20180930 10Q Q3

Table of Contents

 





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________



FORM 10-Q



Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934



For the Quarterly Period Ended September 30, 2018



Commission File Number 001-37469



Green Plains PARTNERS LP

(Exact name of registrant as specified in its charter)





 

Delaware

47-3822258

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)



 

1811 Aksarben Drive, Omaha, NE 68106

(402) 884-8700

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes    No



Indicate by check mark whether the registrant has submitted electronically 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).

 Yes    No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

Large accelerated filer 

Accelerated filer 

Non‑accelerated filer     

Smaller reporting company 

Emerging growth company 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes    No



The registrant had 31,830,431 common units outstanding as of November 5, 2018.


 

Table of Contents

 



TABLE OF CONTENTS





 

 



 

 



Page

PART I – FINANCIAL INFORMATION

Commonly Used Defined Terms

3



 

 

Item 1.

Financial Statements

4



 

 



Consolidated Balance Sheets

4



 

 



Consolidated Statements of Operations

5



 

 



Consolidated Statements of Cash Flows

6



 

 



Notes to Consolidated Financial Statements

7



 

 

Item 2.

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

22



 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30



 

 

Item 4.

Controls and Procedures

31



 

 

PART II – OTHER INFORMATION



 

 

Item 1.

Legal Proceedings

32



 

 

Item 1A.

Risk Factors

32



 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33



 

 

Item 3.

Defaults Upon Senior Securities

33



 

 

Item 4.

Mine Safety Disclosures

33



 

 

Item 5.

Other Information

33



 

 

Item 6.

Exhibits

34



 

 

Signatures.

35









 

2


 

Table of Contents

 

Commonly Used Defined Terms



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



Green Plains Partners LP, Subsidiaries, and Partners:



z

 

DKGP

DKGP Energy Terminals LLC

Green Plains Operating Company

Green Plains Operating Company LLC

Green Plains Partners; the partnership

Green Plains Partners LP and its subsidiaries

NLR

NLR Energy Logistics LLC



Green Plains Inc. and Subsidiaries:





 

Green Plains; the parent or sponsor

Green Plains Inc. and its subsidiaries

Green Plains Holdings, the general partner

Green Plains Holdings LLC

Green Plains Trade

Green Plains Trade Group LLC



Other Defined Terms:









2017 annual report

The partnership’s annual report on Form 10-K for the year ended December 31, 2017, filed February 14, 2018

ARO

Asset retirement obligation

ASC

Accounting Standards Codification

Bgy

Billion gallons per year

CAFE

Corporate Average Fuel Economy

CAMEX

Brazil Chamber of Foreign Trade

Conflicts committee

The partnership’s committee reviewing situations involving a transaction with an affiliate or a conflict of interest

D.C.

District of Columbia

E10

Gasoline blended with up to 10% ethanol by volume

E15

Gasoline blended with up to 15% ethanol by volume

E85

Gasoline blended with up to 85% ethanol by volume

EBITDA

Earnings before interest, taxes, depreciation and amortization

EIA

U.S. Energy Information Administration

EISA

Energy Independence and Security Act of 2007, as amended

EPA

U.S. Environmental Protection Agency

Exchange Act

Securities Exchange Act of 1934, as amended

FASB

Financial Accounting Standards Board

GAAP

U.S. Generally Accepted Accounting Principles

IPO

Initial public offering of Green Plains Partners LP

LIBOR

London Interbank Offered Rate

LTIP

Green Plains Partners LP 2015 Long-Term Incentive Plan

Mmg

Million gallons

MTBE

Methyl tertiary-butyl ether

MVCs

Minimum volume commitments

Partnership agreement

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.

PCAOB

Public Company Accounting Oversight Board

RBOB

Reformulated blendstock for oxygenate blending

RFS II

Renewable Fuels Standard II

RIN

Renewable identification number

RVO

Renewable volume obligation

SEC

Securities and Exchange Commission

U.S.

United States

USDA

U.S. Department of Agriculture



3


 

Table of Contents

 

PART I – FINANCIAL INFORMATION



Item 1.  Financial Statements.

GREEN PLAINS PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)







 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017



 

(unaudited)

 

 

 

ASSETS

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

432 

 

$

502 

Accounts receivable

 

 

732 

 

 

2,640 

Accounts receivable from affiliates

 

 

17,842 

 

 

17,334 

Amortizable lease costs

 

 

 -

 

 

96 

Prepaid expenses and other

 

 

743 

 

 

1,062 

Total current assets

 

 

19,749 

 

 

21,634 



 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization of $32,394 and $28,977, respectively

 

 

46,156 

 

 

48,305 

Goodwill

 

 

10,598 

 

 

10,598 

Investment in equity method investees

 

 

3,580 

 

 

2,237 

Note receivable

 

 

8,100 

 

 

8,100 

Other assets

 

 

1,128 

 

 

1,394 

Total assets

 

$

89,311 

 

$

92,268 



 

 

 

 

 

 

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

7,534 

 

$

5,854 

Accounts payable to affiliates

 

 

4,005 

 

 

2,106 

Accrued and other liabilities

 

 

4,600 

 

 

6,684 

Asset retirement obligations

 

 

676 

 

 

192 

Unearned revenue

 

 

148 

 

 

1,222 

Total current liabilities

 

 

16,963 

 

 

16,058 



 

 

 

 

 

 

Long-term debt

 

 

136,012 

 

 

134,875 

Deferred lease liability

 

 

832 

 

 

797 

Asset retirement obligations

 

 

2,904 

 

 

3,384 

Total liabilities

 

 

156,711 

 

 

155,114 



 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 



 

 

 

 

 

 

Partners' capital

 

 

 

 

 

 

Common unitholders - public (11,551,147 and 11,532,565 units issued and outstanding, respectively)

 

 

114,324 

 

 

115,747 

Common unitholders - Green Plains (20,279,284 and 4,389,642 units issued and outstanding, respectively)

 

 

(180,729)

 

 

(38,505)

Subordinated unitholders - Green Plains (0 and 15,889,642 units issued and outstanding, respectively)

 

 

 -

 

 

(139,376)

General partner interests

 

 

(995)

 

 

(712)

Total partners' capital

 

 

(67,400)

 

 

(62,846)

Total liabilities and partners' capital

 

$

89,311 

 

$

92,268 



See accompanying notes to the consolidated financial statements.

