Attached files
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EX-31.1 - EXHIBIT 31.1 - FIRST UNITED ETHANOL LLC | c94012exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - FIRST UNITED ETHANOL LLC | c94012exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - FIRST UNITED ETHANOL LLC | c94012exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - FIRST UNITED ETHANOL LLC | c94012exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended September 30, 2009
o | Transition report under Section 13 or 15(d) of the Exchange Act. |
For the transition period from to
Commission file number 000-53039
FIRST UNITED ETHANOL, LLC
(Name of registrant as specified in its charter)
Georgia (State or other jurisdiction of incorporation or organization) |
20-2497196 (I.R.S. Employer Identification No.) |
|
4433 Lewis B. Collins Road, Pelham, Georgia (Address of principal executive offices) |
31779 (Zip Code) |
(229) 522-2822
(Registrants telephone number)
(Registrants telephone number)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o Yes þ No
Note Checking the box above will not relieve any registrant required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulations S-T (§ 229.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filed, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
As of December 1, 2009, the aggregate market value of the membership units held by non-affiliates
(computed by reference to the most recent offering price of such membership units) was $29,230,362.
As of December 1, 2009, there were 81,984 membership units outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K
portions of its definitive proxy statement to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year covered by this Annual Report.
INDEX
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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FORWARD LOOKING STATEMENTS
Some of the statements in this report may contain forward-looking statements that reflect our
current view on future events, future business, industry and other conditions, our future
performance, and our plans and expectations for future operations and actions. In some cases you
can identify forward-looking statements by the use of words such as may, should, anticipate,
believe, expect, plan, future, intend, could, estimate, predict, hope,
potential, continue, or the negative of these terms or other similar expressions. Many of
these forward-looking statements are located in this report under Item 1, Business; Item 2,
Properties and Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations, but they may appear in other sections as well.
These forward-looking statements are only our predictions and involve numerous assumptions,
risks and uncertainties. Important factors that could significantly affect our assumptions, plans,
anticipated actions and future financial and other results include, among others, those matters set
forth in the section of this report in Item 1ARisk Factors. You are urged to consider all of
those risk factors when evaluating any forward-looking statement, and we caution you not to put
undue reliance on any forward-looking statements.
You should read this report thoroughly with the understanding that our actual results may
differ materially from those set forth in the forward-looking statements for many reasons,
including events beyond our control and assumptions that prove to be inaccurate or unfounded. We
cannot provide any assurance with respect to our future performance or results. Our actual results
or actions may differ materially from these forward-looking statements for many reasons, including
the following factors:
| Changes in our business strategy or capital improvements; |
||
| Volatility of corn, natural gas, ethanol, unleaded gasoline, oil, distillers grain
and other commodities prices; |
||
| Limitations and restrictions contained in the instruments and agreements governing
our indebtedness; |
||
| Our ability to generate sufficient liquidity to fund our operations, debt service
requirements and capital expenditures; |
||
| The results of our hedging transactions and other risk management strategies; |
||
| Our anticipated inelastic demand for corn, as it is the only available feedstock for
our plant; |
||
| Changes in the environmental regulations or in our ability to comply with the
environmental regulations that apply to our plant site and our operations; |
||
| The effects of mergers or consolidations in the ethanol industry; |
||
| Changes in general economic conditions or the occurrence of certain events causing
an economic impact in the agriculture, oil or automobile industries; |
||
| Changes in the availability of credit to support the level of liquidity necessary to
implement our risk management activities; |
||
| Changes in or elimination of federal and/or state laws (including the elimination of
any federal and/or state ethanol tax incentives); |
||
| Overcapacity within the ethanol industry; |
||
| Limitations on the demand for ethanol resulting from the blend wall which limits
the amount of ethanol blended into the national gasoline pool based on current 10
percent blend rate in standard vehicles; |
||
| Changes and advances in ethanol production technology that may make it more
difficult for us to compete with other ethanol plants utilizing such technology; |
||
| Our reliance on key management personnel; |
||
| The development of infrastructure related to the sale and distribution of ethanol;
and |
||
| Competition in the ethanol industry and from other alternative fuel additives. |
Our actual results or actions could and likely will differ materially from those anticipated
in the forward-looking statements for many reasons, including the reasons described in this report.
We are not under any duty to update the forward-looking statements contained in this report. We
cannot guarantee future results, levels of activity, performance or achievements. We caution you
not to put undue reliance on any forward-looking statements, which speak only as of the date of
this report. You should read this report and the documents that we reference in this report and
have filed as exhibits completely and with the understanding that our actual future results may be
materially different from what we currently expect. We qualify all of our forward-looking
statements by these cautionary statements.
3
Table of Contents
AVAILABLE INFORMATION
Information about us is also available at our website at www.firstunitedethanol.com, under
Investor Relations, which includes links to reports we have filed with the Securities and
Exchange Commission. The contents of our website are not incorporated by reference in this Annual
Report on Form 10-K.
PART I
ITEM 1. | BUSINESS. |
Business Development
First United Ethanol, LLC (we, us, FUEL, First United, or the Company) was formed as
a Georgia limited liability company on March 9, 2005, for the purpose of raising capital to
develop, construct, own and operate a 100 million gallon per year ethanol plant near Camilla,
Georgia. Plant operations and the production of ethanol and distillers grains commenced on October
10, 2008. As of the close of our fiscal year on September 30, 2009, we have completed our first
year of plant operations. In our first year of plant operation we processed approximately 29
million bushels of corn producing 81 million gallons of denatured fuel grade ethanol, 214,000 tons
of dried distillers grains and 7,000 tons of wet distillers grains.
Principal Products and Markets
Ethanol
Our primary product is ethanol. Ethanol is ethyl alcohol, a fuel component made primarily
from corn and various other grains. According to the Renewable Fuels Association, approximately 85
percent of ethanol in the United States today is produced from corn, and approximately 90 percent
of ethanol is produced from a corn and other input mix. The ethanol we produce is manufactured from
corn. Although the ethanol industry continues to explore production technologies employing various
feedstocks, such as biomass, corn-based production technologies remain the most practical and
provide the lowest operating risks. Corn produces large quantities of carbohydrates, which convert
into glucose more easily than most other kinds of biomass. The Renewable Fuels Association
estimates current domestic ethanol production at approximately 11.94 billion gallons as of December
10, 2009.
An ethanol plant is essentially a fermentation plant. Ground corn and water are mixed with
enzymes and yeast to produce a substance called beer, which contains about 10% alcohol and 90%
water. The beer is boiled to separate the water, resulting in ethyl alcohol, which is then
dehydrated to increase the alcohol content. This product is then mixed with a certified denaturant
to make the product unfit for human consumption and commercially saleable.
Ethanol can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for
the purpose of reducing ozone and carbon monoxide emissions; and (iii) a non-petroleum-based
gasoline substitute. Approximately 95% of all ethanol is used in its primary form for blending
with unleaded gasoline and other fuel products. Used as a fuel oxygenate, ethanol provides a means
to control carbon monoxide emissions in large metropolitan areas. The principal purchasers of
ethanol are generally the wholesale gasoline marketer or blender. The principal markets for our
ethanol are petroleum terminals in the southeastern United States.
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Distillers Grains
A principal co-product of the ethanol production process is distillers grains, a high protein,
high-energy animal feed supplement primarily marketed to the dairy, poultry and beef industries.
Distillers grains contain by-pass protein that is superior to other protein supplements such as
cottonseed meal and soybean meal. By-pass proteins are more digestible to the animal, thus
generating greater lactation in milk cows and greater weight gain in beef cattle. Distillers
grains can also be included in the rations of breeder hens, broilers and laying hens which can
potentially contain up to 20% and 15% distillers grains, respectively. Dry mill ethanol
processing creates three forms of distillers grains: Distillers Wet Grains (DWS), Distillers
Modified Wet Grains (DMWS) and Distillers Dried Grains with Solubles (DDGS). DWS is processed
corn mash that contains approximately 70% moisture. DWS has a shelf life of approximately three
days and can be sold only to farms within the immediate vicinity of an ethanol plant. DMWS is DWS
that has been dried to approximately 50% moisture. DMWS have a slightly longer shelf life of
approximately ten days and are often sold to nearby markets. DDGS is DWS that has been dried to
approximately 12% moisture. DDGS has a much longer shelf life and may be sold and shipped to any
market regardless of its vicinity to an ethanol plant. Currently, 97% of the distillers grains we
produce are sold as DDGS and 3% of the distillers grains we produce are sold as wetcake or DWS.
By selling a percentage of our distillers grains as wetcake we are able increase the capacity of
our plant.
Ethanol and Distillers Grains Markets
As described below in Distribution of Principal Products, we market and distribute our
ethanol and a portion of our distillers grains through third parties. Whether or not ethanol or
distillers grains produced by our ethanol plant are sold in local markets will depend on the
relative prices of the rail market and truck market for our products. We do have the option to
independently market a portion of our distillers grains to local markets.
Our regional market is within a 450-mile radius of our plant and is serviced by rail. We have
a railroad loop track at our plant so we are capable of loading unit trains allowing us to more
effectively reach regional and national markets. Our regional markets include large cities that are
subject to anti-smog measures such as either carbon monoxide or ozone non-attainment areas.
Currently, most of our ethanol and distillers grains are being shipped by truck to local markets.
While we believe that the nationally mandated usage of renewable fuels is largely driving
current demand, we believe that an increase in voluntary usage will be necessary for the industry
to continue its growth trend. In addition, a higher renewable fuels standard (RFS) standard may
be necessary to encourage blenders to use ethanol. We expect that voluntary usage by blenders will
occur only if the price of ethanol makes increased blending economical. In addition, we believe
that heightened consumer awareness and consumer demand for ethanol-blended gasoline may play an
important role in growing overall ethanol demand and voluntary usage by blenders. If blenders do
not voluntarily increase the amount of ethanol blended into gasoline and consumer awareness does
not increase, it is possible that additional ethanol supply could outpace demand and depress
ethanol prices.
Distribution of Principal Products
Our ethanol plant is located near Camilla, Georgia in Mitchell County, in southwestern
Georgia. We selected the Camilla site because of its proximity to existing ethanol consumption and
accessibility to road and rail transportation. It is served by OmniTrax on the Georgia and Florida
Railway which provides connections to the CSX Railway and the Norfolk and Southern Railway. Our
site is in close proximity to major highways that connect to major petroleum terminals such as
Atlanta, Birmingham, Columbia, Jacksonville, Spartanburg, Tallahassee and Tampa. There are
approximately 70 terminals within a 250 mile radius of our plant; therefore, we believe we have a
competitive advantage over some of our competitors because we are able to truck ethanol to these
terminals cheaper than our competitors can transport it by rail to the same terminals.
Ethanol Distribution
We have an ethanol marketing agreement with Eco-Energy, Inc. (Eco) for the purpose of
marketing and distributing all of the ethanol we produce at the plant. We agreed to pay a fee of
$0.01 per net gallon of ethanol purchased for rail and $0.012 per net gallon of ethanol purchased
for outbound trucks. The initial term of the agreement commenced on our first day of ethanol
production and will continue until October 2010. The agreement will automatically renew for
additional two year terms unless otherwise terminated pursuant to the agreement. Under the
agreement Eco is responsible for all transportation arrangements for the distribution of ethanol.
5
Table of Contents
Distillers Grains Distribution
We have a marketing agreement with Palmetto Grain Brokerage, LLC of Ridgeland, South Carolina
(Palmetto) for the purpose of marketing and selling most of our distillers grains. Palmetto is
the exclusive selling broker for any rail origin dried distillers grains we produce. We pay
Palmetto fifty cents ($0.50) per ton for all dried distillers grains sold through the efforts of
Palmetto acting as the selling broker. Palmetto is not a party to any dried distillers grain sales
contracts between us and any third party purchaser. We anticipate taking advantage of the local
truck market for dried distillers grains and entering into agreements for the sale of a portion of
our dried distillers grains with third party purchasers with Palmetto assisting us with the rail
market for our distillers grains. We are presently in discussions to amend our contract with
Palmetto Grain Brokerage, LLC effective January 1, 2010 thereby eliminating some areas of support
as we continue to build our in-house team of merchandisers.
New Products and Services
We have not introduced any new products or services during this fiscal year.
Governmental Regulation and Federal Ethanol Supports
Federal Ethanol Supports
The effect of the RFS program in the Energy Independence and Security Act signed into law on
December 19, 2007 (the 2007 Act) is uncertain. The mandated minimum level of use of renewable
fuels in the RFS under the 2007 Act increased to 11.1 billion gallons per year in 2009 (from 5.4
billion gallons under the RFS enacted in 2005), and is scheduled to increase to 36 billion gallons
per year in 2022. The 2007 Act also requires the increased use of advanced biofuels, which are
alternative biofuels produced without using corn starch. Alternative biofuels include cellulosic
ethanol and biomass-based diesel, with 21 billion gallons of the mandated 36 billion gallons of
renewable fuel required to come from advanced biofuels by 2022. Required RFS volumes for both
general and advanced renewable fuels in years to follow 2022 will be determined by a governmental
administrator, in coordination with the U.S. Department of Energy and U.S. Department of
Agriculture. The scheduled RFS for 2010 is approximately 13 billion gallons.
Waivers of the RFS minimum levels of renewable fuels included in gasoline could have a
material adverse effect on our results of operations. Under the RFS, as originally passed as part
of the Energy Policy Act of 2005, the U.S. Environmental Protection Agency, or EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels
mandate with respect to one or more states if the Administrator of the EPA determines upon the
petition of one or more states that implementing the requirements would severely harm the economy
or the environment of a state, a region or the nation, or that there is inadequate supply to meet
the requirement.
The Renewable Fuels Association estimates that current domestic ethanol production as of
December 2009 is approximately 11.94 billion gallons of an estimated existing industry capacity of
13.14 billion gallons.
In order to meet the RFS mandate and expand demand for ethanol, management believes higher
percentage blends of ethanol must be utilized in conventional automobiles. Such higher percentage
blends of ethanol have continued to be a contentious issue. Automobile manufacturers and
environmental groups are lobbying against higher percentage ethanol blends. State and federal
regulations prohibit the use of higher percentage ethanol blends in conventional automobiles and
vehicle manufacturers have indicated that using higher percentage blends of ethanol in conventional
automobiles would void the manufacturers warranty. Without increases in the allowable percentage
blends of ethanol, demand for ethanol may not continue to increase. Our financial condition may be
negatively affected by decreases in the selling price of ethanol resulting from ethanol supply
exceeding demand. Recently, the EPA has been considering allowing E15 to be used in standard
vehicles. However, the EPA has delayed making a decision on E15 until sometime in 2010. If the
use of E15 in standard vehicles is approved, we expect the demand for ethanol and the price of
ethanol to respond favorably in the southeastern United States.
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Table of Contents
On June 18, 2008, the United States Congress overrode a presidential veto to approve the Food,
Conservation and Energy Act of 2008 (the 2008 Farm Bill) and to ensure that all parts of the 2008
Farm Bill are enacted into law. Passage of the 2008 Farm Bill reauthorizes the 2002 farm bill and
adds new provisions regarding
energy, conservation, rural development, crop insurance as well as other subjects. The energy
title continues the energy programs contained in the 2002 farm bill but refocuses certain
provisions on the development of cellulosic ethanol technology. The new legislation provides
assistance for the production, storage and transport of cellulosic feedstocks and provides support
for ethanol production from such feedstocks in the form of grants, loans and loan guarantees. The
2008 Farm Bill also modifies the ethanol fuels tax credit from 51 cents per gallon to 45 cents per
gallon beginning in 2009. The bill also extends the 54 cent per gallon tariff on imported ethanol
for two years, to January 2011. The 2008 Farm Bill is distinct from the Energy Independence and
Security Act of 2007, which contains the increased renewable fuels standard described above.
Effect of Governmental Regulation
The ethanol industry and our business depend upon continuation of the federal support of
ethanol discussed above. These incentives have supported a market for ethanol that might disappear
without the incentives. Alternatively, the incentives may be continued at lower levels. The
elimination or reduction of such federal support of ethanol would likely reduce our net income and
negatively impact our future financial performance.
We are subject to various federal, state and local environmental laws and regulations,
including those relating to the discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of hazardous materials, and the
health and safety of employees. In addition, some of these laws and regulations require our plant
to operate under permits that are subject to renewal or modification. The governments regulation
of the environment changes constantly. It is possible that more stringent federal or state
environmental rules or regulations could be adopted, which could increase our operating costs and
expenses.
On September 22, 2009, the EPA issued the Final Mandatory Reporting of Greenhouse Gases Rule
that becomes effective on January 1, 2010. This new rule requires certain facilities that emit
25,000 metric tons or more of CO2 per year to report certain greenhouse gas emissions data from
that facility to the EPA on an annual basis. The first annual reports covering calendar year 2010
will need to be submitted to the EPA in 2011. We are evaluating our obligations under this new
rule in light of additional guidance to be released by the EPA.
Our business may be indirectly affected by environmental regulation of the agricultural
industry as well. It is also possible that federal or state environmental rules or regulations
could be adopted that could have an adverse effect on the use of ethanol. For example, changes in
the environmental regulations regarding ethanols use due to currently unknown effects on the
environment could have an adverse effect on the ethanol industry. Furthermore, plant operations
are governed by the Occupational Safety and Health Administration (OSHA). OSHA regulations may
change such that the costs of the operation of the plant may increase. Any of these regulatory
factors may result in higher costs or other materially adverse conditions affecting our operations,
cash flows and financial performance.
Competition
We are competing with numerous other ethanol producers. Ethanol is a commodity product, like
corn, which means our ethanol plant competes with other ethanol producers on the basis of price
and, to a lesser extent, delivery service. As a destination plant, we believe First United Ethanol
is able to compete favorably with other ethanol producers due to our proximity to ethanol markets
and multiple modes of transportation. However, we face higher costs for our corn when compared to
Midwest ethanol producers with access to corn produced in close proximity to their ethanol plants.
Our competitive position in the ethanol industry has been our ability to offset any higher corn
costs with increased transportation savings due to our close proximity to blending terminals.
7
Table of Contents
The following table identifies most of the ethanol producers in the United States
along with their production capacities.
