with the other information set forth in this report before making an investment decision. Any of the following risks
and uncertainties could have a material adverse effect on our financial condition, results of operations, cash flows and ability
to make distributions to our unitholders. If that occurs, we may not be able to pay distributions on our common units, the
trading price of our common units could decline materially, and you could lose all or part of your investment. Although many
of our business risks are comparable to those faced by a corporation engaged in a similar business, limited partner interests
are inherently different from the capital stock of a corporation and involve additional risks described below. We may
experience additional risks and uncertainties not currently known to us or as a result of developments occurring in the future.
Conditions that we currently deem to be immaterial may also materially and adversely affect our financial condition, results
of operations, cash flows and ability to make distributions to our unitholders.
Risks Related to Our Business and Industry
We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and
expenses, including cost reimbursements to our general partner and its affiliates, to pay the minimum quarterly distribution
to our unitholders.
In order to pay the minimum quarterly distribution of $0.40 per unit per quarter, or $1.60 per unit on an annualized basis,
we require available cash of approximately $9.4 million per quarter, or approximately $37.8 million per year, based on the
2% general partner interest and the number of common units outstanding. We may not have sufficient available cash each
quarter to pay the minimum quarterly distribution. The amount of cash we can distribute on our units depends on the amount
of cash we generate from our operations, which fluctuates from quarter to quarter based on:
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the volume of ethanol and other fuels we handle;
the fees associated with the volumes and capacity we handle;
payments associated with the minimum commitments under our commercial agreements with Green Plains Trade;
timely payments by Green Plains Trade and other third parties; and
prevailing economic conditions.
The cash we have available for distribution also depends on other factors, some of which are beyond our control,
including:
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the amount of our operating expenses and general and administrative expenses, including reimbursements to our
general partner in respect of those expenses;
our capital expenditures;
the cost of acquisitions and organic growth projects;
our debt service requirements and other liabilities;
fluctuations in our working capital needs;
our ability to borrow funds and access capital markets;
restrictions contained in our revolving credit facility and other debt service requirements;
the cash reserves established by our general partner; and
other business risks affecting our cash levels.
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The services we provide under commercial agreements with Green Plains Trade account for a substantial portion of our
revenues, which subject us to the business risks of Green Plains Trade and, as a result of its direct ownership by our parent,
to the business risks of our parent.
We entered into a storage and throughput agreement and two transportation services agreements with Green Plains Trade
in connection with the IPO. Green Plains Trade’s obligations under such commercial agreements are guaranteed by our
parent. Additionally, we assumed all of BlendStar’s terminal services agreements with Green Plains Trade. The services we
provide under commercial agreements with Green Plains Trade account for a substantial portion of our revenues for the
foreseeable future. Therefore, we are subject to risk of nonpayment or nonperformance by Green Plains Trade and our parent
under the commercial agreements. Any event, whether related to our operations or otherwise, that materially and adversely
affects Green Plains Trade’s or our parent’s financial condition, results of operations or cash flows may adversely affect our
ability to sustain or increase cash distributions to our unitholders. Accordingly, we are indirectly subject to the following
operational and business risks of our parent and its subsidiaries (including Green Plains Trade), among others:
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the price volatility of corn, natural gas, ethanol, distillers grains, corn oil, crude oil, and cattle and our parent’s
ability to manage the spread among the prices for such commodities;
our parent’s risk management strategies, including hedging transactions that may limit its effectiveness and expose it
to other risks;
• Green Plains Trade’s liquidity could be materially and adversely affected if third parties are unable to make
payments for their sales;
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the ethanol industry’s dependency on government usage mandates for blending ethanol with gasoline which
influences ethanol production and ethanol prices;
our parent’s indebtedness may limit its ability to obtain additional financing, and our parent may also face
difficulties complying with the terms of its debt agreements;
covenants and events of default in our parent’s debt agreements could limit its ability to undertake certain types of
transactions and adversely affect its liquidity;
our parent has capital needs and planned and unplanned maintenance expenses for which its internally generated
cash flows and other sources of liquidity may not be adequate;
the dangers inherent in our parent’s operations could cause disruptions and could expose our parent to potentially
significant losses, costs or liabilities;
environmental risks, incidents and violations that could give rise to material remediation costs, fines and other
liabilities;
our parent may incur significant costs to comply with state and federal environmental, economic, health and safety,
energy and other laws, policies and regulations and any changes in those laws, policies and regulations;
our parent could incur substantial costs or disruptions in its business if it cannot obtain or maintain necessary
permits and authorizations on favorable terms;
a material decrease in the supply of corn available to our parent’s ethanol production plants could significantly
reduce its production levels;
competition in the ethanol industry is intense, and an increase in competition in the areas in which our parent’s
ethanol is sold, or an increase in foreign ethanol production, could adversely affect our parent’s sales and
profitability;
demand for ethanol is uncertain and may be affected by changes to federal mandates, public perception, consumer
acceptance and overall consumer demand for transportation fuel which would affect our parent’s results of
operations;
increased federal support of cellulosic ethanol may result in reduced competitiveness of our parent’s corn-derived
ethanol production;
replacement technologies under development may result in the obsolescence of corn-derived ethanol or our parent’s
process systems which would materially impact our parent’s operations, cash flow and financial position;
severe weather, including earthquakes, floods, fire and other natural disasters, could cause damage to our parent’s
ethanol production plants, disrupt our parent’s operations or interrupt the supply of our parent’s corn supply for its
ethanol production plants and our parent’s ability to distribute ethanol;
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• Green Plains Trade could incur substantial penalties if it inadvertently traded or trades ethanol with invalid RINs;
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our parent could incur substantial costs in order to generate or obtain the necessary number of RINs credits in
connection with mandates to blend renewable fuels into the petroleum fuels produced and sold in the United States;
our parent may be required to provide remedies for the delivery of off-specification ethanol, distillers grains or corn
oil;
our parent’s insurance policies do not cover all losses, costs or liabilities that our parent may experience;
our parent could be subject to damages based on claims brought by its customers or lose customers as a result of a
failure of its products to meet certain quality specifications;
the loss by our parent of any of its key personnel;
terrorist attacks, threats of war or actual war; and
cyber-attacks or failure of our parent’s internal computer network and applications to operate as designed.
Ethanol production and marketing is a highly competitive business subject to changing market demands and regulatory
environments. Any change in our parent’s business or financial strategy to meet such demands or requirements may
negatively impact our parent’s financial condition, results of operations or cash flows and, in turn, may adversely affect our
financial condition, results of operations, cash flows and ability to make distributions to our unitholders.
Ethanol production, storage, transportation and marketing is highly competitive. In the United States, our parent
competes with farmer cooperatives, corn processors and refiners. Our parent is among the five largest producers in the United
States that have combined capacity of 7.1 bgy, or 44% of all domestic production as of January 15, 2019. Nearly half of the
204 ethanol plants in the United States are stand-alone entities that produce 5.5 billion gallons, or 34% of all domestic
production. If our parent’s competitors consolidate or otherwise grow, our parent’s business may be significantly and
adversely affected. There is also risk of foreign competition. Foreign producers, including Brazil, which is the second largest
ethanol producer in the world, may be able to produce ethanol at lower input costs, including costs of feedstock, facilities and
personnel, than our parent.
Additionally, our parent considers opportunities presented by third parties related to its assets, including its ethanol
production plants. These opportunities may include offers to purchase assets and joint venture propositions. A third-party
purchaser may identify alternative service providers and opt for minimum volume commitments or minimum take-or-pay
capacity commitments or decide to allow the commercial agreements to expire at the end of the original term. Such third
party may also operate the ethanol production plants in a suboptimal manner, increasing the frequency of turnarounds and
reducing capacity utilization.
Our parent may change the focus of its operations by developing new types of facilities, suspending or reducing certain
operations, modifying or closing facilities or terminating operations. Changes may be considered to meet market demands, to
satisfy regulatory requirements or environmental and safety objectives, to improve operational efficiency or for other reasons.
Our parent actively manages its assets and operations, and, therefore, changes of some nature, possibly material to its
business relationship with us, are likely to occur at some point in the future. No such changes will be subject to our consent.
Green Plains Trade is currently our primary source of revenue and our primary customer. Our parent and Green Plains
Trade, which we have no control over, may elect to pursue a business strategy that does not favor us or our business. A
change in our parent’s business or financial strategy, contractual obligations or risk profile may negatively impact its
financial condition, results of operations, cash flows or creditworthiness. In turn, our cash flows from our commercial
agreements with Green Plains Trade and, therefore, our ability to sustain or increase cash distributions to our unitholders may
be materially and adversely affected. Moreover, our creditworthiness may be adversely affected by a decline in our parent’s
creditworthiness, increasing our borrowing costs or hindering our ability to access the capital markets.
Conflicts of interest may arise between our general partner and its affiliates, including our parent and Green Plains
Trade, on the one hand, and us and our unitholders, on the other hand. Green Plains Trade may suspend, reduce or terminate
its obligations under the commercial agreements with us in certain circumstances, which could have a material adverse effect
on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.
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Our financial performance is substantially dependent on our parent’s ethanol production plants.
We believe that a substantial portion of our revenues for the foreseeable future will be derived from operations
supporting our parent’s ethanol production plants. Any event that renders these ethanol production plants temporarily or
permanently unavailable or that temporarily or permanently reduces production rates at any of these ethanol production
plants could adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our
unitholders.
Green Plains Trade may suspend, reduce or terminate its obligations under the commercial agreements with us in certain
circumstances.
All of our commercial agreements with Green Plains Trade include provisions that permit Green Plains Trade to
suspend, reduce or terminate its obligations under the agreements if certain events occur. Under all of our commercial
agreements, these events include a material breach of such agreements by us, the occurrence of certain force majeure events
that would prevent Green Plains Trade or us from performing our respective obligations under the applicable commercial
agreement and the minimum commitment, if any, not being available to Green Plains Trade for reasons outside of its control.
As defined in each of our commercial agreements, force majeure events include any acts or occurrences that prevent
services from being performed under the applicable commercial agreement, such as:
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federal, state, county, or municipal orders, rules, legislation, or regulations;
acts of God, including fires, floods, storms, earthquakes or other severe weather events;
compliance with orders of courts or any governmental authorities;
explosions, wars, terrorist acts or riots;
strikes, lockouts or other industrial disturbances; and
events or circumstances similar to those above (including disruption of service provided by third parties) that
prevent a party’s ability to perform its obligations under the agreement, to the extent that such events or
circumstances are beyond the party’s reasonable control.
Accordingly, under the commercial agreements, there are a broad range of events that could result in our no longer being
required to store, throughput or transport Green Plains Trade’s minimum commitments and Green Plains Trade no longer
being required to pay the full amount of fees that would have been associated with its minimum commitments. Neither our
parent nor Green Plains Trade is required to pursue a business strategy that favors us or utilizes our assets. However, they
could elect to decrease ethanol production or shutdown or reconfigure an ethanol production plant. Furthermore, a single
event or business decision relating to one of our parent’s ethanol production plants could have an impact on the commercial
agreements with us. These actions, as well the other activities described above, could result in a reduction or suspension of
Green Plains Trade’s obligations under the commercial agreements. Any such reduction or suspension would have a material
adverse effect on our financial condition, results of operations, cash flows, and ability to make distributions to our
unitholders.
Neither our parent nor Green Plains Trade is obligated to use our services with respect to volumes or volumetric capacity of
ethanol or other fuels in excess of the applicable minimum commitment under the respective commercial agreements.
Furthermore, we may be unable to renew or extend our commercial agreements with Green Plains Trade or renew them on
favorable terms.
Our ability to distribute the minimum quarterly distribution to our unitholders will be adversely affected if we do not
receive, store, transfer, transport or deliver additional volumes or use volumetric capacity for Green Plains Trade or other
third parties at our ethanol storage facilities, at our fuel terminal facilities or on our railcars.
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In addition, the remaining term of Green Plains Trade’s obligations under each agreement extends for approximately 9.5
years in the case of the storage and throughput agreement, 6.5 years in the case of the rail transportation services agreement,
one year in the case of the terminal services agreements that provide for minimum commitments, and five months in the case
of the trucking transportation agreement. If, at the end of the remaining primary term, our parent and Green Plains Trade elect
not to extend these agreements and, as a result, fail to use our assets and we are unable to generate additional revenues from
third parties, our ability to pay cash distributions to our unitholders will be reduced. Furthermore, any renewal of the
commercial agreements with Green Plains Trade may not be on favorable commercial terms. For example, depending on
prevailing market conditions at the time of contract renewal, Green Plains Trade may desire to enter into contracts under
different fee arrangements. To the extent we are unable to renew the commercial agreements with Green Plains Trade on
terms that are favorable to us, our revenue and cash flows could decline and our ability to pay cash distributions to our
unitholders could be materially and adversely affected.
Green Plains Trade’s minimum take-or-pay capacity commitment under the rail transportation services agreement will be
reduced proportionately as our railcar leases expire if we do not enter into new rail transportation services agreements.
We lease our fleet of railcars from several lessors pursuant to lease agreements with remaining terms ranging from less
than one year to approximately five years with a weighted average remaining term of 2.9 years. As our railcar lease
agreements expire, the respective volumetric capacity of those expired leases will no longer be subject to the rail
transportation services agreement, and Green Plains Trade’s minimum take-or-pay capacity commitment will be reduced
proportionately. Of our current leased railcar fleet, 15.8%, 15.4%, 16.3% and 22.2% of the railcar volumetric capacity have
terms that expire in the years ended December 31, 2019, 2020, 2021 and 2022, respectively, or approximately 69.7% of our
total current railcar volumetric capacity during that time frame. If at the end of the terms under the lease agreements, we do
not enter into new commercial arrangements with respect to rail transportation services, our revenues and cash flows could
decline and our ability to pay cash distributions to our unitholders could be materially and adversely affected.
Railcars used to transport ethanol and other fuels may need to be retrofitted or replaced to meet new rail safety standards.
The U.S. ethanol industry has long relied on railroads to deliver its product to market. We currently lease approximately
2,840 railcars. On May 1, 2015, the DOT, through PHMSA and FRA, and in coordination with Transport Canada, announced
the final rule, “Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains”. The rule calls
for an enhanced tank car standard known as the DOT specification 117, or DOT-117 tank car, and establishes a schedule for
retrofitting or replacing older tank cars carrying crude oil and ethanol. The rule also establishes new braking standards that
are intended to reduce the severity of accidents and the so-called “pile-up effect”. Under prescribed circumstances, new
operational protocols apply including reduced speed, routing requirements and local government notifications. In addition,
persons that offer hazardous material for transportation must develop more accurate classification protocols. These
regulations will result in upgrades or replacements of our railcars, and may have an adverse effect on our operations as lease
costs for railcars may increase over the long term. Our railcars are also subject to federally-mandated tank car requalification,
which requires inspection, repairs and upgrades to our current railcar fleet every ten years. Due to these regulatory standards,
as well as any potential modifications that may be issued in the future, existing railcars could be out of service for a period of
time while such upgrades are made, tightening supply in an industry that is highly dependent on such railcars to transport its
product. Since we cannot charge our customers for railcars that are out of service, a significant increase in out of service
railcars could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make
distributions.
Rail logistical problems may delay the delivery of our customers’ products.
Weather related incidents, particularly snow and flooding, can cause increased transit times and result in rail congestion
at destinations. In the past, rail delays have caused some ethanol plants to slow or suspend production. Due to the location of
our parent’s ethanol production plants, we have not historically been materially affected by these logistical problems. If
railroad performance is inadequate, we may face delays in shipping railcars to and from our parent’s ethanol production
plants, which may affect our ability to transport product. Rail logistical problems due to circumstances outside of the control
or us or our customers could have a material adverse effect on our financial condition, results of operations, cash flows and
ability to make distributions.
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If the United States were to withdraw from or materially modify NAFTA or certain other international trade agreements, our
business, financial condition and results of operations could be materially adversely affected.
Ethanol and other products that our parent produces are exported to Canada, Mexico, China and other countries. The
current administration has expressed antipathy towards many existing international trade agreements, including NAFTA, and
has significantly increased tariffs on goods imported into the United States from many countries, which in turn has led to
retaliatory actions on US exports. As of the date of this Form 10-K, it remains unclear what the outcomes may be of NAFTA,
other international trade agreements and tariffs on various goods. The President has threatened to withdraw the U.S. from
NAFTA in order to leverage support for his updated version, the United States Mexico Canada Agreement or USMCA. The
administration has also expressed a desire to negotiate new free trade agreements with China, Japan, the UK, the EU, and
others. The current trade situation, the outcome of these negotiations or lack thereof, has had and/or may continue to have a
material effect on our parent’s, and consequently our, business, financial condition and results of operations.
We may not be able to increase our third-party revenues due to competition and other factors, which could limit our ability to
grow and could increase our dependence on our parent.
Part of our growth strategy includes diversifying our customer base by acquiring or developing new assets independently
from our parent. Our ability to increase our third-party revenue is subject to numerous factors beyond our control, including
competition from third parties and the extent to which we lack available capacity when third parties require it.
We can provide no assurance that we will be able to attract any material third-party service opportunities. Our efforts to
attract new unaffiliated customers may be adversely affected by (1) our relationship with our parent, (2) our desire to provide
services pursuant to fee-based contracts, (3) our parent’s operational requirements at its ethanol production plants and (4) our
expectation that our parent will continue to utilize substantially all of the available capacity of our assets. Our potential
customers may prefer to obtain services under other forms of contractual arrangements under which we would be required to
assume direct commodity exposure. In addition, we need to establish a reputation among our potential customer base for
providing high-quality service in order to successfully attract unaffiliated third parties.
Our future growth could be limited if we are unable to make acquisitions on economically acceptable terms, or if the
acquisitions we make reduce, rather than increase, our cash flows.
A portion of our strategy to grow our business and increase distributions to our unitholders is dependent on our ability to
acquire businesses or assets that increase our cash flows. The acquisition component of our growth strategy is based, in large
part, on our expectation of ongoing divestitures of complementary assets by industry participants, including in conjunction
with acquisitions by our parent. A material decrease in such divestitures would limit our opportunities for future acquisitions
and could adversely affect our ability to grow our operations and increase cash distributions to our unitholders. If we are
unable to make acquisitions from third parties because we are unable to identify attractive acquisition candidates, negotiate
acceptable purchase contracts, obtain financing for these acquisitions on economically acceptable terms or we are outbid by
competitors, our future growth and ability to increase distributions will be limited. Furthermore, even if we do consummate
acquisitions that we believe will be accretive, they may in fact result in a decrease in cash flows. Any acquisition involves
potential risks, including, among other things:
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inaccurate assumptions about revenues and costs, including synergies;
an inability to integrate successfully the businesses or assets we acquire;
the assumption of unknown liabilities;
limitations on rights to indemnity from the seller;
inaccurate assumptions about the overall costs of equity or debt financing;
the diversion of management’s attention from other business concerns;
unforeseen difficulties operating in new product areas or new geographic areas; and
customer or key employee losses at the acquired businesses.
If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and our
unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will
consider in determining the application of these funds and other resources.
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Our right of first offer to acquire any of our parent’s new ethanol storage assets, fuel terminal facilities or ethanol or
transportation fuel assets is subject to risks and uncertainty, and we may ultimately decide not to acquire any of those assets.