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GREEN PLAINS PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per unit amounts)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,



 

2018

 

2017

 

2018

 

2017

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate

 

$

24,472 

 

$

24,748 

 

$

72,949 

 

$

74,019 

Non-affiliate

 

 

1,298 

 

 

1,701 

 

 

4,546 

 

 

4,724 

Total revenues

 

 

25,770 

 

 

26,449 

 

 

77,495 

 

 

78,743 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Operations and maintenance (excluding depreciation and amortization reflected below)

 

 

7,283 

 

 

8,346 

 

 

23,586 

 

 

25,161 

General and administrative

 

 

1,109 

 

 

922 

 

 

3,689 

 

 

3,258 

Depreciation and amortization

 

 

1,120 

 

 

1,280 

 

 

3,406 

 

 

3,781 

Total operating expenses

 

 

9,512 

 

 

10,548 

 

 

30,681 

 

 

32,200 

Operating income

 

 

16,258 

 

 

15,901 

 

 

46,814 

 

 

46,543 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

21 

 

 

20 

 

 

61 

 

 

61 

Interest expense

 

 

(1,871)

 

 

(1,412)

 

 

(5,253)

 

 

(3,941)

Other

 

 

 -

 

 

 -

 

 

75 

 

 

 -

Total other expense

 

 

(1,850)

 

 

(1,392)

 

 

(5,117)

 

 

(3,880)

Income before income taxes and income (loss) from equity method investees

 

 

14,408 

 

 

14,509 

 

 

41,697 

 

 

42,663 

Income tax expense

 

 

(5)

 

 

(43)

 

 

(70)

 

 

(135)

Income (loss) from equity method investees

 

 

48 

 

 

 -

 

 

(82)

 

 

 -

Net income

 

$

14,451 

 

$

14,466 

 

$

41,545 

 

$

42,528 



 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to partners' ownership
interests:

 

 

 

 

 

 

 

 

 

 

 

 

General partner

 

$

289 

 

$

290 

 

$

831 

 

$

851 

Limited partners - common unitholders

 

 

10,726 

 

 

7,097 

 

 

24,015 

 

 

20,856 

Limited partners - subordinated unitholders

 

 

3,436 

 

 

7,079 

 

 

16,699 

 

 

20,821 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per limited partner unit (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

$

0.44 

 

$

0.45 

 

$

1.28 

 

$

1.31 

Subordinated units 

 

$

0.46 

 

$

0.45 

 

$

1.28 

 

$

1.31 



 

 

 

 

 

 

 

 

 

 

 

 

Weighted average limited partner units
outstanding (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

Common units

 

 

24,403 

 

 

15,922 

 

 

18,780 

 

 

15,914 

Subordinated units

 

 

7,427 

 

 

15,890 

 

 

13,038 

 

 

15,890 



See accompanying notes to the consolidated financial statements.



 

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GREEN PLAINS PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended
September 30,



 

2018

 

2017

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

41,545 

 

$

42,528 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

3,406 

 

 

3,781 

Accretion

 

 

 

 

178 

Amortization of debt issuance costs

 

 

453 

 

 

362 

Increase in deferred lease liability

 

 

35 

 

 

45 

Unit-based compensation

 

 

196 

 

 

159 

Loss from equity method investees

 

 

82 

 

 

 -

Other

 

 

 

 

 -

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

1,908 

 

 

701 

Accounts receivable from affiliates

 

 

(508)

 

 

(1,056)

Prepaid expenses and other assets

 

 

319 

 

 

382 

Accounts payable and accrued liabilities

 

 

(1,417)

 

 

(770)

Accounts payable to affiliates

 

 

1,899 

 

 

(614)

Other

 

 

34 

 

 

(33)

Net cash provided by operating activities

 

 

47,957 

 

 

45,663 



 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment, net

 

 

(1,222)

 

 

(1,912)

Contributions to equity method investees

 

 

(1,425)

 

 

(1,284)

Net cash used in investing activities

 

 

(2,647)

 

 

(3,196)



 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payments of distributions

 

 

(46,302)

 

 

(42,839)

Proceeds from revolving credit facility

 

 

58,700 

 

 

51,000 

Payments on revolving credit facility

 

 

(57,600)

 

 

(51,000)

Payments of loan fees

 

 

(185)

 

 

 -

Other

 

 

 

 

Net cash used in financing activities

 

 

(45,380)

 

 

(42,836)



 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(70)

 

 

(369)

Cash and cash equivalents, beginning of period

 

 

502 

 

 

622 

Cash and cash equivalents, end of period

 

$

432 

 

$

253 



 

 

 

 

 

 



 

 

 

 

 

 

Supplemental disclosures of cash flow

 

 

 

 

 

 

Cash paid for income taxes

 

$

124 

 

$

143 

Cash paid for interest

 

$

4,799 

 

$

3,591 

Capital expenditures in accounts payable

 

$

35 

 

$

 -



See accompanying notes to the consolidated financial statements.

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Table of Contents

 

GREEN PLAINS PARTNERS LP



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(unaudited)

 

1.  BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Organization



References to “the partnership” in the consolidated financial statements and notes to the consolidated financial statements refer to Green Plains Partners LP and its subsidiaries.

 

Green Plains Holdings LLC, a wholly owned subsidiary of Green Plains Inc., serves as the general partner of the partnership. References to (i) “the general partner” and “Green Plains Holdings” refer to Green Plains Holdings LLC; (ii) “the parent,” “the sponsor” and “Green Plains” refer to Green Plains Inc.; and (iii) “Green Plains Trade” refers to Green Plains Trade Group LLC, a wholly owned subsidiary of Green Plains.



Consolidated Financial Statements



The consolidated financial statements include the accounts of the partnership and its controlled subsidiaries. All significant intercompany balances and transactions are eliminated on a consolidated basis for reporting purposes. Results for the interim periods presented are not necessarily indicative of the expected results for the entire year.



The accompanying unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Because they do not include all of the information and footnotes required by GAAP, the consolidated financial statements should be read in conjunction with the partnership’s 2017 annual report on Form 10-K for the year ended December 31, 2017.



The partnership accounts for its interest in joint ventures using the equity method of accounting, with its investment recorded at the acquisition cost plus the partnership’s share of equity in undistributed earnings or losses and reduced by distributions received.



Use of Estimates in the Preparation of Consolidated Financial Statements



Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the reporting period. The partnership bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances. The partnership regularly evaluates the appropriateness of these estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including, but not limited to, those related to depreciation of property and equipment, asset retirement obligations, and impairment of long-lived assets and goodwill, are impacted significantly by judgments, assumptions and estimates used to prepare the consolidated financial statements.



Description of Business



The partnership provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. The partnership is its parent’s primary downstream logistics provider to support the parent’s approximately 1.5 bgy ethanol marketing and distribution business since the partnership’s assets are the principal method of storing and delivering the ethanol its parent produces. The ethanol produced by the parent is predominantly fuel grade, made principally from starch extracted from corn, and primarily used for blending with gasoline. Ethanol currently comprises approximately 10% of the U.S. gasoline market and is an economical source of octane and oxygenates for blending into the fuel supply. The partnership does not take ownership of, or receive any payments based on the value of the ethanol, other fuels or products it handles. As a result, the partnership does not have any direct exposure to fluctuations in commodity prices.



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Revenue Recognition



The partnership recognizes revenue when obligations under the terms of a contract with a customer are satisfied. Generally this occurs with the completion of services or the transfer of control of products to the customer or another specified third party. 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.



The partnership generates a substantial portion of its revenues under fee-based commercial agreements with Green Plains Trade. Please refer to Note 2 - Revenue to the consolidated financial statements for further details.



Operations and Maintenance Expenses



The partnership’s operations and maintenance expenses consist primarily of lease expenses related to the 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 the storage and terminal facilities, trucks, and leased railcar fleet allocated by Green Plains under the operational services and secondment agreement.