U.S. FUEL ETHANOL BIOREFINERIES AND PRODUCTION CAPACITY
million gallons per year (mmgy)
million gallons per year (mmgy)
Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
Abengoa Bioenergy Corp. (Total) |
198.0 | 168.0 | 176.0 | |||||||||||||
Abengoa Bioenergy Corp. |
Madison, IL | corn | ||||||||||||||
Abengoa Bioenergy Corp. |
Mt. Vernon, IN | corn | ||||||||||||||
Abengoa Bioenergy Corp. |
Colwich, KS | corn/milo | ||||||||||||||
Abengoa Bioenergy Corp. |
Ravenna, NE | Corn | ||||||||||||||
Abengoa Bioenergy Corp. |
York, NE | Corn | ||||||||||||||
Abengoa Bioenergy Corp. |
Portales, NM | corn | ||||||||||||||
Absolute Energy, LLC* |
St. Ansgar, IA | Corn | 110.0 | 110.0 | ||||||||||||
ACE Ethanol, LLC |
Stanley, WI | Corn | 41.0 | 41.0 | ||||||||||||
Adkins Energy, LLC* |
Lena, IL | Corn | 40.0 | 40.0 | ||||||||||||
Advanced Bioenergy, LLC |
Fairmont, NE | Corn | 100.0 | 100.0 | ||||||||||||
Ag Energy Resources, Inc. |
Benton, IL | corn | 5.0 | |||||||||||||
AGP* |
Hastings, NE | Corn | 52.0 | 52.0 | ||||||||||||
Agri-Energy, LLC* |
Luverne, MN | Corn | 21.0 | 21.0 | ||||||||||||
Al-Corn Clean Fuel* |
Claremont, MN | Corn | 42.0 | 42.0 | ||||||||||||
Alchem Ltd. LLP |
Grafton, ND | Corn | 10.0 | |||||||||||||
AltraBiofuels Coshocton Ethanol, LLC |
Coshocton, OH | corn | 60.0 | |||||||||||||
AltraBiofuels Indiana, LLC |
Cloverdale, IN | corn | 92.0 | |||||||||||||
AltraBiofuels Phoenix Bio Industries, LLC |
Goshen, CA | Corn | 31.5 | 31.5 | ||||||||||||
Amaizing Energy, LLC* |
Atlantic, IA | Corn | 110.0 | 110.0 | ||||||||||||
Amaizing Energy, LLC* |
Denison, IA | Corn | 55.0 | 55.0 | ||||||||||||
Appomattox Bio Energy |
Hopewell, VA | corn | 65.0 | |||||||||||||
Archer Daniels Midland (Total) |
1,070.0 | 1,070.0 | 550.0 | |||||||||||||
Archer Daniels Midland |
Cedar Rapids, IA | Corn | ||||||||||||||
Archer Daniels Midland |
Clinton, IA | Corn | ||||||||||||||
Archer Daniels Midland |
Decatur, IL | Corn | ||||||||||||||
Archer Daniels Midland |
Peoria, IL | Corn | ||||||||||||||
Archer Daniels Midland |
Marshall, MN | Corn | ||||||||||||||
Archer Daniels Midland |
Wallhalla, ND | Corn/barley | ||||||||||||||
Archer Daniels Midland |
Columbus, NE | Corn | ||||||||||||||
Arkalon Energy, LLC |
Liberal, KS | Corn | 110.0 | 110.0 | ||||||||||||
Aventine Renewable Energy, LLC (Total) |
207.0 | 207.0 | ||||||||||||||
Aventine Renewable Energy, LLC |
Pekin, IL | Corn | ||||||||||||||
Aventine Renewable Energy, LLC |
Aurora, NE | Corn |
8
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Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
Badger State Ethanol, LLC* |
Monroe, WI | Corn | 48.0 | 48.0 | ||||||||||||
Big River Resources Galva, LLC |
Galva, IL | corn | 100.0 | 100.0 | ||||||||||||
Big River Resources, LLC* |
West Burlington, IA | Corn | 100.0 | 100.0 | ||||||||||||
Big River United Energy |
Dyersville, IA | corn | 110.0 | |||||||||||||
BioFuel Energy Buffalo Lake Energy, LLC |
Fairmont, MN | Corn | 115.0 | 115.0 | ||||||||||||
BioFuel Energy Pioneer Trail Energy, LLC |
Wood River, NE | Corn | 115.0 | 115.0 | ||||||||||||
Bional Clearfield |
Clearfield, PA | Corn | 110.0 | |||||||||||||
Blue Flint Ethanol |
Underwood, ND | Corn | 50.0 | 50.0 | ||||||||||||
Bonanza Energy, LLC |
Garden City, KS | Corn/milo | 55.0 | 55.0 | ||||||||||||
Bridgeport Ethanol |
Bridgeport, NE | corn | 54.0 | 54.0 | ||||||||||||
Bunge-Ergon Vicksburg |
Vicksburg, MS | corn | 54.0 | 54.0 | ||||||||||||
Bushmills Ethanol, Inc.* |
Atwater, MN | Corn | 50.0 | 50.0 | ||||||||||||
Calgren Renewable Fuels, LLC |
Pixley, CA | Corn | 55.0 | |||||||||||||
Carbon Green Bioenergy |
Lake Odessa, MI | Corn | 50.0 | |||||||||||||
Cardinal Ethanol |
Union City, IN | Corn | 100.0 | 100.0 | ||||||||||||
Cargill, Inc. |
Eddyville, IA | Corn | 35.0 | 35.0 | ||||||||||||
Cargill, Inc. |
Blair, NE | Corn | 85.0 | 85.0 | ||||||||||||
Cascade Grain |
Clatskanie, OR | Corn | 108.0 | |||||||||||||
Castle Rock Renewable Fuels, LLC |
Necedah, WI | Corn | 50.0 | 50.0 | ||||||||||||
Center Ethanol Company |
Sauget, IL | Corn | 54.0 | 54.0 | ||||||||||||
Central Indiana Ethanol, LLC |
Marion, IN | Corn | 40.0 | 40.0 | ||||||||||||
Central MN Ethanol Coop* |
Little Falls, MN | Corn | 21.5 | 21.5 | ||||||||||||
Chief Ethanol |
Hastings, NE | Corn | 62.0 | 62.0 | ||||||||||||
Chippewa Valley Ethanol Co.* |
Benson, MN | Corn | 45.0 | 45.0 | ||||||||||||
Cilion Ethanol |
Keyes, CA | Corn | 50.0 | |||||||||||||
Clean Burn Fuels, LLC |
Raeford, NC | Corn | 60.0 | |||||||||||||
Commonwealth Agri-Energy, LLC* |
Hopkinsville, KY | Corn | 33.0 | 33.0 | ||||||||||||
Corn Plus, LLP* |
Winnebago, MN | Corn | 44.0 | 44.0 | ||||||||||||
Corn, LP* |
Goldfield, IA | Corn | 60.0 | 60.0 | ||||||||||||
Cornhusker Energy Lexington, LLC |
Lexington, NE | Corn | 40.0 | 40.0 | ||||||||||||
Dakota Ethanol, LLC* |
Wentworth, SD | Corn | 50.0 | 50.0 | ||||||||||||
DENCO, LLC |
Morris, MN | Corn | 24.0 | |||||||||||||
Didion Ethanol |
Cambria, WI | Corn | 40.0 | 40.0 | ||||||||||||
E Caruso (Goodland Energy Center) |
Goodland, KS | Corn | 20.0 | |||||||||||||
E Energy Adams, LLC |
Adams, NE | Corn | 50.0 | 50.0 | ||||||||||||
E3 Biofuels |
Mead, NE | corn | 25.0 | |||||||||||||
East Kansas Agri-Energy, LLC* |
Garnett, KS | Corn | 35.0 | 35.0 |
9
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Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
ESE Alcohol Inc. |
Leoti, KS | Seed corn | 1.5 | 1.5 | ||||||||||||
Front Range Energy, LLC |
Windsor, CO | Corn | 40.0 | 40.0 | ||||||||||||
Gateway Ethanol |
Pratt, KS | Corn | 55.0 | |||||||||||||
Glacial Lakes Energy, LLC Mina |
Mina, SD | corn | 107.0 | 107.0 | ||||||||||||
Glacial Lakes Energy, LLC* |
Watertown, SD | Corn | 100.0 | 100.0 | ||||||||||||
Global Ethanol/Midwest Grain Processors |
Lakota, IA | Corn | 98.0 | 98.0 | ||||||||||||
Global Ethanol/Midwest Grain Processors |
Riga, MI | Corn | 57.0 | 57.0 | ||||||||||||
Golden Cheese Company of California* |
Corona, CA | Cheese whey | 5.0 | 5.0 | ||||||||||||
Golden Grain Energy, LLC* |
Mason City, IA | Corn | 115.0 | 115.0 | ||||||||||||
Golden Triangle Energy, LLC* |
Craig, MO | Corn | 20.0 | 20.0 | ||||||||||||
Grain Processing Corp. |
Muscatine, IA | Corn | 20.0 | 20.0 | ||||||||||||
Granite Falls Energy, LLC* |
Granite Falls, MN | Corn | 52.0 | 52.0 | ||||||||||||
Greater Ohio Ethanol, LLC |
Lima, OH | Corn | 54.0 | |||||||||||||
Green Plains Renewable Energy |
Shenandoah, IA | Corn | 55.0 | 55.0 | ||||||||||||
Green Plains Renewable Energy |
Superior, IA | Corn | 55.0 | 55.0 | ||||||||||||
Green Plains Renewable Energy |
Bluffton, IN | Corn | 110.0 | 110.0 | ||||||||||||
Green Plains Renewable Energy |
Central City, NE | corn | 100.0 | 100.0 | ||||||||||||
Green Plains Renewable Energy |
Ord, NE | Corn | 50.0 | 50.0 | ||||||||||||
Green Plains Renewable Energy |
Obion, TN | Corn | 110.0 | 110.0 | ||||||||||||
Guardian Energy |
Janesville, MN | corn | 110.0 | 110.0 | ||||||||||||
Hankinson Renewable Energy, LLC |
Hankinson, ND | corn | 110.0 | 110.0 | ||||||||||||
Hawkeye Renewables, LLC |
Fairbank, IA | Corn | 110.0 | 110.0 | ||||||||||||
Hawkeye Renewables, LLC |
Iowa Falls, IA | Corn | 90.0 | 90.0 | ||||||||||||
Hawkeye Renewables, LLC |
Menlo, IA | Corn | 110.0 | 110.0 | ||||||||||||
Hawkeye Renewables, LLC |
Shell Rock, IA | Corn | 110.0 | 110.0 | ||||||||||||
Heartland Corn Products* |
Winthrop, MN | Corn | 100.0 | 100.0 | ||||||||||||
Heartland Grain Fuels, LP |
Aberdeen, SD | Corn | 50.0 | 50.0 | ||||||||||||
Heartland Grain Fuels, LP |
Huron, SD | Corn | 32.0 | 32.0 | 33.0 | |||||||||||
Heron Lake BioEnergy, LLC |
Heron Lake, MN | Corn | 50.0 | 50.0 | ||||||||||||
Highwater Ethanol LLC |
Lamberton, MN | Corn | 55.0 | 55.0 | ||||||||||||
Homeland Energy |
New Hampton, IA | Corn | 100.0 | 100.0 | ||||||||||||
Husker Ag, LLC* |
Plainview, NE | Corn | 75.0 | 75.0 | ||||||||||||
Idaho Ethanol Processing |
Caldwell, ID | Potato Waste | 4.0 | 4.0 | ||||||||||||
Illinois River Energy, LLC |
Rochelle, IL | Corn | 100.0 | 100.0 | ||||||||||||
Iroquois Bio-Energy Company, LLC |
Rensselaer, IN | corn | 40.0 | 40.0 |
10
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Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
KAAPA Ethanol, LLC* |
Minden, NE | Corn | 40.0 | 40.0 | ||||||||||||
Kansas Ethanol, LLC |
Lyons, KS | Corn | 55.0 | 55.0 | ||||||||||||
KL Process Design Group |
Upton, WY | Wood waste | 1.5 | 1.5 | ||||||||||||
Land O Lakes* |
Melrose, MN | Cheese whey | 2.6 | 2.6 | ||||||||||||
Levelland/Hockley County Ethanol, LLC |
Levelland, TX | Corn | 40.0 | 40.0 | ||||||||||||
Lifeline Foods, LLC |
St. Joseph, MO | Corn | 40.0 | 40.0 | ||||||||||||
Lincolnland Agri-Energy, LLC* |
Palestine, IL | Corn | 48.0 | 48.0 | ||||||||||||
Lincolnway Energy, LLC* |
Nevada, IA | Corn | 55.0 | 55.0 | ||||||||||||
Little Sioux Corn Processors, LP* |
Marcus, IA | Corn | 92.0 | 92.0 | ||||||||||||
Louis Dreyfus Commodities |
Grand Junction, IA | corn | 100.0 | 100.0 | ||||||||||||
Louis Dreyfus Commodities |
Norfolk, NE | Corn | 45.0 | 45.0 | ||||||||||||
Marquis Energy, LLC |
Hennepin, IL | Corn | 100.0 | 100.0 | ||||||||||||
Marysville Ethanol, LLC |
Marysville, MI | Corn | 50.0 | 50.0 | ||||||||||||
Merrick & Company |
Aurora, CO | Waste beer | 3.0 | 3.0 | ||||||||||||
Mid America Agri Products/Horizon |
Cambridge, NE | Corn | 44.0 | |||||||||||||
Mid America Agri Products/Wheatland |
Madrid, NE | Corn | 44.0 | 44.0 | ||||||||||||
Mid-Missouri Energy, Inc.* |
Malta Bend, MO | Corn | 50.0 | 50.0 | ||||||||||||
Midwest Renewable Energy, LLC |
Sutherland, NE | Corn | 25.0 | 25.0 | ||||||||||||
Minnesota Energy* |
Buffalo Lake, MN | Corn | 18.0 | 18.0 | ||||||||||||
NEDAK Ethanol |
Atkinson, NE | corn | 44.0 | 44.0 | ||||||||||||
Nesika Energy, LLC |
Scandia, KS | corn | 10.0 | 10.0 | ||||||||||||
New Energy Corp. |
South Bend, IN | Corn | 102.0 | 102.0 | ||||||||||||
North Country Ethanol, LLC* |
Rosholt, SD | Corn | 20.0 | 20.0 | ||||||||||||
NuGen Energy |
Marion, SD | corn | 110.0 | 110.0 | ||||||||||||
One Earth Energy |
Gibson City, IL | corn | 100.0 | 100.0 | ||||||||||||
Otter Tail Ag Enterprises |
Fergus Falls, MN | Corn | 57.5 | 57.5 | ||||||||||||
Pacific Ethanol |
Madera, CA | Corn | 40.0 | |||||||||||||
Pacific Ethanol |
Stockton, CA | Corn | 60.0 | |||||||||||||
Pacific Ethanol |
Burley, ID | Corn | 50.0 | |||||||||||||
Pacific Ethanol |
Boardman, OR | Corn | 40.0 | 40.0 | ||||||||||||
Panda Ethanol |
Hereford, TX | Corn/milo | 115.0 | |||||||||||||
Parallel Products |
Rancho Cucamonga, CA | |||||||||||||||
Parallel Products |
Louisville, KY | Beverage waste | 5.4 | 5.4 | ||||||||||||
Patriot Renewable Fuels, LLC |
Annawan, IL | Corn | 100.0 | 100.0 | ||||||||||||
Penford Products |
Cedar Rapids, IA | Corn | 45.0 | 45.0 | ||||||||||||
Pinal Energy, LLC |
Maricopa, AZ | Corn | 55.0 | 55.0 |
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Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
Pine Lake Corn Processors, LLC |
Steamboat Rock, IA | corn | 31.0 | 31.0 | ||||||||||||
Platinum Ethanol, LLC* |
Arthur, IA | Corn | 110.0 | 110.0 | ||||||||||||
Plymouth Ethanol, LLC* |
Merrill, IA | Corn | 50.0 | 50.0 | ||||||||||||
POET Biorefining Alexandria |
Alexandria, IN | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining Ashton |
Ashton, IA | Corn | 56.0 | 56.0 | ||||||||||||
POET Biorefining Big Stone |
Big Stone City, SD | Corn | 79.0 | 79.0 | ||||||||||||
POET Biorefining Bingham Lake |
Bingham Lake, MN | 35.0 | 35.0 | |||||||||||||
POET Biorefining Caro |
Caro, MI | Corn | 53.0 | 53.0 | 5.0 | |||||||||||
POET Biorefining Chancellor |
Chancellor, SD | Corn | 110.0 | 110.0 | ||||||||||||
POET Biorefining Coon Rapids |
Coon Rapids, IA | Corn | 54.0 | 54.0 | ||||||||||||
POET Biorefining Corning |
Corning, IA | Corn | 65.0 | 65.0 | ||||||||||||
POET Biorefining Emmetsburg |
Emmetsburg, IA | Corn | 55.0 | 55.0 | ||||||||||||
POET Biorefining Fostoria |
Fostoria, OH | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining Glenville |
Albert Lea, MN | Corn | 42.0 | 42.0 | ||||||||||||
POET Biorefining Gowrie |
Gowrie, IA | Corn | 69.0 | 69.0 | ||||||||||||
POET Biorefining Hanlontown |
Hanlontown, IA | Corn | 56.0 | 56.0 | ||||||||||||
POET Biorefining Hudson |
Hudson, SD | Corn | 56.0 | 56.0 | ||||||||||||
POET Biorefining Jewell |
Jewell, IA | Corn | 69.0 | 69.0 | ||||||||||||
POET Biorefining Laddonia |
Laddonia, MO | Corn | 50.0 | 50.0 | ||||||||||||
POET Biorefining Lake Crystal |
Lake Crystal, MN | Corn | 56.0 | 56.0 | ||||||||||||
POET Biorefining Leipsic |
Leipsic, OH | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining Macon |
Macon, MO | Corn | 46.0 | 46.0 | ||||||||||||
POET Biorefining Marion |
Marion, OH | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining Mitchell |
Mitchell, SD | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining North Manchester |
North Manchester, IN | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining Portland |
Portland, IN | Corn | 68.0 | 68.0 | ||||||||||||
POET Biorefining Preston |
Preston, MN | Corn | 46.0 | 46.0 | ||||||||||||
POET Biorefining Scotland |
Scotland, SD | Corn | 11.0 | 11.0 | ||||||||||||
POET Biorefining- Groton |
Groton, SD | Corn | 53.0 | 53.0 | ||||||||||||
Prairie Horizon Agri-Energy, LLC |
Phillipsburg, KS | Corn | 40.0 | 40.0 | ||||||||||||
Quad-County Corn Processors* |
Galva, IA | Corn | 30.0 | 30.0 | ||||||||||||
Range Fuels |
Soperton, GA | wood and wood waste | 100.0 | |||||||||||||
Red Trail Energy, LLC |
Richardton, ND | Corn | 50.0 | 50.0 | ||||||||||||
Redfield Energy, LLC * |
Redfield, SD | Corn | 50.0 | 50.0 | ||||||||||||
Reeve Agri-Energy |
Garden City, KS | Corn/milo | 12.0 | 12.0 |
12
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Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
Renew Energy |
Jefferson Junction, WI | Corn | 130.0 | 130.0 | ||||||||||||
Renova Energy |
Torrington, WY | Corn | 5.0 | 5.0 | ||||||||||||
Riverland Biofuels |
Canton, IL | corn | 37.0 | 37.0 | ||||||||||||
Show Me Ethanol |
Carrollton, MO | Corn | 55.0 | 55.0 | ||||||||||||
Siouxland Energy & Livestock Coop* |
Sioux Center, IA | Corn | 60.0 | 60.0 | ||||||||||||
Siouxland Ethanol, LLC |
Jackson, NE | Corn | 50.0 | 50.0 | ||||||||||||
Southwest Georgia Ethanol, LLC |
Camilla, GA | Corn | 100.0 | 100.0 | ||||||||||||
Southwest Iowa Renewable Energy, LLC * |
Council Bluffs, IA | Corn | 110.0 | 110.0 | ||||||||||||
Sterling Ethanol, LLC |
Sterling, CO | Corn | 42.0 | 42.0 | ||||||||||||
Sunoco |
Volney, NY | Corn | 114.0 | |||||||||||||
Tate & Lyle |
Ft. Dodge, IA | Corn | 105.0 | |||||||||||||
Tate & Lyle |
Loudon, TN | Corn | 67.0 | 67.0 | 38.0 | |||||||||||
Tharaldson Ethanol |
Casselton, ND | Corn | 110.0 | 110.0 | ||||||||||||
The Andersons Albion Ethanol LLC |
Albion, MI | Corn | 55.0 | 55.0 | ||||||||||||
The Andersons Clymers Ethanol, LLC |
Clymers, IN | Corn | 110.0 | 110.0 | ||||||||||||
The Andersons Marathon Ethanol, LLC |
Greenville, OH | Corn | 110.0 | 110.0 | ||||||||||||
Trenton Agri Products, LLC |
Trenton, NE | Corn | 40.0 | 40.0 | ||||||||||||
United Ethanol |
Milton, WI | Corn | 52.0 | 52.0 | ||||||||||||
United WI Grain Producers, LLC* |
Friesland, WI | Corn | 49.0 | 49.0 | ||||||||||||
Utica Energy, LLC |
Oshkosh, WI | Corn | 48.0 | 48.0 | ||||||||||||
Valero Renewable Fuels |
Albert City, IA | Corn | 110.0 | 110.0 | ||||||||||||
Valero Renewable Fuels |
Charles City, IA | Corn | 110.0 | 110.0 | ||||||||||||
Valero Renewable Fuels |
Ft. Dodge, IA | Corn | 110.0 | 110.0 | ||||||||||||
Valero Renewable Fuels |
Hartley, IA | Corn | 110.0 | 110.0 | ||||||||||||
Valero Renewable Fuels |
Welcome, MN | Corn | 110.0 | 110.0 | ||||||||||||
Valero Renewable Fuels |
Albion, NE | corn | 110.0 | 110.0 | ||||||||||||
Valero Renewable Fuels |
Aurora, SD | Corn | 120.0 | 120.0 | ||||||||||||
VeraSun Energy Corp. (Total) |
220.0 | |||||||||||||||
VeraSun Energy Corp. |
Linden, IN | Corn | ||||||||||||||
VeraSun Energy Corp. |
Bloomingburg, OH | corn | ||||||||||||||
Verenium |
Jennings, LA | Sugar Cane bagasse | 1.5 | 1.5 |
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Under | ||||||||||||||||
Operating | Construction/ | |||||||||||||||
Nameplate | Production | Expansion | ||||||||||||||
Company | Location | Feedstock | Capacity (mgy) | (mgy) | Capacity (mgy) | |||||||||||
Western New York Energy LLC |
Shelby, NY | 50.0 | 50.0 | |||||||||||||
Western Plains Energy, LLC* |
Campus, KS | Corn | 45.0 | 45.0 | ||||||||||||
Western Wisconsin Renewable Energy, LLC* |
Boyceville, WI | Corn | 40.0 | 40.0 | ||||||||||||
White Energy |
Russell, KS | Milo/wheat starch | 48.0 | 48.0 | ||||||||||||
White Energy |
Hereford, TX | Corn/Milo | 100.0 | 100.0 | ||||||||||||
White Energy |
Plainview, TX | Corn | 110.0 | 110.0 | ||||||||||||
Wind Gap Farms |
Baconton, GA | Brewery waste | 0.4 | 0.4 | ||||||||||||
Yuma Ethanol |
Yuma, CO | Corn | 40.0 | 40.0 | ||||||||||||
TOTALS |
13,138.4 | 11,937.4 | 1,432.0 | |||||||||||||
mgy for 201 nameplate refineries |
mgy for operating refineries | mgy for under construction/expanding refineries |
* | locally owned |
mgy = million gallons per year
Last updated: December 10, 2009
Competition from Alternative Fuels
Alternative fuels and ethanol production methods are continually under development by ethanol
and oil companies. The major ethanol and oil companies have significantly greater resources than
we have to develop alternative products and to influence legislation and public perception of
ethanol.