Under our omnibus agreement, we are granted a five-year right of first offer from the date of the IPO on any (1) ethanol
storage or terminal assets that our parent may acquire or construct in the future, (2) fuel storage or terminal facilities that our
parent may acquire or construct in the future, and (3) ethanol and fuel transportation assets that our parent currently owns or
may acquire in the future, before selling or transferring any of those assets to any third party. We do not have a current
agreement with our parent to purchase any currently owned assets covered by our right of first offer. The consummation and
timing of any future acquisitions of these assets will depend upon, among other things, our parent’s willingness to sell such
assets, our ability to negotiate acceptable purchase agreements and commercial agreements with respect to the assets and our
ability to obtain financing on acceptable terms. We can offer no assurance that we will be able to successfully consummate
any future acquisitions pursuant to our right of first offer. In addition, certain of the assets may require substantial capital
expenditures in order to maintain compliance with applicable regulatory requirements or otherwise make them suitable for
our commercial needs. For these or a variety of other reasons, we may decide not to exercise our right of first offer if and
when any assets are offered for sale. Our decision will not be subject to unitholder approval.
We can provide no assurance that we will be able to consummate any future acquisitions of assets from our parent
through our right of first offer. If we are unable to do so, our future growth and ability to increase distributions may be
limited. Even if we do consummate such acquisitions that we believe will be accretive, they may in fact result in a decrease in
our distributable cash flow per unit as a result of incorrect assumptions, unforeseen consequences, or other external events
beyond our control.
Future events could result in impairment of long-lived assets, which may result in charges that adversely affect our results of
operations.
Long-lived assets, including property, plant and equipment, goodwill, and equity method investments, are evaluated for
impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Our impairment evaluations are sensitive to changes in key assumptions used in our analysis and may require
use of financial estimates of future cash flows. Application of alternative assumptions could produce significantly different
results. We may be required to recognize impairments of long-lived assets based on future economic factors such as
unfavorable changes in estimated future undiscounted cash flows of an asset group.
Any inability to maintain required regulatory permits may impede or completely prohibit our parent’s and our operations.
Additionally, any change in environmental and safety regulations, or violations thereof, may impede our parent’s and our
ability to operate our respective businesses successfully.
Our and our parent’s operations are subject to extensive air, water and other environmental regulation. Our parent has
had to obtain a number of environmental permits to construct and operate its ethanol production plants. Ethanol production
involves the emission of various airborne pollutants, including particulate, carbon dioxide, oxides of nitrogen, hazardous air
pollutants and volatile organic compounds. In addition, the governing state agencies could impose conditions or other
restrictions in the permits that are detrimental to our parent and us or which increase our parent’s costs above those required
for profitable operations. Any such event could have a material adverse effect on our operations, cash flows and financial
position.
Environmental laws and regulations, both at the federal and state level, are subject to change and changes can be made
retroactively. It is possible that more stringent federal or state environmental rules or regulations could be adopted, which
could increase our operating costs and expenses. Consequently, even if we and our parent have the proper permits at the
present time, each of us may be required to invest or spend considerable resources to comply with future environmental
regulations. Furthermore, ongoing operations are governed by OSHA. OSHA regulations may change in a way that increases
each of our costs of operations. If any of these events were to occur, they could have a material adverse impact on our
operations, cash flows and financial position.
Part of our business is regulated by environmental laws and regulations governing the labeling, use, storage, discharge
and disposal of hazardous materials. Because we use and handle hazardous substances in our businesses, changes in
environmental requirements or an unanticipated significant adverse environmental event could have an adverse effect on our
business. While we strive to ensure compliance, we cannot assure you that we have been, or will at all times be, in
compliance with all environmental requirements, or that we will not incur material costs or liabilities in connection with these
requirements. Private parties, including current and former employees, could bring personal injury or other claims against us
due to the presence of, or exposure to, hazardous substances used, stored or disposed of by us, or contained in its products.
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We are also exposed to residual risk because some of our facilities and land may have environmental liabilities arising from
their prior use. In addition, changes to environmental regulations may require us to modify existing facilities and could
significantly increase the cost of those operations.
Our revolving credit facility includes restrictions that may limit our ability to finance future operations, meet our capital
needs or expand our business.
We are dependent upon the earnings and cash flow generated by our operations in order to meet our debt service
obligations and to allow us to pay cash distributions to our unitholders. The operating and financial restrictions and covenants
in our revolving credit facility or in any future financing agreements could restrict our ability to finance future operations or
capital needs or to expand or pursue our business activities, which may, in turn, limit our ability to pay cash distributions to
our unitholders. For example, our revolving credit facility restricts our ability to, among other things:
• make certain cash distributions;
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incur certain indebtedness;
create certain liens;
• make certain investments;
• merge or sell certain of our assets; and
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expand the nature of our business.
Furthermore, our revolving credit facility contains covenants requiring us to maintain certain financial ratios.
The provisions of our revolving credit facility may affect our ability to obtain future financing and pursue attractive
business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a
failure to comply with the provisions of our revolving credit facility could result in an event of default that could enable our
lenders, subject to the terms and conditions of our revolving credit facility, to declare the outstanding principal of that debt,
together with accrued interest, to be immediately due and payable and/or to proceed against the collateral granted to them to
secure such debt. If there is a default or event of default under our debt the payment of our debt is accelerated, defaults under
our other debt instruments, if any, may be triggered, and our assets may be insufficient to repay such debt in full. Therefore,
the holders of our units could experience a partial or total loss of their investment.
Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.
Our future level of debt could have important consequences to us, including, but not limited to, the following:
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our ability to obtain additional financing, if necessary, for working capital, capital expenditures or other purposes
may be impaired, or such financing may not be available on favorable terms;
our funds available for operations, future business opportunities and distributions to our unitholders will be reduced
by that portion of our cash flow required to service our debt;
• we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
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our flexibility in responding to changing business and economic conditions may be limited.
Our ability to service our debt depends upon, among other things, our future financial and operating performance, which
is affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond
our control. If our operating results are not sufficient to service any future debt, we will be forced to take actions such as
reducing distributions, reducing or delaying our business activities, acquisitions, organic growth projects, investments or
capital expenditures, selling assets or issuing equity. We may not be able to effect any of these actions on satisfactory terms
or at all.
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Our parent is required to comply with a number of covenants under its existing loan agreements that could hinder our ability
to grow our business, pay cash distributions and maintain our credit profile. Our ability to obtain credit in the future may
also be affected by our parent’s financial condition, our own credit profile and the environment for access to capital for
master limited partnerships.
Our parent must devote a portion of its cash flows from operating activities to service its indebtedness. A higher level of
indebtedness at our parent in the future increases the risk that its subsidiary, Green Plains Trade, may default on its
obligations under the commercial agreements with us. Despite its current debt levels, our parent and its subsidiaries may
incur additional debt in the future, including secured debt. Certain of our parent’s subsidiaries (including Green Plains Trade)
are restricted under the terms of its debt from incurring various types of additional debt, pledging assets, and recapitalizing its
debt. In addition, a number of other actions, whether restricted or non-restricted by the debt terms, could diminish our ability
to make payments thereunder.
Our parent’s existing and future debt arrangements, as applicable, may limit its ability to, among other things, incur
additional indebtedness, make capital expenditures above certain limits, pay dividends or distributions, merge or consolidate,
or dispose of substantially all of its assets, and may directly or indirectly impact our operations in a similar manner. Our
parent’s subsidiaries are also required to maintain specified financial ratios, including minimum cash flow coverage,
minimum working capital and minimum net worth. A breach of any of these covenants or requirements could result in a
default under its loan agreements. If any of its subsidiaries default, and if such default is not cured or waived, our parent’s
lenders could, among other things, accelerate their debt and declare that debt immediately due and payable. If this occurs, our
parent may not be able to repay such debt or borrow sufficient funds to refinance. Even if new financing is available, it may
not be on terms that are acceptable. No assurance can be given that the future operating results of our parent’s subsidiaries
will be sufficient to achieve compliance with such covenants and requirements, or in the event of a default, to remedy such
default.
In the past, our parent has received waivers from its lenders for failure to meet certain financial covenants and has
amended its loan agreements to change these covenants. In the event our parent is unable to comply with these covenants in
the future, our parent cannot provide assurance that it will be able to obtain the necessary waivers or amend its loan
agreements to prevent default. Under our parent’s convertible senior notes, default on any loan in excess of $10.0 million
could result in the notes being declared due and payable.
In the event that our parent were to default under certain of its debt obligations, there is a risk that our parent’s creditors
would assert claims against us with respect to our contracts with Green Plains Trade, our parent’s assets, and Green Plains
Trade’s ethanol and other product we throughput and handle during the litigation of their claims. The defense of any such
claims could be costly and could materially impact our financial condition, even absent any adverse determination. In the
event these claims were successful, Green Plains Trade’s ability to meet its obligations under our commercial agreements and
our ability to make distributions and finance our operations could be materially adversely affected.
We have exposure to increases in interest rates.
Borrowings under our revolving credit facility currently bear interest at LIBOR plus 2.25% to 3.00%. If we make any
borrowings in the future, our financial condition, results of operations, cash flows and ability to make distributions to our
unitholders could be materially adversely affected by significant increases in interest rates.
Additionally, as with other yield-oriented securities, our unit price is impacted by the level of our cash distributions and
implied distribution yield. The distribution yield is often used by investors to compare and rank related yield-oriented
securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may
affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse
impact on our unit price and our ability to issue additional equity, to incur debt to expand or for other purposes or to pay cash
distributions at our intended levels.
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Our assets and operations are subject to federal, state, and local laws and regulations relating to environmental protection
and safety that may require substantial expenditures.
Our assets and operations involve the receipt, storage, transfer, transportation and delivery of ethanol and other fuels,
which is subject to increasingly stringent federal, state and local laws and regulations governing operational safety and the
discharge of materials into the environment. Our business involves the risk that ethanol and other fuels may gradually or
suddenly be released into the environment. To the extent not covered by insurance or an indemnity, responding to the release
of regulated substances, including releases caused by third parties, into the environment may cause us to incur potentially
material expenditures related to response actions, government penalties, natural resources damages, personal injury or
property damage claims from third parties and business interruption.
Our operations are also subject to increasingly strict federal, state and local laws and regulations related to protection of
the environment that require us to comply with various safety requirements regarding the design, installation, testing,
construction and operational management of our assets. Compliance with such laws and regulations may cause us to incur
potentially material capital expenditures associated with the construction, maintenance and upgrading of equipment and
facilities.
We could incur potentially significant additional expenses should we determine that any of our assets are not in
compliance with applicable laws and regulations. Our failure to comply with these or any other environmental or safety-
related regulations could result in the assessment of administrative, civil or criminal penalties, the imposition of investigatory
and remedial liabilities and the issuance of injunctions that may subject us to additional operational constraints. Any such
penalties or liabilities could have a material adverse effect on our financial condition, results of operations, cash flows and
ability to make distributions.
Compliance with evolving environmental, health and safety laws and regulations, particularly those related to climate
change, may be costly.
Our parent’s ethanol production plants emit carbon dioxide as a by-product of the ethanol production process. In 2007,
the U.S. Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the
EPA to regulate carbon dioxide in vehicle emissions. On February 3, 2010, the EPA released its final regulations on the RFS
II. Our parent believes that these final regulations grandfather its ethanol production plants at their current authorized
capacity, though expansion of its ethanol production plants may need to meet a threshold of a 20% reduction in greenhouse
gas, or GHG, emissions from a 2005 baseline measurement for the ethanol over current capacity to be eligible for the RFS II
mandate.
Separately, CARB has adopted a LCFS, requiring a 10% reduction in average carbon intensity of gasoline and diesel
transportation fuels from 2010 to 2020. After a series of rulings that temporarily prevented CARB from enforcing these
regulations, the State of California Office of Administrative Law approved the LCFS on November 26, 2012, and revised
LCFS regulations took effect in January 2013. An ILUC component is included in this lifecycle GHG emissions calculation
which may have an adverse impact on the market for corn-based ethanol in California.
These federal and state regulations may require our parent to apply for additional permits for its ethanol plants. In order
to expand capacity at its ethanol production plants, our parent may have to apply for additional permits, achieve EPA
“efficient producer” status under the pathway petition program, install advanced technology, or reduce drying of certain
amounts of distillers grains. Our parent may also be required to install carbon dioxide mitigation equipment or take other
steps unknown to our parent at this time in order to comply with other future law or regulation. Compliance with future law
or regulation of carbon dioxide, or if our parent chooses to expand capacity at certain of its ethanol production plants,
compliance with then-current regulation of carbon dioxide, could be costly and may prevent our parent from operating its
ethanol production plants as profitably, which may have an adverse impact on their operations, cash flows and financial
position.
These developments could have an indirect adverse effect on our business if our parent’s operations are adversely
affected due to increased regulation of our parent’s facilities or reduced demand for ethanol, and a direct adverse effect on
our business from increased regulation at our fuel terminal facilities.
Our business is impacted by environmental risks inherent in our operations.
The operation of ethanol storage assets and ethanol transportation is inherently subject to the risks of spills, discharges or
other inadvertent releases of ethanol and other hazardous substances. If any of these events have previously occurred or occur
in the future in connection with any of our parent’s operations or our operations, we could be liable for costs and penalties
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associated with the remediation of such events under federal, state and local environmental laws or the common law. We may
also be liable for personal injury or property damage claims from third parties alleging contamination from spills or releases
from our assets or our operations. Even if we are insured or indemnified against such risks, we may be responsible for costs
or penalties to the extent our insurers or indemnitors do not fulfill their obligations to us. The payment of such costs or
penalties could be significant and have a material adverse effect on our financial condition, results of operations, cash flows,
and ability to make distributions to our unitholders.
Our business activities are subject to regulation by multiple federal, state, and local governmental agencies.
Our projected operating costs reflect the recurring costs resulting from compliance with these regulations, and we do not
anticipate material expenditures in excess of these amounts in the absence of future acquisitions, or changes in regulation, or
discovery of existing but unknown compliance issues. Additional proposals and proceedings that affect the ethanol industry
are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions and
agencies and courts. We cannot predict when or whether any such proposals may become effective or the magnitude of the
impact changes in laws and regulations may have on our business; however, additions or enhancements to the regulatory
burden on our industry generally increase the cost of doing business and affect our profitability.
Replacement technologies could make corn-based ethanol or our process technology obsolete.
Ethanol is primarily an additive and oxygenate for blended gasoline. Although use of oxygenates is currently mandated,
there is always the possibility that a preferred alternative product will emerge and impact the current market. Critics of
ethanol blends argue that ethanol decreases fuel economy, causes corrosion of ferrous components and damages fuel pumps.
Any alternative oxygenate product would likely be a form of alcohol (like ethanol) or ether (like MTBE). Prior to federal
restrictions and ethanol mandates, MTBE was the dominant oxygenate. It is possible that other ether products could enter the
market and prove to be environmentally or economically superior to ethanol. It is also possible that alternative biofuel
alcohols such as methanol and butanol could evolve into ethanol replacement products.
Research is currently underway to develop other products that could directly compete with ethanol and may have more
potential advantages than ethanol. Such products could have a competitive advantage over ethanol, making it more difficult
for our parent to market its ethanol, which could reduce our ability to generate revenue and profits.
New ethanol process technologies may emerge that require less energy per gallon produced. The development of such
process technologies would result in lower ethanol production costs. Our parent’s process technologies may become outdated
and obsolete, placing it at a competitive disadvantage against competitors in the industry. The development of replacement
technologies may have a material adverse effect on our parent’s, and consequently our, operations, cash flows and financial
position.
Future demand for ethanol is uncertain and changes in federal mandates, public perception, consumer acceptance and
overall consumer demand for transportation fuel could affect demand.
While many trade groups, academics and government agencies support ethanol as a fuel additive that promotes a cleaner
environment, others claim ethanol production consumes considerably more energy, emits more greenhouse gases than other
fuels and depletes water resources. While we do not agree, some studies suggest ethanol produced from corn is less efficient
than ethanol produced from switch grass or wheat grain. Others claim corn-based ethanol negatively impacts consumers by
causing the prices of dairy, meat and other food derived from corn-consuming livestock to increase. Ethanol critics also
contend the industry redirects corn supplies from international food markets to domestic fuel markets, and contributes to land
use change domestically and abroad.
There are limited markets for ethanol beyond the federal mandates. We believe further consumer acceptance of E15 and
E85 fuels may be necessary before ethanol can achieve significant market share growth. Discretionary and E85 blending are
important secondary markets. Discretionary blending is often determined by the price of ethanol relative to gasoline, and
availability to consumers. When discretionary blending is financially unattractive, the demand for ethanol may be reduced.
Demand for ethanol is also affected by overall demand for transportation fuel, which is affected by cost, number of miles
traveled and vehicle fuel economy. Miles traveled typically increases during the spring and summer months related to
vacation travel, followed closely behind the fall season due to holiday travel. Consumer demand for gasoline may be
impacted by emerging transportation trends, such as electric vehicles or ride sharing. Additionally, factors such as over-
supply of ethanol, which has been the case in 2018, could continue to negatively impact our parent’s business. Reduced
demand for ethanol may depress the value of our parent’s products, erode its margins, and reduce our parent’s, and
consequently our, ability to generate revenue or operate profitably.
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Increased federal support of cellulosic ethanol may increase competition among corn-derived ethanol producers.
Legislation, including the American Recovery and Reinvestment Act of 2009 and EISA, provides numerous funding
opportunities supporting cellulosic ethanol production. In addition, RFS II mandates an increasing level of biofuel production
that is not derived from corn, though this will be amended lower by the EPA in the reset rulemaking. Federal policies suggest
a long-term political preference for cellulosic processing using feedstocks such as switch grass, silage, wood chips or other
forms of biomass. Cellulosic ethanol is viewed more favorably since the feedstock is not diverted from food production and
has a smaller carbon footprint. Several cellulosic ethanol plants are currently under development. While these have had
limited success to date, as research and development programs persist, there is risk that cellulosic ethanol could displace corn
ethanol. In addition, any replacement of federal mandates from corn-based to cellulosic-based ethanol production may reduce
our parent’s, and consequently our, profitability.
Our parent’s ethanol production plants, where the majority of our ethanol storage facilities are located, are designed as
single-feedstock facilities and would require significant additional investment to convert to the production of cellulosic
ethanol. Additionally, our parent’s ethanol production plants are strategically located in high-yield, low-cost corn production
areas. At present, there is limited supply of alternative feedstocks near our parent’s facilities. As a result, the adoption of
cellulosic ethanol and its use as the preferred form of ethanol could have a significant adverse impact on our parent’s, and
consequently our, business.
Our insurance policies do not cover all losses, costs or liabilities that we may experience, and insurance companies that
currently insure companies in the energy industry may cease to do so or substantially increase premiums.
We are insured under the property, liability and business interruption policies of our parent, subject to the deductibles
and limits under those policies. Our parent has acquired insurance that we and our parent believe to be adequate to prevent
loss from material foreseeable risks. However, events may occur for which no insurance is available or for which insurance is
not available on terms that are acceptable to our parent. Loss from such an event, such as, but not limited to war, riot,
terrorism or other risks, may not be insured and such a loss may have a material adverse effect on our and our parent’s
operations, cash flows and financial position.
Certain of our parent’s ethanol production plants and our related storage tanks, as well as certain of our fuel terminal
facilities are located within recognized seismic and flood zones. We believe that the design of these facilities have been
modified to fortify them to meet structural requirements for those regions of the country. Our parent has also obtained
additional insurance coverage specific to earthquake and flood risks for the applicable plants and fuel terminals. However,
there is no assurance that any such facility would remain in operation if a seismic or flood event were to occur.