Concentrations of Credit Risk



In the normal course of business, the partnership is exposed to credit risk resulting from the possibility a loss may occur due to failure of another party to perform according to the terms of their contract. The partnership provides fuel storage and transportation services for various parties with a significant portion of its revenues earned from Green Plains Trade. The partnership continually monitors its credit risk exposure and concentrations. Please refer to Note 2 – Revenue and Note 9 – Related Party Transactions to the consolidated financial statements for additional information.



Segment Reporting



The partnership accounts for segment reporting in accordance with ASC 280, Segment Reporting, which establishes standards for entities reporting information about the operating segments and geographic areas in which they operate. Management evaluated how its chief operating decision maker has organized the partnership for purposes of making operating decisions and assessing performance, and concluded it has one reportable segment.



Asset Retirement Obligations



The partnership records an ARO for the fair value of the estimated costs to retire a tangible long-lived asset in the period incurred if it can be reasonably estimated, which is subsequently adjusted for accretion expense. Corresponding asset retirement costs are capitalized as a long-lived asset and depreciated on a straight-line basis over the asset’s remaining useful life. The expected present value technique used to calculate the fair value of the AROs includes assumptions about costs, settlement dates, interest accretion, and inflation. Changes in assumptions, such as the amount or timing of estimated cash flows, could increase or decrease the AROs. The partnership’s AROs are based on legal obligations to perform remedial activity related to land, machinery and equipment when certain operating leases expire.



Equity Method Investments



The partnership accounts for investments in which the partnership exercises significant influence using the equity method so long as the partnership (i) does not control the investee and (ii) is not the primary beneficiary of the entity. The partnership recognizes these investments as a separate line item in the consolidated balance sheets. The partnership’s proportional share of earnings or loss in these investments is recognized on a one-month lag as a separate line item in the consolidated statements of operations.



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



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



Recent Accounting Pronouncements 



On January 1, 2018, the partnership adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers. Please refer to Note 2 - Revenue to the consolidated financial statements for further details.



Effective January 1, 2018, the partnership 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. The annual goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge equal to the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit, would be recognized. The amended guidance will be applied prospectively when the annual impairment testing is performed in the current year. The partnership does not believe the new guidance will have a material impact on the consolidated financial statements.



Effective January 1, 2019, the partnership will adopt the amended guidance in ASC Topic 842, Leases, which aims to make leasing activities more transparent and comparable, requiring substantially all leases to be recognized by lessees on the balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. The new standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2018. The standard requires a modified retrospective transition approach and allows for early adoption. In July 2018, the FASB issued Accounting Standards Update, Leases (Topic 842): Targeted Improvements, which provides an option to apply the transition provisions of the new standard at adoption date instead of the earliest comparative period presented in the financial statements. The partnership will elect to use this optional transition method.



The partnership has established an implementation team which continues to review current accounting policies, internal controls, processes, and disclosures that will change as a result of adopting the new standard. The partnership has gathered information on existing leases to obtain a complete population of leases upon adoption, and has implemented a lease accounting system, which will assist in delivering the required accounting changes and disclosures. The new standard will significantly increase right-of-use assets and lease liabilities on the partnership’s consolidated balance sheet, primarily due to operating leases that are currently not recognized on the balance sheet. In addition, it will also require expanded disclosures in the partnership’s consolidated financial statements. The partnership continues to evaluate the impact the new standard may have on revenue streams that are currently reported as operating lease revenue under GAAP. The partnership will complete its assessment of the impact of the new guidance on its consolidated financial statements during the fourth quarter of 2018.



2.  REVENUE



Adoption of ASC Topic 606



On January 1, 2018, the partnership adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers, and all related amendments (“new revenue standard”) and applied it to all contracts using the modified retrospective transition method. There was no adjustment required to the consolidated January 1, 2018, balance sheet for the adoption of the new revenue standard. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. In addition, there was no impact of adoption on the consolidated statements of operations or balance sheets for the nine months ended September 30, 2018.



Revenue Recognition



The partnership recognizes revenue when obligations under the terms of a contract with a customer are satisfied.  Generally this occurs with the completion of services or the transfer of control of products to the customer or another specified third party. Revenue is measured as the amount of consideration expected to be received in exchange for providing services.



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Table of Contents

 

Revenue by Source



The following table disaggregates our revenue by major source for the three and nine months ended September 30, 2018, and 2017 (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,



 

2018

 

2017

 

2018

 

2017

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Service revenues

 

 

 

 

 

 

 

 

 

 

 

 

Terminal services

 

$

2,132 

 

$

2,348 

 

$

6,912 

 

$

7,289 

Trucking and other

 

 

1,419 

 

 

961 

 

 

3,722 

 

 

2,163 

Railcar transportation services

 

 

29 

 

 

26 

 

 

82 

 

 

82 

Total service revenues

 

 

3,580 

 

 

3,335 

 

 

10,716 

 

 

9,534 

Leasing revenues (1)

 

 

 

 

 

 

 

 

 

 

 

 

Storage and throughput services

 

 

15,748 

 

 

15,416 

 

 

45,965 

 

 

45,695 

Railcar transportation services

 

 

6,127 

 

 

7,358 

 

 

19,698 

 

 

22,087 

Terminal services

 

 

315 

 

 

340 

 

 

1,116 

 

 

1,427 

Total leasing revenues

 

 

22,190 

 

 

23,114 

 

 

66,779 

 

 

69,209 

Total revenues

 

$

25,770 

 

$

26,449 

 

$

77,495 

 

$

78,743 



(1) Leasing revenues do not represent revenues recognized from contracts with customers under ASC Topic 606, Revenue from Contracts with Customers, and continue to be accounted for under ASC Topic 840, Leases.



Terminal Services Revenue



The partnership provides terminal services and logistics solutions to Green Plains Trade, and other customers, through its fuel terminal facilities under various terminal service agreements, some of which have minimum volume commitments. Revenue generated by these terminals is disaggregated between service revenue and leasing revenue in accordance with the new revenue standard. If Green Plains or other customers fail to meet their minimum volume commitments during the applicable term, a deficiency payment equal to the deficient volume multiplied by the applicable fee will be charged. Deficiency payments related to the partnership’s terminal services revenue may not be utilized as credits toward future volumes. At terminals where customers have shared use of terminal and tank storage assets, revenue is generated from contracts with customers and accounted for as service revenue. This service revenue is recognized at the point in time when product is withdrawn from tank storage. At terminals where a customer is predominantly provided exclusive use of the terminal or tank storage assets, the partnership is considered a lessor as part of an operating lease agreement. Revenue is recognized over the term of the lease based on the minimum volume commitment or total actual throughput if in excess of the minimum volume commitment.



Trucking and Other Revenue



The partnership transports ethanol, natural gasoline, other refined fuels and feedstocks by truck from identified receipt points to various delivery points. Trucking revenue is recognized over time based on the percentage of total miles traveled, which is on average less than 100 miles.



Railcar Transportation Services Revenue



Under the rail transportation services agreement, 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. Green Plains Trade is required to pay the partnership fees for the minimum railcar volumetric capacity provided, regardless of utilization of that capacity. However, Green Plains Trade is not charged for railcar volumetric capacity that is not available for use due to inspections, upgrades or routine repairs and maintenance. Revenue associated with the rail transportation services fee is considered leasing revenue and is recognized over the term of the lease based on the actual average daily railcar volumetric capacity provided. The partnership may also charge Green Plains Trade a related services fee for logistical operations management of railcar volumetric capacity utilized by Green Plains Trade which is not provided by the partnership. Revenue associated with the related services fee is considered service revenue generated from contracts with customers and is recognized at a point in time based on average daily railcar volumetric capacity managed.