One current trend in ethanol production research is to develop an efficient method of
producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue,
municipal solid waste, and energy crops. The biomass trend is driven by the fact that
cellulose-based biomass is generally cheaper than corn, and producing ethanol from cellulose-based
biomass would create opportunities to produce ethanol in areas which are unable to grow corn.
Ethanol supply is also affected by ethanol produced or processed in certain countries in
Central America and the Caribbean region. Ethanol produced in these countries is eligible for
tariff reduction or elimination upon importation to the United States under a program known as the
Caribbean Basin Initiative (CBI). Ethanol imported from Caribbean Basin countries may be a less
expensive alternative to domestically produced ethanol. Currently there is a $0.54 per gallon
tariff on foreign produced ethanol which is scheduled to expire in January 2011.
Distillers Grains Competition
Ethanol plants in the Midwest produce the majority of distillers grains and primarily compete
with other ethanol producers in the production and sales of distillers grains. Our location in
southwest Georgia distinguishes our facility from distillers grains producers in the Midwest. We
are taking advantage of our proximity to local livestock, poultry and dairy producers by developing
a truck market for our distillers grains.
According to the Renewable Fuels Associations Ethanol Industry outlook 2009, ethanol plants
produced 20 million metric tons of distillers grains in 2007/2008 and estimates production of 25
million metric tons in 2008/2009. The primary consumers of distillers grains are dairy and beef
cattle. In recent years, an increasing amount of distillers grains have been used in the swine and
poultry markets. With the advancement of research into the feeding rations of poultry and swine,
we expect these markets to expand and create additional demand for distillers grains; however, no
assurance can be given that these markets will in fact expand, or if they do, that we will benefit
from any expansion. The market for distillers grains is generally confined to locations where
freight costs allow it to be competitively priced relative to other feed ingredients.
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Sources and Availability of Raw Materials
Corn Supply
The major raw material required for our ethanol plant to produce ethanol and distillers grains
is corn. To produce 100 million gallons of ethanol per year, our ethanol plant needs approximately
36 million bushels of corn per year, or approximately 100,000 bushels per day, as the feedstock for
our dry milling process. The grain supply for our plant is being obtained primarily from regional
and national rail markets through Palmetto Grain Brokerage, LLC (Palmetto), our grain procurement
agent.
We are significantly dependent on the availability and price of corn. During our fiscal year
ended September 30, 2009 we were able to purchase approximately 7,000,000 bushels of corn from
local producers and we expect to purchase approximately 10,000,000 bushels from local producers
during our fiscal year ending September 30, 2010. By purchasing corn from local producers we are
able to save freight expense compared to corn delivered to our facility by rail from the Midwest.
However, a portion of our freight savings is offset by the stronger basis in our local corn market.
We augment our local corn purchases with corn from other areas, such as the eastern Corn Belt
states of Indiana, Ohio and Illinois.
Our grain procurement agreement with Palmetto is for an initial term that runs through
December 31, 2009, at which point we anticipate renewing the agreement. Palmetto uses its best
efforts in obtaining grain at the lowest possible quotes available in the Midwest rail grain market
for our approval. We enter into grain purchase contracts with the third party suppliers identified
by Palmetto. Palmetto charges an introducing broker fees to third party suppliers. We have the
right to purchase grain in situations where Palmetto is not involved in the transaction and
Palmetto cannot charge a brokerage fee to the third party supplier. In such a non-broker
transaction, we pay Palmetto a fee of one cent ($0.01) per bushel. We expect to continue our
partnership with Palmetto on a more limited basis as we develop our in-house grain procurement
staff.
On December 10, 2009, the United States Department of Agriculture (USDA) released its Crop
Production report, which estimated the 2009 grain corn crop at approximately 12.9 billion bushels.
The December 2009 estimate of the 2009 corn crop is approximately 7% higher than the USDAs
estimate of the 2008 corn crop of 12.1 billion bushels. Corn prices reached historical highs in
June 2008, but have come down sharply since that time as stronger than expected corn yields
materialized and the global financial crisis brought down the prices of most commodities generally.
We expect some volatility in the price of corn, which could impact our cost of goods sold.
The price and availability of corn are subject to fluctuations depending upon a number of
factors affecting grain commodity prices in general, including crop conditions, weather,
governmental programs and foreign purchases. Ethanol producers are generally not able to
compensate for increases in the cost of grain feedstock through adjustments in prices charged for
their ethanol. We can mitigate fluctuations in the corn and ethanol markets by locking in a
favorable margin through the use of forward contracts. We recognize that we are not always
presented with an opportunity to lock in a favorable margin and that our plants profitability may
be negatively impacted during periods of high grain prices.
Utilities
Natural Gas. Natural gas is an important input commodity to our manufacturing process.
We estimate that our annual natural gas usage is approximately 3,400,000 Million British Thermal
Units annually and constitutes 10% of our annual total production cost. We use natural gas to
produce process steam and to dry our distillers grain products to a moisture content at which they
can be stored for long periods of time, and can be transported greater distances, so that we can
market the product to broader livestock markets, including poultry and swine markets in the
continental United States. We entered into a natural gas facilities agreement and natural gas
supply and capacity agreement with the City of Camilla.
15
Table of Contents
Electricity. We require a significant amount of electrical power to operate the
plant. We have entered into a contract for electric service and an excess facilities charge
agreement with Georgia Power Company (Georgia Power). During the term of the contract, we pay
monthly charges calculated in accordance with the applicable
rules, regulations and rate schedules. Pursuant to the facilities charge agreement, Georgia
Power has installed facilities on our premises. We compensate Georgia Power for the cost of
installing the facilities in the amount of approximately $2,058,000 in three annual payments of
approximately $686,000. The first annual payment became due one year after the installation of
permanent meter facilities. We also compensate Georgia Power for the allocated costs of operating
and maintaining the facilities and we will pay ongoing annual facilities charges of $95,000.
Water. We obtain water for our plant from two high capacity wells located in close
proximity to the site. Our plant requires approximately 900 gallons per minute. That is
approximately 1,300,000 gallons per day. In July 2007 we obtained from the State of Georgia a
permit to use groundwater in a specified amount exceeding our water usage. As a condition of the
permit, we are required to actively implement a water conservation plan approved by the State of
Georgia.
Much of the water used in an ethanol plant is recycled back into the process. There are,
however, certain areas of production where fresh water is needed. Those areas include boiler
makeup water and cooling tower water. Boiler makeup water is treated on-site to minimize all
elements that will harm the boiler and recycled water cannot be used for this process. Cooling
tower water is deemed non-contact water because it does not come in contact with the mash, and,
therefore, can be regenerated back into the cooling tower process. The makeup water requirements
for the cooling tower are primarily a result of evaporation.
Research and Development
We do not currently conduct any research and development activities.
Employees
We currently have 57 full-time employees and five part-time employees. Approximately nine of
our employees are involved primarily in management and administration, and the remainder are
involved primarily in plant operations.
Dependence on a Few Major Customers
As discussed above, we have entered into an ethanol marketing agreement with EcoEnergy and a
distillers grains marketing agreements with Palmetto for the purposes of marketing and distributing
our principal products. We rely on EcoEnergy for the sale and distribution of our ethanol and
Palmetto for the sale and distribution of our distillers grains, except for those distillers grains
that we market locally. Therefore, we are highly dependent on EcoEnergy and Palmetto for the
successful marketing of our products. Any loss of EcoEnergy or Palmetto as our marketing agents
for our ethanol and distillers grains could have a negative impact on our revenues during the
transition to a new marketing firm.
Costs and Effects of Compliance with Environmental Laws
We are subject to extensive air, water and other environmental regulations and we require a
number of environmental permits to operate the plant. We have an in-house environmental permitting
technician to oversee our environmental permit compliance.
Alcohol Fuel Producers Permit. We are required to comply with applicable Alcohol and Tobacco
Tax and Trade Bureau (formerly the Bureau of Alcohol, Tobacco and Firearms) regulations. We have
obtained the requisite alcohol fuel producers permit. The term of the permit is indefinite until
terminated, revoked or suspended. The permit also requires that we maintain certain security
measures and secure an operations bond. There are other taxation requirements related to special
occupational tax and a special stamp tax.
SPCC and RMP. We have prepared and are implementing our spill prevention control and
countermeasure (SPCC) plan. This plan addresses pollution prevention regulations and has been
reviewed and certified by a professional engineer. The SPCC must be reviewed and updated every
five years.
16
Table of Contents
Pursuant to the Clean Air Act, stationary sources, such as our plant, with processes that
contain more than a threshold quantity of regulated substances, such as anhydrous ammonia, are
required to prepare and implement a risk management plan (RMP). Since we use anhydrous ammonia,
we have established a plan to prevent spills or leaks of the ammonia and an emergency response
program in the event of spills, leaks, explosions or other events that may lead to the release of
the ammonia into the surrounding area.
Air Permits. Our plant is considered a minor source of regulated air pollutants. There are a
number of emission sources that require permitting. These sources include the boiler, ethanol
process equipment, storage tanks, scrubbers, and baghouses. We have received an air quality permit
issued by the Georgia Environmental Protection Division as well as a conditional use permit
approved by the Mitchell County Planning Commission and the Mitchell County Board of Commission.
The types of regulated pollutants emitted from our plant include particulate matter (PM10),
carbon monoxide (CO), nitrous oxides (NOx) and volatile organic compounds (VOCs).
We are subject to oversight activities by the Environmental Protection Agency (EPA). There
is always a risk that the EPA may enforce certain rules and regulations differently than Georgias
environmental administrators. Georgia or EPA rules are subject to change, and any such changes
could result in greater regulatory burdens on plant operations. We could also be subject to
environmental or nuisance claims from adjacent property owners or residents in the area arising
from possible foul smells or other air or water discharges from the plant. Such claims may result
in an adverse result in court if we are deemed to engage in a nuisance that substantially impairs
the fair use and enjoyment of real estate. We had no environmental or nuisance claims during our
first year of plant operations.
ITEM 1A. | RISK FACTORS. |
You should carefully read and consider the risks and uncertainties below and the other
information contained in this report. The risks and uncertainties described below are not the only
ones we may face. The following risks, together with additional risks and uncertainties not
currently known to us or that we currently deem immaterial could impair our financial condition and
results of operation.
Risks Relating to Our Business
We have a significant amount of debt, and our existing debt financing agreements contain, and
our future debt financing agreements may contain, restrictive covenants that limit distributions
and impose restrictions on the operation of our business. The use of debt financing makes it more
difficult for us to operate because we must make principal and interest payments on the
indebtedness and abide by covenants contained in our debt financing agreements. The level of our
debt may have important implications on our operations, including, among other things: (a) limiting
our ability to obtain additional debt or equity financing; (b) placing us at a competitive
disadvantage because we may be more leveraged than some of our competitors; (c) subjecting all or
substantially all of our assets to liens, which means that there may be no assets left for unit
holders in the event of a liquidation; and (d) limiting our ability to make business and
operational decisions regarding our business, including, among other things, limiting our ability
to pay dividends to our unit holders, make capital improvements, sell or purchase assets or engage
in transactions we deem to be appropriate and in our best interest.
We have violated the terms of our credit agreements and financial covenants which could result
in our lender demanding immediate repayment of our loans. We have been involved in discussions
with our administrative agent for our lending syndicate, WestLB, regarding certain past and
potential future non-compliance with our loan covenants that have resulted from current conditions
in the ethanol industry and our financial condition. Under the terms of our senior credit
agreement with WestLB, we are required to repay the amount that our working capital loan
outstanding exceeds our borrowing base. Our borrowing base is 80% of the value of certain accounts
receivable and certain inventory owned by FUEL and calculated on a monthly basis. As of November
30, 2009 our working capital loan exceeded our borrowing base by approximately $2,500,000 and we
were not able to repay that amount to WestLB. Accordingly, we requested a waiver of the covenant
contained in the credit agreement requiring us to repay the difference between our working capital
loan outstanding and our borrowing base. WestLB granted us a waiver of this covenant through
December 15, 2010. WestLB has indicated its willingness to work with us; however, at that time
WestLB and the lending syndicate could decide not to grant
this waiver and we would be in default on our senior credit agreement. If we violate the
terms of our loan or fail to obtain a waiver of any such term or covenant, our administrative agent
and the lending syndicate could deem us in default of our revolving line of credit and require us
to immediately repay the entire outstanding balance of the line of credit.
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Our financial performance is significantly dependent on corn and ethanol prices and generally
we will not be able to pass on increases in input prices to our customers. Our results of
operations and financial condition are significantly affected by the cost and supply of corn and
the market price of ethanol. Changes in the relative prices of corn and ethanol are subject to and
determined by market forces over which we have no control.
The spread between ethanol and corn prices can vary significantly. Our gross margins depend
principally on the spread between ethanol prices and corn prices. The spread between the price of
a gallon of ethanol and the cost of corn required to produce a gallon of ethanol will likely
continue to fluctuate. A protracted reduction in the spread between ethanol and corn prices,
whether a result of an increase in corn prices or a reduction in ethanol prices, would adversely
affect our results of operations and financial condition.
Risks Related to Ethanol Industry
Demand for ethanol may not continue to grow unless ethanol can be blended into gasoline in
higher percentage blends for conventional automobiles. Currently, ethanol is blended with
conventional gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10%
ethanol and 90% conventional gasoline. Estimates indicate that approximately 135 billion gallons
of gasoline are sold in the United States each year. Assuming that all gasoline in the United
States is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5
billion gallons. This is commonly referred to as the blending wall, which represents a
theoretical limit where more ethanol cannot be blended into the national gasoline pool. Many in
the ethanol industry believe that the ethanol industry will reach this blending wall in 2010 or
2011. In order to expand demand for ethanol, higher percentage blends of ethanol must be utilized
in conventional automobiles. Such higher percentage blends of ethanol have recently become a
contentious issue. Automobile manufacturers and environmental groups have fought against higher
percentage ethanol blends. Currently, state and federal regulations prohibit the use of higher
percentage ethanol blends in conventional automobiles and vehicle manufacturers have stated that
using higher percentage ethanol blends in conventional vehicles would void the manufacturers
warranty. Recently, the EPA was expected to make a ruling on using higher percentage blends of
ethanol such as E15, however, the EPA deferred making a decision on this issue until the middle of
2010. Without an increase in the allowable percentage blends of ethanol, demand for ethanol may
not continue to increase which could decrease the selling price of ethanol and could result in our
inability to operate the ethanol plant profitably which could reduce or eliminate the value of our
units.
Technology advances in the commercialization of cellulosic ethanol may decrease demand for
corn based ethanol which may negatively affect our profitability. The current trend in ethanol
production research is to develop an efficient method of producing ethanol from cellulose-based
biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This
trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and
producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in
areas which are unable to grow corn. The Energy Independence and Security Act of 2007 and the 2008
Farm Bill offer a very strong incentive to develop commercial scale cellulosic ethanol. The RFS
requires that 16 billion gallons per year of advanced bio-fuels be consumed in the United States by
2022. Additionally, state and federal grants have been awarded to several companies who are
seeking to develop commercial-scale cellulosic ethanol plants. We expect this will encourage
innovation that may lead to commercially viable cellulosic ethanol plants in the near future. If
an efficient method of producing ethanol from cellulose-based biomass is developed, we may not be
able to compete effectively. We do not believe it will be cost-effective to convert our ethanol
plant into a plant which will use cellulose-based biomass to produce ethanol. If we are unable to
produce ethanol as cost-effectively as cellulose-based producers, our ability to generate revenue
and our financial condition will be negatively impacted.