Additionally, our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the
insurance market over which we have no control. In addition, if we experience insurable events, our annual premiums could
increase further or insurance may not be available at all. If significant changes in the number or financial solvency of
insurance underwriters for the ethanol industry occur, we may be unable to obtain and maintain adequate insurance at a
reasonable cost. We cannot assure our unitholders that we will be able to renew our insurance coverage on acceptable terms,
if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. The occurrence of an
event that is not fully covered by insurance, the failure by one or more insurers to honor its commitments for an insured event
or the loss of insurance coverage could have a material adverse effect on our financial condition, results of operations, cash
flows and ability to make distributions to our unitholders.
We may be affected by our parent’s portfolio optimization strategy.
In May 2018, our parent announced that it was evaluating the performance of its entire portfolio of assets and businesses.
As part of that process, during the fourth quarter of 2018, our parent sold three ethanol plants and permanently closed one
ethanol plant. As it continues to evaluate its portfolio, our parent may sell additional assets or businesses or exit particular
markets that are no longer a strategic fit or no longer meet their growth or profitability targets. Depending on the nature of the
assets sold, our profitability may be impacted by lost operating income or cash flows from such businesses. In addition,
divestitures our parent completes may not yield the targeted improvements in their business and may divert management’s
attention from our day-to-day operations. Our parent’s failure to achieve the intended financial results associated with its
portfolio optimization strategy could have an adverse effect on our business, financial condition or results of operations.
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The loss of key personnel could adversely affect our ability to operate.
We depend on the leadership, involvement and services of a relatively small group of our general partner’s key
management personnel, including its Chief Executive Officer and other executive officers and key technical and commercial
personnel. The services of these individuals may not be available to us in the future. We may not be able to find acceptable
replacements with comparable skills and experience. Accordingly, the loss of the services of one or more of these individuals
could have a material adverse effect on our ability to operate our business.
Additionally, our success depends, in part, on our parent’s ability to attract and retain competent personnel. For each of
our parent’s ethanol production plants, qualified managers, engineers, operations and other personnel must be hired. Our
parent may not be able to attract and retain qualified personnel. If our parent is unable to hire and retain productive and
competent personnel, the amount of ethanol our parent produces may decrease and our parent may not be able to efficiently
operate its ethanol production plants and execute its business strategy, which could negatively impact the volumes of ethanol
handled by us, which could have a material adverse effect on our financial condition, results of operations, cash flows and
ability to make distributions to our unitholders.
We do not have any employees and rely solely on employees of our parent and its affiliates.
We do not have any employees and rely on employees of our parent and its affiliates, including our parent. Affiliates of
our parent conduct businesses and activities of their own in which we have no economic interest. As a result, there could be
material competition for the time and efforts of the employees who provide services to us and to our parent and its affiliates.
If the employees of our parent and its affiliates do not devote sufficient attention to the operation of our business, our
financial results may suffer and our ability to make distributions to our unitholders may be reduced.
In addition, we have entered into service agreements with unaffiliated third-parties to provide railcar unloading and
terminal services for several of our terminal facilities. Under these service agreements, the third parties are responsible for
providing the personnel necessary for the performance of various railcar unloading and terminal services. The third parties
are considered independent contractors and none of their employees or contractors are considered an employee,
representative or agent of us. Failure to maintain or renew these agreements could negatively affect our operational and
financial results and may increase operating expenses at our terminal facilities.
We could be adversely affected by terrorist attacks, threats of war or actual war.
Terrorist attacks in the United States, as well as events occurring in response to or in connection with them, including
threats of war or actual war, may adversely affect our and our parent’s financial condition, results of operations, cash flows,
and ability to make distributions to our unitholders. Ethanol-related assets (including ethanol production plants, such as those
owned and operated by our parent on which we are substantially dependent, and storage facilities, fuel terminal facilities and
railcars such as those owned and operated by us or our parent) may be at greater risk of future terrorist attacks than other
possible targets. A direct attack on our assets or assets used by us could have a material adverse effect on our financial
condition, results of operations, cash flows and ability to make distributions to our unitholders. In addition, any terrorist
attack could have an adverse impact on ethanol prices, including prices for our parent’s ethanol. Disruption or significant
increases in ethanol prices could result in government imposed price controls.
We could be adversely affected by cyber-attacks or failure of our or our parent’s internal computer network and applications
to operate as designed.
We and our parent rely on network infrastructure and enterprise applications, and internal technology systems for
operational, marketing support and sales, and product development activities. The hardware and software systems related to
such activities are subject to damage from earthquakes, floods, lightning, tornados, fire, power loss, telecommunication
failures, cyber-attacks and other similar events. They are also subject to acts such as computer viruses, physical or electronic
vandalism or other similar disruptions that could cause system interruptions and loss of critical data, and could prevent us or
our parent from fulfilling customers’ orders. Cybersecurity threats and incidents can range from uncoordinated individual
attempts to gain unauthorized access to information technology networks and systems to more sophisticated and targeted
measures, known as advanced persistent threats, directed at a company, its products, its customers and/or its third-party
service providers. Despite the implementation of cybersecurity measures (including access controls, data encryption,
vulnerability assessments, employee training, continuous monitoring, and maintenance of backup and protective systems),
our information technology systems may still be vulnerable to cybersecurity threats and other electronic security breaches.
While we have taken reasonable efforts to protect ourselves, we cannot assure our unitholders that any of our or our parent’s
backup systems would be sufficient. Any event that causes failures or interruption in such hardware or software systems
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could result in disruption of our or our parent’s business operations, have a negative impact on our parent’s and our operating
results, and damage each of our reputations, which could negatively affect our financial condition, results of operation, cash
flows and ability to make distributions to our unitholders.
Risks Related to an Investment in Us
Our parent owns and controls our general partner, which has sole responsibility for conducting our business and managing
our operations. Our general partner and its affiliates, including our parent and Green Plains Trade, have conflicts of interest
with us and limited duties to us and our unitholders, and they may favor their own interests to our detriment and that of our
unitholders.
Our parent owns and controls our general partner and appoints all of the directors of our general partner. Some of the
directors and all of the executive officers of our general partner are also directors or officers of our parent. Although our
general partner has a duty to manage us in a manner it believes to be in our best interests, the directors and officers of our
general partner also have a duty to manage our general partner in a manner that is in the best interests of its owner, our
parent. Conflicts of interest may arise between our general partner and its affiliates, including our parent and Green Plains
Trade, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general
partner may favor its own interests and the interests of its affiliates, including our parent and Green Plains Trade, over the
interests of our unitholders. These conflicts include, among others, the following situations:
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neither our partnership agreement nor any other agreement requires our parent to pursue a business strategy that
favors us or utilizes our assets, which could involve decisions by our parent, which also controls Green Plains Trade,
to increase or decrease their ethanol production, shutdown or reconfigure its ethanol facilities, enter into commercial
agreements with us, undertake acquisition opportunities for itself, or pursue and grow particular markets. Our
parent’s directors and officers have a fiduciary duty to make these decisions in the best interests of our parent and its
stockholders, which may be contrary to our interests and those of our unitholders;
our parent may be constrained by the terms of its debt instruments from taking actions, or refraining from taking
actions, that may be in our best interests;
our parent has an economic incentive to cause us not to seek higher storage and service fees, even if such fees would
reflect fees that could be obtained in arm’s-length, third-party transactions, because Green Plains Trade, an indirect
subsidiary of our parent, is our primary customer;
our general partner determines the amount and timing of asset purchases and sales, borrowings, issuance of
additional partnership securities, and the creation, reduction or increase of cash reserves, each of which can affect
the amount of cash that is distributed to our unitholders;
our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the
purpose or effect of the borrowing is to make incentive distributions;
our general partner determines which costs incurred by it are reimbursable by us;
our partnership agreement permits us to distribute up to $40.0 million as operating surplus, even if it is generated
from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus.
This cash may be used to fund distributions on our incentive distribution rights;
our general partner is allowed to take into account the interests of parties other than us in exercising certain rights
under our partnership agreement;
our partnership agreement replaces the duties that would otherwise be owed by our general partner with contractual
standards governing its duties, limiting our general partner’s liabilities and restricting the remedies available to our
unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;
except in limited circumstances, our general partner has the power and authority to conduct our business and transfer
its incentive distribution rights without unitholder approval;
our general partner determines the amount and timing of many of our cash expenditures and whether a cash
expenditure is classified as an expansion capital expenditure, which would not reduce operating surplus, or a
maintenance capital expenditure, which would reduce our operating surplus. This determination can affect the
amount of available cash from operating surplus that is distributed to our unitholders and to our general partner, and
the amount of adjusted operating surplus generated in any given period;
our general partner may exercise its right to call and purchase all of the common units not owned by it and its
affiliates if it and its affiliates own more than 80% of the common units;
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our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates,
including our commercial agreements with its subsidiary, Green Plains Trade;
our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and
our general partner, as the holder of our incentive distribution rights, may elect to cause us to issue common units to
it in connection with a resetting of target distribution levels related to our general partner’s incentive distribution
rights without the approval of the conflicts committee of the board of directors of our general partner or our
unitholders. This election may result in lower distributions to our unitholders in certain situations.
Except as provided in our omnibus agreement, affiliates of our general partner, including our parent and Green Plains
Trade, may compete with us, and neither our general partner nor its affiliates have any obligations to present business
opportunities to us.
Except as provided in our omnibus agreement, affiliates of our general partner, including our parent and Green Plains
Trade, may compete with us. Pursuant to the terms of our partnership agreement, the doctrine of corporate opportunity, or
any analogous doctrine, does not apply to our general partner or any of its affiliates, including our parent and Green Plains
Trade, and their respective executive officers and directors. Any such person or entity that becomes aware of a potential
transaction, agreement, arrangement or other matter that may be an opportunity for us does not have any duty to
communicate or offer such opportunity to us. Any such person or entity is not liable to us or to any limited partner for breach
of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for
itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us.
This may create actual and potential conflicts of interest between us and affiliates of our general partner, including our parent
and Green Plains Trade, and result in less than favorable treatment of us and our common unitholders.
Our general partner intends to limit its liability regarding our obligations.
Our general partner intends to limit its liability under contractual arrangements between us and third parties so that the
counterparties to such arrangements have recourse only against our assets and not against our general partner or its assets.
Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general
partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of
our general partner’s duties, even if we could have obtained more favorable terms without the limitation on liability. In
addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf.
Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution
to our unitholders.
Ongoing cost reimbursements and fees due to our general partner and its affiliates for services provided, which are
determined by our general partner in its sole discretion, are substantial and reduce the amount of cash that we have
available for distribution to our unitholders.
Prior to making distributions on our common units, we reimburse our general partner and its affiliates for all expenses
they incur on our behalf. These expenses include all costs incurred by our general partner and its affiliates in managing and
operating us, including costs for rendering certain management, maintenance and operational services to us, reimbursable
pursuant to the operational services and secondment agreement. Our partnership agreement provides that our general partner
determines the expenses that are allocable to us in good faith. Under the omnibus agreement, we have agreed to reimburse
our parent for certain direct or allocated costs and expenses incurred by our parent in providing general and administrative
services in support of our business. In addition, under Delaware partnership law, our general partner has unlimited liability
for our obligations, such as our debts and environmental liabilities, except for our contractual obligations that are expressly
made without recourse to our general partner. To the extent our general partner incurs obligations on our behalf, we are
obligated to reimburse or indemnify it. If we are unable or unwilling to reimburse or indemnify our general partner, our
general partner may take actions to cause us to make payments of these obligations and liabilities. Payments to our general
partner and its affiliates, including our parent, are substantial and reduce the amount of cash otherwise available for
distribution to our unitholders.
Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and
make acquisitions.
Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we rely
primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity
securities, to fund our expansion capital expenditures and acquisitions. Therefore, to the extent that we are unable to finance
growth externally, our cash distribution policy significantly impairs our ability to grow.
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In addition, because we distribute all of our available cash, our growth may not be as fast as businesses that reinvest their
available cash to expand ongoing operations. To the extent we issue additional partnership interests in connection with any
acquisitions or expansion capital expenditures or as in-kind distributions, our current unitholders will experience dilution and
the payment of distributions on those additional partnership interests may increase the risk that we will be unable to maintain
or increase our per unit distribution level. There are no limitations in our partnership agreement, and we do not anticipate that
there will be limitations in our revolving credit facility, on our ability to issue additional partnership securities, including
units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our
growth strategy would result in increased debt service costs which, in turn, may impact the available cash that we have to
distribute to our unitholders.
Our partnership agreement replaces our general partner’s fiduciary duties to holders of our common units with contractual
standards governing its duties.
As permitted by Delaware law, our partnership agreement contains provisions that eliminate the fiduciary standards that
our general partner would otherwise be held to by state fiduciary duty law and replaces those duties with several different
contractual standards. For example, our partnership agreement permits our general partner to make a number of decisions in
its individual capacity, as opposed to in its capacity as our general partner, or otherwise, free of any duties to us and our
unitholders. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or
obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples
of decisions that our general partner may make in its individual capacity include:
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how to allocate business opportunities among us and its other affiliates;
• whether to exercise its call rights;
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how to exercise its voting rights with respect to the units it owns;
• whether to exercise its registration rights;
• whether to elect to reset target distribution levels;
• whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership
agreement; and
• whether or not the general partner should elect to seek the approval of the conflicts committee or the unitholders, or
neither, of any conflicted transaction.
By purchasing a common unit, a unitholder is treated as having consented to the provisions in our partnership agreement,
including the provisions discussed above.
Our partnership agreement restricts the remedies available to holders of our common units for actions taken by our general
partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the remedies available to our unitholders for actions taken by
our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example,
our partnership agreement provides that:
• whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as
our general partner, our general partner is required to make such determination, or take or decline to take such other
action, in good faith, and is not subject to any higher standard imposed by our partnership agreement, Delaware law,
or any other law, rule or regulation, or at equity;
•
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our general partner does not have any liability to us or our unitholders for decisions made in its capacity as a general
partner so long as it acted in good faith;
our general partner and its officers and directors are not liable for monetary damages to us or our limited partners
resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in
bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that
the conduct was unlawful; and
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•
our general partner is not in breach of its obligations under the partnership agreement or its duties to us or our
limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:
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approved by the conflicts committee of the board of directors of our general partner, although our general
partner is not obligated to seek such approval;
approved by the vote of a majority of the outstanding common units, excluding any common units owned by
our general partner and its affiliates; or
otherwise meets the standards set forth in our partnership agreement.
In connection with a situation involving a transaction with an affiliate or a conflict of interest, our partnership agreement
provides that any determination by our general partner must be made in good faith, and that our conflicts committee and the
board of directors of our general partner are entitled to a presumption that they acted in good faith. In any proceeding brought
by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption.
Our partnership agreement designates the Court of Chancery of the State of Delaware as the exclusive forum for certain
types of actions and proceedings that may be initiated by our unitholders, which limits our unitholders’ ability to choose the
judicial forum for disputes with us or our general partner’s directors, officers or other employees.
Our partnership agreement provides that, with certain limited exceptions, the Court of Chancery of the State of Delaware
will be the exclusive forum for any claims, suits, actions or proceedings (1) arising out of or relating in any way to our
partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership
agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers
of, or restrictions on, the limited partners or us), (2) brought in a derivative manner on our behalf, (3) asserting a claim of
breach of a duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner,
to us or the limited partners, (4) asserting a claim arising pursuant to any provision of the Delaware Revised Uniform Limited
Partnership Act, or the Delaware Act, or (5) asserting a claim against us governed by the internal affairs doctrine, each
referred to as a unitholder action. By purchasing a common unit, a limited partner is irrevocably consenting to these
limitations and provisions regarding unitholder actions and submitting to the exclusive jurisdiction of the Court of Chancery
of the State of Delaware (or such other court) in connection with any such unitholder actions. These provisions may have the
effect of discouraging lawsuits against us and our general partner’s directors and officers that may otherwise benefit us and
our unitholders.
Our partnership agreement provides that any unitholder bringing certain unsuccessful unitholder actions is obligated to
reimburse us for any costs we have incurred in connection with such unsuccessful unitholder action.
If any unitholder brings any unitholder action and such person does not obtain a judgment on the merits that substantially
achieves, in substance and amount, the full remedy sought, then such person shall be obligated to reimburse us and our
affiliates for all fees, costs and expenses of every kind and description, including but not limited to all reasonable attorneys’
fees and other litigation expenses, that the parties may incur in connection with such unitholder action. For purposes of these
provisions, “our affiliates” means any person that directly or indirectly controls, is controlled by or is under common control
with us, and “control” means the possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of such person. Examples of “our affiliates,” as used in these provisions, include Green Plains, our
general partner, and the directors and officers of our general partner, and, depending on the situation, other third parties that
fit within the definition of “our affiliates” described above.
A limited partner or any person holding a beneficial interest in us (whether through a broker, dealer, bank, trust company
or clearing corporation or an agent of any of the foregoing or otherwise) is subject to these provisions. By purchasing a
common unit, a limited partner is irrevocably consenting to these potential reimbursement obligations regarding unitholder
actions. These provisions may have the effect of discouraging lawsuits against us and our general partner’s directors and
officers that might otherwise benefit us and our unitholders.
The reimbursement provision in our partnership agreement is not limited to specific types of unitholder action but is
rather potentially applicable to the fullest extent permitted by law. Such reimbursement provisions are relatively new and
untested. The case law and potential legislative action on these types of reimbursement provisions are evolving and there
exists considerable uncertainty regarding the validity of, and potential judicial and legislative responses to, such provisions.
For example, it is unclear whether our ability to invoke such reimbursement in connection with unitholder actions under
federal securities laws would be pre-empted by federal law. Similarly, it is unclear how courts might apply the standard that a
claiming party must obtain a judgment that substantially achieves, in substance and amount, the full remedy sought. For
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example, in the event the claiming party were to allege multiple claims and does not receive a favorable judgment for the full
remedy sought for each of its alleged claims, it is unclear how courts would apportion our fees, costs and expenses, and
whether courts would require the claiming party to reimburse us and our affiliates in full for all fees, costs and expenses
relating to each of the claims, including those for which the claiming party received the remedy it sought. The application of
our reimbursement provision in connection with such unitholder actions, if any, depends in part on future developments of
the law. This uncertainty may have the effect of discouraging lawsuits against us and our general partner’s directors and
officers that might otherwise benefit us and our unitholders. In addition, given the unsettled state of the law related to
reimbursement provisions, such as ours, we may incur significant additional costs associated with resolving disputes with
respect to such provision, which could adversely affect our business and financial condition.
Our general partner, or any transferee holding incentive distribution rights, may elect to cause us to issue common units to it
in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval
of the conflicts committee or the holders of our common units, which could result in lower distributions to holders of our
common units.
Our general partner has the right, as the initial holder of our incentive distribution rights, at any time when our general
partner has received incentive distributions at the highest level to which it is entitled (48%, in addition to distributions paid
on its 2% general partner interest) for each of the prior four consecutive fiscal quarters and the amount of each such
distribution did not exceed the adjusted operating surplus for such quarter, to reset the initial target distribution levels at
higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our
general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the
target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset
minimum quarterly distribution.
If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units.
