To Our Shareholders
First, let me personally thank you for your unwavering support of our vision to create a diversified multi-commodity processing company over the last ten years. While ethanol remains firmly at the heart of who we are and what we do, our strategy to leverage our commodity processing and risk management expertise, and diversify our earnings, is starting to transform Green Plains. In 2017, during a weak year for ethanol margins, nearly 80 percent of earnings were generated by our non-ethanol businesses, compared with 55 percent in 2016, reflecting the impact of our focus and proving the resilience of our platform.
This year, we improved operations across the company, integrated previous acquisitions and set up Green Plains for the next ten years. We became the fourth largest cattle feeding operation in the United States with the acquisition of two cattle feedlots in May. Our capacity now exceeds a quarter of a million head, which achieves the original goal we set out for ourselves in this business. The cattle-feeding business is a great fit for our company portfolio. We use our knowledge and experience, managing risk, optimizing margins and utilizing our information network in corn and distillers grains, to effectively manage our input costs. This formula is consistent whether we make an acquisition, organic improvement or expense reduction — we focus on the small details that make a difference to our profitability.
2017 also marked our first full year of Fleischmann’s Vinegar Company results, which exceeded our expectations. After seamlessly integrating this $250 million acquisition and investing another $9 million in capacity expansions, the tailwinds are strong in all of our product categories, especially antimicrobials and varietals. With over 100 years of history, combining old and new cultures is never easy. Yet we are working together and aligned with a common purpose. These and other investments we made in our Food and Ingredients segment will help reduce our volatility over the long term — a goal we established two years ago and are executing to deliver greater stability and more predictable earnings.
2017 Financial Highlights
We reported net income of $61.1 million for the year, or $1.47 per diluted share, up from net income of $10.7 million, or $0.28 per diluted share for 2016. Excluding the impact of the debt refinancing costs and research development (R&D) tax credits, reported in the third quarter of 2017, and revaluation of deferred tax liabilities in the fourth quarter of 2017, we reported a net loss attributable to the company of $33.6 million for 2017, or $(0.86) per diluted share. We generated $154.4 million of EBITDA, or earnings before interest, income taxes, depreciation and amortization.
Taxes had a significant, positive impact on our 2017 results. During the third quarter of 2017, we reported a credit of $49.5 million related to investments in R&D activities since the beginning of 2013. At the end of 2015, Congress enacted permanent legislation allowing companies to receive R&D tax credits related to qualified activities. We worked closely with our third-party tax advisor to identify qualifying activities eligible for the R&D credit. Tremendous effort was put forth in the analysis and we believe the benefit will accrue to our shareholders. In the fourth quarter of 2017, we recognized a one-time tax benefit of $52.8 million related to the revaluation of our deferred tax liabilities under the Tax Cuts and Jobs Act of 2017. While the benefits of a lower tax rate are apparent, we will continue to assess any implications to our overall capital structure going forward.
We achieved a milestone in our company’s history by simplifying our debt structure and entering into a $500 million term loan agreement in August of 2017. This has been our goal since 2008. The strength of our portfolio, combined with execution of our diversification strategy, allowed this offering to be successful. We increased our working capital revolvers for Green Plains Cattle, Green Plains Trade and Green Plains Partners to support our growth and working capital requirements. We also exchanged 2.8 million shares of common stock and $8.5 million in cash for approximately $56.3 million in aggregate principal of 3.25 percent convertible senior notes due in 2018. Finally, we returned $25.6 million to you, our shareholders, through dividends and stock repurchases. Our liquidity remained strong with $280 million in cash on the balance sheet and nearly $400 million available under our revolving credit agreements as of December 31, 2017. Everything we did this year in the capital markets positions Green Plains for the next ten years of growth.
The Next Ten
Although 2017 had its challenges, our growth over the past decade has been nothing short of remarkable. We are excited about the company we have built and feel we are well-positioned for the future. We are on the cusp of accelerated global demand for ethanol, which remains the cheapest source of octane in the world. Ethanol exports from the United States of approximately 1.4 billion gallons grew 31 percent in 2017, up from 1.0 billion gallons last year. At Green Plains, we exported 16 percent of our ethanol production in 2017, up from 13 percent in 2016. We believe exports will be stronger in 2018 as the world extends their fuel supply while taking steps to address air quality issues through ethanol produced in the United States. This gives us great optimism for the future.
While ethanol production will remain our core business, we are focused on five strategic areas: the partnership, cattle-feeding operations, high-quality proteins, food and ingredients, and adjacent businesses that complement our existing platform. We are disciplined innovators and rapid adopters of proven technologies and practices. We will continue to drive costs out of our system to maintain a low-cost production platform. We will also invest in Green Plains Partners’ downstream distribution capabilities to support our business and diversify earnings. In February of this year, the partnership signed an agreement with Delek Logistics Partners to form a joint venture, which plans to acquire two light products terminals from American Midstream Partners for $138.5 million. Delek will contribute its North Little Rock, Arkansas and Caddo Mills, Texas terminals to the joint venture. This is consistent with our strategy to diversify earnings at the partnership and a significant step in that direction. In addition, Green Plains expects to offer the partnership its 50 percent interest in the joint venture with Jefferson Gulf Coast Energy Partners, a subsidiary of Fortress Transportation and Infrastructure Investors LLC. The newly constructed import/export fuels terminal at Jefferson’s existing Beaumont, Texas terminal loaded its first vessel bound for an international destination in December of 2017 and has been operating at nearly full capacity since.
We believe the world is short on protein and want to become a leading provider of high-quality sources that leverage our expertise as a commodity processor and risk manager. We will continue to selectively acquire cattle feeding assets that fit our portfolio. We like this business and believe our ability to manage margins sets us apart in the industry. A new opportunity we are exploring in 2018 is the production of high-quality distillers proteins. Advances in technology are now making it possible to increase the protein value of distillers grains to a level that is comparable to soybean meal and commensurate in price, which trades at a significant premium to conventional distillers grains. A capital investment in this technology would differentiate us from other participants in the ethanol industry and generate incremental, consistent earnings from the distillers grains we are producing already. We will also continue evaluating opportunities to grow our food and ingredients business in new and on-trend markets. Seeking businesses that complement our existing assets and supply chain expertise will continue to be our goal.
Powered by People
Ten years ago, we began operations of our first ethanol plant in Shenandoah, Iowa, with production capacity of 50 million gallons per year and nearly 50 employees. Since that time, we have assembled a portfolio of some of the highest performing production assets and established ourselves as a leader in the ethanol industry. We are one of the largest ethanol producers in the world, capable of producing 1.5 billion gallons of ethanol, which was nearly ten percent of all domestic production in 2017, and we’ve added new businesses to our portfolio with greater earnings consistency and operational synergies. Today, we are more than 1,400 employees strong and working hard to position ourselves for future expansion and improved profitability. Our employees are self-selected overachievers, thought leaders and difference makers.
We take very seriously the development, safety and well-being of our employees and are committed to ensuring workforce equality, diversity and inclusion. We work diligently to ensure we maintain an industry-leading program to protect our employees, assets and the communities where we live and work. It is undoubtedly our people, who put in their best efforts each and every day, that have made Green Plains an exceptional place to work these first ten years, and will help make the next ten even more extraordinary.
I am grateful for our board, employees and stakeholders for their commitment and support over the last ten years. Together, we have built a company and a portfolio of assets managed by a talented team with so much potential for strategic growth. It’s been an incredible journey so far. We look forward to the next ten.
President and Chief Executive Officer