Overcapacity within the ethanol industry could cause an oversupply of ethanol and a decline in
ethanol prices. Excess capacity in the ethanol industry would have an adverse impact on our
results of operations, cash flows and general financial condition. Excess capacity may also result
or intensify from increases in production
capacity coupled with insufficient demand. If the demand for ethanol does not grow at the same
pace as increases in supply, we would expect the price for ethanol to decline.
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Risks Related to Regulation and Governmental Action
Government incentives for ethanol production, including federal tax incentives, may be
eliminated in the future, which could hinder our ability to operate at a profit. The ethanol
industry is assisted by various federal ethanol production and tax incentives, including the RFS
set forth in the Energy Policy Act of 2005. The RFS helps support a market for ethanol that might
disappear without this incentive; as such, waiver of RFS minimum levels of renewable fuels required
in gasoline could negatively impact our results of operations.
In addition, the elimination or reduction of tax incentives to the ethanol industry, such as
the VEETC available to gasoline refiners and blenders, could also reduce the market demand for
ethanol, which could reduce prices and our revenues by making it more costly or difficult for us to
produce and sell ethanol. If the federal tax incentives are eliminated or sharply curtailed, we
believe that decreased demand for ethanol will result, which could negatively impact our ability to
operate profitably.
Also, elimination of the tariffs that protect the United States ethanol industry could lead to
the importation of ethanol produced in other countries, especially in areas of the United States
that are easily accessible by international shipping ports. While the 2008 Farm Bill extended the
tariff on imported ethanol through 2011, this tariff could be repealed earlier which could lead to
increased ethanol supplies and decreased ethanol prices.
Changes in environmental regulations or violations of the regulations could be expensive
and reduce our profitability. We are subject to extensive air, water and other environmental laws
and regulations. In addition, some of these laws require our plant to operate under a number of
environmental permits. These laws, regulations and permits can often require expensive pollution
control equipment or operation changes to limit actual or potential impacts to the environment. A
violation of these laws and regulations or permit conditions can result in substantial fines,
damages, criminal sanctions, permit revocations and/or plant shutdowns. In the future, we may be
subject to legal actions brought by environmental advocacy groups and other parties for actual or
alleged violations of environmental laws or our permits. Additionally, any changes in
environmental laws and regulations, both at the federal and state level, could require us to spend
considerable resources in order to comply with future environmental regulations. The expense of
compliance could be significant enough to reduce our profitability and negatively affect our
financial condition.
Carbon dioxide may be regulated in the future by the EPA as an air pollutant requiring us to
obtain additional permits and install additional environmental mitigation equipment, which could
adversely affect our financial performance. In 2007, the Supreme Court decided a case in which it
ruled that carbon dioxide is an air pollutant under the Clean Air Act for the purposes of motor
vehicle emissions. The Supreme Court directed the EPA to regulate carbon dioxide from vehicle
emissions as a pollutant under the Clean Air Act. Similar lawsuits have been filed seeking to
require the EPA to regulate carbon dioxide emissions from stationary sources such as our ethanol
plant under the Clean Air Act. Our plant produces a significant amount of carbon dioxide that we
currently vent into the atmosphere. While there are currently no regulations applicable to us
concerning carbon dioxide, if the EPA or the State of Georgia were to regulate carbon dioxide
emissions by plants such as ours, we may have to apply for additional permits or we may be required
to install carbon dioxide mitigation equipment or take other as yet unknown steps to comply with
these potential regulations. Compliance with any future regulation of carbon dioxide, if it
occurs, could be costly and may prevent us from operating the ethanol plant profitably which could
decrease or eliminate the value of our units.
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ITEM 2. | PROPERTIES. |
Our plant is located on an approximately 267 acre site in Mitchell County Georgia. The
plants address is 4433 Lewis B. Collins Road, Pelham Georgia 31779. As of our fiscal year end on
September 30, 2009, we completed our first year of plant operations. The plant consists of the
following buildings:
| A process building, which contains processing equipment, laboratories, a control
room and offices; |
||
| A water treatment building containing equipment for water supply and treatment; |
||
| A grain receiving and shipping building; and |
||
| An administrative building, along with furniture and fixtures, office equipment
and computer and telephone systems. |
The site also contains improvements such as a loop track, paved access road, grain silos and
ethanol storage tanks. Our plant was placed in service on October 10, 2008 and is in excellent
condition and is capable of functioning at 100 percent of its production capacity.
All of the tangible and intangible property, real and personal, owned by either First United
or its wholly owned subsidiary, Southwest Georgia, serves as the collateral for the debt financing
with WestLB, which is described below under Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations.
ITEM 3. | LEGAL PROCEEDINGS. |
In April 2008, Air Liquide Industrial U.S., LP (Air Liquide) brought an action against First
United Ethanol and Southwest Georgia Ethanol in U.S. District Court for the Middle District of
Georgia Albany Division. Air Liquide alleges that it has an agreement to purchase carbon dioxide
gas from First United Ethanol and Southwest Georgia Ethanol and is requesting specific performance
of the purported contractual obligations or, in the alternative, damages for breach of the
purported contract. First United Ethanol and Southwest Georgia Ethanol disagree with Air Liquides
allegations and intend to defend the suit vigorously.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
On February 18, 2009, we held the 2009 Annual Meeting of Members for the purpose of electing
ten directors to the Board of Directors. Votes were solicited in person and by proxy. The initial
Board of Directors was comprised of thirteen Directors. Two Directors resigned and were not
replaced and the Board of Directors consisted of eleven Directors prior to the Annual Meeting of
Members. In April 2007 Terry Hart resigned from the board and in February 2008 J. Harris Morgan
resigned from the board. The initial term for these remaining eleven (11) Directors ended with the
first annual or special meeting of the Members following the date on which substantial operations
of our ethanol production facilities commence. Operations of the facilities commenced in October
2008; therefore, initial terms of the eleven Directors expired on February 18, 2009 at the 2009
Annual Meeting of the Members. Our board Secretary, Bryant Campbell did not stand for reelection
and our Board of Directors decided to reduce the board size to ten Directors.
Pursuant to our Second Amended and Restated Operating Agreement, members of the Board of
Directors were divided into three groups which serve staggered terms. The Board of Directors
nominated the following persons for election as Directors: Murray Campbell, Tommy Hilliard, Steve
Collins, Miley Adams, Thomas Dollar, II, John Johnson, Donald Shirah, Kenneth Hunnicutt, Robert
Holden, Sr., and Michael Harrell. All nominees were incumbent Directors. The ten nominees who
received the highest vote totals were elected as Directors of the Company at the 2009 Annual
Meeting.
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Each of the ten nominees was elected by a plurality vote of the members eligible to vote, to
serve a term, which will expire in 2010, 2011 or 2012. There were 36,510 membership units
represented in person or by proxy. The names of the ten Director nominees elected to serve on our
Board of Directors, the number of votes each received and their respective terms are as follows:
Name | Votes For | Term Expires | ||||||
Michael W. Harrell |
35,410 | 2010 | ||||||
John B. Johnson |
35,430 | 2010 | ||||||
Donald Shirah |
35,430 | 2010 | ||||||
Miley Adams |
35,430 | 2011 | ||||||
Steve Collins |
35,430 | 2011 | ||||||
Robert L. Holden, Sr. |
35,430 | 2011 | ||||||
Murray Campbell |
35,410 | 2012 | ||||||
Thomas H. Dollar, II |
35,430 | 2012 | ||||||
Tommy L. Hilliard |
35,430 | 2012 | ||||||
Kenneth J. Hunnicutt |
35,410 | 2012 |
We will be asking our members to vote on the election of directors at our 2010 members
meeting, through the solicitation of proxies in a definitive proxy statement. The information
required by Item 4 for solicitations, which will be submitted during the first quarter of fiscal
year 2010, is incorporated by reference to our definitive proxy statement relating to our 2010
annual meeting of members. In accordance with Regulation 14A, we will be filing our definitive
proxy statement no later than 120 days after the end of the last fiscal year. The 2010 annual
meeting, at which voting on the proposed amendments and directors will take place, is scheduled for
February 3, 2010.
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS ISSUER PURCHASES OF
EQUITY SECURITIES. |
As of September 30, 2009, we had 81,984 membership units outstanding and approximately 800
unit holders of record. There is no public trading market for our units.
However, in November 2008, we established a Unit Trading Bulletin Board, a private online
matching service, in order to facilitate trading among our members. The Unit Trading Bulletin Board
consists of an electronic bulletin board on our website that provides a list of interested buyers
and a list of interested sellers, along with their non-firm price quotes. The Unit Trading Bulletin
Board does not automatically effect matches between potential sellers and buyers and it is the sole
responsibility of sellers and buyers to contact each other to make a determination as to whether an
agreement to transfer units may be reached. We do not become involved in any purchase or sale
negotiations arising from our Unit Trading Bulletin Board and have no role in effecting
transactions beyond approval, as required under our operating agreement, and the issuance of new
certificates. We do not give advice regarding the merits or shortcomings of any particular
transaction. We do not receive, transfer or hold funds or securities as an incident of operating
the Unit Trading Bulletin Board. In advertising our Unit Trading Bulletin Board, we do not
characterize First United Ethanol as being a broker or dealer or an exchange. We do not use the
Unit Trading Bulletin Board to offer to buy or sell securities other than in compliance with the
securities laws, including any applicable registration requirements.
There are detailed timelines that must be followed under the Unit Trading Bulletin Board rules
and procedures with respect to offers and sales of membership units, with which all transactions
must comply. In addition, all transactions must comply with our operating agreement, and are
subject to approval by our board of directors.
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The following table contains historical information by quarter for the past two years
regarding the actual unit transactions that were completed by the Companys unit-holders during the
periods specified. The Company believes providing this information is the way to most accurately
represent the current trading value of the Companys units. As of September 30, 2009, no unit
transfers had been completed through our qualified matching service bulletin board.
# of | ||||||||||||||||
Quarter | Low Price | High Price | Average Price | Units Traded | ||||||||||||
2008 1st |
$ | | $ | | $ | | | |||||||||
2008 2nd |
$ | | $ | | $ | | | |||||||||
2008 3rd |
$ | | $ | | $ | | | |||||||||
2008 4th |
$ | | $ | | $ | | | |||||||||
2009 1st |
$ | | $ | | $ | | | |||||||||
2009 2nd |
$ | | $ | | $ | | | |||||||||
2009 3rd |
$ | | $ | | $ | | | |||||||||
2009 4th |
$ | | $ | | $ | | |
The following table contains the bid and asked prices that were posted on the Companys
qualified matching service bulletin board and includes some transactions that were not completed.
The Company believes the table above more accurately describes the trading value of its units as
the bid and asked prices below include some offers that never resulted in completed transactions.
The information was compiled by reviewing postings that were made on the Companys qualified
matching service bulletin board.
# of | ||||||||||||||||
Sellers Quarter | Low Price | High Price | Average Price | Units Listed | ||||||||||||
2008 1st |
$ | | $ | | $ | | | |||||||||
2008 2nd |
$ | | $ | | $ | | | |||||||||
2008 3rd |
$ | | $ | | $ | | | |||||||||
2008 4th |
$ | 1,050.00 | $ | 1,140.00 | $ | 1,095.00 | 120 | |||||||||
2009 1st |
$ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | 50 | |||||||||
2009 2nd |
$ | | $ | | $ | | | |||||||||
2009 3rd |
$ | | $ | | $ | | | |||||||||
2009 4th |
$ | 770.00 | $ | 770.00 | $ | 770.00 | 50 |
# of | ||||||||||||||||
Buyers Quarter | Low Price | High Price | Average Price | Units Listed | ||||||||||||
2008 1st |
$ | | $ | | $ | | | |||||||||
2008 2nd |
$ | | $ | | $ | | | |||||||||
2008 3rd |
$ | | $ | | $ | | | |||||||||
2008 4th |
$ | | $ | | $ | | | |||||||||
2009 1st |
$ | | $ | | $ | | | |||||||||
2009 2nd |
$ | | $ | | $ | | | |||||||||
2009 3rd |
$ | | $ | | $ | | | |||||||||
2009 4th |
$ | | $ | | $ | | |
As a limited liability company, we are required to restrict the transfers of our membership
units in order to preserve our partnership tax status. Our membership units may not be traded on
any established securities market or readily traded on a secondary market (or the substantial
equivalent thereof). All transfers are subject to a determination that the transfer will not cause
First United Ethanol to be deemed a publicly traded partnership.
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Our Board of Directors has adopted a Membership Unit Option Plan (the Plan). The Plan
permits the company to grant unit options and units to its employees for up to two percent (2%) of
the total number of units outstanding at the close of our registered offering, or 1,532 units. We
believe that the awards will better align the performance goals of its employees with those of its
members. Option awards are generally granted with an exercise price of $1,000 per unit, and they
generally vest over three to five years of continuous service and have ten-year contractual terms.
Certain option awards may provide for accelerated vesting if there is a change in control of the
Company or the employee is terminated without cause. The following table summarizes the
outstanding units pursuant to the option agreements, as of the date of this report:
Number of securities | ||||||||||||
remaining available | ||||||||||||
for future issuance | ||||||||||||
Number of securities to | Weighted-average | under equity | ||||||||||
be issued upon exercise | exercise price of | compensation plans | ||||||||||
of outstanding options, | outstanding options, | (excluding securities | ||||||||||
warrants and rights | warrants and rights | reflected in column (a)) | ||||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation
plans approved by
security holders |
0 | 0 | 0 | |||||||||
Equity compensation
plans not approved
by security holders |
951 | $ | 1,000 | 581 | ||||||||
Total |
951 | $ | 1,000 | 581 | ||||||||
In May 2009 we commenced a private placement offering where we sold 5,369 membership units in
exchange for an aggregate offering price of $2,032,550. Our private placement offering expired on
October 31, 2009; however, no sales were made after our fiscal year ended on September 30, 2009.
We used the proceeds for working capital purposes, and for general corporate purposes, including
purchases of raw materials. The sale of these membership units was deemed to be exempt from
registration in reliance on Section 4(2) and Rule 506 of the Securities Act of 1933 as transactions
by an issuer not involving a public offering. No underwriting discounts or commissions were paid in
these transactions and we conducted no general solicitation in connection with the offer or sale of
securities. The acquirers of our membership units made representations to us regarding their status
as accredited investors as defined in Regulation D, or as investors with such knowledge and
experience in financial and business matters that they were capable of evaluating the merits and
risks of the investment (alone or with a purchaser representative), and their intention to acquire
the securities for investment only and not with a view to or for sale in connection with any
distribution thereof. Appropriate legends were affixed to unit certificates and instruments issued
in such transactions. All acquirers were provided a private placement memorandum containing all
material information concerning FUEL and the offering. On May 4, 2009, the same date we initiated
our private placement offering, we suspended trading of our membership units. On October 14, 2009
we resumed trading of our membership units on our Unit Trading Bulletin Board.
We have not declared or paid any distributions on our units. Our board of directors and our
lending syndicate control the timing and amount of distributions to our unit holders, however, our
operating agreement requires the board of directors to endeavor to make cash distributions at such
times and in such amounts as will permit our unit holders to satisfy their income tax liability in
a timely fashion. Our expectations with respect to our ability to make future distributions are
discussed in greater detail under Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 6. | SELECTED FINANCIAL DATA. |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of
1934 and are not required to provide information under this item.
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ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
This report contains forward-looking statements that involve future events, our future
performance and our expected future operations and actions. In some cases you can identify
forward-looking statements by the use of words such as may, will, should, anticipate,
believe, expect, plan, future, intend, could, estimate, predict, hope,
potential, continue, or the negative of these terms or other similar expressions. These
forward-looking statements are only our predictions and involve numerous assumptions, risks and
uncertainties. Our actual results or actions may differ materially from these forward-looking
statements for many reasons, including the reasons described in this report. We are not under any
duty to update the forward-looking statements contained in this report. We cannot guarantee future
results, levels of activity, performance or achievements. We caution you not to put undue reliance
on any forward-looking statements, which speak only as of the date of this report. You should read
this report and the documents that we reference in this report and have filed as exhibits,
completely and with the understanding that our actual future results may be materially different
from what we currently expect. We qualify all of our forward-looking statements by these
cautionary statements.
Results of Operations
Comparison of Fiscal Years Ended September 30, 2009 and 2008
2009 | 2008 | |||||||||||||||
Income Statement Data | Amount | % | Amount | % | ||||||||||||
Revenues |
$ | 166,561,773 | 100.0 | % | | | ||||||||||
Cost of Goods Sold |
$ | 178,695,057 | 107.3 | % | | | ||||||||||
Gross (Loss) |
$ | (12,133,284 | ) | (7.3 | )% | | | |||||||||
General and
Administrative
Expenses |
$ | 5,123,484 | 3.1 | % | $ | 5,068,196 | | |||||||||
Operating (Loss) |
$ | (17,256,768 | ) | (10.4 | )% | $ | (5,068,196 | ) | | |||||||
Other (Expense) |
$ | (11,208,202 | ) | (6.7 | )% | $ | (5,214,994 | ) | | |||||||
Net (Loss) |
$ | (28,464,970 | ) | (17.1 | )% | $ | (10,283,190 | ) | | |||||||
Revenues
During the fiscal year ended September 30, 2009, we transitioned from a development stage
company to an operational company. Accordingly, we do not yet have comparable income, production
and sales data for the year ended September 30, 2009, from our previous fiscal year.
Our revenues from operations come from two primary sources: sales of fuel ethanol and sales of
distillers grains.
The following table shows the sources of our revenue for the fiscal year ended September 30,
2009.
Percentage of | ||||||||
Revenue Sources | Amount | Total Revenues | ||||||
Ethanol Sales |
$ | 135,876,057 | 81.58 | % | ||||
Dried Distillers Grains Sales |
29,947,009 | 17.98 | ||||||
Wet Distillers Grains Sales |
370,878 | .23 | ||||||
Other |
367,829 | .21 | ||||||
Total Revenues |
$ | 166,561,773 | 100.00 | % |
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Our ethanol revenue was approximately $135,900,000 for the fiscal year ended September 30,
2009. We sold approximately 79,500,000 gallons of ethanol during the fiscal year ended September
30, 2009 at an average price of $1.71 per gallon.
At the time we commenced plant operations in October 2008, we began marketing our ethanol in
the south eastern United States. At that time we were the only ethanol plant distributing ethanol
by truck to this market. Accordingly, our marketing agent and our staff developed the truck market
for ethanol in the Southeast. Developing this market for our ethanol has taken time and effort,
but we have succeeded in creating this market and are now shipping approximately 95 percent of our
ethanol to the regional truck market. From October 2008 through June 2009, while we were
developing this truck market for our ethanol, the entire ethanol industry experienced a decline in
ethanol prices which, when combined with our market development activities, had a negative impact
on our revenues. The drop in ethanol prices during this period is attributable to the weak economy
in the United States which caused a reduction in the demand for oil and gasoline. A reduction in
gasoline usage has a negative impact on the price we receive for our ethanol. Subsequent to our
fiscal year ended September 30, 2009, ethanol prices have rebounded and our local truck market
prices have enabled FUEL to produce positive operating margins which should be reflected in our
fiscal quarter ending December 31, 2009.
We anticipate receiving higher ethanol prices during the summer months due to a seasonal
increase in the demand for gasoline and ethanol. However, if the price of ethanol were to decrease
and remain low for an extended period of time it would have significant negative impact on our
liquidity, even if our raw material costs remain steady. We anticipate that the price of
distillers grains will continue to fluctuate in reaction to changes in the price of corn and
soybean meal. The ethanol industry needs to continue to expand the market for distillers grains in
order to maintain current price levels.