The number of common units to be issued to our general partner will equal the number of common units that would have
entitled the holder to an aggregate quarterly cash distribution in the quarter prior to the reset election equal to the distribution
to our general partner on the incentive distribution rights in the quarter prior to the reset election. Our general partner will
also be issued the number of general partner interests necessary to maintain our general partner’s interest in us at the level
that existed immediately prior to the reset election. We anticipate that our general partner would exercise this reset right in
order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per
common unit without such reset. It is possible, however, that our general partner could exercise this reset election at a time
when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive
distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive
distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution rights have
been transferred to a third party. As a result, a reset election may cause our common unitholders to experience a reduction in
the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common
units and general partner interests to our general partner in connection with resetting the target distribution levels.
Our general partner has a limited call right that may require our unitholders to sell their common units at an undesirable
time or price.
If at any time our general partner and its affiliates own more than 80% of our then-outstanding common units, our
general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all,
but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the
daily closing price of the common units over the 20 trading days preceding the date three business days before notice of
exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for
common units during the 90-day period preceding the date such notice is first mailed. As a result, our unitholders may be
required to sell their common units at an undesirable time or price and may not receive any return, or may receive a negative
return, on their investment. Our unitholders may also incur a tax liability upon a sale of their common units. Our general
partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon
exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from
issuing additional common units and exercising its call right. Our parent owns an aggregate of approximately 50.5% of our
outstanding common units (excluding any common units owned by directors, director nominees and executive officers of our
general partner or of Green Plains) and therefore is currently unable to exercise the call right.
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Our unitholders have limited voting rights and are not entitled to elect our general partner or the board of directors of our
general partner, which could reduce the price at which our common units trade.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence management’s decisions regarding our business. For example, unlike
holders of stock in a public corporation, unitholders do not have “say-on-pay” advisory voting rights. Our unitholders did not
elect our general partner or the board of directors of our general partner, and have no right to elect our general partner or the
board of directors of our general partner on an annual or other continuing basis. The board of directors of our general partner,
including its independent directors, is chosen by the member of our general partner. Furthermore, if our unitholders are
dissatisfied with the performance of our general partner, they have little ability to remove our general partner. Our
partnership agreement also contains provisions limiting the ability of our unitholders to call meetings or to acquire
information about our operations, as well as other provisions limiting our unitholders’ ability to influence the manner or
direction of management. As a result of these limitations, the price at which our common units trade could be diminished
because of the absence or reduction of a takeover premium in the trading price.
Even if our unitholders are dissatisfied, they cannot initially remove our general partner without its consent.
Our unitholders are unable to remove our general partner without its consent because our general partner and its affiliates
own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common
units is required to remove the general partner. Our parent owns approximately 50.5% of our total outstanding and equivalent
common units on an aggregate basis (excluding any common units owned by directors, director nominees and executive
officers of our general partner or of Green Plains).
Our partnership agreement eliminates the voting rights of certain of our unitholders owning 20% or more of our common
units.
Our unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held
by a person that owns 20% or more of any class of units then outstanding, other than our general partner, its affiliates,
including our parent, their transferees and persons who acquired such units with the prior approval of the board of directors
of our general partner, cannot vote on any matter.
Our general partner’s interest in us or the control of our general partner may be transferred to a third party without
unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially
all of its assets without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of
our parent from transferring all or a portion of its ownership interest in our general partner to a third party. The new owner of
our general partner would then be in a position to replace the board of directors and officers of our general partner with its
own choices and thereby exert significant control over the decisions made by the board of directors and officers. This
effectively permits a “change of control” without the vote or consent of our unitholders.
The incentive distribution rights held by our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer all or a portion of its incentive distribution rights to a third party at any time without the
consent of our unitholders, and such transferee shall have the same rights as the general partner relative to resetting target
distributions if our general partner concurs that the test for resetting target distributions have been fulfilled. If our general
partner transfers the incentive distribution rights to a third party, it may not have the same incentive to grow our partnership
and increase quarterly distributions to our unitholders over time as it would if it had retained ownership of the incentive
distribution rights. For example, a transfer of incentive distribution rights by our general partner could reduce the likelihood
of our parent accepting offers made by us relating to assets owned by it and our parent would have less of an economic
incentive to grow our business, which in turn would impact our ability to grow our asset base.
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We may issue additional partnership interests, including units that are senior to the common units, without unitholder
approval, which would dilute our unitholders’ existing ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests or general partner interests
that we may issue at any time without the approval of our unitholders. The issuance by us of additional common units,
general partner interests or other equity securities of equal or senior rank to our common units as to distributions or in
liquidation or that have special voting rights or other rights, have the following effects:
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each unitholder’s proportionate ownership interest in us will decrease;
the amount of distributable cash flow on each unit may decrease;
because the amount payable to holders of incentive distribution rights is based on a percentage of the total
distributable cash flow, the distributions to holders of incentive distribution rights will increase even if the per unit
distribution on common units remains the same;
the ratio of taxable income to distributions may increase;
the relative voting strength of each previously outstanding unit may be diminished;
the claims of the common unitholders to our assets in the event of our liquidation may be subordinated; and
the market price of the common units may decline.
The issuance by us of additional general partner interests may have the following effects, among others, if such general
partner interests are issued to a person that is not an affiliate of our parent:
• management of our business may no longer reside solely with our current general partner; and
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affiliates of the newly admitted general partner may compete with us, and neither that general partner nor such
affiliates will have any obligation to send business opportunities to us.
Common units eligible for future sale may cause the price of our common units to decline.
Sales of substantial amounts of our common units in the public market, or the perception that these sales may occur,
could cause the market price of our common units to decline. This could also impair our ability to raise additional capital
through the sale of our equity interests. Our parent holds 11,586,548 common units. All of the subordinated units converted
into common units on August 13, 2018. Additionally, we have agreed to provide our parent with certain registration rights
under applicable securities laws. The sale of these common units in public or private markets could have an adverse impact
on the price of the common units or on any trading market that may develop.
Our general partner’s discretion in establishing cash reserves may reduce the amount of distributable cash flow to our
unitholders.
Our partnership agreement requires our general partner to deduct from operating surplus the cash reserves that it
determines are necessary to fund our future operating expenditures. In addition, our partnership agreement permits the
general partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with
applicable law or agreements that we are a party to, or to provide funds for future distributions to partners. These cash
reserves affect the amount of distributable cash flow to our unitholders.
If we distribute available cash from capital surplus, which is analogous to a return of capital, our minimum quarterly
distribution will be proportionately reduced, and the target distribution relating to our general partner’s incentive
distributions will be proportionately decreased.
Our distributions of available cash are characterized as derived from either operating surplus or capital surplus.
Operating surplus as defined in our partnership agreement generally means amounts we have received from operations or
“earned,” less operating expenditures and cash reserves to provide funds for our future operations. Capital surplus is defined
in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus, and
generally would result from cash received from non-operating sources such as sales of other dispositions of assets and
issuances of debt and equity securities.
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Our partnership agreement treats a distribution of capital surplus as the repayment of the IPO initial unit price, which is
analogous to a return of capital. Each time a distribution of capital surplus is made, the minimum quarterly distribution and
the target distribution levels will be proportionately reduced. Because distributions of capital surplus will reduce the
minimum quarterly distribution after any of these distributions are made, the effects of distributions of capital surplus may
make it easier for our general partner to receive incentive distributions.
Unitholder liability may not be limited if a court finds that unitholder action constitutes control of our business.
A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those
contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is
organized under Delaware law, and we own assets and conduct business throughout much of the United States. Our
unitholders could be liable for any and all of our obligations as if they were a general partner if:
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a court or government agency determines that we were conducting business in a state but had not complied with that
particular state’s partnership statute; or
unitholder rights to act with other unitholders to remove or replace the general partner, to approve some
amendments to our partnership agreement or to take other actions under our partnership agreement constitute
“control” of our business.
Our unitholders may have liability to repay distributions that were wrongfully distributed to them.
Under certain circumstances, our unitholders may have to repay amounts wrongfully distributed to them. Under Section
17-607 of the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities
to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the
impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it
violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are
liable for the obligations of the assignor to make contributions to the partnership that are known to the substituted limited
partner at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the
partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are nonrecourse to the
partnership are not counted for purposes of determining whether a distribution is permitted.
The price of our common units may fluctuate significantly, which could cause our unitholders to lose all or part of their
investment.
As of December 31, 2018, there are 11,551,147 publicly traded common units. In addition, our parent owns 11,586,548
common units, representing an aggregate 49.1% limited partner interest in us. Our unitholders may not be able to resell their
common units at or above their purchase price. Additionally, the lack of liquidity may result in wide bid-ask spreads,
contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able
to buy the common units.
The market price of our common units may decline below current levels. The market price of our common units may
also be influenced by many factors, some of which are beyond our control, including:
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our operating and financial performance;
quarterly variations in our financial indicators, such as net earnings (loss) per unit, net earnings (loss) and revenues;
the amount of distributions we make and our earnings or those of other companies in our industry or other publicly
traded partnerships;
the loss of our parent or one of its subsidiaries, such as Green Plains Trade, as a customer;
events affecting the business and operations of our parent;
announcements by us or our competitors of significant contracts or acquisitions;
changes in revenue or earnings estimates, or changes in recommendations or withdrawal of research coverage, by
equity research analysts;
speculation in the press or investment community;
changes in accounting standards, policies, guidance, interpretations or principles;
additions or departures of key management personnel;
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actions by our unitholders;
general market conditions, including fluctuations in commodity prices;
domestic and international economic, legal and regulatory factors related to our performance;
future sales of our common units by us or our other unitholders, or the perception that such sales may occur; and
other factors described in this report under Item 1A – Risk Factors.
As a result of these factors, investors in our common units may not be able to resell their common units at or above the
current trading price. In addition, the stock market in general has experienced extreme price and volume fluctuations that
have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and
industry factors may materially reduce the market price of our common units, regardless of our operating performance.
Nasdaq does not require a publicly traded partnership like us to comply with certain of its corporate governance
requirements.
We have listed our common units on Nasdaq. Because we are a publicly traded partnership, Nasdaq does not require us
to have a majority of independent directors on our general partner’s board of directors or to establish a compensation
committee or a nominating and corporate governance committee. Accordingly, our unitholders do not have the same
protections afforded to certain corporations that are subject to all of Nasdaq’s corporate governance requirements.
We incur increased costs as a result of being a publicly traded partnership.
We have limited history operating as a publicly traded partnership. As a publicly traded partnership, we incur significant
legal, accounting and other expenses that we did not incur prior to the IPO. In addition, the Sarbanes-Oxley Act of 2002, as
well as rules implemented by the SEC and Nasdaq, require publicly traded entities to adopt various corporate governance
practices that further increase our costs. Before we are able to make distributions to our unitholders, we must first pay or
reserve cash for our expenses, including the costs of being a publicly traded partnership. As a result, the amount of cash we
have available for distribution to our unitholders is affected by the costs associated with being a public company.
We are subject to the public reporting requirements of the Exchange Act. We expect these rules and regulations to
increase certain of our legal and financial compliance costs and to make activities more time-consuming and costly. For
example, the board of directors of our general partner is required to have at least three independent directors, create an audit
committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of
reports on internal controls over financial reporting. In addition, we incur additional costs associated with our SEC reporting
requirements and preparation of various tax documents, including Schedule K-1s.
We also incur significant expense in order to obtain director and officer liability insurance. Because of the limitations in
coverage for directors, it may be more difficult for us to attract and retain qualified persons to serve on the board of directors
of our general partner or as executive officers.
Pursuant to the JOBS Act, our independent registered public accounting firm is not required to attest to the effectiveness of
our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 as long as we are an
emerging growth company.
We are required to disclose changes made in our internal control over financial reporting on a quarterly basis, and we are
required to assess the effectiveness of our controls annually. However, for as long as we are an “emerging growth company”
under the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to other
public companies that are not emerging growth companies, including not being required to provide an auditor’s attestation
report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act, or Section 404, and reduced disclosure obligations regarding executive compensation
in our periodic reports. We could be an emerging growth company for up to five years from the date of the IPO. Effective
internal controls are necessary for us to provide reliable and timely financial reports, prevent fraud and to operate
successfully as a publicly traded partnership. We prepare our consolidated financial statements in accordance with GAAP,
but our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. Our
efforts to develop and maintain our internal controls may not be successful, and we may be unable to maintain effective
controls over our financial processes and reporting in the future or to comply with our obligations under Section 404. For
example, Section 404 requires us, among other things, to annually review and report on the effectiveness of our internal
control over financial reporting. We must comply with Section 404 (except for the requirement for an auditor’s attestation
35
report) for all fiscal years ending on or after December 31, 2016. Any failure to develop, implement or maintain effective
internal controls or to improve our internal controls could harm our operating results or cause us to fail to meet our reporting
obligations. Even if we conclude that our internal controls over financial reporting are effective, once our independent
registered public accounting firm is required to attest to our assessment they may decline to attest or may issue a report that is
qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or
reviewed, or if it interprets the relevant requirements differently from us.
Given the difficulties inherent in the design and operation of internal controls over financial reporting, in addition to our
limited accounting personnel and management resources, we can provide no assurance as to our or our independent registered
public accounting firm’s future conclusions about the effectiveness of our internal controls, and we may incur significant
costs in our efforts to comply with Section 404. Any failure to implement and maintain effective internal controls over
financial reporting subjects us to regulatory scrutiny and a loss of confidence in our reported financial information, which
could have an adverse effect on our business and would likely have a negative effect on the trading price of our common
units.
We may take advantage of these exemptions until we are no longer an “emerging growth company.” We cannot predict
if investors will find our common units less attractive because we rely on these exemptions. If some investors find our
common units less attractive as a result, there may be a less active trading market for our common units, and our trading price
may be more volatile.
Tax Risks to Our Unitholders
Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes. If the Internal Revenue
Service were to treat us as a corporation for U.S. federal income tax purposes, which would subject us to entity-level
taxation, or if we were otherwise subjected to a material amount of additional entity-level taxation, then our distributable
cash flow to our unitholders would be substantially reduced.
The anticipated after-tax benefit of an investment in our units depends largely on our being treated as a partnership for
U.S. federal income tax purposes.
Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a
partnership such as ours to be treated as a corporation for U.S. federal income tax purposes. A change in our business or a
change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject
us to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our
taxable income at the corporate tax rate, which was a maximum of 35% at December 31, 2017, decreasing to 21% on January
1, 2018, and would likely pay state and local income tax at varying rates. Distributions to our unitholders would generally be
taxed again as corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains,
losses, deductions, or credits would flow through to our unitholders. Because a tax would be imposed upon us as a
corporation, our distributable cash flow would be substantially reduced. In addition, changes in current state law may subject
us to additional entity-level taxation by individual states. Because of widespread state budget deficits and other reasons,
several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income,
franchise and other forms of taxation. Imposition of any such taxes may substantially reduce the distributable cash flow to
our unitholders. Therefore, if we were treated as a corporation for U.S. federal income tax purposes or otherwise subjected to
a material amount of entity-level taxation, there would be material reduction in the anticipated cash flow and after-tax return
to our unitholders, likely causing a substantial reduction in the value of our units.
Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for U.S. federal, state or local income
tax purposes, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the
impact of that law on us.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative,
judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our
common units may be modified by administrative, legislative or judicial interpretation at any time. In addition, from time to
time, members of Congress and the President propose and consider substantive changes to the existing U.S. federal income
36
tax laws that affect publicly traded partnerships, including the elimination of partnership tax treatment for publicly traded
partnerships. Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be
retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership
for U.S. federal income tax purposes.
For example, in May 2015, the Department of Treasury issued proposed regulations regarding qualifying income for
publicly traded partnerships. The proposed regulations provide rules regarding the types of natural resource activities that
generate qualifying income for publicly traded partnerships. On January 19, 2017, the Department of Treasury publicly
released the text of final regulations regarding qualifying income, which were published in the Federal Register on January
24, 2017. On January 20, 2017, the Trump administration released a memorandum that generally delayed all pending
regulations from publication in the Federal Register pending review and approval. It is unclear whether the final regulations
will remain effective in their current form or whether the final regulations will be revised.
We are unable to predict whether any of these changes or any other proposals will ultimately be enacted or adopted.
However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an
investment in our common units.
If the IRS were to contest the U.S. federal income tax positions we take, it may adversely impact the market for our common
units, and the costs of any such contest would reduce distributable cash flow to our unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax
purposes. The IRS may adopt positions that differ from the positions we take, even if taken with the advice of counsel, and
the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to
sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest
with the IRS may materially and adversely impact the market for our common units and the prices at which they trade.
Moreover, the costs of any contest between us and the IRS will result in a reduction in distributable cash flow to our
unitholders and thus will be borne indirectly by our unitholders.
As part of the Bipartisan Budget Act of 2015, enacted on November 2, 2015, legislation was passed requiring large
partnerships to pay federal tax deficiencies. A tax assessment paid by the partnership would reduce distributable cash flow
available to unitholders, potentially for tax assessments related to years in which they did not own partnership units. The new
rules were effective for taxable years beginning after December 31, 2017.
Even if our unitholders do not receive any cash distributions from us, our unitholders are required to pay taxes on their share
of our taxable income.
Because our unitholders are treated as partners to whom we allocate taxable income that could be different in amount
than the cash we distribute, our unitholders’ allocable share of our taxable income is taxable to our unitholders, which may
require the payment of U.S. federal income taxes and, in some cases, state and local income taxes, on our unitholders’ share
of our taxable income even if our unitholders receive no cash distributions from us. Our unitholders may not receive cash
distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that
income.
There have been substantial changes to the Internal Revenue Code, some of which could have an adverse effect on our
unitholders.
The Tax Cuts and Jobs Act was signed into law on December 22, 2017, effective on January 1, 2018. Among other
provisions, the law reduced the federal statutory corporate income tax rate from 35% to 21%. In addition, the new law
provided for the simplification and reform of individual income tax rates, enhancement of the standard deduction, and the
repeal of personal exemptions. This law may impact our unitholders, depending upon their unique facts and circumstances,
and as such we cannot determine whether it will have a positive or negative affect on our unitholders.
Tax gain or loss on the disposition of our common units could be more or less than expected.
If our unitholders sell common units, they will recognize gain or loss equal to the difference between the amount realized
and their tax basis in those common units. Because distributions in excess of their allocable share of our net taxable income
decrease their tax basis in their common units, the amount, if any, of such prior excess distributions with respect to the
common units they sell will, in effect, become taxable income to them if they sell such common units at a price greater than
the tax basis therein, even if the price they receive is less than their original cost. Furthermore, a substantial portion of the
amount realized, whether or not representing gain, may be taxed as ordinary income to such unitholder due to potential
37
recapture items, including depreciation recapture. In addition, because the amount realized includes a unitholder’s share of
our nonrecourse liabilities, if our unitholders sell common units, they may incur a tax liability in excess of the amount of cash
they receive from the sale.
Tax-exempt entities and non-U.S. persons owning our common units face unique tax issues that may result in adverse tax
consequences to them.
Investment in our common units by tax-exempt entities, such as IRAs, and non-U.S. persons, raises issues unique to
them. For example, virtually all of our income allocated to organizations exempt from U.S. federal income tax, including
IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-
U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be
required to file U.S. federal income tax returns and pay tax on their share of our taxable income. Tax exempt entities and non-
U.S. persons should consult a tax advisor before investing in our common units.
We treat each purchaser of our common units as having the same tax benefits without regard to the common units purchased.
The IRS may challenge this treatment, which could adversely affect the value of our common units.