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Storage and Throughput Revenue



The partnership generates leasing revenue from its storage and throughput agreement with Green Plains Trade based on contractual rates charged for the handling, storage and throughput of ethanol. Under this agreement, Green Plains Trade is required to pay the partnership a fee for a minimum volume commitment regardless of the actual volume delivered. If Green Plains Trade fails to meet its minimum volume commitment during any quarter, the partnership will charge Green Plains Trade 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. Revenue is recognized over the term of the lease based on the minimum volume commitment or total actual throughput if in excess of the minimum volume commitment.

 

Payment Terms



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



Major Customers



Revenue from Green Plains Trade Group was $24.5 million and $72.9 million for the three and nine months ended September 30, 2018, respectively, and $24.7 million and $74.0 million for the three and nine months ended September 30, 2017, respectively, which exceeds 10% of the partnership's total revenue.



Contract Liabilities



The partnership records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of service and lease agreements. Unearned revenue from service agreements, which represents a contract liability, is recorded for fees that have been charged to the customer prior to the completion of performance obligations, and is generally recognized in the subsequent quarter.



The following table reflects the changes in our unearned revenue from service agreements for the three and nine months ended September 30, 2018 (in thousands):





 

 

 



 

Amount

Balance at January 1, 2018

 

$

194 

Revenue recognized included in beginning balance

 

 

(194)

Net additions

 

 

228 

Balance at March 31, 2018

 

 

228 

Revenue recognized included in beginning balance

 

 

(228)

Net additions

 

 

181 

Balance at June 30, 2018

 

 

181 

Revenue recognized included in beginning balance

 

 

(181)

Net additions

 

 

148 

Balance at September 30, 2018

 

$

148 



The partnership expects to recognize all of the unearned revenue associated with service agreements from contracts with customers as of September 30, 2018, in the subsequent quarter when the product is withdrawn from tank storage.



Unearned revenue associated with lease agreements is not considered a contract liability under the new revenue standard. There was no unearned revenue associated with lease agreements as of September 30, 2018, and $1.0 million as of December 31, 2017.



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3.  DEBT



Revolving Credit Facility



Green Plains Operating Company has a $235.0 million revolving credit facility, which matures on July 1, 2020, to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. On February 20, 2018, the partnership accessed a portion of its available accordion to increase the revolving credit facility by $40.0 million, from $195.0 million to $235.0 million. The credit facility can be increased by an additional $20.0 million without the consent of the lenders. Advances under the credit facility, are subject to a floating interest rate based on the preceding fiscal quarter’s consolidated leverage ratio at a base rate plus 1.25% to 2.00% or LIBOR plus 2.25% to 3.00%. The unused portion of the credit facility is also subject to a commitment fee of 0.35% to 0.50%, depending on the preceding fiscal quarter’s consolidated leverage ratio.



The revolving credit facility is available for revolving loans, including sublimits of $30.0 million for swing line loans and $30.0 million for letters of credit. The revolving credit facility is guaranteed by the partnership, each of its existing subsidiaries, and any potential future domestic subsidiaries. As of September 30, 2018, the revolving credit facility had an average interest rate of 4.74%.



The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the capital stock of the partnership’s present and future subsidiaries, (ii) all of the partnership’s present and future personal property, such as investment property, general intangibles and contract rights, including rights under any agreements with Green Plains Trade, and (iii) all proceeds and products of the equity interests of the partnership’s present and future subsidiaries and its personal property. The terms impose affirmative and negative covenants, including restrictions on the partnership’s ability to incur additional debt, acquire and sell assets, create liens, invest capital, pay distributions and materially amend the partnership’s commercial agreements with Green Plains Trade. The credit facility also requires the partnership to maintain a maximum consolidated net leverage ratio of 3.50x and a minimum consolidated interest coverage ratio of 2.75x, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures occurring during the applicable period. The consolidated leverage ratio is calculated by dividing total funded indebtedness minus the lesser of cash in excess of $5.0 million or $30.0 million by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated interest coverage ratio is calculated by dividing the sum of the four preceding fiscal quarters’ consolidated EBITDA by the sum of the four preceding fiscal quarters’ interest charges.



On February 16, 2018, the partnership amended the permitted investment clause of the revolving credit facility to allow certain joint venture investments, including the future possible investment in the Beaumont export terminal through JGP Energy Partners LLC. All other material terms of the credit agreement remained substantially the same.



The partnership had $128.0 million and $126.9 million of borrowings outstanding under the revolving credit facility as of September 30, 2018, and December 31, 2017 respectively.



The partnership had $88 thousand and $125 thousand of debt issuance costs recorded as a direct reduction of the carrying value of the partnership’s long-term debt as of September 30, 2018, and December 31, 2017, respectively. 



Scheduled long‑term debt repayments as of September 30, 2018, are as follows (in thousands):







 

 

 

Year Ending December 31,

 

Amount

2018

 

$

 -

2019

 

 

 -

2020

 

 

128,665 

2021

 

 

671 

2022

 

 

678 

Thereafter

 

 

6,086 

Total

 

$

136,100 



Covenant Compliance

 

The partnership, including all of its subsidiaries, was in compliance with its debt covenants as of September 30, 2018.



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4.  UNIT-BASED COMPENSATION



The board of directors of the general partner adopted the LTIP upon completion of the IPO. The LTIP is intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation awards to employees, consultants and directors to encourage superior performance. The LTIP reserves 2,500,000 common limited partner units for issuance in the form of options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profit interest units or other unit-based awards. The partnership measures unit-based compensation grants at fair value on the grant date and records noncash compensation expense related to the awards over the requisite service period.



The non-vested unit-based award activity for the nine months ended September 30, 2018, is as follows:





 

 

 

 

 

 

 



Non-Vested Units

 

 

Weighted-Average Grant-Date Fair Value

 

 

Weighted-Average Remaining Vesting Term
(in years)

Non-vested at December 31, 2017

11,549 

 

$

19.06 

 

 

 

Granted

18,582 

 

 

16.96 

 

 

 

Forfeited

 -

 

 

 -

 

 

 

Vested

(11,549)

 

 

19.06 

 

 

 

Non-vested at September 30, 2018

18,582 

 

$

16.96 

 

 

0.8 



Compensation costs related to the unit-based awards of $76 thousand and $196 thousand for the three and nine months ended September 30, 2018, respectively, and $40 thousand and $159 thousand for the three and nine months ended September 30, 2017, respectively, were recognized. A net benefit of $14 thousand was recognized during the three months ended September 30, 2017, as a reduction to compensation expense due to forfeitures during the period. As of September 30, 2018, there was $238 thousand of unrecognized compensation costs from unit-based compensation awards.