Management anticipates that ethanol prices will continue to change in relation to changes in
corn and energy prices. These prices have been somewhat volatile due to the uncertainty that we
are experiencing in the overall economy which has been affecting commodities prices for the last
year. Further, difficult weather conditions during the harvest in the fall of 2009 has resulted in
increased corn prices which has positively impacted ethanol prices. Management believes that there
will be a surplus of ethanol production capacity in the United States. Management believes this
has resulted in several ethanol producers decreasing ethanol and distillers grains production or
halting operations altogether. The amount of this idled ethanol production capacity has changed
throughout our 2009 fiscal year as a result of changes in the spread between corn prices and
ethanol prices. Ethanol producers decreasing or ceasing production has an effect on the supply of
ethanol in the market which can positively impact the price of ethanol. Much of this idled ethanol
capacity could come back online within a reasonably short period of time which could negatively
impact ethanol prices. We anticipate that the ethanol industry must continue to grow demand for
ethanol in order to support current ethanol prices and retain profitability in the ethanol
industry.
A debate continues with respect to changes in the allowable percentage of ethanol blended with
gasoline for use in standard (non-flex fuel) vehicles. Currently, ethanol is blended with
conventional gasoline for use in standard vehicles to create a blend which is 10% ethanol and 90%
gasoline. Estimates indicate that approximately 135 billion gallons of gasoline are sold in the
United States each year. However, gasoline demand may be shrinking in the United States as a
result of the global economic slowdown. Assuming that all gasoline in the United States is blended
at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons
per year. This is commonly referred to as the blending wall, which represents a theoretical
limit where more ethanol cannot be blended into the national gasoline pool. This is a theoretical
limit because it is believed that it would not be possible to blend ethanol into every gallon of
gasoline that is used in the United States and it discounts the possibility of additional ethanol
being used in higher percentage blends such as E85 used in flex fuel vehicles. Many in the ethanol
industry believe that we will reach this blending wall in 2010 or 2011. The RFS mandate requires
that 36 billion gallons of renewable fuels be used each year in the United States by 2022 which
equates to approximately 27% renewable fuels used per gallon of gasoline sold. In order to meet
the RFS mandate and expand demand for ethanol, management believes higher percentage blends of
ethanol must be utilized in conventional automobiles. Such higher percentage blends of ethanol
have continued to be a contentious issue. Automobile manufacturers and environmental groups are
lobbying against higher percentage ethanol blends. State and federal regulations prohibit the use
of higher percentage ethanol blends in conventional automobiles and vehicle
manufacturers have indicated that using higher percentage blends of ethanol in conventional
automobiles would void the manufacturers warranty. Without increases in the allowable percentage
blends of ethanol, demand for ethanol may not continue to increase. Our financial condition may be
negatively affected by decreases in the selling price of ethanol resulting from ethanol supply
exceeding demand. Recently, the EPA has been considering allowing E15 to be used in standard
vehicles. However, the EPA has delayed making a decision on E15 until sometime in 2010.
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Our distillers grain revenue was approximately $30,300,000 for the fiscal year ended September
30, 2009. We produced approximately 214,039 tons of dried distillers grains and approximately
7,342 tons of wet distillers grains. Our average selling price for our dried distillers grains and
our wet distillers grains for our fiscal year ended September 30, 2009 was approximately $140 per
ton and $51 per ton, respectively.
Just as we developed the truck market for our ethanol, we developed the local truck market for
our distillers grains. At the time we commenced plant operations in October 2008, we were the only
facility in the southeastern United States selling distillers grains delivered by truck to poultry
and other livestock producers. Developing this market for our distillers grains has been a
challenge as many poultry and other livestock producers have not historically incorporated
distillers grains into their feed rations. However, the use of distillers grains in feed rations
has become widespread in our local market area and we are now shipping approximately 90 percent of
our distillers grains to the regional truck market at favorable market prices. Furthermore, the
poultry producers using our distillers grains have become accustomed to using our distillers grains
in their rations and are developing rations that contain increasingly higher percentages of our
distillers grains.
Management believes that the market prices for distillers grains change in relation to the
prices of other animal feeds, such as corn and soybean meal. As a result of the current economic
situation and its effect on commodities prices, we experienced a significant decrease in the market
prices of corn and soybean meal starting in the middle of 2008. This resulted in a significant
decrease in distillers grains prices. We believe that the negative effect lower corn and soybean
meal prices had on market distillers grains prices was somewhat offset by decreased distillers
grains production by the ethanol industry during our 2009 fiscal year. Management believes that
several ethanol producers decreased ethanol and distillers grains production or ceased production
altogether during 2009 as a result of unfavorable operating conditions. Management believes this
resulted in decreased distillers grains production which we believe had a positive impact on the
market price of distillers grains which somewhat offset price decreases resulting from lower corn
and soybean meal prices.
On November 2, 2009, we reached an Amended Carbon Dioxide Supply Agreement with Airgas
Carbonic, Inc. (Airgas) with an effective date of May 15, 2009. Pursuant to the agreement,
Airgas is constructing a carbon dioxide facility to purify, liquefy, refine and store carbon
dioxide produced by FUEL as a co-product of its ethanol production process. The carbon dioxide
facility is being constructed on land leased by FUEL to Airgas and is expected to be complete in
summer 2010. Once the new carbon dioxide facility is operational, we expect our carbon dioxide to
be another source of revenue for our company.
Cost of Goods Sold and Gross Loss
Our cost of goods sold was $178,695,057 or 107.3% of our revenues for the fiscal year ended
September 30, 2009. Our two primary costs of producing ethanol and distillers grains are the cost
of corn and natural gas. Approximately 74% of our cost of goods sold is attributable to corn costs
and approximately 10% is attributable to natural gas costs. Corn prices reached historical highs
in June 2008 prior to the date we commenced plant operations, but have come down sharply since that
time as stronger than expected corn yields materialized and the global financial crisis brought
down the prices of most commodities. We expect continued volatility in the price of corn, which
could significantly impact our cost of goods sold. Our average price paid for our corn feedstock
for the fiscal year ended September 30, 2009 was approximately $4.48 per bushel.
During our fiscal year ended September 30, 2009 we were able to purchase approximately
7,000,000 bushels of corn from local producers and we expect to purchase approximately 10,000,000
bushels from local producers during our fiscal year ending September 30, 2010. By purchasing corn
from local producers we are able to save on freight expense compared to corn delivered to our
facility by rail from the Midwest. We expect the local corn producers to respond to the demand for
corn created by our facility since we commenced operations in October
2008. Therefore, we also expect to be capable of procuring an increasing percentage of our corn
from local producers.
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Our other costs of goods sold include denaturant, process chemicals, electricity,
transportation, depreciation, hedging activity and direct labor. Together these costs represent
approximately 16% of our cost of goods sold. We do not anticipate these costs to be as volatile as
our corn and natural gas expenses. However, our transportation, electrical and denaturant costs
are directly tied to the price of energy generally and, therefore, may fluctuate along with the
price of petroleum based energy products. Cost of goods sold also includes a one time charge of
$745,000 related to a lease impairment for tanker railcars not utilized in operations and under
contract.
Recently corn prices have increased. Management attributes this increase in corn prices with
unfavorable weather conditions that have existed during harvest time in the fall of 2009. Despite
the fact that corn yields have been strong, uncertainty continues regarding the total amount and
quality of corn that was produced during the 2009 crop year. If the corn harvested in the fall of
2009 is generally of poor quality, it might negatively impact the number of gallons of ethanol that
can be produced per bushel of corn. Further, management anticipates that corn demand may increase
in the near future should global economic conditions continue to improve. Should corn demand
increase, it may result in further increases in the market price of corn.
General and Administrative Expenses
Our general and administrative expenses as a percentage of revenues were 3.1% for the fiscal
year ended September 30, 2009. General and administrative expenses consist primarily of payroll,
employee benefits, and professional fees. During our first year of operations we incurred
significant professional fees in connection with the management of our credit agreement. During
our fourth fiscal quarter ended September 30, 2009 we were able to reduce our expenses associated
with managing our credit agreement and we expect our operating expenses to be significantly lower
during our fiscal year ending September 30, 2010.
Other (Expense)
We had total other expense for the fiscal year ended September 30, 2009 of approximately
$11,200,000, resulting primarily from our interest expense for the period. Interest expense for the
period was approximately $10,100,000 which was exacerbated by an unrealized loss of approximately
$1,100,000 for the change in fair value of our interest rate swap agreement.
Net (Loss)
Our net loss from operations for the fiscal year ended September 30, 2009 was approximately
17.1% of our revenues. This loss is primarily a result of negative operating margins due to the
cost of our inputs relative to the revenue generated by the sale of our ethanol and distillers
grains during our first fiscal year of operations. The negative operating margins experienced
during our first year of operations can, in part, be attributed to our status as the first
operating commercial scale ethanol plant in the Southeast and the fact that we had to develop local
markets for our ethanol and distillers grains, which took time and aggressive pricing strategies to
encourage the use of our products. Since commencing operations in October 2008, we have
successfully created robust demand in our local markets and are now selling 95 percent of our
ethanol and 90 percent of our distillers grains to the truck market in the southeastern United
States. The development of these local markets for our products, our use of an increasing amount
of local corn and a rebounding national demand for gasoline and ethanol have created favorable
operating margins for our company in the first quarter of our fiscal year ending September 30,
2010.
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Additional Information
The following table shows additional data regarding production and price levels for our
primary inputs and products for the fiscal year ended September 30, 2009.
Twelve Months ended | ||||
September 30, 2009 | ||||
Production: |
||||
Ethanol sold (gallons) |
79,537,767 | |||
Dried distillers grains sold (tons) |
214,039 | |||
Wet distillers grains sold (tons) |
7,342 | |||
Revenues: |
||||
Ethanol average price per gallon |
1.708 | |||
Dried distillers grains revenue per gallon of ethanol sold |
.376 | |||
Wet distillers grains revenue per gallon of ethanol sold |
.005 | |||
Other |
.005 | |||
Total revenue per gallon of ethanol sold |
2.094 | |||
Costs: |
||||
Corn cost per gallon of ethanol sold (including freight) |
1.657 | |||
Overhead and other direct costs per gallon of ethanol sold |
.589 | |||
Total cost per gallon of ethanol sold |
2.246 |
Changes in Financial Condition for Fiscal Years Ended September 30, 2009 and 2008
We experienced a decrease in our current assets at September 30, 2009 compared to our fiscal
year ended September 30, 2008. We had approximately $7,700,000 less cash on hand at September 30,
2009 compared to September 30, 2008. However, we experienced an increase of approximately
$3,100,000 in inventory at September 30, 2009 compared to September 30, 2008, primarily as a result
of the commencement of operations at our plant. Additionally, at September 30, 2009 we had
accounts receivable of approximately $4,100,000 compared to no accounts receivable at September 30,
2008.
Our net property and equipment was slightly lower at September 30, 2009 compared to September
30, 2008 as a result of additions of property and equipment, offset by our current year
depreciation.
We experienced an increase in our total current liabilities at September 30, 2009 compared to
September 30, 2008. The majority of the change is related to the fact that we experienced an
increase of approximately $1,900,000 in our revolving line of credit at September 30, 2009 compared
to September 30, 2008. We also experienced an increase of approximately $7,000,000 in the current
portion of our long-term debt at September 30, 2009 compared to September 30, 2008. However,
accounts payable and accrued expenses were down by approximately $3,400,000 at September 30, 2009
compared to September 30, 2008, due to our ability to satisfy these accounts from our operating
cash flows.
We experienced a significant increase in our long-term liabilities as of September 30, 2009
compared to September 30, 2008, primarily as a result of increases in our long-term notes payable.
At September 30, 2009, we had approximately $103,300,000 outstanding in the form of long-term
loans, compared to approximately $88,100,000 at September 30, 2008. This increase is attributed to
cash we utilized from our long-term loans to complete the construction of our facility and commence
operations.
Trends and Uncertainties Impacting the Ethanol Industry and Our Company
We are subject to industry-wide factors, trends and uncertainties that affect our operating
and financial performance. These factors include, but are not limited to, the available supply and
cost of corn from which our ethanol and distillers grains are processed; the cost of natural gas,
which we use in the production process; new technology developments in the industry; dependence on
our ethanol marketer and distillers grains marketer to market and distribute our products; the
intensely competitive nature of the ethanol industry; and possible changes in
legislation/regulations at the federal, state and/or local level. These factors as well as other
trends and uncertainties are described in more detail below.
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Economic Downturn
The U.S. stock markets crumbled during late fall 2008 and the early winter of 2009 upon the
collapse of multiple major financial institutions, the federal governments takeover of two major
mortgage companies, Freddie Mac and Fannie Mae, and the governments enactment of a $700 billion
bailout plan pursuant to which the federal government will directly invest in troubled financial
institutions. Financial institutions across the country have lost billions of dollars due to the
extension of credit for the purchase and refinance of over-valued real property. The U.S. economy
is in the midst of a recession, with increasing unemployment rates and decreasing retail sales.
These factors have caused significant economic stress and upheaval in the financial and credit
markets in the United States, as well as abroad. Credit markets have tightened and lending
requirements have become more stringent. Oil prices and demand for fuel has fluctuated greatly and
generally trended downward during our 2009 fiscal year. We believe that these factors have
contributed to a decrease in the prices at which we are able to sell our ethanol during fiscal year
2009. This down turn severely impacted the ethanol industry which has started to recover as a
profitable industry during the second half of the 2009 calendar year.
Corn Prices
Our cost of goods sold consists primarily of costs relating to the corn and natural gas
supplies necessary to produce ethanol and distillers grains for sale. On December 10, 2009, the
USDA released its Crop Production report, which estimated the 2009 grain corn crop at approximately
12.9 billion bushels, approximately 7% higher than the USDAs estimate of the 2008 corn crop of
12.1 billion bushels. Corn prices reached historical highs in June 2008, but have come down
sharply since that time as stronger than expected corn yields materialized and the global financial
crisis brought down the prices of most commodities generally. We expect continued volatility in
the price of corn, which could significantly impact our cost of goods sold. The number of
operating ethanol plants nationwide has declined over the past year due to the economic down turn
and failed risk taking by some large competitors.
The price at which we will purchase corn depends on prevailing market prices. Southwest
Georgia is reestablishing a strong corn industry of which we were able to purchase 7 million
bushels of corn, or 22 percent, of our corn requirements. However, we are required to obtain
additional corn from other areas of the United States. Our plant site is well situated to receive
corn by way of our three dedicated trains from the corn producing regions of the United States and
we expect to benefit from our flexibility in sourcing grain in the event of a crop shortfall in one
portion of the corn belt. We view our ability to ship corn from any portion of the corn belt as a
competitive advantage when compared to some Midwest ethanol plants that are largely dependent on
their ability to buy corn in their local truck market. However, any benefit we receive from our
flexibility in sourcing grain may be partially offset by the additional transportation costs we
expect to incur.
We can mitigate our risk to fluctuations in the corn and ethanol markets by locking in
favorable margins through the use of forward contracts. However, we recognize that we are not
always presented with opportunities to lock in favorable margins and our plants profitability will
be negatively impacted during periods of high corn prices. There is no assurance that a corn
shortage will not develop, particularly if there is an extended drought or other production
problems in the 2010 crop year. We anticipate that our plants profitability could be negatively
impacted during periods of high corn prices that are not offset by increased ethanol prices.
Although we expect the negative impact on profitability resulting from high corn prices to be
mitigated, in part, by the increased value of the distillers grains we intend to market (as the
price of corn and the price of distillers grains tend to fluctuate in tandem), we still may be
unable to operate profitably if high corn prices are sustained for a significant period of time.
Ethanol Industry Competition
We
operate in a competitive industry and compete with a number of larger, ethanol producers.
The significant economic down turn in the ethanol industry has driven many large and small
producers out of the industry. The ethanol industry in starting to emerge from the difficult
collapse that has occurred since the commencement of our operations in October 2008.
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Distillers Grains Marketing
With the advancement of research into the feeding of distillers grains based rations to
poultry, swine and beef, we anticipate these markets will continue to expand, creating additional
demand for distillers grains
We have an agreement with Palmetto Grain Brokerage, LLC (Palmetto) to market our distillers
grains to the rail market. During our first year of operations we have continued to develop our
local markets with the support of Palmetto to competitively market our distillers grains. The local
and regional market is continuing to grow with the education of the nutritionists and farmers
working in the poultry, beef and dairy businesses. In June 2009 we notified Palmetto that our
distillers grains marketing agreement expiring in December 2009 needed to be amended to better
accommodate our development of the local distillers grains markets. We have reached a tentative
understanding with Palmetto for our amended distillers grains marketing agreement, which we expect
to finalize in January 2010.
Technology Developments
One current trend in ethanol production research is to develop an efficient method of
producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue,
municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based
biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would
create opportunities to produce ethanol in areas which are unable to grow corn. Although current
technology is not sufficiently efficient to be competitive, the United States Congress is
consistently increasing the availability of incentives to promote the development of commercially
viable cellulose based ethanol production technology.
Advances and changes in the technology used to produce ethanol may make the technology we are
installing in our plant less desirable or obsolete. As of this date there are no known
technologies that would cause our plant to become uncompetitive or completely obsolete.
Government Legislation and Regulations
The ethanol industry and our business are assisted by various federal ethanol supports and tax
incentives, including those included in the Energy Policy Act of 2005 and the Energy Independence
and Security Act of 2007. Government incentives for ethanol production, including federal tax
incentives, may be reduced or eliminated in the future, which could hinder our ability to operate
at a profit. Federal ethanol supports, such as the renewable fuels standard (RFS), help support a
market for ethanol that might disappear without this incentive; as such, a waiver of minimum levels
of renewable fuels included in gasoline could have a material adverse effect on our results of
operations. The elimination or reduction of tax incentives to the ethanol industry, such as the
VEETC available to gasoline refiners and blenders, could reduce the market for ethanol, causing
prices, revenues, and profitability to decrease.
Liquidity and Capital Resources
Based on financial forecasts performed by our management and discussions our management has
had with our lenders, we anticipate that we will have sufficient cash from our current credit
facilities and cash from our operations to continue to operate the ethanol plant for the next 12
months. We have experienced loan covenant compliance issues during our fiscal year ended September
30, 2009, but we expect to either be in compliance with our loan covenants or obtain waivers of
noncompliance from our lending syndicate during the next 12 months. Accordingly, we do not
anticipate requiring additional equity or debt financing during our 2010 fiscal year. However,
should we experience unfavorable operating conditions in the future, we may have to request
additional debt or secure additional equity sources for working capital or other purposes.
As a result of current conditions in the ethanol market our 2010 fiscal year appears to offer
more favorable operating conditions than we experienced during the beginning of our 2009 fiscal
year. We anticipate continuing to make the required payments on our debt facilities and anticipate
continuing to improve our liquidity going forward. However, should we experience unfavorable
operating conditions in the ethanol industry that prevent us from profitably operating the ethanol
plant, we could have difficulty maintaining our liquidity.
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In May 2009 we commenced a private placement offering where we sold 5,369 membership units in
exchange for an aggregate offering price of $2,032,550. Our private placement offering expired on
October 31, 2009; however, no sales were made after our fiscal year ended on September 30, 2009.