Because we cannot match transferors and transferees of common units and because of other reasons, we adopted
depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful
IRS challenge to those positions could adversely affect the amount of tax benefits available to our unitholders. Our counsel is
unable to opine as to the validity of such filing positions. It also could affect the timing of these tax benefits or the amount of
gain from the sale of common units and could have a negative impact on the value of our common units or result in audit
adjustments to our unitholders’ tax returns.
We prorate our items of income, gain, loss, and deduction between transferors and transferees of our common units each
month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a
particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of
income, gain, loss, and deduction among our unitholders.
We prorate our items of income, gain, loss, and deduction for U.S. federal income tax purposes between transferors and
transferees of our common units each month based upon the ownership of our common units on the first day of each month,
instead of on the basis of the date a particular common unit is transferred. Although simplifying conventions are
contemplated by the Internal Revenue Code and most publicly traded partnerships use similar simplifying conventions, the
use of this proration method may not be permitted under existing Treasury Regulations. The U.S. Treasury recently adopted
final Treasury Regulations allowing similar monthly simplifying conventions. However, the final Treasury Regulations do
not specifically authorize the use of the proration method that we have adopted and, accordingly, our counsel is unable to
opine as to the validity of this method. If the IRS were to challenge our proration method, we may be required to change the
allocation of items of income, gain, loss, and deduction among our unitholders.
A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of
common units) may be considered as having disposed of those common units. If so, he would no longer be treated for tax
purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from
the disposition.
Because a unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be
considered as having disposed of the loaned common units, he may no longer be treated for U.S. federal income tax purposes
as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may
recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income,
gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions
received by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure
their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to
discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning
their common units.
38
We will adopt certain valuation methodologies that may result in a shift of income, gain, loss, and deduction between our
unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.
When we issue additional common units or engage in certain other transactions, we will determine the fair market value
of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and
our general partner. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift
of income, gain, loss, and deduction between certain of our unitholders and our general partner, which may be unfavorable to
such unitholders. Moreover, under our valuation methods, subsequent purchasers of common units may have a greater
portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion
allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b)
adjustment attributable to our tangible and intangible assets, and allocations of income, gain, loss, and deduction between our
general partner and certain of our unitholders.
A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss
being allocated to our unitholders. It also could affect the amount of taxable gain from our unitholders’ sale of common units
and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax
returns without the benefit of additional deductions.
As a result of investing in our common units, our unitholders may be subject to state and local taxes and return filing
requirements in jurisdictions where we operate or own or acquire properties.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including foreign, state, and local
taxes, unincorporated business taxes, and estate, inheritance or intangible taxes that are imposed by the various jurisdictions
in which we conduct business or control property now or in the future, even if our unitholders do not live in any of those
jurisdictions. Our unitholders may be required to file foreign, state, and local income tax returns and pay state and local
income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to
comply with those requirements. We expect to conduct business in multiple states, many of which impose a personal income
tax on individuals as well as corporations and other entities. It is the responsibility of our unitholders to file all U.S. federal,
foreign, state, and local tax returns.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
See Item 1 – Business, Our Assets and Operations for a description of our properties and their utilization. We believe our
properties and facilities are adequate for our operations and properly maintained.
Item 3. Legal Proceedings.
We may be involved in litigation that arises during the ordinary course of business. We are not, however, involved in any
material litigation at this time.
Item 4. Mine Safety Disclosures.
Not applicable.
39
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
On June 26, 2015, our common units began trading under the symbol “GPP” on Nasdaq. On July 1, 2015, we completed
our IPO of 11,500,000 common units, representing limited partner interests, for $15.00 per common unit. The requirements
under the partnership agreement for the conversion of all of the outstanding subordinated units into common units were
satisfied upon the payment of the distribution with respect to the quarter ended June 30, 2018. Accordingly, the subordination
period ended on August 13, 2018, the first business day after the date of the distribution payment, and all of the 15,889,642
outstanding subordinated units were converted into common units on a one-for-one basis. Our parent currently owns
11,586,548 common units, constituting a 49.1% limited partner ownership interest in us.
Holders of Record
We had six holders of record of our common units on December 31, 2018, one of which holds the 11,500,000
outstanding common units held by the public, including those held in street name.
Cash Distribution Policy
For each calendar quarter commencing with the quarter ended September 30, 2015, the partnership agreement requires us
to distribute all available cash, as defined, to our partners 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. For additional information on our cash distribution policy, please refer to Note 11 – Partners’ Capital to
the consolidated financial statements in this report.
Issuer Purchases of Equity Securities
None.
Recent Sales of Unregistered Securities
None.
Equity Compensation Plans
Refer to Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
for information regarding units authorized for issuance under equity compensation plans in this report.
40
Performance Graph
The following graph compares our cumulative total return on our common units since the IPO to the cumulative total
return of the S&P 500 Index and the Alerian MLP Index (AMZX), assuming $100 was invested in each option as of June 26,
2015, the date common units began trading. The Alerian MLP Index is a composite of the 50 most prominent master limited
partnerships and is calculated using a float-adjusted, capitalization weighted methodology.
The information in the graph is not considered solicitation material, nor will it be filed with the SEC or incorporated by
reference into any future filing under the Securities Act or Exchange Act unless we specifically incorporate it by reference
into our filing.
Item 6. Selected Financial Data.
The statement of operations data for the years ended December 31, 2018, 2017 and 2016, and the balance sheet data as of
December 31, 2018 and 2017, are derived from our audited consolidated financial statements and should be read together
with the accompanying notes included elsewhere in this report.
The statement of operations data for the years ended December 31, 2015 and 2014, and the balance sheet data as of
December 31, 2016, 2015 and 2014, are derived from our audited consolidated financial statements that are not included in
this report, which describe a number of matters that materially affect the comparability of the periods presented.
41
Our results of operations are not comparable to periods prior to our IPO on July 1, 2015, when the storage and
transportation agreements between us and Green Plains Trade became effective. The ethanol storage and leased railcar assets
contributed by our parent are recognized at historical cost and reflected retroactively in our consolidated financial statements,
along with related expenses, such as depreciation, amortization and railcar lease expenses. There were no revenues related to
these assets reflected in the consolidated financial statement for periods before July 1, 2015. Periods ended on or before June
30, 2015, include the activities of BlendStar, which provided terminal and trucking services for our parent as well as third
parties.
These financial statements also reflect the acquisition of the ethanol storage and leased railcar assets of the Hereford,
Texas and Hopewell, Virginia ethanol production facilities from our sponsor in a transfer between entities under common
control, effective January 1, 2016. The assets were recognized at historical cost and reflected retroactively along with related
expenses for periods prior to the effective date of the acquisition, subsequent to the initial dates the assets were acquired by
our sponsor, on October 23, 2015, and November 12, 2015, for Hopewell and Hereford, respectively. There were no revenues
related to these assets for periods before January 1, 2016, when amendments to our commercial agreements related to the
drop down became effective.
On September 23, 2016, we acquired the ethanol storage assets located in Madison, Illinois; Mount Vernon, Indiana and
York, Nebraska related to three ethanol plants, which occurred concurrently with the acquisition of these facilities by Green
Plains from subsidiaries of Abengoa S.A. The transaction was accounted for as a transfer between entities under common
control and the assets were recognized at the preliminary value recorded in Green Plains’ purchase accounting. No retroactive
adjustments were required.
On November 15, 2018, our parent closed on the sale of three of its ethanol plants located in Bluffton, Indiana, Lakota,
Iowa, and Riga, Michigan to Valero. Correspondingly, the storage assets located adjacent to such plants were sold to our
parent for $120.9 million. As consideration, we received from our parent 8.7 million Green Plains units and a portion of the
general partner interest equating to 0.2 million equivalent limited partner units to maintain the general partner’s 2% interest.
These units were retired upon receipt. In addition, we also received cash consideration of $2.7 million from Valero for the
assignment of certain railcar operating leases.
On November 15, 2018, our parent announced the permanent closure of its ethanol plant located in Hopewell, Virginia.
The closure did not affect our quarterly storage and throughput minimum volume commitment with Green Plains Trade or
the current transload operations at that location.
42
The following selected financial data should be read together with Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Adjusted EBITDA and Distributable Cash Flow of this report. The financial
information below is not necessarily indicative of our expected results for any future period, which could differ materially
from historical results due to numerous factors, including those discussed in Item 1A – Risk Factors of this report.
2018
Year Ended December 31,
2016
2017
2015*
2014
Statement of Operations Data:
(in thousands, except per unit information)
Revenues
Operating expenses (1)
Operating income (loss)
Other expense
Net income (loss)
Net loss attributable to MLP predecessor
Net loss attributable to sponsor
Net income attributable to the partnership
Earnings per limited partner unit (basic and
diluted):
Common units
Subordinated units
Weighted average limited partner units
outstanding (basic and diluted):
Common units
Subordinated units
$
100,748 $
37,845
62,903
(7,107)
55,681
-
-
55,681
106,993 $
42,835
64,158
(5,171)
58,867
-
-
58,867
103,772 $
44,281
59,491
(2,462)
56,805
-
-
56,805
50,937 $
38,543
12,394
(295)
16,108
(6,628)
(273)
23,009
12,843
33,371
(20,528)
(63)
(12,833)
(12,833)
-
-
$
$
1.81 $
1.71 $
1.81 $
1.81 $
1.75 $
1.75 $
0.71
0.71
20,950
9,752
15,916
15,890
15,904
15,890
15,897
15,890
Distribution declared per unit
$
1.9000 $
1.8200 $
1.6650 $
0.8025
(1) Includes consideration received of $2.7 million for the assignment of railcar operating leases to Valero in the fourth quarter of 2018.
*Recast to include historical balances of net assets acquired in a transfer between entities under common control. See Notes 1 and 4 in the accompanying
notes to consolidated financial statements for further discussion.
Balance Sheet Data (in thousands):
Cash and cash equivalents
Current assets
Total assets
Long-term debt
Total liabilities
Partners' capital
2018
2017
December 31,
2016
2015*
2014
$
569 $
502 $
622 $
16,616
81,144
142,025
153,598
(72,454)
21,634
92,268
134,875
155,114
(62,846)
22,275
93,776
136,927
157,942
(64,166)
16,385 $
33,919
95,777
7,879
23,967
71,810
5,705
12,036
79,722
7,830
12,415
67,307
*Recast to include historical balances of net assets acquired in a transfer between entities under common control. See Notes 1 and 4 in the accompanying
notes to consolidated financial statements for further discussion.
Adjusted EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization,
plus adjustments for transaction costs related to acquisitions or financing transactions, minimum volume commitment
deficiency payments, unit-based compensation expense, net gains or losses on asset sales and our proportional share of
EBITDA adjustments of equity method investees. Distributable cash flow is defined as adjusted EBITDA less interest paid or
payable, income taxes paid or payable, maintenance capital expenditures and our proportional share of distributable cash flow
adjustments of equity method investees.
Adjusted EBITDA and distributable cash flow presentations are not made in accordance with GAAP and therefore
should not be considered in isolation or as alternatives to net income, operating income or any other measure of financial
performance presented in accordance with GAAP to analyze our results. Refer to Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operations for additional information.
43
The following table presents a reconciliation of net income to adjusted EBITDA for each of the periods presented and a
reconciliation of net income to distributable cash flow (dollars in thousands):
Reconciliations to Non-GAAP Financial Measures:
Net income
Interest expense
Income tax expense
Depreciation and amortization
Transaction costs
Unit-based compensation expense
Proportional share of EBITDA adjustments of equity method
investees (1)
Gain on assignment of operating leases (2)
Adjusted EBITDA
Interest paid or payable
Income taxes paid or payable
Maintenance capital expenditures
Distributable cash flow
Distributions declared (3)
Coverage ratio
Year Ended December 31,
2017
2016
2018
$
$
$
55,681
7,307
101
4,442
805
277
80
(2,721)
65,972
(7,307)
(101)
(50)
58,514
57,767
$
$
$
58,867
5,402
109
5,111
-
219
-
-
69,708
(5,402)
(89)
(184)
64,033
59,124
$
$
$
56,805
2,545
224
5,647
351
143
-
-
65,715
(2,545)
(226)
(265)
62,679
54,022
1.01x
1.08x
1.16x
(1) Represents our proportional share of depreciation and amortization, interest expense, and income tax expense of equity method investees.
(2) Represents consideration received related to the assignment of railcar operating leases to Valero.
(3) Distributions declared for the applicable period and paid in the subsequent quarter.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
The following discussion and analysis includes information management believes is relevant to understand and assess
our financial condition and results of operations. This section should be read together with our consolidated financial
statements, accompanying notes and risk factors contained in this report.
Overview
We are a master limited partnership formed by our parent to be its principle provider of fuel storage and transportation
services. On July 1, 2015, we completed our IPO, and, in addition to the interests of BlendStar, obtained the assets and
liabilities of the ethanol storage and leased railcar assets contributed by our parent in a transfer between entities under
common control. We also entered into long-term, fee-based commercial agreements for storage and transportation services
with Green Plains Trade, which are supported by minimum volume or take-or-pay capacity commitments.
Our profitability is dependent on the volume of ethanol and other fuels handled at our facilities. Our long-term, fee-based
commercial agreements generate stable, predictable cash flows supported by minimum volume or take-or-pay capacity
commitments.
Information about our business, properties and strategy can be found under Item 1 – Business and a description of our
risk factors can be found under Item 1A – Risk Factors.
44
Industry Factors Affecting our Results of Operations
U.S. Ethanol Supply and Demand
According to the EIA, domestic ethanol production increased an average of 1% to 1.05 million barrels per day in 2018,
compared with 1.03 million barrels per day in 2017. Refiner and blender input volume increased slightly to 914 thousand
barrels per day for 2018, compared with 913 thousand barrels per day in 2017. Gasoline demand increased 49 thousand
barrels per day, or 1% in 2018. U.S. domestic ethanol ending stocks increased by approximately 0.5 million barrels year over
year to 23.2 million barrels. As of December 31, 2018, there were approximately 1,700 retail stations selling E15 in 30 states,
up from 1,210 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 for the eleven months ended November
30, 2018, were approximately 1.56 bg, up 31% from 1.19 bg for the same timeframe in 2017. Brazil remained the largest
export destination for U.S. ethanol, which accounted for 30% 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. Canada, India and the Netherlands accounted for 21%, 9% 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.
On December 1, 2018, following a meeting between Chinese President Xi and U.S. President Trump, the two countries
announced they would be discussing a possible trade agreement over the next 90 days.
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 was approximately 12 cents per pound during 2018, compared with an average of 16 cents per pound
for 2017. We currently estimate that net ethanol exports will reach between 1.6 billion gallons and 1.7 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.
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. Congress may also consider legislation that
would impact the RFS. Bills have been introduced in the House and Senate, which would either eliminate the RFS entirely or
eliminate the corn based ethanol portion of the mandate, though they have failed to gain traction heretofore.
Federal mandates supporting the use of renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol
policies are influenced by environmental concerns, diversifying our fuel supply, and an interest in 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 significant growth in U.S. market share. CAFE, which was first
enacted by Congress in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks, provides
a 54% efficiency bonus to flexible-fuel vehicles running on 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. However, the One-Pound Waiver does not currently apply to E15 or higher blends,
even though it has similar physical properties to E10, so its sale is limited to flex-fuel vehicles only during the June 1 to
September 15 summer driving season.
On October 8, 2018, President Trump directed the EPA to begin rulemaking to expand the One-Pound Waiver to E15 so
it can be sold year round. The EPA will follow the Administrative Procedure Act in proposing a rule, accepting public
comment, and then issuing a final rule. The President has stated a goal of having a final rule out before the start of summer
driving season on June 1, 2019. Any final rule from the agency is susceptible to legal challenges. A government shutdown or
staffing shortfalls could delay a final rule.
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.
45
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 is the second year that the total proposed
RVOs are 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. RINs are attached to renewable fuels by producers and detached when the renewable fuel is blended
with transportation fuel or traded 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 be under
75,000 barrels per day and state their case for an exemption in an application to the EPA each year.
The Trump administration waived the obligation for 19 of 20 applicants for compliance year 2016, totaling 790 million
gallons, and 29 of 33 for compliance year 2017, totaling 1.46 billion gallons. This effectively reduces the annual RVO by that
amount, since the waived gallons are not reallocated to other obligated parties at this time. The resulting surplus of RINs in
the market has brought values down significantly, from the mid $0.80 range early in the year to under $0.20. Since the RIN
value helps to make higher blends of ethanol more cost effective, lower RIN values could negatively impact retailer and
consumer adoption of E15 and higher blends.
Biofuels groups have filed a lawsuit 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. This is the first RFS rulemaking since the
expanded use of the exemptions came to light, however the EPA has refused to cap the number of waivers it grants or how it
accounts for the retroactive waivers in its percentage standard calculations. The EPA has a statutory mandate to ensure the
volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The current
approach accomplishes the opposite. Even if all the obligated parties comply with their respective percentage obligations for
2019, the nation’s overall supply of renewable fuel will not meet the total volume requirements set by the EPA. This
undermines Congressional intent of demand pressure creation and an increased consumption of renewable fuels. Biofuels
groups argue the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and
adjust the standards to account for any waivers it reasonably expects to grant in the future.
On July 28, 2017, the U.S. Federal District Court for the D.C. Circuit ruled in favor of the Americans for Clean Energy
and its petitioners against the EPA related to its decision to lower the 2016 volume requirements. The Court concluded the
EPA erred in how it interpreted the “inadequate domestic supply” waiver provision of RFS II, which authorizes the EPA to
consider supply-side factors affecting the volume of renewable fuel available to refiners, blenders and importers to meet
statutory volume requirements. The waiver provision does not allow the EPA to consider the volume of renewable fuel
available to consumers or the demand-side constraints that affect the consumption of renewable fuel by consumers. As a
result, the Court vacated the EPA’s decision to reduce the total renewable fuel volume requirements for 2016 through its
waiver authority, which the EPA is expected to address. We believe this decision to confine the EPA’s waiver analysis to
supply considerations benefits the industry overall and expect the primary impact will be on the RINs market. The EPA has
not yet accounted for the 500 million gallons that the court in the Americans for Clean Energy case directed, though they
have indicated they will include it in the reset rulemaking.
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 the year due to a 30% tariff imposed on U.S. and Brazil fuel ethanol,
which took effect in January 2017. There is no assurance the recently issued joint plan will lead to increased imports of U.S.
ethanol, and recent trade tensions have caused China to raise their tariff on ethanol to 45% and then to 70%. Our exports also
face tariff 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
46
imports in excess of 150 million liters, or 39.6 million gallons per quarter in September 2017. The ruling is valid for two
years. In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which
was challenged by nine lawsuits. Four 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. Five of these cases were initially denied and are going through the appeals process. 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 27.6 mmg for the eleven months ended November 30, 2018.
The Tax Cuts and Jobs Act was signed into law on December 22, 2017, effective on January 1, 2018. Among other
provisions, the new law reduced the federal statutory corporate income tax rate from 35% to 21%. The new law had an
immaterial impact to our financial statements.
Environmental and Other Regulation
Our operations are subject to environmental regulations, including those that govern the handling and release of ethanol,
crude oil and other liquid hydrocarbon materials. Compliance with existing and anticipated environmental laws and
regulations may increase our overall cost of doing business, including capital costs to construct, maintain, operate, and
upgrade equipment and facilities. Our business may also be impacted by government policies, such as tariffs, duties,
subsidies, import and export restrictions and outright embargos. Our parent employs maintenance and operations personnel at
each of its facilities, which are regulated by the Occupational Safety and Health Administration.