5.  PARTNERS’ CAPITAL





Components of partners’ capital are as follows (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Partners' Capital



 

Limited Partners

 

 

 

 

 



 

Common Units-
Public

 

Common Units-
Green Plains

 

Subordinated Units-
Green Plains

 

General Partner

 

 

Total

Balance, December 31, 2017

 

$

115,747 

 

$

(38,505)

 

$

(139,376)

 

$

(712)

 

$

(62,846)

Quarterly cash distributions to unitholders

 

 

(16,385)

 

 

(6,233)

 

 

(22,563)

 

 

(1,121)

 

 

(46,302)

Net income

 

 

14,766 

 

 

9,249 

 

 

16,699 

 

 

831 

 

 

41,545 

Unit-based compensation, including general partner net contributions

 

 

196 

 

 

 -

 

 

 -

 

 

 

 

203 

Conversion of subordinated units

 

 

 -

 

 

(145,240)

 

 

145,240 

 

 

 -

 

 

 -

Balance, September 30, 2018

 

$

114,324 

 

$

(180,729)

 

$

 -

 

$

(995)

 

$

(67,400)







A roll forward of the number of common and subordinated limited partner units outstanding is as follows:







 

 

 

 

 

 

 

 



 

Common Units-

 

Common Units-

 

Subordinated Units-

 

 



 

Public

 

Green Plains

 

Green Plains

 

Total

Units, December 31, 2017

 

11,532,565 

 

4,389,642 

 

15,889,642 

 

31,811,849 

Units issued under the LTIP

 

18,582 

 

 -

 

 -

 

18,582 

Conversion of subordinated units

 

 -

 

15,889,642 

 

(15,889,642)

 

 -

Units, September 30, 2018

 

11,551,147 

 

20,279,284 

 

 -

 

31,830,431 



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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 does not impact the amount of cash distributions paid or the total number of outstanding units.



Issuance of Additional Securities



The partnership agreement authorizes the partnership to issue unlimited additional partnership interests on the terms and conditions determined by the general partner without unitholder approval.



Cash Distribution Policy



Quarterly distributions are made within 45 days after the end of each calendar quarter, assuming the partnership has sufficient available cash. Available cash generally means, all cash and cash equivalents on hand at the end of that quarter less cash reserves established by the general partner plus all or any portion of the cash on hand resulting from working capital borrowings made subsequent to the end of that quarter.



The general partner also holds incentive distribution rights that entitles it to receive increasing percentages, up to 48%, of available cash distributed from operating surplus, as defined in the partnership agreement, in excess of $0.46 per unit per quarter. The maximum distribution of 48% does not include any distributions the general partner or its affiliates may receive on its general partner interest, common units, or subordinated units.



On February 9, 2018, the partnership distributed $15.3 million to unitholders of record as of February 2, 2018, related to the quarterly cash distribution of $0.470 per unit that was declared on January 18, 2018, for the quarter ended December 31, 2017.



On May 11, 2018, the partnership distributed $15.5 million to unitholders of record as of May 4, 2018, related to the quarterly cash distribution of $0.475 per unit that was declared on April 19, 2018, for the quarter ended March 31, 2018.



On August 10, 2018, the partnership distributed $15.5 million to unitholders of record as of August 3, 2018, related to the quarterly cash distribution of $0.475 per unit that was declared on July 19, 2018, for the quarter ended June 30, 2018.



On October 18, 2018, the board of directors of the general partner declared a quarterly cash distribution of $0.475 per unit, or approximately $15.5 million, for the quarter ended September 30, 2018. The distribution will be paid on November 9, 2018, to unitholders of record as of November 2, 2018.



The total cash distributions declared for the three and nine months ended September 30, 2018, and 2017, are as follows (in thousands):



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

September 30,

 

Nine Months Ended

September 30,



2018

 

2017

 

2018

 

2017

General partner distributions

$

310 

 

$

299 

 

$

930 

 

$

877 

Incentive distributions

 

73 

 

 

 -

 

 

219 

 

 

 -

Total distributions to general partner

 

383 

 

 

299 

 

 

1,149 

 

 

877 



 

 

 

 

 

 

 

 

 

 

 

Limited partner common units - public

 

5,487 

 

 

5,305 

 

 

16,452 

 

 

15,564 

Limited partner common units - Green Plains

 

9,633 

 

 

2,020 

 

 

13,803 

 

 

5,926 

Limited partner subordinated units - Green Plains

 

 -

 

 

7,308 

 

 

15,095 

 

 

21,451 

Total distributions to limited partners

 

15,120 

 

 

14,633 

 

 

45,350 

 

 

42,941 

Total distributions declared

$

15,503 

 

$

14,932 

 

$

46,499 

 

$

43,818 







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6. EARNINGS PER UNIT



The partnership computes earnings per unit using the two-class method. Earnings per unit applicable to common units, and to subordinated units prior to the expiration of the subordination period, is calculated by dividing the respective limited partners’ interest in net income by the weighted average number of common and subordinated units outstanding during the period, adjusted for the dilutive effect of any outstanding dilutive securities. Diluted earnings per limited partner unit was the same as basic earnings per limited partner unit as there were no potentially dilutive common or subordinated units outstanding as of September 30, 2018. The following tables show the calculation of earnings per limited partner unit – basic and diluted (in thousands, except for per unit data): 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended
September 30, 2018



Limited Partner
Common Units

 

Limited Partner
Subordinated Units (1)

 

General Partner

 

Total

Net income:

 

 

 

 

 

 

 

 

 

 

 

Distributions declared

$

15,120 

 

$

 -

 

$

383 

 

$

15,503 

Earnings (less than) in excess of distributions

 

(4,394)

 

 

3,436 

 

 

(94)

 

 

(1,052)

Total net income

$

10,726 

 

$

3,436 

 

$

289 

 

$

14,451 



 

 

 

 

 

 

 

 

 

 

 

Weighted-average units outstanding - basic and diluted

 

24,403 

 

 

7,427 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Earnings per limited partner unit - basic and diluted

$

0.44 

 

$

0.46 

 

 

 

 

 

 



(1) The subordinated units converted to common units on a one-for-one basis in August 2018 (see Note 5 – Partners’ Capital).







 

 

 

 

 

 

 

 

 

 

 



Nine Months Ended
September 30, 2018



Limited Partner
Common Units

 

Limited Partner
Subordinated Units (1)

 

General Partner

 

Total

Net income:

 

 

 

 

 

 

 

 

 

 

 

Distributions declared

$

30,255 

 

$

15,095 

 

$

1,149 

 

$

46,499 

Earnings (less than) in excess of distributions

 

(6,240)

 

 

1,604 

 

 

(318)

 

 

(4,954)

Total net income

$

24,015 

 

$

16,699 

 

$

831 

 

$

41,545 



 

 

 

 

 

 

 

 

 

 

 

Weighted-average units outstanding - basic and diluted

 

18,780 

 

 

13,038 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Earnings per limited partner unit - basic and diluted

$

1.28 

 

$

1.28 

 

 

 

 

 

 



(1) The subordinated units converted to common units on a one-for-one basis in August 2018 (see Note 5 – Partners’ Capital).