We used the proceeds for working capital purposes, and for general corporate purposes, including
purchases of raw materials.
The following table shows cash flows for the fiscal years ended September 30, 2009 and 2008:
Year ended September 30, | ||||||||
2009 | 2008 | |||||||
Net cash from (used for) operating activities |
$ | (23,157,338 | ) | $ | 1,823,929 | |||
Net cash (used for) investing activities |
$ | (2,259,314 | ) | $ | (91,850,508 | ) | ||
Net cash from financing activities |
$ | 17,730,674 | $ | 94,045,126 |
Cash Flow From (Used For) Operations
During our first fiscal year ended September 30, 2009, we transitioned from a development
stage company to an operational company. Accordingly, we do not yet have comparable income,
production and sales data for the year ended September 30, 2009, from our previous fiscal year.
However, we experienced a significant reduction in net cash from operating activities of
approximately $25,000,000 during our fiscal year ended September 30, 2009 as compared to the same
period of 2008. This change in cash from our operating activities resulted primarily from a
increase of $18,200,000 in our net loss for our 2009 fiscal year compared to our 2008 fiscal year.
During our 2009 fiscal year, our capital needs were being adequately met primarily through cash
from our credit facilities, additional equity from our private placement and, to a lesser extent,
through our operating activities.
Cash Flow Used For Investing Activities
We experienced a decrease in the cash we used for investing activities during our 2009 fiscal
year compared to our 2008 fiscal year. This decrease was primarily a result of the completion of
our ethanol plant during the first quarter of our fiscal year ending September 30, 2009. Our plant
was nearly complete by the end of our fiscal year ending September 30, 2008. Accordingly, most of
the cash used for construction activities occurred during our fiscal year ended September 30, 2008
and prior years.
Cash Flow From Financing Activities
We received significantly less cash for financing activities during our 2009 fiscal year
compared to our 2008 fiscal year primarily as a result of our long-term debt obligations being
finalized during our fiscal year ended September 30, 2008. Our cash used for activities during our
2009 fiscal year primarily related to increased borrowing on our long-term debt and the additional
equity that we raised through our private placement offering.
Financial Results
As of September 30, 2009, we have total assets of approximately $176,700,000 consisting
primarily of inventory and property and equipment. Our current assets for the same period are
approximately $11,900,000, consisting primarily of accounts receivable and inventory. As of
September 30, 2009, we have current liabilities of approximately $34,800,000 consisting primarily
of accounts payable, a revolving line of credit, accrued expenses, and accrued interest. Our
long-term debt obligations total approximately $103,000,000, excluding the current portion of our
long-term debt. Total members equity as of September 30, 2009, was approximately $34,500,000.
During our fiscal year ended September 30, 2009 we incurred a net loss of approximately
$28,500,000. This loss consisted of an operating loss of approximately $17,300,000 and interest
expense and unrealized loss on interest rate swap expense of approximately $11,200,000. From
fiscal year ended September 30, 2008 to the fiscal year ended September 30, 2009, we generated
approximately $166,600,000 revenue from operations. Our net loss for the fiscal year ended
September 30, 2009 is a consequence of negative margins due to commodities markets and the interest
expense associated with our existing debt obligations.
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Senior Credit Facility
On November 20, 2007, First United and Southwest Georgia Ethanol, LLC (SWGE), our wholly
owned subsidiary, entered into a senior credit agreement with WestLB that provides for (1) a
construction loan facility in an aggregate amount of up to $100,000,000 which converted to a term
loan on February 20, 2009 (the Conversion Date) which matures on February 20, 2015 (the Final
Maturity Date); and (2) a working capital loan in an aggregate amount of up to $15,000,000 which
matures on February 20, 2010. The primary purpose of the credit facility is to finance the
construction and operation of our ethanol plant.
The principal amount of the term loan facility is payable in quarterly payments ranging from
$1,500,000 to $1,600,000 beginning September 30, 2009, and the remaining principal amounts are
fully due and payable on the Final Maturity Date. We made the first quarterly term loan payment of
$1,500,000 due in September 2009. However, if we are unable to make future quarterly payments our
lender may not issue a temporary waiver for non-compliance with the terms of our senior credit
agreement and deem us to be in default of our loans. At the time our working capital loan in the
amount of $15,000,000 matures on February 20, 2010, management anticipates requesting that WestLB
renew this working capital loan and depending on our liquidity needs at that time we may request an
increase in the amount of our working capital loan.
The senior credit agreement required SWGE to enter into an accounts agreement among SWGE,
Amarillo National Bank, as the Accounts Bank and Securities Intermediary, and WestLB as the
collateral agent and administrative agent. Among other things, the accounts agreement establishes
certain special, segregated project accounts and establishes procedures for the deposits and
withdrawals of funds into these accounts. Substantially all cash of SWGE is required to be
deposited into the project accounts subject to security interests to secure obligations in
connection with the senior credit. Funds are released from the project accounts in accordance with
the terms of the accounts agreement.
Under the terms of our senior credit agreement with WestLB, we are required to repay the
amount that our working capital loans outstanding exceed our borrowing base. Our borrowing base is
80% of the value of certain accounts receivable and certain inventory owned by FUEL and is
calculated on a monthly basis. As of September 30, 2009 our working capital loans exceeded our
borrowing base by $4,426,694 and we were not able to repay that amount to WestLB. Accordingly, we
requested a waiver for the covenant contained in the credit agreement requiring us to repay the
difference between our working capital loans outstanding and our borrowing base. WestLB granted us
a waiver of this covenant through December 15, 2009. As of November 30, 2009 our working capital
loans exceeded our borrowing base by approximately $2,500,000 and we expect to be within the terms
of our borrowing base by December 31, 2009. WestLB and our lending syndicate has indicated its
willingness to work with us; however, at any time WestLB and our lending syndicate could decide not
to grant this waiver and we would be out of compliance with our senior credit agreement. If we
violate the terms of our loan or fail to obtain a waiver of any such term or covenant, our
administrative agent could deem us in default of our line of credit and require us to immediately
repay a significant portion or possibly the entire outstanding balance of our loans.
As of September 30, 2009, we had drawn approximately $98,500,000 of the $100,000,000 term loan
and had $13,800,000 outstanding on the $15,000,000 working capital loan.
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Subordinated Debt
On November 30, 2006, we closed a subordinated debt financing arrangement pursuant to which
the Mitchell County Development Authority issued $10,000,000 of revenue bonds that were placed with
Wachovia Bank. We signed a promissory note, which is collateralized by our assets and the proceeds
were placed in a Bond Trustee account with Regions Bank. The interest rate for this note is 7.5%.
We are required to maintain a debt service reserve with the Bond Trustee in the amount of
$1,180,000. During the quarter ending December 31, 2007, we drew approximately $8,162,000 from the
Bond Trustee account to pay for construction costs. The Bond Trustee made the annual interest and
principal payment to the bond holders of approximately $900,000 in December 2008. The funds held in
the Bond Trustee account are classified as non-current restricted cash and cash equivalents on our
consolidated balance sheet. The subordinated debt is a 15 year note with principal payments to be
made to bond holders each December. The $600,000 principal payment due in December 2009 was paid
from our debt service reserve.
On June 30, 2009 we agreed on the amount due to Fagen, Inc. for retainage withheld under our
design-build contract. Fagen, Inc. was requesting a retainage payment of approximately $6,500,000.
The outstanding issues have been resolved and on June 30, 2009 we delivered our certificate of
final completion to WestLB. As consideration for Fagen, Inc.s completion of our facility, we have
agreed to pay Fagen, Inc. $2,500,000 in cash and executed a subordinated promissory note dated June
30, 2009 in favor of Fagen, Inc. in the amount of approximately $4,000,000.
Other Notes Payable
We have financed the acquisition of certain equipment through two notes payable to John Deere
Credit. The notes amortize over four years with monthly principal and interest payments and are
secured by the equipment. The interest rate is 5.3%. The combined outstanding balance on these
two notes payable is $202,050 as of September 30, 2009.
Our long-term debt outstanding as of September 30, 2009 is summarized as follows:
West LB Construction Loan, variable interest rates from 4.35% to 7.81% |
$ | 98,500,000 | ||
Subordinated Fagen Note, interest rate of 4.0% through June 20, 2010 and 8% thereafter |
3,977,545 | |||
Subordinated debt facility, interest rate of 7.5% |
9,850,000 | |||
Notes payable John Deere Credit, interest rate of 5.3% |
202,050 | |||
112,529,595 | ||||
Less current portion |
(9,204,578 | ) | ||
Long-term debt outstanding as of September 30, 2009 |
$ | 103,325,017 | ||
Debt Covenants
On September 29, 2009, we requested waivers of certain sections of our senior credit agreement
so that we would not be in default of our senior credit agreement as of September 30, 2009. On
October 15, 2009, WestLB granted us waivers for non-compliance with certain loan covenants,
specifically relating to the following items:
| Carbon Dioxide Agreement Amendment: Section 7.01(x) of our senior credit agreement
requires us to deliver our carbon dioxide agreement with Airgas Carbonic, Inc. to our
lender along with any ancillary documents. As of September 30, 2009 the carbon dioxide
agreement had been negotiated and was in final form, however, Airgas Carbonic, Inc. had not
yet executed the agreement due to concerns about the viability of FUEL. Accordingly, we
have requested and obtained a temporary waiver of the section 2(f) of the Waiver and Third
Amendment to Accounts Agreement and an additional 180 day waiver of section 7.01(x) of our
senior credit agreement. Subsequently, on November 2, 2009, we reached an agreement with
Airgas Carbonic, Inc. (Airgas) with an effective date of May 15, 2009. |
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| Borrowing Base Certificate: As described above, we are required to repay the amount that
our working capital loan outstanding exceeds our borrowing base. Our borrowing base is 80%
of the value of certain accounts receivable and certain inventory owned by FUEL and is
calculated on a monthly basis. In furtherance of these calculations, section 7.03(n)
requires us to deliver to our lender a borrowing base certificate setting for the data
necessary to make the borrowing base calculations. As a result of our working capital loan
outstanding exceeding our borrowing base, we were not able to deliver an acceptable
borrowing base certificate. Accordingly, we requested a waiver of any required prepayment
arising under section 3.10(d) of the senior credit agreement and a waiver of section
7.03(n), the covenant requiring us to repay the difference between our working capital loan
outstanding and our borrowing base. We obtained a waiver of these covenants through
December 15, 2009 and our lender has indicated its willingness to work with us; however, at
any time our lender could decide not to grant this waiver and we would be in default on our
senior credit agreement. |
If we violate the terms of our loan or fail to obtain a waiver of any such term or covenant,
our primary lender could deem us in default of our loans and require us to immediately repay a
significant portion or possibly the entire outstanding balance of our loans. Our lender could also
elect to proceed with a foreclosure action.
Critical Accounting Estimates
Our financial statements are prepared in conformity with accounting principles generally
accepted in the United States of America and follow general practices within the industries in
which we operate. This preparation requires management to make estimates, assumptions, and
judgments that affect the amounts reported in the financial statements and accompanying
notes. These estimates, assumptions and judgments are based on information available as of the
date of the financial statements; accordingly, as this information changes, actual results could
differ from the estimates, assumptions, and judgments reflected in the financial
statements. Certain policies inherently have a greater reliance on the use of estimates,
assumptions, and judgments and, as such, have a greater possibility of producing results that could
be materially different than originally reported. Management believes the following policies are
both important to the portrayal of our financial condition and results of operations and require
subjective or complex judgments; therefore, management considers the following to be critical
accounting policies.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when it has persuasive evidence of an
arrangement, delivery has occurred, the sales price is fixed or determinable, and collection is
reasonably assured.
Revenue from the production of ethanol and related products is recorded at the time title and
all risks of ownership transfer to customers, which is typically upon loading and shipping of the
product shipment from the facility Commissions are included in cost of goods sold. In addition,
shipping and handling costs incurred by the Company for the sale of ethanol and related products
are included in cost of goods sold.
Revenue by product is as follows for the years ending September 30, 2009 and 2008:
2009 | 2008 | |||||||
Ethanol |
$ | 135,876,057 | $ | | ||||
Distillerss Grain |
30,317,887 | | ||||||
Other |
367,829 | | ||||||
Total |
$ | 166,561,773 | $ | | ||||
Interest income is recognized as earned.
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Investment in Commodities Contracts, Derivative Instruments and Hedging Activities
The Company adopted new disclosure requirements, which require entities to provide greater
transparency in interim and annual financial statements about how and why the entity uses
derivative instruments, how the instruments and related hedged items are accounted for, and how the
instruments and related hedged items affect the financial position, results of operations, and cash
flows of the entity
The Company is exposed to certain risks related to its ongoing business operations. The
primary risks that the Company manages by using forward or derivative instruments are price risk on
anticipated purchases of corn and natural gas.
The Company is subject to market risk with respect to the price and availability of corn, the
principal raw material we use to produce ethanol and ethanol by-products. In general, rising corn
prices result in lower profit margins and, therefore, represent unfavorable market conditions.
This is especially true when market conditions do not allow the Company to pass along increased
corn costs to our customers. The availability and price of corn is subject to wide fluctuations
due to unpredictable factors such as weather conditions, farmer planting decisions, governmental
policies with respect to agriculture and international trade and global demand and supply.
Certain contracts that literally meet the definition of a derivative may be exempted from
derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are
contracts that provide for the purchase or sale of something other than a financial instrument or
derivative instrument that will be delivered in quantities expected to be used or sold over a
reasonable period in the normal course of business. Contracts that meet the requirements of normal
purchases or sales are documented as such and exempted from the accounting and reporting
requirements of derivative accounting.
The Company enters into firm-price purchase commitments every month with its natural gas
suppliers under which they agree to buy natural gas at a price set in advance of the actual
delivery of that natural gas to us. Under these arrangements, the Company assumes the risk of a
price decrease in the market price of natural gas between the time this price is fixed and the time
the natural gas is delivered. We account for these transactions as normal purchases, and
accordingly, do not mark these transactions to market nor do we record the commitment on the
balance sheet.
The Company enters into short-term cash, options and futures contracts as a means of securing
corn for the ethanol plant and managing exposure to changes in commodity prices. The Company
maintains a risk management strategy that uses derivative instruments to minimize significant,
unanticipated earnings fluctuations caused by market fluctuations. The Companys specific goal is
to protect the Company from large moves in commodity costs. All derivatives will be designated as
non-hedge derivatives for accounting purposes and the contracts will be accounted for at fair
value. Although the contracts will be effective economic hedges of specified risks, they are not
designated as and accounted for as hedging instruments.
As part of its trading activity, the Company uses futures and option contracts offered through
regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of
inventories. To reduce that risk, the Company generally takes positions using cash and futures
contracts and options.
To ensure an adequate supply of corn to operate the plant, the Company enters into contracts
to purchase corn from local farmers and its major suppliers. At September 30, 2009, the Company had
fixed price contracts totaling approximately $300,000 based upon the average per bushel price.
The Company has also managed a portion of its floating interest rate exposure through the use
of interest rate derivative contracts. The Companys forward LIBOR-based contract reduces risk from
interest rate movements as gains and losses on the contract offset portions of the interest rate
variability of our variable-rate debt. The notional amount of the swap at September 30, 2009 and
2008 was $47,508,877 and $74,512,500, respectively. The effect of the swap is to limit the interest
rate exposure on the LIBOR component to a fixed rate of 4.04% compared to a variable interest rate.
The swaps notional amount will decrease quarterly to $0 by the termination date of December 31,
2011. The counterparty to the contracts is a large commercial bank, and the Company does not
anticipate their nonperformance. The swap is designated as a non-hedge derivative and is accounted
for as market to market. The estimated fair value of this agreement at September 30, 2009 and 2008,
was a liability of approximately $1,772,000 and $631,000.
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Derivatives not designated as hedging instruments at September 30, 2009 and 2008 were as follows:
Balance Sheet | September 30, | September 30, | ||||||||
Classification | 2009 | 2008 | ||||||||
Futures and options contracts |
(Current Liabilities) | $ | (61,325 | ) | $ | | ||||
Futures and options contracts |
Current Assets | | 593,350 | |||||||
Interest rate swap |
(Current Liabilities) | 817,718 | 129,739 | |||||||
Interest rate swap |
(Non-Current Liabilities) | 954,004 | 501,588 |
Statement of | ||||||||||
Operations | September 30, | September 30, | ||||||||
Classification | 2009 | 2008 | ||||||||
Net realized and unrealized gains related to futures and options contracts |
Cost of Goods Sold | $ | 1,078,187 | $ | 593,350 | |||||
Net realized and unrealized (losses) related to the interest rate swap |
Other non-operating (expense) | (2,485,401 | ) | (976,738 | ) |
Inventories
Ethanol and related products are stated at net realizable value. Raw materials and
work-in-process are valued using methods which approximate the lower of cost (first-in, first-out)
or market. In the valuation of inventories and purchase and sale commitments, market is based on
current replacement values except that it does not exceed net realizable values and is not less
than net realizable values reduced by allowances for approximate normal profit margin.
Property and Equipment
Property and equipment is stated at cost. Construction in progress is comprised of costs
related to constructing the plant. Depreciation is computed using the straight-line method over
the following estimated useful lives:
Buildings |
20 Years | |||
Plant and Process Equipment |
5-20 Years | |||
Office Furniture and Equipment |
3-10 Years |
Maintenance and repairs are charged to expense as incurred; major improvements and betterments
are capitalized. The present value of capital lease obligations are classified as long-term debt
and the related assets are included in property and equipment/construction in progress.
Amortization of assets under capital lease is included in depreciation expense.
36
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Long-lived assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be
recognized when estimated undiscounted future cash flows from operations are less than the carrying
value of the asset group. An impairment loss would be measured by the amount by which the carrying
value of the asset exceeds the fair value of the asset. In accordance with Company policies,
management has evaluated the plant for possible impairment based on projected future cash flows
from operations. Management has determined that its projected future cash flows from operations
exceed the carrying value of the plant and that no impairment exists at September 30, 2009.
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, derivative instruments, trade and
other receivables, accounts payable, accrued expenses and long-term debt. Management believes the
fair value of each of these financial instruments approximates their carrying value in the balance
sheet as of the balance sheet date. The fair value of current financial instruments is estimated to
approximate carrying value due to the short-term nature of these instruments. The fair value of
derivative financial instruments is based on quoted market prices. The fair value of the long-term
debt is estimated based on anticipated interest rates which management believes would currently be
available to FUEL for similar issues of debt, taking into account the current credit risk of FUEL
and the other market factors.
Employees
We currently have 57 full-time employees and five part-time employees. Approximately nine of
our employees are involved primarily in management and administration, and the remainder will be
involved primarily in plant operations.