The U.S. ethanol industry relies heavily on tank cars to deliver its product to market. On May 1, 2015, the DOT finalized
the Enhanced Tank Car Standard and Operational Controls for High-Hazard and Flammable Trains, or DOT specification
117, which established a schedule to retrofit or replace older tank cars that carry crude oil and ethanol, braking standards
intended to reduce the severity of accidents and new operational protocols. The deadline for compliance with DOT
specification 117 is May 1, 2023. The rule may increase our lease costs for railcars over the long term. Additionally, existing
railcars may be out of service for a period of time while upgrades are made, tightening supply in an industry that is highly
dependent on railcars to transport product. We intend to strategically manage our leased railcar fleet to comply with the new
regulations and have commenced transition of our fleet to DOT 117 compliant railcars. As of December 31, 2018,
approximately 20% of our railcar fleet was DOT 117 compliant. We anticipate that an additional 20% of our railcar fleet will
be DOT 117 compliant by the end of 2019, and that our entire fleet will be fully compliant by 2023.
Our Parent’s Production Levels
Our parent’s operating margins are sensitive to commodity price fluctuations, particularly for corn, ethanol, corn oil,
distillers grains and natural gas, which are impacted by factors that are outside of its control, including weather conditions,
corn yield, changes in domestic and global ethanol supply and demand, government programs and policies and the price of
crude oil, gasoline and substitute fuels. Our parent uses various financial instruments to manage and reduce its exposure to
price variability.
Our parent’s operating margins influence its production levels, which in turn affects the volume of ethanol we store,
throughput and transport. During periods of commodity price variability or compressed margins, our parent may slow down
or temporarily idle operations at certain ethanol plants. Slowing production increases the ethanol yield per bushel of corn,
optimizing cash flow in lower margin environments. In 2018, our parent’s ethanol facilities ran at approximately 75% of their
daily average capacity, largely due to the low margin environment during the year driven by higher domestic ethanol supplies
resulting from weak refiner and blender input volume.
47
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Operations and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by effectively managing operations and
maintenance expenses. Our expenses are relatively stable across a broad range of storage, throughput and transportation
volumes and usage, but can fluctuate from period to period depending on maintenance activities and growth. We manage our
expenses by scheduling maintenance activities over time to avoid significant variability in our cash flows.
Adjusted EBITDA and Distributable Cash Flow
Adjusted EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization,
plus adjustments for transaction costs related to acquisitions or financing transactions, minimum volume commitment
deficiency payments, unit-based compensation expense, net gains or losses on asset sales, and our proportional share of
EBITDA adjustments of equity method investees.
Distributable cash flow is defined as adjusted EBITDA less interest paid or payable, income taxes paid or payable,
maintenance capital expenditures, which are defined under our partnership agreement as cash expenditures (including
expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of
existing capital assets) made to maintain our operating capacity or operating income, and our proportional share of
distributable cash flow adjustments of equity method investees.
We believe the presentation of adjusted EBITDA and distributable cash flow provides useful information to investors in
assessing our financial condition and results of operations. Adjusted EBITDA and distributable cash flow are supplemental
financial measures that we use to assess our financial performance. However, these presentations are not made in accordance
with GAAP. The GAAP measure most directly comparable with adjusted EBITDA and distributable cash flow is net income.
Since adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our
definitions of adjusted EBITDA and distributable cash flow may not be comparable with similarly titled measures of other
companies, diminishing its utility. Adjusted EBITDA and distributable cash flow should not be considered in isolation or as
alternatives to net income or any other measure of financial performance presented in accordance with GAAP to analyze our
results. Refer to Item 6 – Selected Financial Data for reconciliations of net income to adjusted EBITDA and distributable
cash flow.
Components of Revenues and Expenses
Revenues. Our revenues consist primarily of volume-based service fees for receiving, storing, transferring and
transporting ethanol and other fuels.
For more information about these charges and the services covered by these agreements, please refer to Note 15 –
Related Party Transactions to the consolidated financial statements in this report.
Operations and Maintenance Expenses. Our operations and maintenance expenses consist primarily of lease expenses
related to our transportation assets, labor expenses, outside contractor expenses, insurance premiums, repairs and
maintenance expenses and utility costs. These expenses also include fees for certain management, maintenance and
operational services to support our facilities, trucks and leased railcar fleet allocated by our parent under our operational
services and secondment agreement.
General and Administrative Expenses. Our general and administrative expenses consist primarily of allocated employee
salaries, incentives and benefits, office expenses, professional fees for accounting, legal, and consulting services, and other
costs allocated by our parent. Our general and administrative expenses include direct monthly charges for the management of
our assets and certain expenses allocated by our parent under our omnibus agreement for general corporate services, such as
treasury, accounting, human resources and legal services. These expenses are charged or allocated to us based on the nature
of the expense and our proportionate share of employee time or capital expenditures.
For more information about fees we reimburse our parent for services received, please read Note 15 – Related Party
Transactions to the consolidated financial statements in this report.
Other Income (Expense). Other income (expense) includes interest earned, interest expense and other non-operating
items.
49
Income (Loss) from Equity Method Investees. Income (loss) from equity method investees consists of the income or loss
associated with our 50% ownership in certain joint ventures.
For the commercial agreements, operational services and secondment agreement and the omnibus agreement in their
entirety and any subsequent amendments required to be filed, please refer to Item 15 – Exhibits, Financial Statement
Schedules.
Results of Operations
Comparability of our Financial Results
The following summarizes certain events that affect the comparability of our operating results over the course of the past
three years:
• On September 23, 2016, we acquired the ethanol storage assets located in Madison, Illinois, Mount Vernon, Indiana
and York, Nebraska related to three ethanol plants, which occurred concurrently with the acquisition of these
facilities by Green Plains from subsidiaries of Abengoa S.A. The transaction was accounted for as a transfer
between entities under common control and the assets were recognized at the preliminary value recorded in Green
Plains’ purchase accounting. No retroactive adjustments were required.
• On November 15, 2018, our parent closed on the sale of three of its ethanol plants located in Bluffton, Indiana,
Lakota, Iowa, and Riga, Michigan to Valero. Correspondingly, the storage assets located adjacent to such plants
were sold to our parent for $120.9 million. As consideration, we received from our parent 8.7 million Green Plains
units and a portion of the general partner interest equating to 0.2 million equivalent limited partner units to maintain
the general partner’s 2% interest. These units were retired upon receipt. In addition, we also received cash
consideration of $2.7 million from Valero for the assignment of certain railcar operating leases.
• On November 15, 2018, our parent announced the permanent closure of its ethanol plant located in Hopewell,
Virginia. The closure did not affect our quarterly storage and throughput minimum volume commitment with Green
Plains Trade or the current transload operations at that location.
Selected Financial Information and Operating Data
The following table reflects selected financial information (in thousands):
2018
Year Ended December 31,
2017
2016
59,290 $
26,055
10,498
4,905
100,748
62,443 $
29,939
11,309
3,302
106,993
30,866
5,258
4,442
(2,721)
37,845
62,903 $
33,501
4,223
5,111
-
42,835
64,158 $
57,827
31,295
11,954
2,696
103,772
34,211
4,423
5,647
-
44,281
59,491
Revenues
Storage and throughput services
Rail transportation services
Terminal services
Trucking and other
Total revenues
Operating expenses
Operations and maintenance (excluding depreciation and
amortization reflected below)
General and administrative
Depreciation and amortization
Gain on assignment of operating leases
Total operating expenses
Operating income
$
$
50
The following table reflects selected operating data (in mmg, except railcar capacity billed):
Product volumes
Storage and throughput services
Terminal services:
Affiliate
Non-affiliate
Railcar capacity billed (daily avg. mmg)
2018
Year Ended December 31,
2017
2016
1,134.7
1,248.9
1,156.5
133.7
116.2
249.9
96.9
161.5
131.8
293.3
93.5
114.6
193.5
308.1
79.2
Year Ended December 31, 2018, Compared with the Year Ended December 31, 2017
Revenues
Consolidated revenues decreased $6.2 million for the year ended December 31, 2018, compared with the year ended
December 31, 2017. Revenues generated from rail transportation services decreased $3.9 million due to lower average rates
charged for the railcar volumetric capacity provided, as well as the reduction in volumetric capacity associated with the
assignment of railcar operating leases to Valero in the fourth quarter of 2018. Storage and throughput revenue decreased $3.2
million primarily due to a decrease in throughput volumes which was driven by lower capacity utilization by our parent, as
well as our parent’s sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants. Revenues generated from
terminal services decreased $0.8 million due to reduced throughput at our fuel terminals. These decreases were partially
offset by an increase in trucking and other revenue of $1.6 million due to expansion of our truck fleet.
Operations and Maintenance Expenses
Operations and maintenance expenses decreased $2.6 million in 2018 compared with 2017, primarily due to a decrease
in railcar lease expense of $3.6 million and railcar unloading fees of $0.2 million, offset by an increase of $1.2 million in
wages, fuel and other expenses as a result of the expansion of our trucking fleet.
General and Administrative Expenses
General and administrative expenses increased $1.0 million in 2018 compared with 2017, primarily due to higher
transaction costs and professional fees, as well as an increase in expenses allocated by our parent under the secondment
agreement.
Year Ended December 31, 2017, Compared with the Year Ended December 31, 2016
Revenues
Consolidated revenues increased $3.2 million for the year ended December 31, 2017, compared with the year ended
December 31, 2016. Storage and throughput revenue increased $4.6 million primarily due to higher throughput volumes
related to ethanol storage assets acquired in September 2016. Trucking and other revenue increased $0.6 million primarily
due to the expansion of our truck fleet. These increases were partially offset by a reduction in revenues generated from rail
transportation services, which decreased $1.4 million due to lower average rates charged for the railcar volumetric capacity
provided, and terminal services revenue, which decreased $0.6 million due to lower biodiesel throughput volumes at our
terminals.
Operations and Maintenance Expenses
Operations and maintenance expenses decreased $0.7 million in 2017 compared with 2016, primarily due to a decrease
in railcar lease expense of $2.0 million, offset by an increase of $0.4 million in repairs and maintenance related to our storage
assets, $0.5 million in wages, fuel and other expenses as a result of the expansion of our trucking fleet, and $0.4 million in
expenses allocated by our parent under the secondment agreement.
51
General and Administrative Expenses
General and administrative expenses decreased $0.2 million in 2017 compared with 2016, primarily due to a decrease in
transaction costs associated with the acquisition of ethanol storage assets in 2016.
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities and borrowings under our revolving
credit facility. We consider opportunities to repay, redeem, repurchase or refinance our debt, depending on market conditions,
as part of our normal course of doing business. Our ability to meet our debt service obligations and other capital requirements
depends on our future operating performance, which is subject to general economic, financial, business, competitive,
legislative, regulatory and other conditions, many of which are beyond our control. We plan to fund future expansion capital
expenditures primarily from external sources, including borrowings under our revolving credit facility and issuances of debt
and equity securities. We expect these sources will be adequate for both our short-term and long-term liquidity needs.
Capital Markets Activity
On August 25, 2016, we filed a universal shelf registration statement with the SEC that was declared effective September
2, 2016, registering an indeterminate number of equity and debt securities with a total offering price not to exceed
$500,000,250. We also registered 13,513,500 common units held by Green Plains, consisting of 4,389,642 common units and
9,123,858 common units that could be issued upon conversion of subordinated units. In the fourth quarter of 2018, we retired
units received from our parent for the sale of storage assets, resulting in 11,586,548 units held by Green Plains that could be
sold under the shelf as of December 31, 2018.
Subordinated Unit Conversion
The requirements under the partnership agreement for the conversion of all of the outstanding subordinated units into
common units were satisfied upon the payment of the distribution with respect to the quarter ended June 30, 2018.
Accordingly, the subordination period ended on August 13, 2018, the first business day after the date of the distribution
payment, and all of the 15,889,642 outstanding subordinated units were converted into common units on a one-for-one basis.
The conversion of the subordinated units did not impact the amount of cash distributions paid or the total number of units
outstanding.
Retirement of Units
On November 15, 2018, the storage assets associated with the ethanol plants located in Bluffton, Indiana, Lakota, Iowa,
and Riga, Michigan were sold to our parent for $120.9 million. As consideration, we received from our parent 8,692,736
Green Plains units and a portion of the general partner interest equating to 177,403 equivalent limited partner units to
maintain the general partner’s 2% interest. These units were retired upon receipt. The reduction in units outstanding
decreased the minimum quarterly cash distributions we are required to pay by approximately $3.5 million.
Distributions to Unitholders
The partnership agreement provides for a minimum quarterly distribution of $0.40 per unit, which equates to
approximately $9.4 million per quarter, or $37.8 million per year, based on the 2% general partner interest and the number of
common units currently outstanding. For more information, see Note 11 – Partners’ Capital to the consolidated financial
statements in this report.
52
The table below summarizes the quarterly cash distributions for the periods presented:
Three Months Ended Declaration Date
January 17, 2019
October 18, 2018
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
July 19, 2018
April 19, 2018
January 18, 2018
October 19, 2017
July 20, 2017
April 20, 2017
January 23, 2017
October 20, 2016
July 20, 2016
April 21, 2016
Record Date
February 1, 2019
November 2, 2018
August 3, 2018
May 4, 2018
February 2, 2018
November 3, 2017
August 4, 2017
May 5, 2017
February 3, 2017
November 4, 2016
August 5, 2016
May 6, 2016
Payment Date
February 8, 2019
November 9, 2018
August 10, 2018
May 11, 2018
February 9, 2018
November 10, 2017
August 11, 2017
May 15, 2017
February 14, 2017
November 14, 2016
August 12, 2016
May 13, 2016
Quarterly Distribution
$
0.4750
0.4750
0.4750
0.4750
0.4700
0.4600
0.4500
0.4400
0.4300
0.4200
0.4100
0.4050
Cash Flows
On December 31, 2018, we had $0.6 million of cash and cash equivalents and $66.0 million available under our
revolving credit facility.
Net cash provided by operating activities was $55.4 million in 2018, compared with $64.1 million in 2017. Decreased
cash flows from operating activities were driven primarily by an increase in working capital and by lower operating profits as
a result of the sale of the storage assets and assignment of railcar operating leases associated with the Bluffton, Indiana,
Lakota, Iowa, and Riga, Michigan ethanol plants. Net cash provided by investing activities increased $4.2 million in 2018
compared with 2017. This increase was primarily due to $2.7 million in cash received from the assignment of railcar
operating leases to Valero, as well as a reduction in capital expenditures and contributions to equity method investees. Net
cash used in financing activities was $55.4 million in 2018, compared with $60.0 million in 2017, driven by additional net
borrowings on the revolving credit facility, partially offset by increased cash distributions.
Capital Resources
We incurred capital expenditures of $1.3 million in 2018 for expansion of our trucking fleet. Equity investments related
to the NLR Energy Logistics joint venture were $1.4 million in 2018. We do not anticipate significant capital spending for
2019.
Revolving Credit Facility
Green Plains Operating Company has a $200.0 million revolving credit facility, which matures on July 1, 2020, to fund
working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. The credit facility can
be increased by an additional $20.0 million without the consent of lenders. At December 31, 2018, the outstanding principal
balance of the facility was $134.0 million and our average interest rate was 5.03%.
On October 27, 2017, Green Plains Operating Company increased its revolving credit facility by $40.0 million, from
$155.0 million to $195.0 million, by accessing a portion of the $100.0 million accordion in place on the facility.
On February 20, 2018, Green Plains Operating Company further increased its revolving credit facility by an additional
$40.0 million, from $195.0 million to $235.0 million, by accessing a portion of the $100.0 million accordion in place on the
facility.
On October 12, 2018, Green Plains Operating Company amended its revolving credit facility to allow the sale of the
ethanol storage assets associated with up to six ethanol plants owned by Green Plains, with no more than 600 million gallons
of production capacity. In addition, the lenders permitted the exchange of units as consideration for the transaction and also
permitted modifications of various key operating agreements.
On November 15, 2018, the storage assets located adjacent to the ethanol plants in Bluffton, Indiana, Lakota, Iowa, and
Riga, Michigan were sold to our parent for $120.9 million. Upon close of the sale, the revolving credit facility was decreased
from $235.0 million to $200.0 million.
53
For more information related to our debt, see Note 8 – Debt to the consolidated financial statements in this report.
Contractual Obligations
Our contractual obligations as of December 31, 2018, were as follows (in thousands):
Contractual Obligations
Long-term debt obligations (1)
Interest and fees on debt obligations (2)
Operating leases (3)
Service agreements (4)
Other (5)
Total contractual obligations
Payments Due By Period
Total
142,100
11,215
42,815
1,676
4,525
202,331
$
$
Less Than
1 Year
$
$
-
7,109
14,180
1,123
642
23,054
1-3 Years
135,336
$
3,690
18,685
397
1,061
159,169
$
3-5 Years
1,363
$
152
5,922
156
1,739
9,332
$
More Than
5 Years
$
$
5,401
264
4,028
-
1,083
10,776
(1) Includes the current portion of long-term debt and excludes the effect of any debt discounts.
(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 property and railcar leases.
(4) Service agreements are related to minimum commitments on railcar unloading contracts at our fuel terminals.
(5) Includes asset retirement obligations to return property to its original condition at the termination of lease agreements.
Effects of Inflation
Inflation in the United States has been relatively low in recent years; therefore, we do not expect it to have a material
impact on our future results of operations.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires that we use estimates that affect the reported assets,
liabilities, revenues, expenses and related disclosures for contingent assets and liabilities. We base our estimates on
experience and assumptions we believe are proper and reasonable. While we regularly evaluate the appropriateness of these
estimates, actual results could differ materially from our estimates. The following accounting policies, in particular, may be
impacted by judgments, assumptions and estimates used to prepare our consolidated financial statements.
Revenue Recognition
On January 1, 2018, we adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers, and
all related amendments, and applied it to all contracts using the modified retrospective transition method. We recognize
revenue when obligations under the terms of a contract with a customer are satisfied, which generally occurs with the
completion of services or the transfer of control of products to the customer or another specified third party. For contracts
with customers in which a take-or-pay commitment exists, any minimum volume deficiency charges are recognized as
revenue in the period incurred and are not allowed to be credited towards excess volumes in future periods.
We generate a substantial portion of our revenues under fee-based commercial agreements with Green Plains Trade.
Operating lease revenue related to minimum volume commitments is recognized on a straight-line basis over the term of the
lease. 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.
Please refer to Note 3 - Revenue to the consolidated financial statements for further details.
54
Depreciation of Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. We calculate depreciation expense using the
straight-line method based on the estimated useful life of each asset. We assign asset lives based on reasonable estimates
regarding the timing in which assets are placed into service. We periodically evaluate the estimated useful lives of our
property, plant and equipment and revise our estimates. The determination of an asset’s estimated useful life takes a number
of factors into consideration, including technological change, normal depreciation and physical usage. We periodically
evaluate whether events or circumstances have occurred that may warrant a revision of the estimated useful lives of our fixed
assets, which is accounted for prospectively.
Impairment of Long-Lived Assets and Goodwill
Our long-lived assets consist of property and equipment. We review long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of the asset may not be recoverable. We measure recoverability by
comparing the carrying amount of the asset with the estimated undiscounted future cash flows the asset is expected generate.
If the carrying amount of the asset exceeds its estimated future cash flows, we record an impairment charge for the amount in
excess of the fair value. No impairment charges were recorded for the periods presented.