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended
September 30, 2017



Limited Partner
Common Units

 

Limited Partner
Subordinated Units

 

General Partner

 

Total

Net income:

 

 

 

 

 

 

 

 

 

 

 

Distributions declared

$

7,325 

 

$

7,308 

 

$

299 

 

$

14,932 

Earnings less than distributions

 

(228)

 

 

(229)

 

 

(9)

 

 

(466)

Total net income

$

7,097 

 

$

7,079 

 

$

290 

 

$

14,466 



 

 

 

 

 

 

 

 

 

 

 

Weighted-average units outstanding - basic and diluted

 

15,922 

 

 

15,890 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Earnings per limited partner unit - basic and diluted

$

0.45 

 

$

0.45 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

 

 

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Nine Months Ended
September 30, 2017



Limited Partner
Common Units

 

Limited Partner
Subordinated Units

 

General Partner

 

Total

Net income:

 

 

 

 

 

 

 

 

 

 

 

Distributions declared

$

21,490 

 

$

21,451 

 

$

877 

 

$

43,818 

Earnings less than distributions

 

(634)

 

 

(630)

 

 

(26)

 

 

(1,290)

Total net income

$

20,856 

 

$

20,821 

 

$

851 

 

$

42,528 



 

 

 

 

 

 

 

 

 

 

 

Weighted-average units outstanding - basic and diluted

 

15,914 

 

 

15,890 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Earnings per limited partner unit - basic and diluted

$

1.31 

 

$

1.31 

 

 

 

 

 

 



 



7.  INCOME TAXES



The partnership is a limited partnership, which is not subject to federal income taxes. The general partner and the unitholders are responsible for paying federal and state income taxes on their share of the partnership’s taxable income. However, the partnership owns a subsidiary that is taxed as a corporation for federal and state income tax purposes. In addition, the partnership is subject to state income taxes in certain states. As a result, the financial statements reflect a provision or benefit for such income taxes.



The partnership recognizes uncertainties in income taxes based upon the technical merits of the position, and measures the maximum benefit and degree of likelihood to determine the tax liability in the financial statements.



Effective January 1, 2018, the partnership is required to comply with the Centralized Partnership Audit Regime (CPAR), which was enacted as part of the Bipartisan Budget Act of 2015. Prior to January 1, 2018, tax adjustments were determined at the partnership level, but any additional taxes, including applicable penalties and interest, were collected directly from the partners. Under the CPAR, if an audit of the partnership’s income tax returns for fiscal years beginning after December 31, 2017, results in any adjustments, the IRS will collect the resulting taxes, penalties or interest directly from the partnership. An election is available to allocate the tax audit adjustments to the general partner and unitholders once they have been calculated at the partnership level. The partnership has 45 days upon receipt of notice of final adjustment to make the election. However, the partnership does not anticipate making such an election at this time.



8.  COMMITMENTS AND CONTINGENCIES



Operating Leases



The partnership leases certain facilities, parcels of land and railcars under agreements that expire on various dates. For accounting purposes, lease expense is based on a straight-line amortization of total payments required over the term of the lease, which resulted in a deferred lease liability of $832 thousand and $797 thousand as of September 30, 2018, and December 31, 2017, respectively. The partnership incurred lease expense of $4.4 million and $14.8 million during the three and nine months ended September 30, 2018, respectively, and $5.5 million and $17.2 million during the three and nine months ended September 30, 2017. Aggregate minimum lease payments under these agreements for the remainder of 2018 and in future years are as follows (in thousands):







 

 

 



 

 

 

Year Ending December 31,

 

Amount

2018

 

$

5,001 

2019

 

 

15,770 

2020

 

 

13,376 

2021

 

 

7,696 

2022

 

 

5,478 

Thereafter

 

 

5,283 

Total

 

$

52,604 



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In accordance with the amended storage and throughput agreement with Green Plains Trade, Green Plains Trade is obligated to deliver a minimum of 296.6 mmg per calendar quarter to the partnership’s storage facilities and pay $0.05 per gallon on all volume it throughputs associated with the agreement. The partnership also has minimum volume commitment terminal agreements with other customers at various rates. Minimum operating lease revenues under these agreements for the remainder of 2018 and in future years are as follows (in thousands):





 

 

 



 

 

 

Year Ending December 31,

 

Amount

2018

 

$

15,275 

2019

 

 

59,320 

2020

 

 

59,320 

2021

 

 

59,320 

2022

 

 

59,320 

Thereafter

 

 

148,300 

Total

 

$

400,855 



In accordance with the amended rail transportation services agreement with Green Plains Trade, Green Plains Trade is required to pay the rail transportation services fee for railcar volumetric capacity provided by the partnership. Under the terms of the agreement, Green Plains Trade is not required to pay for volumetric capacity that is not available due to inspections, upgrades, or routine repairs and maintenance. As a result, the actual volumetric capacity billed may fluctuate based on the amount of volumetric capacity available for use during any applicable period. Anticipated minimum operating lease revenues under this agreement for the remainder of 2018 and in future years are as follows (in thousands):



 

 

 



 

 

 

Year Ending December 31,

 

Amount

2018

 

$

6,207 

2019

 

 

21,726 

2020

 

 

19,285 

2021

 

 

11,687 

2022

 

 

8,666 

Thereafter

 

 

1,282 

Total

 

$

68,853 



Service Agreements



The partnership entered into agreements for contracted services with certain vendors that require the partnership to pay minimum monthly amounts, which expire on various dates. The partnership exceeded all minimum commitments under these agreements during the three and nine months ended September 30, 2018, and 2017. Aggregate minimum payments under these agreements for the remainder of 2018 and in future years are as follows (in thousands):







 

 

 



 

 

 

Year Ending December 31,

 

Amount

2018

 

$

253 

2019

 

 

1,121 

2020

 

 

240 

2021

 

 

156 

2022

 

 

156 

Thereafter

 

 

 -

Total

 

$

1,926 



Legal



The partnership may be involved in litigation that arises during the ordinary course of business. The partnership is not currently party to any material litigation. 



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9.  RELATED PARTY TRANSACTIONS



The partnership engages in various related party transactions with Green Plains and subsidiaries of Green Plains. Green Plains provides a variety of shared services to the partnership, including general management, accounting and finance, payroll and human resources, information technology, legal, communications and treasury activities. These costs are proportionally allocated by Green Plains to its subsidiaries based on common financial metrics management believes are reasonable. The partnership recorded expenses related to these shared services of $1.1 million and $3.5 million for the three and nine months ended September 30, 2018, respectively, and $1.0 million and $3.1 million for the three and nine months ended September 30, 2017, respectively. In addition, the partnership reimburses Green Plains for wages and benefit costs of employees directly performing services on its behalf. Green Plains may also pay certain direct costs on behalf of the partnership, which are reimbursed by the partnership. The partnership believes the consolidated financial statements reflect all material costs of doing business related to its operations, including expenses incurred by other entities on its behalf.



Omnibus Agreement



The partnership has entered into an omnibus agreement, as amended, with Green Plains and its affiliates which, among other terms and conditions, addresses the partnership’s obligation to reimburse Green Plains for direct or allocated costs and expenses incurred by Green Plains for general and administrative services; the prohibition of Green Plains and its subsidiaries from owning, operating or investing in any business that owns or operates fuel terminals or fuel transportation assets; the partnership’s right of first offer to acquire assets if Green Plains decides to sell them; a nontransferable, nonexclusive, royalty-free license to use the Green Plains trademark and name; the allocation of taxes among the parent, the partnership and its affiliates and the parent’s preparation and filing of tax returns; and an indemnity by Green Plains for environmental and other liabilities.