Our board officers are Thomas H. Dollar, II, Chairman; Tommy L. Hilliard, Vice Chairman;
Steve Collins, Treasurer; Miley Adams, Secretary. Our Chief Executive Officer is Mr. Murray
Campbell and our Chief Financial Officer is Lawrence Kamp. The following table represents the
full-time personnel within the plant:
# Full- | ||||
Time | ||||
Position | Personnel | |||
CEO |
1 | |||
Communications Director |
1 | |||
General Manager |
1 | |||
Director of Grains and Marketing |
1 | |||
CFO |
1 | |||
Production Supervisors |
4 | |||
Superintendent |
1 | |||
Engineer |
1 | |||
Lab |
2 | |||
Maintenance |
10 | |||
Plant Technicians |
28 | |||
Accounting |
4 | |||
Operations Assist |
1 | |||
Logistics Manager |
1 | |||
TOTAL |
57 |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 7A. | QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of
1934 and are not required to provide information under this item.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
First United Ethanol, LLC
First United Ethanol, LLC
We have audited the consolidated balance sheet of First United Ethanol, LLC and subsidiary as of
September 30, 2009 and the related consolidated statements of operations, changes in members
equity, and cash flows for the year then ended. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of First United Ethanol, LLC and subsidiary as of
September 30, 2009, and the results of their operations and their cash flows for the year then
ended, in conformity with U.S. generally accepted accounting principles.
We were not engaged to examine managements assessment of the effectiveness of First United
Ethanol, LLC and subsidiarys internal control over financial reporting as of September 30, 2009,
included in the accompanying controls and procedures in the Form 10-K and accordingly, we do not
express an opinion thereon.
/s/ McGladrey & Pullen, LLP
Des Moines, Iowa
December 23, 2009
December 23, 2009
38
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To the Board of Directors
First United Ethanol, LLC
First United Ethanol, LLC
We have audited the consolidated balance sheet of First United Ethanol, LLC and Southwest Georgia
Ethanol, LLC (a wholly owned subsidiary) as of September 30, 2008, and the related consolidated
statements of operations, changes in members equity, and consolidated statements of cash flows for
the year then ended. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of First United Ethanol, LLC and Southwest Georgia
Ethanol, LLC (a wholly owned subsidiary) as of September 30, 2008, and the results of their
operations and their cash flows for the year then ended, in conformity with U.S. generally accepted
accounting principles.
We were not engaged to examine managements assessment of the effectiveness of First United
Ethanol, LLC and Southwest Georgia Ethanol, LLCs (a wholly owned subsidiary) internal control over
financial reporting as of September 30, 2008, and accordingly, we do not express an opinion
thereon.
/s/ Hein & Associates LLP
Denver, Colorado
December 17, 2008
December 17, 2008
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
September 30, 2009 | September 30, 2008 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | | $ | 7,685,978 | ||||
Trade and other accounts receivable, net of allowance for doubtful
accounts of approximately $53,500 and none, respectively |
4,080,745 | | ||||||
Due from broker |
109,700 | | ||||||
Inventory |
7,619,273 | 4,542,099 | ||||||
Other assets |
75,714 | 1,242,410 | ||||||
Total current assets |
11,885,432 | 13,470,487 | ||||||
PROPERTY AND EQUIPMENT |
||||||||
Office building, furniture and equipment |
808,949 | 935,869 | ||||||
Land |
1,000,000 | 1,005,000 | ||||||
Plant buildings and equipment |
163,069,329 | | ||||||
Construction in progress |
| 156,115,623 | ||||||
164,878,278 | 158,056,492 | |||||||
Accumulated depreciation |
(8,840,707 | ) | (40,208 | ) | ||||
156,037,571 | 158,016,284 | |||||||
RESTRICTED CASH AND CERTIFICATES OF DEPOSIT |
4,269,662 | 2,144,094 | ||||||
FINANCING COSTS, net of amortization of $1,876,558 and $874,397?? |
4,483,577 | 5,485,738 | ||||||
TOTAL ASSETS |
$ | 176,676,242 | $ | 179,116,603 | ||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Excess of outstanding checks over bank balance |
$ | 81,555 | $ | | ||||
Revolving line of credit |
13,784,129 | 11,900,000 | ||||||
Current portion of long-term debt |
9,204,578 | 3,212,430 | ||||||
Current portion of capital lease obligations |
1,019,029 | 27,420 | ||||||
Current portion of interest rate swap liability |
817,718 | 129,739 | ||||||
Accounts payable and accrued expenses |
9,243,647 | 12,648,499 | ||||||
Accrued interest |
615,625 | 1,680,318 | ||||||
Derivative financial instruments |
61,325 | | ||||||
Total current liabilities |
34,827,606 | 29,598,406 | ||||||
DEFERRED GRANT PROCEEDS |
| 50,000 | ||||||
INTEREST RATE SWAP LIABILITY |
954,004 | 501,588 | ||||||
CAPITAL LEASE OBLIGATIONS |
3,073,996 | 126,327 | ||||||
LONG-TERM DEBT |
103,325,017 | 88,063,418 | ||||||
TOTAL LIABILITIES |
142,180,623 | 118,339,739 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
MEMBERS EQUITY |
||||||||
Membership contributions, 81,984 and 76,610 units issued and outstanding
at September 30, 2009 and September 30, 2008, respectively |
77,226,361 | 75,042,636 | ||||||
Accumulated deficit |
(42,730,742 | ) | (14,265,772 | ) | ||||
Total members equity |
34,495,619 | 60,776,864 | ||||||
TOTAL LIABILITIES AND MEMBERS EQUITY |
$ | 176,676,242 | $ | 179,116,603 | ||||
See Notes to Consolidated Financial Statements.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ending | Year ending | |||||||
September 30, 2009 | September 30, 2008 | |||||||
Revenues |
$ | 166,561,773 | $ | | ||||
Cost of goods sold |
178,695,057 | | ||||||
Gross (loss) |
(12,133,284 | ) | | |||||
General and administrative expenses |
5,123,484 | 5,068,196 | ||||||
Operating (loss) |
(17,256,768 | ) | (5,068,196 | ) | ||||
Other income (expense) |
||||||||
Other income |
| 426,611 | ||||||
Unrealized (loss) on interest
rate swap |
(1,140,395 | ) | (631,327 | ) | ||||
Interest expense |
(10,077,221 | ) | (5,556,156 | ) | ||||
Interest income |
9,414 | 545,878 | ||||||
(11,208,202 | ) | (5,214,994 | ) | |||||
Net (loss) |
$ | (28,464,970 | ) | $ | (10,283,190 | ) | ||
Net (loss) per unit (Basic and Diluted) |
$ | (361.82 | ) | $ | (134.23 | ) | ||
Weighted average units outstanding |
78,671 | 76,610 | ||||||
See Notes to Consolidated Financial Statements.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ending | Year ending | |||||||
September 30, 2009 | September 30, 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net (loss) |
$ | (28,464,970 | ) | $ | (10,283,190 | ) | ||
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating activities: |
||||||||
Depreciation |
8,800,499 | 34,368 | ||||||
Amortization |
1,002,161 | 3,413,306 | ||||||
Non-cash compensation expense |
146,175 | 37,296 | ||||||
Unrealized loss on interest rate swap |
1,140,395 | 631,327 | ||||||
Provision for doubtful receivables |
53,468 | | ||||||
Changes in assets and liabilities: |
||||||||
(Increase) in trade and other accounts receivable |
(4,134,213 | ) | | |||||
(Increase) in due from broker |
(109,700 | ) | | |||||
(Increase) in inventory |
(3,077,174 | ) | (4,542,099 | ) | ||||
Decrease in accrued interest receivable |
| 245,774 | ||||||
(Increase) decrease in other assets |
1,166,696 | (830,751 | ) | |||||
Increase in accounts payable and
accrued expenses |
572,693 | 11,857,025 | ||||||
Increase (decrease) in accrued interest payable |
(314,693 | ) | 1,260,873 | |||||
Increase in derivative financial instruments |
61,325 | | ||||||
Net cash provided by (used in) operating activities |
(23,157,338 | ) | 1,823,929 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchase of certificates of deposit |
| (200,000 | ) | |||||
Purchase of property and equipment, net of returns |
(2,259,314 | ) | (91,650,508 | ) | ||||
Net cash (used in) investing activities |
(2,259,314 | ) | (91,850,508 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Proceeds from issuance of long-term debt |
18,988,632 | 81,011,368 | ||||||
Repayment of long-term debt and capital lease obligations |
(2,235,624 | ) | (8,973 | ) | ||||
Proceeds from revolving line of credit |
2,384,129 | 11,900,000 | ||||||
Payments on revolving line of credit |
(500,000 | ) | | |||||
Proceeds received from sale of units |
2,037,550 | | ||||||
Release (funding) of restricted cash balance |
(3,025,568 | ) | 7,022,799 | |||||
Excess of outstanding checks over bank balance |
81,555 | | ||||||
Expenditures for debt financing and equity offering costs |
| (5,880,068 | ) | |||||
Net cash provided by financing activities |
17,730,674 | 94,045,126 | ||||||
Increase (decrease) in cash and cash equivalents |
(7,685,978 | ) | 4,018,547 | |||||
Cash and cash equivalents, beginning of period |
7,685,978 | 3,667,431 | ||||||
Cash and cash equivalents, end of period |
$ | | $ | 7,685,978 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||
Cash paid for interest |
$ | 9,389,753 | $ | 4,980,004 | ||||
SUPPLEMENTAL DISCLOSUREs OF NONCASH INVESTING
AND FINANCING ACTIVITIES |
||||||||
Repayment of notes and interest payable paid by Bond Trustee |
$ | 900,000 | $ | 82,500,000 | ||||
Assets acquired under capital lease financing arrangements |
$ | 4,612,472 | $ | 427,200 | ||||
Accrued expenses reclassed to subordinated debt |
$ | 3,977,545 | $ | | ||||
Deferred revenue applied to property & equipment |
$ | 50,000 | $ | |
See Notes to Consolidated Financial Statements.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
STATEMENT OF CHANGES IN MEMBERS EQUITY
STATEMENT OF CHANGES IN MEMBERS EQUITY
Membership | Accumulated | |||||||||||||||
Units | contributions | (deficit) | Total | |||||||||||||
Balance, September 30, 2007 |
76,610 | $ | 75,005,340 | $ | (3,982,582 | ) | $ | 71,022,758 | ||||||||
Unit-based compensation expense for unit options to employees |
37,296 | | 37,296 | |||||||||||||
Net loss for the year ended September 30, 2008 |
| (10,283,190 | ) | (10,283,190 | ) | |||||||||||
Balance, September 30, 2008 |
76,610 | $ | 75,042,636 | $ | (14,265,772 | ) | $ | 60,776,864 | ||||||||
Unit-based compensation expense for unit options to employees |
146,175 | | 146,175 | |||||||||||||
Membership units issued |
5,369 | 2,032,550 | | 2,032,550 | ||||||||||||
Membership unit options exercised |
5 | 5,000 | | 5,000 | ||||||||||||
Net loss for the year ended September 30, 2009 |
| (28,464,970 | ) | (28,464,970 | ) | |||||||||||
Balance, September 30, 2009 |
81,984 | $ | 77,226,361 | $ | (42,730,742 | ) | $ | 34,495,619 | ||||||||
See Notes to Consolidated Financial Statements.
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Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
First United Ethanol, LLC and subsidiary (the Company) is located near Camilla, Georgia. The
Company operates a 100 million gallon ethanol plant with distribution within the United States. The
Company formally began ethanol operations in October 2008. For the fiscal year ended September 30,
2008 and all prior periods, the Company was in the development stage with its efforts being
principally devoted to organizational, financing, construction and start-up activities.
The Company was formally organized as a limited liability company on March 9, 2005 under the name
Mitchell County Research Group, LLC. In September 2005, the Company formally changed its name to
First United Ethanol, LLC. In November 2007, the Companys wholly owned subsidiary, Southwest
Georgia Ethanol, LLC (SWGE) was formed in conjunction with the debt financing agreement with West
LB. First United Ethanol, LLC transferred the majority of its assets and liabilities to Southwest
Georgia Ethanol, LLC.
Basis of Presentation
The consolidated financial statements and related notes have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its 100% owned
subsidiary. All material inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements, in conformity with accounting principals
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and the disclosures of
contingent assets and liabilities and other items, as well as the reported revenues and expenses.
Actual results could differ from those estimates.
Cash and Cash Equivalents and Restricted Cash and Certificates of Deposit
The Company considers all highly liquid investments with original maturities of three months or
less to be cash equivalents. The Companys cash balances are maintained in bank depositories and
periodically exceed federally insured limits. The Company has not experienced losses in these
accounts. The Company segregates cash held in escrow, cash restricted and certificates of deposit
restricted for use by debt agreements as non-current.
Trade Accounts Receivable
Trade accounts receivable are recorded at original invoice amounts less an estimate made for
doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management
determines the allowance for doubtful accounts by regularly evaluating individual customer
receivables and considering customers financial condition, credit history and current economic
conditions. Receivables are written off when deemed uncollectible. Recoveries of receivables
written off are recorded when received
Inventories
Ethanol and related products, raw materials and work-in-process are valued using methods which
approximate the lower of cost (first-in, first-out) or market. In the valuation of inventories and
purchase and sale commitments, market is based on current replacement values except that it does
not exceed net realizable values and is not less than net realizable values reduced by allowances
for approximate normal profit margin.
Financing Costs
Financing costs associated with the construction and revolving loans discussed in Note 7 and are
recorded at cost and include expenditures directly related to securing debt financing. The Company
is amortizing these costs using the effective interest method over the term of the agreement. The
financing costs are included in interest expense in the statement of operations.
44
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment is stated at cost. Construction in progress is comprised of costs related to
constructing the plant. Depreciation is computed using the straight-line method over the following
estimated useful lives:
Buildings |
20 Years | |
Plant and Process Equipment |
5-20 Years | |
Office Furniture and Equipment |
3-10 Years |
Maintenance and repairs are charged to expense as incurred; major improvements and betterments are
capitalized. The present value of capital lease obligations are classified as long-term debt and
the related assets are included in property and equipment/construction in progress. Amortization
of assets under capital lease is included in depreciation expense.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. An impairment loss would be
recognized when estimated undiscounted future cash flows from operations are less than the carrying
value of the asset group. An impairment loss would be measured by the amount by which the carrying
value of the asset exceeds the fair value of the asset. In accordance with Company policies,
management has evaluated the plant for possible impairment based on projected future cash flows
from operations. Management has determined that its projected future cash flows from operations
exceed the carrying value of the plant and that no impairment exists at September 30, 2009.
Investment in Commodities Contracts, Derivative Instruments and Hedging Activities
The Company adopted new disclosure requirements, which require entities to provide greater
transparency in interim and annual financial statements about how and why the entity uses
derivative instruments, how the instruments and related hedged items are accounted for, and how the
instruments and related hedged items affect the financial position, results of operations, and cash
flows of the entity
The Company is exposed to certain risks related to its ongoing business operations. The primary
risks that the Company manages by using forward or derivative instruments are price risk on
anticipated purchases of corn and natural gas.
The Company is subject to market risk with respect to the price and availability of corn, the
principal raw material we use to produce ethanol and ethanol by-products. In general, rising corn
prices result in lower profit margins and, therefore, represent unfavorable market conditions.
This is especially true when market conditions do not allow the Company to pass along increased
corn costs to our customers. The availability and price of corn is subject to wide fluctuations
due to unpredictable factors such as weather conditions, farmer planting decisions, governmental
policies with respect to agriculture and international trade and global demand and supply.
Certain contracts that literally meet the definition of a derivative may be exempted from
derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are
contracts that provide for the purchase or sale of something other than a financial instrument or
derivative instrument that will be delivered in quantities expected to be used or sold over a
reasonable period in the normal course of business. Contracts that meet the requirements of normal
purchases or sales are documented as such and exempted from the accounting and reporting
requirements of derivative accounting.
The Company enters into firm-price purchase commitments every month with its natural gas suppliers
under which they agree to buy natural gas at a price set in advance of the actual delivery of that
natural gas to us. Under these arrangements, the Company assumes the risk of a price decrease in
the market price of natural gas between the time this price is fixed and the time the natural gas
is delivered. The Company accounts for these transactions as normal
purchases, and accordingly, does not mark
these transactions to market nor does the Company record the commitment on the balance sheet.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The Company enters into short-term cash, options and futures contracts as a means of securing corn
for the ethanol plant and managing exposure to changes in commodity prices. The Company maintains a
risk management strategy
that uses derivative instruments to minimize significant, unanticipated earnings fluctuations
caused by market fluctuations. The Companys specific goal is to protect the Company from large
moves in commodity costs. All derivatives will be designated as non-hedge derivatives for
accounting purposes and the contracts will be accounted for at fair value. Although the contracts
will be effective economic hedges of specified risks, they are not designated as and accounted for
as hedging instruments.
As part of its trading activity, the Company uses futures and option contracts offered through
regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of
inventories. To reduce that risk, the Company generally takes positions using cash and futures
contracts and options.
To ensure an adequate supply of corn to operate the plant, the Company enters into contracts to
purchase corn from local farmers and its major suppliers. At September 30, 2009, the Company had
fixed price contracts totaling approximately $300,000 based upon the average per bushel price.
The Company has also managed a portion of its floating interest rate exposure through the use of
interest rate derivative contracts. The Companys forward LIBOR-based contract reduces risk from
interest rate movements as gains and losses on the contract offset portions of the interest rate
variability of our variable-rate debt. The notional amount of the swap at September 30, 2009 and
2008 was $47,508,877 and $74,512,500, respectively. The effect of the swap is to limit the interest
rate exposure on the LIBOR component to a fixed rate of 4.04% compared to a variable interest rate.
The swaps notional amount will decrease quarterly to $0 by the termination date of December 31,
2011. The counterparty to the contracts is a large commercial bank, and the Company does not
anticipate their nonperformance. The swap is designated as a non-hedge derivative and is accounted
for as market to market. The estimated fair value of this agreement at September 30, 2009 and 2008,
was a liability of approximately $1,772,000 and $631,000.
Derivatives not designated as hedging instruments at September 30, 2009 and 2008 were as follows:
Balance Sheet | September 30, | September 30, | ||||||||
Classification | 2009 | 2008 | ||||||||
Futures and options contracts |
(Current Liabilities) | $ | (61,325 | ) | $ | | ||||
Futures and options contracts |
Current Assets | | 593,350 | |||||||
Interest rate swap |
(Current Liabilities) | 817,718 | 129,739 | |||||||
Interest rate swap |
(Non-Current Liabilities) | 954,004 | 501,588 | |||||||
Statement of | ||||||||||
Operations | September 30, | September 30, | ||||||||
Classification | 2009 | 2008 | ||||||||
Net realized and
unrealized gains
related to
futures and
options contracts |
Cost of Goods Sold | $ | 1,078,187 | $ | 593,350 | |||||
Net realized and
unrealized
(losses) related
to the interest
rate swap |
Other non-operating (expense) | (2,485,401 | ) | (976,738 | ) |
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers
revenue realized or realizable and earned when it has persuasive evidence of an arrangement,
delivery has occurred, the sales price is fixed or determinable, and collection is reasonably
assured.
Revenue from the production of ethanol and related products is recorded at the time title and all
risks of ownership transfer to customers, which is typically upon loading and shipping of the
product shipment from the facility Commissions are included in cost of goods sold. In addition,
shipping and handling costs incurred by the Company for the sale of ethanol and related products
are included in cost of goods sold.
Revenue by product is as follows for the years ending September 30, 2009 and 2008:
2009 | 2008 | |||||||
Ethanol |
$ | 135,876,057 | $ | | ||||
Distillerss Grain |
30,317,887 | | ||||||
Other |
367,829 | | ||||||
Total |
$ | 166,561,773 | $ | | ||||
Interest income is recognized as earned.
Net Loss per Membership Unit
For purposes of calculating basic and diluted net loss per member unit, units subscribed and issued
by the Company are considered outstanding on the effective date of issue and are weighted by days
outstanding.