Our goodwill consists of amounts related to our predecessor’s acquisition of its fuel terminal and distribution business.
We review goodwill at the reporting unit level for impairment at least annually, as of October 1, or more frequently when
events or changes in circumstances indicate that impairment may have occurred.
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).
We performed the annual goodwill assessment as of October 1, 2018, using a qualitative assessment, which resulted in
no goodwill impairment.
We estimate the amount and timing of projected cash flows that will be generated by an asset over an extended period of
time when we review our long-lived assets and goodwill. Circumstances that may indicate impairment include a decline in
future projected cash flows, a decision to suspend plant operations for an extended period of time, sustained decline in our
market capitalization or market prices for similar assets or businesses, or a significant adverse change in legal or regulatory
matters or business climate. Significant management judgment is required to determine the fair value of our long-lived assets
and goodwill and measure impairment, which includes projected cash flows. Fair value is determined by using various
valuation techniques, including discounted cash flow models, sales of comparable properties and third-party independent
appraisals. Changes in estimated fair value could result in a write-down of the asset.
Asset Retirement Obligations
We have asset retirement obligations under certain lease agreements requiring us to return the asset to its original
condition upon termination of the lease agreement. Accretion expense is recognized over time as the discounted liabilities are
accreted to their expected settlement value. Determining future restoration and removal costs is subjective, requiring
management to make estimates and judgments. Asset removal technologies and costs, regulatory and other compliance
considerations and the timing of expenditures are subject to change.
Recent Accounting Pronouncements
For information related to recent accounting pronouncements, see Note 2 – Summary of Significant Accounting Policies
to the consolidated financial statements in this report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, other than operating leases that are entered into during the ordinary
course of business and disclosed in the Contractual Obligations section above.
55
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, as described below. At this time,
we conduct all of our business in U.S. dollars and are not exposed to foreign currency risk.
Interest Rate Risk
We are exposed to interest rate risk through our revolving credit facility, which bears interest at a variable rate. At
December 31, 2018, we had $134.0 million outstanding under our revolving credit facility. A 10% change in interest rates
would affect our interest expense by approximately $674 thousand per year, assuming no changes in the amount outstanding
or other variables under our revolving credit facility.
Other details about our outstanding debt are discussed in the notes to the consolidated financial statements included
elsewhere in this report.
Commodity Price Risk
We do not have direct exposure to risks associated with fluctuating commodity prices because we do not own the ethanol
or other fuels that are stored at our facilities or transported by our railcars.
Item 8. Financial Statements and Supplementary Data.
The required consolidated financial statements and accompanying notes are listed in Part IV, Item 15.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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.
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 December
31, 2018, 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
There were no 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.
Management’s Annual Report on Internal Control over Financial Reporting
The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring every public company that files
reports with the SEC to include a management report on the company’s internal control over financial reporting in its annual
report, providing reasonable assurance regarding the reliability of our financial reporting and preparation of our consolidated
financial statements for external purposes in accordance with GAAP. However, under the JOBS Act, we are not required to
provide an independent registered public accounting firm’s attestation report of the effectiveness of our internal control over
financial reporting for up to five years or through such earlier date that we are no longer an emerging growth company.
56
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with GAAP. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018, using
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control —
Integrated Framework (2013 framework). Based on such assessment, we conclude that as of December 31, 2018, our internal
control over financial reporting is effective.
Emerging Growth Company Status
We are an emerging growth company as defined in the JOBS Act. As an emerging growth company, we are not required
to provide an auditor’s attestation report on the effectiveness of our system of internal control over financial reporting;
comply with any new requirements adopted by the PCAOB to rotate audit firms or supplement the auditor’s report with
additional information about the audit and financial statements of the issuer; or disclose the same level of information about
executive compensation required of larger public companies.
We will no longer be an emerging growth company on the earliest of (i) the last day of the fiscal year following the fifth
anniversary of the IPO, (ii) the last day of the fiscal year in which we have more than $1.0 billion in annual revenues, (iii) the
date on which the market value of our common units held by non-affiliates exceeds $700.0 million, or (iv) the date on which
we have issued more than $1.0 billion of non-convertible debt over a three-year period.
We have elected to take advantage of all applicable JOBS Act provisions except for the exemption that allows us to
extend the transition period for compliance with new or revised financial accounting standards. This election is irrevocable.
Item 9B. Other Information.
None.
57
Item 10. Directors, Executive Officers and Corporate Governance.
Management of Green Plains Partners
PART III
We are managed by the directors and executive officers of our general partner, Green Plains Holdings. Our general
partner is not elected by our unitholders and will not be subject to re-election by our unitholders in the future. Our parent
owns all of the membership interests and appoints all members to the board of directors of our general partner. Our
unitholders are not entitled to elect the directors or directly or indirectly to participate in our management or operations. Our
general partner is liable, as general partner, for all of our debts (to the extent not paid from our assets), except for
indebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, we intend to incur
indebtedness that is nonrecourse to our general partner.
Our general partner has the primary responsibility for providing the personnel necessary to conduct our operations,
whether through directly hiring employees or by obtaining the services of personnel employed by our parent or others. In
addition, pursuant to the operational services and secondment agreement, certain of our parent’s employees (including our
Chief Executive Officer) will be seconded to our general partner to provide management, maintenance and operational
services with respect to the ethanol and fuel storage assets, terminal and transportation assets. During their period of
secondment to our general partner, the seconded personnel will be under the direct management and supervision of our
general partner. All of the personnel who conduct our business are employed by or contracted by our general partner and its
affiliates, including our parent and Green Plains Trade.
Director Independence
Although most companies listed on Nasdaq are required to have a majority of independent directors serving on the board
of directors of the listed company, Nasdaq does not require a publicly traded limited partnership to have a majority of
independent directors on the board of directors of our general partner or to establish a compensation or a nominating and
corporate governance committee. We are, however, required to have an audit committee of at least three members within one
year of the date our common units are first listed on Nasdaq, and all of our audit committee members are required to meet the
independence and financial literacy tests established by Nasdaq and the Exchange Act. We currently have three independent
directors serving on our audit committee, Mr. Clayton Killinger, Mr. Brett Riley and Mr. Martin Salinas.
Director Experience and Qualifications
The board of directors of the general partner as a whole is responsible for filling vacancies on the board of directors at
any time during the year, and for selecting individuals to serve on the board of directors of our general partner. From time to
time, the board of directors may utilize the services of search firms or consultants to assist in identifying and screening
potential candidates.
Committees of the Board of Directors
The board of directors of our general partner has an audit committee and a conflicts committee and may have such other
committees as the board of directors shall determine appropriate from time to time. Each of the standing committees of the
board of directors will have the composition and responsibilities described below.
Audit Committee
Our general partner has an audit committee currently comprised of three directors, Messrs. Killinger, Riley and Salinas,
who meet the independence and experience standards established by Nasdaq and the Exchange Act, and qualify as audit
committee financial experts. Mr. Killinger acts as chairman of the audit committee.
Our audit committee assists the board of directors in its oversight of the integrity of our financial statements and our
compliance with legal and regulatory requirements and corporate policies and controls. Our audit committee has the sole
authority to retain and terminate our independent registered public accounting firm, approve all auditing services and related
fees and the terms thereof and pre-approve any non-audit services to be rendered by our independent registered public
accounting firm. Our audit committee is responsible for confirming the independence and objectivity of our independent
registered public accounting firm. Our independent registered public accounting firm is given unrestricted access to our audit
committee.
58
Conflicts Committee
Messrs. Killinger, Riley and Salinas serve on our conflicts committee to review specific matters that may involve
conflicts of interest in accordance with the terms of our partnership agreement. Mr. Riley was appointed chairman of the
conflicts committee. The board of directors of our general partner determine whether to refer a matter to the conflicts
committee on a case-by-case basis. The members of our conflicts committee may not be officers or employees of our general
partner or directors, officers, or employees of its affiliates and must meet the independence and experience standards
established by Nasdaq and the Exchange Act to serve on an audit committee of a board of directors, along with other
requirements set forth in our partnership agreement. If our general partner seeks approval from the conflicts committee, then
it is presumed that, in making its decision, the conflicts committee acted in good faith, and in any proceeding brought by or
on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such
proceeding will have the burden of overcoming such presumption.
Meetings of the Board of Directors
The board of directors held ten meetings during 2018, while both the audit committee and the conflicts committee held
seven meetings. Meetings were conducted via teleconference or in person. No director attended fewer than 75% of the
aggregate of board meetings and committee meetings held on which the director served during this period.
Directors and Executive Officers of Green Plains Holdings LLC
Directors are elected by the sole member of our general partner and hold office until their successors have been elected
or qualified or until their earlier death, resignation, removal or disqualification. Executive officers are appointed by, and serve
at the discretion of, the board of directors of our general partner. Todd A. Becker and George P. (Patrich) Simpkins, who
serve as directors, are also executive officers of our general partner and our parent. The following table shows information for
the directors and executive officers of Green Plains Holdings as of February 14, 2019.
Name
Todd A. Becker
John W. Neppl
George P. (Patrich) Simpkins
Michelle S. Mapes
Walter S. Cronin
Mark A. Hudak
Paul E. Kolomaya
Michael A. Metzler
Clayton E. Killinger
Jerry L. Peters
Brett C. Riley
Martin Salinas, Jr.
President and Chief Executive Officer (Chairman and Director)
Age Positions with Green Plains Holdings LLC
53
53 Chief Financial Officer
57 Chief Development Officer (Director)
52 Chief Legal and Administration Officer
56
58
53
56
58 Director
61 Director
48 Director
47 Director
Executive Vice President – Commercial Operations
Executive Vice President – Human Resources
Executive Vice President – Commodity Finance
Executive Vice President – Natural Gas & Power
Todd A. Becker. Todd Becker was appointed President and Chief Executive Officer and a member of the board of
directors of our general partner in March 2015. He also currently serves as the chairman of the board of directors of our
general partner. Mr. Becker has served as President and Chief Executive Officer of our parent since January 2009, and was
appointed as a director of our parent in March 2009. Mr. Becker served as our parent’s President and Chief Operating Officer
from October 2008 to December 2008. He served as Chief Executive Officer of VBV LLC from May 2007 to October 2008.
Mr. Becker was Executive Vice President of Sales and Trading at Global Ethanol from May 2006 to May 2007. Prior to that,
he worked for ten years with ConAgra Foods, Inc. in various management positions including Vice President of International
Marketing for ConAgra Trade Group and President of ConAgra Grain Canada. Mr. Becker has over 28 years of related
experience in various commodity processing businesses, risk management and supply chain management, along with
extensive international trading experience in agricultural markets. Mr. Becker served on the board of directors, including its
audit and compensation committees, for Hillshire Brands Company from 2012 to 2014. Mr. Becker has a master’s degree in
Finance from the Kelley School of Business at Indiana University and a Bachelor of Science degree in Business
Administration with a Finance emphasis from the University of Kansas. Mr. Becker brings valuable expertise to the board of
directors of our general partner because he provides an insider’s perspective about the business and the strategic direction of
the general partner to board discussions. His extensive commodity experience and leadership traits make him an essential
member of the board of directors of our general partner.
59
John W. Neppl. John Neppl has served as Chief Financial Officer of our general partner and our parent since September
2017. Prior to joining our parent, Mr. Neppl served as Chief Financial Officer of The Gavilon Group, LLC, an agriculture
and energy commodities management firm with an extensive global footprint. Previously, Mr. Neppl held senior financial
management positions at ConAgra Foods, Inc., including Senior Financial Officer of ConAgra Trade Group and Commercial
Products division as well as Assistant Corporate Controller. Prior to ConAgra, Mr. Neppl was Corporate Controller at
Guarantee Life Companies. He began his career as an auditor with Deloitte & Touche. Mr. Neppl is a member of the
Creighton University Heider College of Business Dean’s Advisory Board, as well as its Accounting Department Advisory
Board. In addition, he is on the Board of Directors of Marian High School in Omaha, Nebraska and Chair of its Finance
Committee. Mr. Neppl earned his Bachelor of Science degree in business administration with a major in accounting from
Creighton University. He is also a certified public accountant (inactive status).
George P. (Patrich) Simpkins. Patrich Simpkins is a member of the board of directors of our general partner and has
served as Chief Development Officer of our parent since October 2014. Mr. Simpkins was appointed Chief Development and
Risk Officer of our general partner in March 2015 and a member of the board of directors of our general partner in June
2015. Mr. Simpkins also previously served as Chief Risk Officer of our parent from October 2014 to August 2016. Prior to
joining our parent in May 2012 as its Executive Vice President—Finance and Treasurer, Mr. Simpkins was Managing Partner
of GPS Capital Partners, LLC, a capital advisory firm serving global energy and commodity clients. From February 2005 to
June 2008, he served as Chief Operating Officer and Chief Financial Officer of SensorLogic, Inc., and as Executive Vice
President and Global Chief Risk Officer of TXU Corporation from November 2001 to June 2004. Prior to that, he served in
senior financial and commercial executive roles with Duke Energy Corporation, Louis Dreyfus Energy, MEAG Power
Company and MCI Communications. Mr. Simpkins earned a Bachelor of Business Administration degree in Economics and
Marketing from the University of Kentucky. Mr. Simpkins’ experience in varied risk management matters, including as an
executive officer and in financial and commercial executive roles, qualifies him to serve on the board of directors of our
general partner.
Michelle S. Mapes. Michelle Mapes was appointed Chief Legal and Administration Officer of our general partner and
our parent in January 2018. Ms. Mapes previously served as Executive Vice President—General Counsel and Corporate
Secretary of our general partner from March 2015 to January 2018 and of our parent from November 2009 to January 2018.
Prior to joining our parent in September 2009 as General Counsel, Ms. Mapes was a Partner at Husch Blackwell LLP, where
for three years she focused her legal practice nearly exclusively in renewable energy. Prior to that, she was Chief
Administrative Officer and General Counsel for HDM Corporation. Ms. Mapes served as Senior Vice President—Corporate
Services and General Counsel to Farm Credit Services of America from April 2000 to June 2005. Ms. Mapes holds a Juris
Doctorate, a Master of Business Administration and a Bachelor of Science degree in Accounting and Finance, all from the
University of Nebraska—Lincoln.
Walter S. Cronin. Walter Cronin was appointed Executive Vice President – Commercial Operations of our general
partner and our parent in August 2015. Mr. Cronin previously served as Chief Investment Officer of Green Plains Asset
Management LLC, a wholly owned subsidiary of our parent, since November 2011. Mr. Cronin served as Executive Vice
President and trading principal of County Cork Asset Management from April 2010 to November 2011. Prior to that, Mr.
Cronin acted as a consultant to Bunge Limited from September 2004 through March 2010 Additionally, Mr. Cronin has over
30 years of commodity trading experience working at a number of firms, including RJ O’Brien and Continental Grain. Mr.
Cronin received a Bachelor of Arts degree from the University of Santa Clara in 1985.
Mark A. Hudak. Mark Hudak was appointed Executive Vice President—Human Resources of our general partner in
March 2015. Mr. Hudak was named Executive Vice President—Human Resources of our parent in November 2013 after
joining our parent in January 2013 as its Vice President—Human Resources. Mr. Hudak has extensive experience in human
resource management, organizational development, employee relations, employee benefits and compensation management.
He served as Senior Director, Global Human Resources for Bimbo Bakeries from November 2010 to January 2013. Prior to
that, from September 2006 to November 2010, Mr. Hudak was Vice President, Global Human Resources / Compliance and
Ethics Officer at United Malt Holdings. He held several senior level positions at ConAgra Foods, Inc. from December 2000
to September 2006. Mr. Hudak has a Bachelor of Science degree in Business Administration from Bellevue University.
Paul E. Kolomaya. Paul Kolomaya was appointed Executive Vice President—Commodity Finance of our general partner
in March 2015. Mr. Kolomaya was named Executive Vice President—Commodity Finance of our parent in February 2012
after joining our parent in August 2008 as its Vice President—Commodity Finance. Prior to joining our parent, Mr.
Kolomaya was employed by ConAgra Foods, Inc. from March 1997 to August 2008 in a variety of senior finance and
accounting capacities, both domestic and international. Prior to that, he was employed by Arthur Andersen & Co. in both the
audit and business consulting practices. Mr. Kolomaya holds chartered accountant and certified public accountant
certifications and has a Bachelor of Honors Commerce degree from the University of Manitoba.
60
Michael A. Metzler. Michael Metzler was appointed Executive Vice President – Natural Gas and Power of our general
partner and our parent in November 2015. Mr. Metzler previously served as Senior Vice President and General Manager –
Natural Gas and Power of our parent since May 2013. Prior to joining our parent, Mr. Metzler was Senior Vice President of
Origination and Trading for Tenaska Marketing Ventures, spending nearly 20 years helping to build the company from its
start up. Prior to Tenaska, Mr. Metzler spent five years with Aquila Energy Marketing as their Director of Marketing and
Trading. Mr. Metzler holds a Bachelor of Business Administration degree in Management and Marketing from the University
of Nebraska - Omaha.
Clayton E. Killinger. Clayton Killinger was appointed a member of the board of directors of our general partner in
August 2015 and serves as chairman of the audit committee and as a member of the conflicts committee. Mr. Killinger served
as Executive Vice President and Chief Financial Officer of CrossAmerica Partners LP and CST Brands, Inc. until June 2017
when CrossAmerica and CST were acquired by Alimentation Couche-Tard. He also served on the board of directors of the
general partner of CrossAmerica during that time. Previous to these positions, Mr. Killinger spent eleven years at Valero
Energy Corporation, most recently as the Senior Vice President and Controller. Prior to his employment at Valero, he was an
audit partner at Arthur Andersen LLP. Mr. Killinger is a certified public accountant. He obtained his Bachelor of Business
Administration in Accounting from the University of Texas at San Antonio, where he graduated Summa Cum Laude. Mr.
Killinger is qualified to serve on our general partner’s board of directors because of his financial and master limited
partnership experience within the energy industry.
Jerry L. Peters. Jerry Peters retired as Chief Financial Officer of our general partner and our parent in September 2017,
but remained a member of the board of directors of our general partner. Mr. Peters served as Chief Financial Officer of our
general partner from March 2015 to September 2017 and of our parent from June 2007 to September 2017. He joined the
board of directors of our general partner in June 2015. Mr. Peters served as Senior Vice President—Chief Accounting Officer
for ONEOK Partners, L.P. from May 2006 to April 2007, as its Chief Financial Officer from July 1994 to May 2006, and in
various senior management roles prior to that. Prior to joining ONEOK Partners in 1985, he was employed by KPMG LLP as
a certified public accountant. Since September 2012, Mr. Peters serves on the board of directors, and as chairman of the audit
committee of the general partner of Summit Midstream Partners, LP, a publicly traded partnership focused on midstream
energy infrastructure assets. Mr. Peters received his Master of Business Administration from Creighton University with a
Finance emphasis and a Bachelor of Science degree in Business Administration from the University of Nebraska—Lincoln.
Mr. Peters’ experience serving on the board of directors of publicly traded limited partnerships, including as chairman of the
audit committees, and his financial expertise are key attributes, among others, that make him well qualified to serve on the
board of directors of our general partner.