If Green Plains or its affiliates cease to control the general partner, then either Green Plains or the partnership may terminate the omnibus agreement, provided that (i) the indemnification obligations of the parties survive according to their respective terms; and (ii) Green Plains’ obligation to reimburse the partnership for operational failures survives according to its terms.



Operating Services and Secondment Agreement



The general partner has entered into an operational services and secondment agreement, as amended, with Green Plains. Under the terms of the agreement, Green Plains seconds employees to the general partner to provide management, maintenance and operational functions for the partnership, including regulatory matters, health, environment, safety and security programs, operational services, emergency response, employee training, finance and administration, human resources, business operations and planning. The seconded personnel are under the direct management and supervision of the general partner who reimburses the parent for the cost of the seconded employees, including wages and benefits. If a seconded employee does not devote 100% of his or her time providing services to the general partner, the general partner reimburses the parent for a prorated portion of the employee’s overall wages and benefits based on the percentage of time the employee spent working for the general partner.



Under the operational services and secondment agreement, Green Plains will indemnify the partnership from any claims, losses or liabilities incurred by the partnership, including third-party claims, arising from their performance of the operational services secondment agreement; provided, however, that Green Plains will not be obligated to indemnify the partnership for any claims, losses or liabilities arising out of the partnership’s gross negligence, willful misconduct or bad faith with respect to any services provided under the operational services and secondment agreement.



Commercial Agreements



The partnership has various fee-based commercial agreements with Green Plains Trade, including:

·

10-year storage and throughput agreement, expiring on June 30, 2025;

·

10-year rail transportation services agreement, expiring on June 30, 2025;

·

1-year trucking transportation agreement, expiring on May 31, 2019;

·

Terminal services agreement for the Birmingham, Alabama unit train terminal, expiring December 31, 2019; and

·

Various other terminal services agreements for other fuel terminal facilities, each with Green Plains Trade.



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The storage and throughput, rail transportation services, and trucking transportation agreements have various automatic renewal terms if not cancelled by either party within specified timeframes. Please refer to Item 15 – Exhibits, Financial Statement Schedule in our annual report on Form 10-K for the year ended December 31, 2017, for further details.



The storage and throughput agreement and terminal services agreements are supported by minimum volume commitments. The rail transportation services agreement is supported by minimum take-or-pay volumetric capacity commitments.



Under the storage and throughput agreement, as amended, Green Plains Trade is obligated to deliver a minimum of 296.6 mmg of product per calendar quarter to the partnership’s storage facilities and 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 the partnership 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. Green Plains Trade exceeded the minimum volume commitment for the three months ended September 30, 2018, and received a $0.4 million credit related to the $0.7 million deficiency payment charged by the partnership for the three months ended March 31, 2018.



Under the rail transportation services agreement, 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. The partnership’s leased railcar fleet consisted of approximately 3,500 railcars as of September 30, 2018. During the three and nine months ended September 30, 2018, the average monthly fee was approximately $0.0209 and $0.0223 per gallon, respectively, for the railcar volumetric capacity provided by the partnership, which was 98.2 and 98.6 mmg, respectively. During the three and nine months ended September 30, 2017, the average monthly fee was approximately $0.0259 and $0.0269 per gallon, respectively, for the railcar volumetric capacity provided by the partnership, which was 95.1 and 91.9 mmg, respectively.



Green Plains Trade is also obligated to use the partnership for logistical operations management and other services related to average railcar volumetric capacity provided by Green Plains Trade, which was approximately 7.1 mmg and 6.9 mmg for the three and nine months ended September 30, 2018, respectively. Green Plains Trade is obligated to pay a monthly fee of approximately $0.0013 per gallon for these services. In addition, Green Plains Trade reimburses the partnership 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 the partnership’s 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 the partnership for additional railcar volumetric capacity during the normal course of business at comparable margins.



Under the trucking transportation agreement, Green Plains Trade pays the partnership 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 volume transported in a calendar month by the partnership’s trucks, multiplied by the applicable rate for each truck lane. A truck lane is defined as a specific and routine route of travel between a point of origin and point of destination. Rates for each truck lane are negotiated based on product, location, mileage and other factors. Green Plains Trade reimburses the partnership for costs related to: (1) truck switching and unloading fees; (2) increased costs related to changes in law or governmental regulation related to the specification, operation and maintenance of trucks; and (3) fees related to trucking transportation services under transportation contracts with third-party common carriers.



Under the Birmingham terminal services agreement, effective January 1, 2017, through December 31, 2019, Green Plains Trade is obligated to throughput a minimum volume commitment of approximately 2.8 mmg per month and pay associated throughput fees, as well as fees for ancillary services.



The partnership recorded revenues from Green Plains Trade under the storage and throughput agreement and rail transportation services agreement of $21.9 million and $65.7 million for the three and nine months ended September 30, 2018, respectively, and $22.8 million and $67.9 million for the three and nine months ended September 30, 2017, respectively. The partnership recorded revenues from Green Plains Trade and other Green Plains subsidiaries related to trucking and terminal services of $2.6 million and $7.2 million for the three and nine months ended September 30, 2018, respectively, and $1.9 million and $6.1 million for the three and nine months ended September 30, 2017, respectively.



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Cash Distributions



The partnership distributed $10.0 million and $29.9 million to Green Plains related to the quarterly cash distribution paid for the three and nine months ended September 30, 2018, respectively, and $9.4 million and $27.6 million for the three and nine months ended September 30, 2017, respectively.



Equity Method Investments



The partnership entered into a project management agreement with NLR Energy Logistics LLC, effective June 23, 2017, in which NLR provided the partnership a fixed monthly fee to coordinate and manage the development, design, and construction of the Little Rock, Arkansas unit train terminal. The partnership recognized no income during the three months ended September 30, 2018, and $75 thousand of other income during the nine months ended September 30, 2018, for these services. There was no income recognized for these services during the three and nine months ended September 30, 2017. In addition, the partnership has recorded a receivable of $43 thousand for start-up costs to be reimbursed by NLR as of September 30, 2018.



Other Related Party Revenues and Expenses



The partnership incurs expenses charged by a subsidiary of the parent for cleaning of its storage tanks. The partnership incurred tank cleaning expense of $12 thousand and $22 thousand for the three and nine months ended September 30, 2018, and $36 thousand and $53 thousand for the three and nine months ended September 30, 2017, respectively, for these services.



10. EQUITY METHOD INVESTMENTS



NLR Energy Logistics LLC



In February 2017, the partnership and Delek Renewables LLC formed NLR Energy Logistics LLC, a 50/50 joint venture, to build an ethanol unit train terminal in the Little Rock, Arkansas area with capacity to unload 110-car unit trains and provide approximately 100,000 barrels of storage. Construction of the terminal was completed during the first quarter of 2018 at a total cost of approximately $7.0 million. Operations commenced at the beginning of the second quarter and the first unit train was received in July 2018. 



The partnership's investment in NLR was financed through a combination of cash from operations and borrowings under its revolving credit facility. As of September 30, 2018, the partnership's investment balance in the joint venture was $3.6 million.