Brett C. Riley. Brett Riley was appointed a member of the board of directors of our general partner in April 2016 and
serves as chairman of the conflicts committee and as a member of the audit committee. Mr. Riley is currently an independent
energy consultant and private investor. Mr. Riley led the strategy and mergers and acquisitions activities for Magellan
Midstream Partners, L.P., a publicly traded master limited partnership, from June 2003 until April 2016. From 2007 to April
2016, Mr. Riley served as Senior Vice President, Business Development for Magellan GP, LLC, the general partner of
Magellan Midstream Partners. Prior to joining Magellan GP, Mr. Riley served as Director, Mergers and Acquisitions and
Director, Financial Planning and Analysis for a subsidiary of The Williams Companies, Inc. Before that, he held various
finance and business development positions with MAPCO Inc. and The Williams Companies, Inc. Mr. Riley received his
Bachelor of Business Administration in Management from Pittsburg State University and his Master of Business
Administration from the University of Tulsa. Mr. Riley is qualified to serve on our general partner’s board of directors
because of his financial and master limited partnership experience within a variety of industries.
Martin Salinas, Jr. Martin Salinas, Jr. was appointed a member of the board of directors of our general partner in July
2018 and serves as a member of both the audit committee and conflicts committee. Mr. Salinas most recently served as Chief
Financial Officer of Energy Transfer Partners, LP, one of the largest publicly traded master limited partnerships, from 2008
to 2015. Prior to that, he was Controller and Vice President of Finance from 2004 to 2008. Mr. Salinas began his career at
KPMG after earning a bachelor’s degree in Business Administration in Accounting from the University of Texas in San
Antonio. He is also a member of the Texas Society of CPAs and advisory council member of University of Texas, San
Antonio School of Business. Mr. Salinas is a certified public accountant. Mr. Salinas is qualified to serve on our general
partner’s board of directors because of his financial and master limited partnership experience within the energy industry.
61
Board of Directors Leadership Structure
The board of directors of our general partner has no policy with respect to the separation of the offices of chairman of the
board of directors and chief executive officer. Instead, that relationship is defined and governed by the limited liability
company agreement of our general partner, which permits the same person to hold both offices. Directors of the board of
directors of our general partner are designated or elected by our parent. Accordingly, unlike holders of common stock in a
corporation, our unitholders have only limited voting rights on matters affecting our business or governance, subject in all
cases to any specific unitholder rights contained in our partnership agreement.
Board of Directors Role in Risk Oversight
Our corporate governance guidelines state that the board of directors of our general partner is responsible for reviewing
the process of assessing major risks facing us and the options for their mitigation. This responsibility is largely satisfied by
our audit committee, which is responsible for reviewing and discussing with management and our registered public
accounting firm the major risk exposures and the policies implemented by management to monitor such exposures. This
includes our financial risk exposures and risk management policies.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our general partner's officers and directors and persons who beneficially own
more than 10% of our common units to file reports of securities ownership and changes in such ownership with the SEC.
Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us
with copies of all Section 16(a) forms they file. Based solely upon a review of the Forms 3 and 4, including any amendments,
filed with the SEC in 2018 (no Forms 5, or any amendments, were filed with respect to 2018), all required report filings by
our (or our general partner's) directors and executive officers and greater than 10% affiliated beneficial owners were timely
made.
Code of Ethics
The board of directors of our general partner has adopted a code of ethics which sets forth the partnership’s policy with
respect to business ethics and conflicts of interest. The code of ethics is intended to ensure that the employees, officers and
directors of the partnership conduct business with the highest standards of integrity and in compliance with all applicable
laws and regulations. It applies to any employees, officers and directors of the partnership, including its principal executive
officer, principal financial officer and controller, or persons performing similar functions. The code of ethics also
incorporates expectations of the senior financial officers that enable us to provide accurate and timely disclosure in our filings
with the SEC and other public communications. The code of ethics is publicly available on our website under the "Corporate
Governance" subsection of the Investors section at www.greenplainspartners.com and is also available free of charge on
request to the Secretary at the Omaha office address given under the "Contact" section on our website.
Item 11. Executive Compensation.
Overview – Compensation Decisions and Allocation of Compensation Expenses
Neither the partnership nor the general partner employ any of the persons responsible for managing our business. Our
general partner does not have a compensation committee. Our general partner, under the direction of its board of directors, is
responsible for managing our operations and for obtaining the services of the employees that operate our business.
The compensation payable to the officers of our general partner, who are employees of our parent, is paid by our parent.
Our general partner and the operating subsidiaries entered into an operational services and secondment agreement with our
parent and Green Plains Trade pursuant to which, among other matters:
•
•
our parent has made available to our general partner the services of the employees who serve as the executive
officers of our general partner; and
our general partner is obligated to reimburse our parent for a specified portion of the costs that our parent incurs in
providing compensation and benefits to such employees of our parent.
62
After completion of the IPO, the executive officers of our general partner perform services unrelated to our business for
our parent and its affiliates and will not receive any separate amounts of compensation for their services to us or our general
partner. Each of the executive officers of our general partner devoted substantially less than a majority of his working time to
matters relating to our ethanol and fuel storage assets, terminal and transportation assets. As a result, we do not believe the
compensation the executive officers of our general partner receive in relation to the services they perform with respect to our
ethanol storage assets, terminal and transportation assets would comprise a material amount of their total compensation.
For the year ended December 31, 2018, our named executive officers (NEOs) included two executives currently
employed by our general partner (President and Chief Executive Officer Todd Becker and Chief Financial Officer John
Neppl), as well as Jeff Briggs, who resigned from his position as Chief Operating Officer effective December 31, 2018.
The NEOs of our general partner and all other personnel necessary for our business to function are employed and
compensated by our parent. We are responsible for paying the long-term incentive compensation expense associated with our
LTIP described below. The NEOs continue to participate in employee benefit plans and arrangements sponsored by our
parent, including plans that may be established in the future. Our general partner has not entered into any employment
agreements with any of its executive officers. There was no compensation in any form paid to or earned by any executive
officer of our general partner in 2018 or 2017. All compensation was paid by our parent and allocated to the partnership
through our corporate allocation process.
Our parent provides compensation to its executives in the form of base salaries, annual cash bonuses and stock incentive
awards under our parent’s long-term equity incentive plan.
2018 Executive Compensation Summary
The following table provides certain compensation information for our NEOs for the years ended December 31, 2018
and 2017:
Name and principal position Year Salary (1) Bonus (1)(2)
Todd Becker, President and
Chief Executive Officer
2018 $ 27,538 $
22,725
2017
-
29,002
Stock
awards (1)(3)
Non-equity
incentive plan
comp. (1)(2)
All other
comp. (1)(4) Total
$
67,631
139,487
$
36,946 $
-
3,721
3,792
$ 135,836
195,006
John Neppl, Chief Financial
Officer (5)
Jeffrey Briggs, Chief
Operating Officer (6)
2018
2017
16,420
5,383
-
3,679
2018
2017
14,368
15,150
-
6,926
15,907
25,972
-
25,031
13,136
-
574
183
-
-
54,028
494
46,037
35,217
68,396
47,601
(1) The amounts shown above reflect compensation allocated to us from our parent for the periods presented. Per our omnibus agreement percentage
allocations of 4.11% and 4.33% were applied to compensation for the full year 2018 and 2017, respectively.
(2) "Bonus" amounts relate to discretionary cash bonuses. “Non-equity incentive plan compensation” amounts were awarded pursuant to our parent's
Umbrella Short-Term Incentive Plan.
(3) "Stock awards" were awarded pursuant to our parent's 2009 Equity Incentive Plan, as amended. A column for "Option awards" has been omitted from
this table because no compensation is reportable thereunder.
(4) “All other compensation" generally consists of our parent's match to the executive officer's 401(k) retirement plan and imputed income on Company-paid
life insurance.
(5) Mr. Neppl became our Chief Financial Officer effective September 11, 2017.
(6) Mr. Briggs resigned as our Chief Operating Officer effective December 31, 2018. The amount shown in "All other compensation" for 2018 includes a
cash payment and accelerated vesting of stock awards made to Mr. Briggs on his resignation pursuant to his employment agreement.
Outstanding Equity Awards at Year-End
There were no outstanding equity awards to our NEOs as of December 31, 2018.
Our Long-Term Incentive Plan
Our general partner adopted our LTIP for officers, directors and employees of our general partner or its affiliates, and
any consultants, affiliates of our general partner or other individuals who perform services for us. Our general partner may
issue long-term equity based awards under the plan to our executive officers and other service providers. These awards are
intended to compensate the recipients based on the performance of our common units and the recipient’s continued service
during the vesting period, as well as to align recipients’ long-term interests with those of our unitholders. The plan is
63
administered by the board of directors of our general partner or any committee thereof that may be established for such
purpose or to which the board of directors or such committee may delegate such authority, subject to applicable law. All
determinations with respect to awards to be made under our LTIP are made by the plan administrator and we are responsible
for the cost of awards granted under our LTIP. The following description summarizes the terms of our LTIP, but this
summary does not purport to be a complete description of all of the provisions of our LTIP.
General. Our LTIP provides for the grant, from time to time at the discretion of the plan administrator or any delegate
thereof, subject to applicable law, of unit awards, restricted units, phantom units, unit options, unit appreciation rights,
distribution equivalent rights, profits interest units and other unit-based awards. The purpose of awards under our LTIP is to
provide additional incentive compensation to employees and any other individuals providing services to us, and to align the
economic interests of such employees and individuals with the interests of our unitholders. The plan administrator may grant
awards under our LTIP to reward the achievement of individual or partnership performance goals; however, no specific
performance goals that might be utilized for this purpose have yet been determined. In addition, the plan administrator may
grant awards under our LTIP without regard to performance factors or conditions. Our LTIP will limit the number of units
that may be delivered pursuant to vested awards to 2,500,000 common units, subject to proportionate adjustment in the event
of unit splits and similar events. Common units subject to awards that are cancelled, forfeited, withheld to satisfy exercise
prices or tax withholding obligations or otherwise terminated without delivery of the common units will be available for
delivery pursuant to other awards.
Restricted Units and Phantom Units. A restricted unit is a common unit that is subject to forfeiture. Upon vesting, the
forfeiture restrictions lapse and the recipient holds a common unit that is not subject to forfeiture. A phantom unit is a
notional unit that entitles the grantee to receive a common unit upon the vesting of the phantom unit or on a deferred basis
upon specified future dates or events or, in the discretion of the plan administrator, cash equal to the fair market value of a
common unit. The plan administrator of our LTIP may make grants of restricted and phantom units under our LTIP that
contain such terms, consistent with our LTIP, as the plan administrator may determine are appropriate, including the period
over which restricted or phantom units will vest. The plan administrator may, in its discretion, base vesting on the grantee’s
completion of a period of service or upon the achievement of specified financial objectives or other criteria or upon a change
in control (as defined in our LTIP) or as otherwise described in an award agreement.
Distributions made by us with respect to awards of restricted units may be subject to the same vesting requirements as
the restricted units.
Distribution Equivalent Rights. The plan administrator, in its discretion, may also grant distribution equivalent rights,
either as standalone awards or in tandem with other awards. Distribution equivalent rights are rights to receive an amount in
cash, restricted units or phantom units equal to all or a portion of the cash distributions made on units during the period an
award remains outstanding.
Unit Options and Unit Appreciation Rights. Our LTIP also permits the grant of options and appreciation rights covering
common units. Unit options represent the right to purchase a number of common units at a specified exercise price. Unit
appreciation rights represent the right to receive the appreciation in the value of a number of common units over a specified
exercise price, either in cash or in common units. Unit options and unit appreciation rights may be granted to such eligible
individuals and with such terms as the plan administrator may determine, consistent with our LTIP; however, a unit option or
unit appreciation right must have an exercise price equal to at least the fair market value of a common unit on the date of
grant.
Unit Awards. Awards covering common units may be granted under our LTIP with such terms and conditions, including
restrictions on transferability, as the administrator of our LTIP may establish.
Profits Interest Units. Awards granted to grantees who are partners, or granted to grantees in anticipation of the grantee
becoming a partner or granted as otherwise determined by the administrator, may consist of profits interest units. The
administrator will determine the applicable vesting dates, conditions to vesting and restrictions on transferability and any
other restrictions for profits interest awards.
Other Unit-Based Awards. Our LTIP may also permit the grant of other unit-based awards, which are awards that, in
whole or in part, are valued or based on or related to the value of a common unit. The vesting of other unit-based awards may
be based on a participant’s continued service, the achievement of performance criteria or other measures. On vesting or on a
deferred basis upon specified future dates or events, other unit-based awards may be paid in cash and/or in units (including
restricted units), or any combination thereof as the plan administrator may determine.
64
Source of Common Units. Common units to be delivered with respect to awards may be newly issued units, common
units acquired by us or our general partner in the open market, common units already owned by our general partner or us,
common units acquired by our general partner directly from us or any other person or any combination of the foregoing.
Anti-Dilution Adjustments and Change in Control. If an “equity restructuring” event occurs that could result in an
additional compensation expense under applicable accounting standards if adjustments to awards under our LTIP with
respect to such event were discretionary, the plan administrator will equitably adjust the number and type of units covered by
each outstanding award and the terms and conditions of such award to equitably reflect the restructuring event and will adjust
the number and type of units with respect to which future awards may be granted under our LTIP. With respect to other
similar events, including, for example, a combination or exchange of units, a merger or consolidation or an extraordinary
distribution of our assets to unitholders, that would not result in an accounting charge if adjustment to awards were
discretionary, the plan administrator shall have discretion to adjust awards in the manner it deems appropriate and to make
equitable adjustments, if any, with respect to the number of units available under our LTIP and the kind of units or other
securities available for grant under our LTIP. Furthermore, upon any such event, including a change in control of us or our
general partner, or a change in any law or regulation affecting our LTIP or outstanding awards or any relevant change in
accounting principles, the plan administrator will generally have discretion to (i) accelerate the time of exercisability or
vesting or payment of an award, (ii) require awards to be surrendered in exchange for a cash payment or substitute other
rights or property for the award, (iii) provide for the award to assumed by a successor or one of its affiliates, with appropriate
adjustments thereto, (iv) cancel unvested awards without payment or (v) make other adjustments to awards as the
administrator deems appropriate to reflect the applicable transaction or event.
Termination of Service. The consequences of the termination of a grantee’s employment, membership on our general
partner’s board of directors or other service arrangement will generally be determined by the plan administrator in the terms
of the relevant award agreement.
Amendment or Termination of Long-Term Incentive Plan. The plan administrator, at its discretion, may terminate our
LTIP at any time with respect to the common units for which a grant has not previously been made. The plan administrator
also has the right to alter or amend our LTIP or any part of it from time to time or to amend any outstanding award made
under our LTIP, provided that no change in any outstanding award may be made that would materially impair the vested
rights of the participant without the consent of the affected participant or result in taxation to the participant under Section
409A of the Internal Revenue Code.
Compensation Consultants
The board of directors of our general partner does not have a compensation committee, and it did not retain a
compensation consultant in 2018 or 2017.
Insider Trading Policy
Our board of directors has adopted an insider trading policy both to satisfy the partnership’s obligation to prevent insider
trading and to help partnership insiders avoid the severe consequences associated with violations of insider trading laws. As
the partnership has worked diligently to establish a reputation for integrity and ethical conduct, this policy is also intended to
prevent even the appearance of improper conduct on the part of anyone associated with the partnership.
No director, officer or employee of the partnership who is aware of material nonpublic information relating to the
partnership may, directly or through family members or other persons or entities, (a) buy or sell securities of the partnership
(other than pursuant to a pre-approved trading plan that complies with SEC Rule 10b5-1), or engage in any other action to
take personal advantage of that information, or (b) pass that information on to others outside the partnership, including family
and friends. In addition, no director, officer or other employee of the partnership who, in the course of working for the
partnership, learns of material nonpublic information about a company with which the partnership does business, including a
customer or supplier of the partnership, may trade in that company’s securities until the information becomes public or is no
longer material.
Certain forms of hedging or monetization transactions allow an employee to lock in much of the value of his or her stock
holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions allow the
director, officer or employee to continue to own the covered securities, but without the full risks and rewards of ownership.
When that occurs, the director, officer or employee may no longer have the same objectives as the partnership’s other
unitholders. Any person wishing to enter into such an arrangement must first pre-clear the proposed transaction with the
partnership’s Chief Executive Officer or his designee.
65
Securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to
meet a margin call. Similarly, securities pledged or hypothecated as collateral for a loan may be sold in foreclosure if the
borrower defaults on the loan. Because a margin sale or foreclosure sale may occur at a time when the pledgor is aware of
material nonpublic information or otherwise is not permitted to trade in partnership securities, directors, officers and other
employees who are aware of material nonpublic information relating to the partnership are prohibited from holding
partnership securities in a margin account or pledging partnership securities as collateral for a loan. An exception to this
prohibition may be granted where a person wishes to pledge partnership securities as collateral for a loan, not including
margin debt, and clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities. Any
person who wishes to pledge partnership securities as collateral for a loan must submit a request for approval to the
partnership’s Chief Executive Officer or his designee at least two weeks prior to the proposed execution of documents
evidencing the proposed pledge.
The partnership has applied and interpreted the insider trading policy that hedging and pledging transactions are not
permitted, without approval, and approval is not easily achieved or given out just because it was requested.
Compensation of Our Directors
Our general partner adopted a director compensation policy, which states directors who are not officers, employees or
paid consultants or advisors of us or our general partner receive a combination of cash and restricted common unit grants as
compensation for attending meetings of the board of directors of our general partner and any committee meetings as follows:
•
•
•
•
annual cash compensation of $60,000 per year, paid quarterly;
audit committee chair: additional cash compensation of $10,000 per year, paid quarterly;
conflicts committee chair: additional cash compensation of $5,000 per year, paid quarterly; and
annual grant of $80,000 of common units under our LTIP, which vest one year from the grant date.
Directors also receive reimbursement for out-of-pocket expenses associated with attending board or committee meetings
and director and officer liability insurance coverage. Officers, employees, paid consultants or advisors of us or our general
partner or its affiliates who also serve as directors do not receive additional compensation for their service as directors. All
directors will be indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware
law.
Non-Employee Director Compensation Table
The following table summarizes the compensation granted to all non-employee directors during 2018:
Name
Clayton E. Killinger
Jerry L. Peters
Brett C. Riley
Martin Salinas, Jr.
Fees Earned or Paid
in Cash (1)
$
70,000
60,000
65,000
28,207
Unit Awards (2)(3)
80,000
$
80,000
80,000
75,276
$
All Other
Compensation
$
-
-
-
-
Total
150,000
140,000
145,000
103,483
(1) The annual cash fees for non-employee directors for 2018 are based on a calendar year and were prorated based on the date each board member was
appointed. Mr. Salinas was appointed in July 2018. All other non-employee directors were appointed prior to 2018.
(2) On July 1, 2018, Mr. Killinger, Mr. Riley and Mr. Peters received their annual restricted common unit grant of $80,000 based on the common unit
market price of $17.15. On July 16, 2018, Mr. Salinas received a restricted common unit grant of $75,276 based on the common unit market price of $16.40.
As of December 31, 2018, the restricted common unit awards were the only outstanding awards for each non-employee director.
(3) The amounts shown in this column represent the aggregate grant date fair value, as determined in accordance with ASC 718, Compensation – Stock
Compensation, without regard to potential forfeitures. The restricted common units granted in 2018 will vest on June 30, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the beneficial ownership of our units as of February 14, 2019, held by (i) beneficial owners
of 5% or more of the units, (ii) each director and named executive officer of our general partner, and (iii) all director and
executive officers of our general partner as a group.
The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing
the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a beneficial
66
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