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







DKGP Energy Terminals LLC



On February 16, 2018, the partnership and Delek Logistics Partners LP formed 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.



During the three and nine months ended September 30, 2018, the partnership incurred $6 thousand and $288 thousand, respectively, of transaction costs associated with the formation of DKGP. The partnership did not make any equity contributions to DKGP.



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Summarized Financial Information



The partnership’s proportional share of equity method investee losses are reported on a one-month lag in the consolidated statements of operations. The following table presents combined summarized statement of operations data of our equity method investees for the three and nine months ended August 31, 2018 (amounts represent 100% of investee financial information in thousands, unaudited):





 

 

 

 

 



Three Months Ended

August 31, 2018

 

Nine Months Ended

August 31, 2018

Total revenues

$

365 

 

$

365 

Total operating expenses

 

269 

 

 

529 

Net income (loss)

$

96 

 

$

(164)





11. SUBSEQUENT EVENTS



Asset Purchase Agreement



On October 8, 2018, the partnership’s parent announced that it entered into an Asset Purchase Agreement to sell three of its ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan to Valero Renewable Fuels Company, LLC (“Valero”). Correspondingly, the partnership entered into a separate Asset Purchase Agreement (the “Purchase Agreement”) with its parent to sell the related storage assets to be disposed of in the sale to Valero for $120.9 million (the “Transaction”), subject to certain other post-closing adjustments. In addition, approximately 525 of the 3,500 railcars leased by the partnership are anticipated to be conveyed to Green Plains as part of the Transaction.



The partnership will receive approximately 8.9 million units owned by its parent as payment. The Purchase Agreement provides for the closing of the Transaction to occur immediately prior to the Green Plains sale to Valero.



The partnership and its parent have agreed, upon closing, to extend the storage and throughput services agreement with Green Plains Trade an additional three years to June 30, 2028. Upon closing, the quarterly minimum volume commitment associated with the storage and throughput services agreement will be 235.7 million gallons or, approximately 80% of the new Green Plains annual production capacity of 1.183 billion gallons.



The aforementioned transactions were reviewed and approved by the conflicts committee and are anticipated to close during the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.



Third Amendment to Credit Agreement



On October 12, 2018, the partnership 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. Upon close of such sale, the revolving credit facility available will be decreased from $235 million to $200 million. In addition, the lenders permitted the exchange of units as consideration for the transaction and also permitted modifications of various key operating agreements. There were no other significant changes in other covenants.



Extension of Offer Period



Effective October 15, 2018, the partnership and its parent agreed 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 transaction was reviewed and approved by the conflicts committee.





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



The following discussion and analysis provides information we believe is relevant to understand our consolidated financial condition and results of operations. This discussion should be read in conjunction with our unaudited consolidated financial statements and accompanying notes contained in this report together with our 2017 annual report. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the results we expect for the full year.



Cautionary Information Regarding Forward-Looking Statements



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



Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include those discussed in Part I, Item 1A, “Risk Factors,” of our 2017 annual report 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 nor do we intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report or documents incorporated by reference.



Overview



Green Plains Partners provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. We are Green Plains’ primary downstream logistics provider and 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.



Recent Developments



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 transaction was reviewed and approved by the conflicts committee.



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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. Upon close of such sale, the revolving credit facility available will be decreased from $235 million to $200 million. In addition, the lenders permitted the exchange of units as consideration for the transaction and also permitted modifications of various key operating agreements. There were no other significant changes in other covenants.



Asset Purchase Agreement with Green Plains Inc.



On October 8, 2018, our parent announced that it entered into an Asset Purchase Agreement to sell three of its ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan to Valero Renewable Fuels Company, LLC (“Valero”). Correspondingly, we entered into a separate Asset Purchase Agreement (the “Purchase Agreement”) with our parent to sell the storage assets to be disposed of in the sale to Valero for $120.9 million (the “Transaction”), subject to certain other post-closing adjustments. In addition, approximately 525 of our 3,500 leased railcars are anticipated to be conveyed to our parent as part of the Transaction.



We will receive approximately 8.9 million units owned by our parent as payment for the Transaction. The Purchase Agreement provides for the closing of the Transaction to occur immediately prior to our parent’s sale to Valero.



We have agreed with our parent, upon closing, to extend the storage and throughput services agreement with Green Plains Trade an additional three years to June 30, 2028. Upon closing, the quarterly minimum volume commitment associated with the storage and throughput services agreement will be 235.7 million gallons or, approximately 80% of the new Green Plains Inc. annual production capacity of 1.183 billion gallons.



The aforementioned transactions were reviewed and approved by the conflicts committee and are anticipated to close during the fourth quarter of 2018, subject to customary closing conditions and regulatory approvals.



DKGP Energy Terminals LLC Membership Interest Purchase Agreement with AMID Merger LP Termination



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.



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.



Results of Operations



During the third quarter of 2018, our parent’s average utilization rate was approximately 81.3% of capacity, resulting in ethanol production of 304.8 mmg, compared with 313.6 mmg, or 83.7% of capacity, for the same quarter last year. Our parent will continue to evaluate production run rates and will flex production depending on market conditions. Green Plains Trade exceeded the minimum volume commitment for the three months ended September 30, 2018, and received a $0.4 million credit related to the $0.7 million deficiency payment charged by the partnership for the three months ended March 31, 2018.



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.



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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.



Adjusted EBITDA and distributable cash flow are supplemental financial measures that we use to assess our financial performance. We believe their presentation provides useful information to investors in assessing our financial condition and results of operations. However, these presentations are not made in accordance with GAAP. The GAAP measure most directly comparable to 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 to similarly titled measures of other companies, diminishing their 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 financial performance and operating results.



The following table presents reconciliations of net income to adjusted EBITDA and to distributable cash flow, for the three and nine months ended September 30, 2018 and 2017 (unaudited, dollars in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,



 

2018

 

2017

 

2018

 

2017

Net income

 

$

14,451 

 

$

14,466 

 

$

41,545 

 

$

42,528 

Interest expense

 

 

1,871 

 

 

1,412 

 

 

5,253 

 

 

3,941 

Income tax expense

 

 

 

 

43 

 

 

70 

 

 

135 

Depreciation and amortization

 

 

1,120 

 

 

1,280 

 

 

3,406 

 

 

3,781 

MVC adjustments (1)

 

 

(747)

 

 

(828)

 

 

 -

 

 

182 

Transaction costs

 

 

 

 

 -

 

 

288 

 

 

 -

Unit-based compensation expense

 

 

76 

 

 

40 

 

 

196 

 

 

159 

Proportional share of EBITDA adjustments of equity method investees (2)

 

 

45 

 

 

 -

 

 

45 

 

 

 -

Adjusted EBITDA

 

 

16,827 

 

 

16,413 

 

 

50,803 

 

 

50,726 

Interest paid or payable

 

 

(1,871)

 

 

(1,412)

 

 

(5,253)

 

 

(3,941)

Income taxes paid or payable

 

 

(4)

 

 

(43)

 

 

(68)

 

 

(135)

Maintenance capital expenditures

 

 

(35)

 

 

(18)

 

 

(50)

 

 

(182)

Distributable cash flow

 

$

14,917 

 

$