Income taxes
The Company is organized as a partnership for federal and state income tax purposes and generally
does not incur income taxes. Instead, the Companys earnings and losses are included in the income
tax returns of the members. Therefore, no provision or liability for federal or state income taxes
has been included in these financial statements.
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, derivative instruments, trade and other
receivables, accounts payable, accrued expenses, notes payable and long-term debt. Management
believes the fair value of each of these financial instruments approximates their carrying value on
the balance sheet as of the balance sheet date. The fair value of current financial instruments is
estimated to approximate carrying value due to the short-term nature of these instruments. The fair
value of derivative financial instruments is based on quoted market prices. The fair value of the
long-term debt is estimated based on anticipated interest rates which management believes would
currently be available to the Company for similar issues of debt, taking into account the current
credit risk of the Company and the other market factors.
NOTE 2. INVENTORIES
A summary of inventories at September 30, 2009 and September 30, 2008 is as follows:
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Corn |
$ | 3,958,543 | $ | 4,542,009 | ||||
Denaturant and chemical supplies |
287,640 | | ||||||
Work in process |
1,095,000 | | ||||||
Ethanol |
1,649,895 | | ||||||
Distiller grains |
628,195 | | ||||||
Total |
$ | 7,619,273 | $ | 4,542,009 | ||||
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
NOTE 3. MEMBERS EQUITY
As specified in the Companys Operating Agreement, voting rights are one vote for each voting unit
registered in the name of such Member as shown on the Membership Registration maintained by the
Company. Income and losses of the Company shall be allocated among the Members in proportion to
each Members respective percentage of Units when compared with the total Units issued. The
Companys cash flow shall first be applied to the payment of the Companys operating expenses
(including debt service) and then to maintenance of adequate cash reserves as determined by the
Board of Directors in its sole discretion, shall be distributed from time to time to the Members in
proportion to their respective percentage Units. No member has the right to demand and receive any
distribution from the Company other than in cash. No distribution shall be made if, as a result
thereof, the Company would be in violation of any loan agreement, or if the Companys total assets
would be less than the sum of its total liabilities.
Transfer, disposition or encumbrance of membership units are subject to certain significant
restrictions, including a restriction that prohibits disposals without approval by the Board of
Directors.
Initial investors purchased 600 units at $333.33 per unit in March 2005 and 2,000 units at $500 per
unit in September 2005. In conjunction with a filing with the U.S. Securities and Exchange
Commission, the Company issued 74,010 units at an offering price of $1,000 per unit closing in June
2007. In May 2009, the Company issued 5,369 units at an offering price of $500 per unit for
investments up to $1,000,000 and an offering price of $333 per unit for investments exceeding
$1,000,000 in conjunction with a private placement.
NOTE 4. RELATED PARTIES
An entity which has common ownership with Fagen, Inc., the Companys principal vendor in the
construction of the ethanol facility, is also a Member of the Company and holds approximately 1.2%
of the outstanding units. In addition, the Company has a subordinated promissory note due Fagen,
Inc. in the amount of $3,977,545 as of September 30, 2009.
The Company purchased corn at market prices in the amount of $1,432,101 for the year ending
September 30, 2009 from certain Directors in the normal course of business. There were no such
purchases in the year ending September 30, 2008.
NOTE 5. UNIT OPTION PLAN
The Company adopted the First United Ethanol, LLC Membership Unit Option Plan (the Plan) during
April 2007. The Plan permits the grant of unit options and units to its employees for up to 2% of
the units outstanding as of the close of the Company public offering of Membership Units, or 1,532
units. The Company believes that such awards better align the interests of its employees with those
of its members. Option awards are generally granted with an exercise price equal to the market
price of the Companys units at the date of grant; those option awards generally vest over three
to five years of continuous service and have ten-year contractual terms. Certain option awards
provide for accelerated vesting if there is a change in control or termination without cause (as
defined in the Plan).
Accounting standards require an entity to measure the cost of employee services received in
exchange for the award of equity instruments based on the fair value of the award on the date of
grant. The expense is to be recognized over the period during which an employee is required to
provide services in exchange for the award.
The Company uses a Black-Scholes option-pricing model in order to calculate the compensation costs
of employee stock-based compensation. Such model requires the use of subjective assumptions,
including the expected life of the option, the expected volatility of the underlying security, and
the expected dividend on the security as discussed below.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Because the Company does not have specific historical or implied volatility information available
due to beginning operations in October 2008, expected volatility is based on the historical, or
implied volatility of similar entities with publicly available share or option prices. The expected
term represents the estimated average period of time that the options remain outstanding using the
simplified method. The risk-free rate of return reflects the weighted average interest rate
offered for zero coupon treasury bonds over the expected term of the options.
Accounting standards require forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on
historical experience, the Company estimated future non-vested option forfeitures at 0% as of
September 30, 2009 and incorporated this rate in estimated fair value of employee option grants.
During the year ending September 30, 2008, the largest grant issued by the Company was forfeited,
which resulted in a reduction of stock-based compensation cost of approximately $64,000. The
Company does not expect any further forfeitures and thus assumed a 0% forfeiture rate for new
grants. The fair value of stock options granted for the year ended September 30, 2009 on the grant
date was approximately $1,000 per unit.
2009 | 2008 | |||||||
Expected volatility |
66 | % | 66 | % | ||||
Expected dividends |
| | ||||||
Expected term (in years) |
6 | 6 | ||||||
Risk-free interest rate |
2.96 | % | 3.97 | % |
A summary of option activity under the Plan as of September 30, 2009 and 2008, and changes during
the years then ended is presented below:
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | |||||||||||||||
Exercise | Contractual | |||||||||||||||
Options | Units | Price | Term | |||||||||||||
Outstanding at October 1, 2007 |
957 | $ | 1,000 | 9.25 | ||||||||||||
Granted |
382 | 1,000 | | |||||||||||||
Exercised |
| | | |||||||||||||
Forfeited or expired |
(766 | ) | 1,000 | |||||||||||||
Outstanding at September 30, 2008 |
573 | $ | 1,000 | 9.25 | $ | | ||||||||||
Granted |
383 | 1,000 | 10 | | ||||||||||||
Exercised |
(5 | ) | 1,000 | |||||||||||||
Forfeited |
| | ||||||||||||||
Outstanding at September 30, 2009 |
951 | 1,000 | 8.80 | | ||||||||||||
Exercisable at September 30, 2009 |
316 | $ | 1,000 | $ | | $ | | |||||||||
As of September 30, 2009, there was approximately $367,000 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the Plan. That cost is
expected to be recognized over a period of 3 years.
NOTE 6. LEASES
The Company leases operating machinery under a lease agreement with De Lage Landen which is
accounted for as a capital lease. The lease will expire in 2013. The assets have a capitalized cost
of $157,664 included in property and equipment as of September 30, 2009 and construction in
progress as of September 30, 2008. Accumulated depreciation totaled $15,766 and none for the years
ending September 30, 2009 and 2008, respectively.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The Company entered into an Excess Facilities Charge Agreement with Georgia Power Company in which
Georgia Power installed a power substation to augment the Companys power system. The cost of the
substation is charged to the Company over a three year period requiring annual payments of
principal and interest totaling $686,309 beginning June 30, 2009. The Company has accounted for
this agreement as a capital lease. The present value of future payments due under the lease of
$1,834,512 is included in property and equipment as of September 30, 2009 Accumulated depreciation
totaled $91,726 for the year ending September 30, 2009. No amounts were recorded for the lease as
of September 30, 2008.
The Company also entered into a Natural Gas Facilities Agreement with the City of Camilla for a
high pressure gas main to serve the plant and purchase natural gas from the City of Camilla. The
City of Camilla owns and operates the gas main and leases its usage to the Company. The agreement
calls for a monthly facilities charge, in addition to
the normal consumption charges, equal to the cost of the installation of the gas main over an 80
month period beginning June 2009 and requiring principal and interest payments of approximately
$43,000 each month. The Company has accounted for the facilities lease charges as a capital lease.
The asset present value of future payments under the lease of $2,777,960 is included in property
and equipment as of September 30, 2009. Accumulated depreciation totaled $138,898 for the year
ending September 30, 2009. No amounts were recorded for the lease as of September 30, 2008.
September 30, 2009 | September 30, 2008 | |||||||
De Lage Landen Financial Services, 60 months, interest rate of 7.5% |
$ | 126,327 | $ | 153,747 | ||||
Georgia Power Substation lease, 36 months, interest rate of 5.85% |
1,299,364 | | ||||||
Natural Gas Facilities lease, 80 months, interest rate of 6.59% |
2,667,334 | | ||||||
4,093,025 | 153,747 | |||||||
Less current portion |
(1,019,029 | ) | (27,420 | ) | ||||
$ | 3,073,996 | $ | 126,327 | |||||
Future minimum payments, by year, under the capital lease are due as follows:
Year ending September 30: |
||||
2010 |
$ | 1,241,051 | ||
2011 |
1,241,051 | |||
2012 |
554,743 | |||
2013 |
548,406 | |||
2014 |
516,722 | |||
Thereafter |
684,315 | |||
Total minimum lease payments |
4,786,288 | |||
Amounts representing interest |
(693,263 | ) | ||
Present value of net minimum lease payments |
$ | 4,093,025 |
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The Company also entered into two operating leases with Trinity Industries Leasing Company for the
use of rail cars and tanker cars. The tanker car lease expires in 2017 and the rail car lease
expires in 2012. During the year ending September 30, 2009, the Company determined that a portion
of the tanker cars under the non-cancelable lease will not be utilized and have no future benefit.
Accordingly, the Company recorded a liability and a charge to income in the amount $745,000 for the
future lease payments associated with the unused tanker cars. The total remaining minimum lease
commitments under non-cancelable operating leases are as follows:
Year ending September 30: |
||||
2010 |
$ | 2,469,800 | ||
2011 |
2,022,800 | |||
2012 |
1,041,500 | |||
2013 |
447,000 | |||
2014 |
447,000 | |||
Thereafter |
968,500 | |||
Total minimum operating lease payments |
$ | 7,396,600 | ||
NOTE 7. DEBT FINANCING ARRANGEMENTS
The Companys long-term debt outstanding as of September 30, 2009 and 2008 is summarized as
follows:
September 30, 2009 | September 30, 2008 | |||||||
West LB Term Loan, variable interest rates from 4.35% to 7.81%,
described below |
$ | 98,500,000 | $ | 81,011,368 | ||||
Subordinated Fagen note, 4% through June 30, 2010 and 8% thereafter |
3,977,545 | | ||||||
Subordinated debt facility, interest rate of 7.5%, described below |
9,850,000 | 10,000,000 | ||||||
Notes payable John Deere Credit, interest rate of 5.3%, described below |
202,050 | 264,480 | ||||||
112,529,595 | 91,275,848 | |||||||
Less current portion |
(9,204,578 | ) | (3,212,430 | ) | ||||
$ | 103,325,017 | $ | 88,063,418 | |||||
The maturities of long-term debt at September 30, 2009 are as follows:
Year ending September 30: |
||||
2010 |
$ | 9,204,578 | ||
2011 |
8,843,138 | |||
2012 |
6,996,879 | |||
2013 |
6,970,000 | |||
2014 |
7,015,000 | |||
Thereafter |
73,500,000 | |||
Total |
$ | 112,529,595 | ||
West LB Credit Arrangement Senior Debt
SWGE entered into a senior credit agreement that provided for (1) a construction loan facility in
an aggregate amount of up to $100,000,000, which converted to a term loan on February 20, 2009
(Conversion Date), (2) a term loan facility in an aggregate amount of up to $100,000,000 which
matures on February 20, 2015 (the Final Maturity Date); and (3) a working capital loan in an
aggregate amount of up to $15,000,000 which matures February 20, 2010. The primary purpose of the
credit facility was to finance the construction and operation of the Companys ethanol plant.
During the term of the working capital loan, SWGE may borrow, repay and re-borrow amounts available
under the working capital and letter of credit facility. The principal amount of the term loan
facility is payable in quarterly payments ranging from $1,500,000 to $1,600,000 beginning September
30, 2009, and the remaining principal amounts are fully due and payable on February 20, 2010.
Interest is payable quarterly. SWGE has the option to select between two floating interest rate
loans under the terms of the senior credit agreement: Base Rate Loans bear interest at the
Administrative Agents base rate (which is the higher of the federal funds effective rate plus
0.50% and the Administrative Agents prime rate) plus 2.75% per annum. Eurodollar Loans bear
interest at LIBOR plus 3.75%. The Company has entered into an interest rate swap with WestLB to
effectively convert a portion of the variable rate interest into a fixed rate, with the LIBOR
component fixed at 4.04% (See Note 1).
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Under the terms of the senior credit agreement, SWGE has agreed to pay a quarterly commitment fee
equal to 0.50% per annum on the unused portion of the construction loan/term loan and .20% per
annum on the unused portion of the working capital loan. SWGEs obligations under the senior credit
agreement are secured by a first-priority security interest in all of the Companys assets,
including its equity interest in SWGE.
The senior credit agreement also required SWGE to enter into an accounts agreement among SWGE,
Amarillo National Bank, as the Accounts Bank and Securities Intermediary, and WestLB as the
collateral agent and administrative agent. Among other things, the accounts agreement establishes
certain special, segregated project accounts and establishes procedures for the deposits and
withdrawals of funds into these accounts. Substantially all cash of SWGE is required to be
deposited into the project accounts subject to security interests to secure obligations
in connection with the senior credit. Funds are released from the project accounts in accordance
with the terms of the accounts agreement.
As of September 30, 2009 and 2008, the Company has drawn $13,784,129 on the $15,000,000 working
capital loan.
On September 29, 2009, the Company requested waivers of certain sections of the senior credit
agreement so the Company would not be in default of its senior credit agreement as of September 30,
2009. On October 15, 2009, WestLB granted the Company waivers for non-compliance with certain loan
covenants, specifically relating to the following items:
| Carbon Dioxide Agreement Amendment: Section 7.01(x) of the Companys senior credit
agreement requires it to deliver the carbon dioxide agreement with Airgas Carbonic, Inc. to
the lender along with any ancillary documents. As of September 30, 2009 the carbon dioxide
agreement had been negotiated and was in final form, however, Airgas Carbonic, Inc. had not
yet executed the agreement due to concerns about the viability of FUEL. Accordingly, we
have requested and obtained a temporary waiver of the section 2(f) of the Waiver and Third
Amendment to Accounts Agreement and an additional 180 day waiver of section 7.01(x) of our
senior credit agreement. Subsequently, on November 2, 2009, we reached an agreement with
Airgas Carbonic, Inc. (Airgas) with an effective date of May 15, 2009. |
| Borrowing Base Certificate: As described above, the Company is required to repay the
amount that its working capital loan outstanding exceeds its borrowing base. The Companys
borrowing base is 80% of the value of certain accounts receivable and certain inventory
owned by FUEL and is calculated on a monthly basis. In furtherance of these calculations,
section 7.03(n) requires the Company to deliver to its lender a borrowing base certificate
setting for the data necessary to make the borrowing base calculations. As a result of the
Companys working capital loan outstanding exceeding its borrowing base, the Company was
not able to deliver an acceptable borrowing base certificate. Accordingly, the Company
requested a waiver of any required prepayment arising under section 3.10(d) of the senior
credit agreement and a waiver of section 7.03(n), the covenant requiring the Company to
repay the difference between its working capital loan outstanding and its borrowing base.
The Company obtained a waiver of these covenants through December 15, 2009 and the lender
has indicated its willingness to work with the Company; however, at any time the Companys
lender could decide not to grant this waiver and the Company would be in default on its
senior credit agreement. |
Subordinated Debt Facility
On November 30, 2006, the Company closed its subordinated debt financing arrangement pursuant to
which the Mitchell County Development Authority issued $10,000,000 of revenue bonds that were
placed with Wachovia Bank. The Company signed a promissory note, which is collateralized by the
Companys assets and the proceeds were placed in a Bond Trustee account with Regions Bank. The
interest rate for this note is 7.5%. The Company is required to maintain a debt service reserve
with the Bond Trustee in the amount of $1,180,000. During the quarter ending December 31, 2007, the
Company drew approximately $8,162,000 from the Bond Trustee account to pay for construction costs.
The Bond Trustee made the annual interest and principal payment to the bond holders of
approximately $900,000 in December 2008. The funds held in the Bond Trustee account are classified
as non-current restricted cash and cash equivalents in the Companys consolidated balance sheet.
The subordinated debt is a 15 year note with annual principal payments each December due to the
bond holders in 2009 of $600,000, in 2010 of $635,000, in 2011 of $530,000, in 2012 of $570,000, in
2013 of $615,000 and $6,900,000 thereafter.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Subordinated Fagen Note
On June 30, 2009, SWGE entered into a subordinated promissory note agreement in the amount of
$3,977,545 due Fagen, Inc., a related party, for the remaining design-build contract balance. The
note bears interest at 4% through June 30, 2010 and 8% thereafter through maturity on June 30,
2011. Interest is payable quarterly. The first principal payment of $500,000 was due as of
September 30, 2009 and annual principal payments of $1,738,772 are due June 30, 2010 and June 30,
2011. This note is subordinated to the West LB debt agreement, which currently prohibits the
Company from making these principal payments on the schedule described above.
Other Notes Payable
The Company financed the acquisition of certain equipment through two identical notes payable to
John Deere Credit. The notes amortize over four years (maturity in August 2012) with monthly
principal and interest payments and are secured by the equipment. The interest rate is 5.3%. The
combined outstanding balance on these two notes payable is $202,050 and $264,480 as of September
30, 2009 and 2008, respectively.
NOTE 8. FAIR VALUE MEASUREMENTS
Effective October 1, 2008, the Company adopted the fair value measurements and disclosures
standard, which defines a single definition of fair value, together with a framework for measuring
it, and requires additional disclosure about the use of fair value to measure assets and
liabilities.
The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as
follows:
| Level 1 Observable inputs unadjusted quoted prices in
active markets for identical assets and liabilities; |
||
| Level 2 Observable inputs other than quoted prices included in
Level 1 that are observable for the asset or liability through
corroboration with market data; and |
||
| Level 3 Unobservable inputs includes amounts derived from
valuation models where one or more significant inputs are
unobservable. |
The Company has classified its investments in marketable securities and derivative instruments into
these levels depending on the inputs used to determine their fair values. The Companys investments
in marketable securities consist of money market funds restricted by the bond holders which are
based on quoted prices and are designated as Level 1. The Companys derivative instruments consist
of commodity positions and an interest rate swap. The fair value of the commodity positions are
based on quoted prices on the commodity exchanges and are designated as Level 1 and the fair value
of the interest rate swap is based on quoted prices on similar assets or liabilities in active
markets and discounts to reflect potential credit risk to lenders and are designated as Level 2.
The following table summarizes fair value measurements by level at September 30, 2009 (in
thousands):
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Investments in
marketable securities,
included in restricted
cash |
$ | 1,597,109 | $ | | $ | | $ | 1,597,109 | ||||||||
Total assets |
$ | 1,597,109 | $ | | $ | | $ | 1,597,109 | ||||||||
Liabilities: |
||||||||||||||||
Derivative instruments: |
||||||||||||||||
Commodity positions |
$ | 61,325 | $ | 61,325 | ||||||||||||
Interest rate swap |
$ | | $ | 1,771,722 | $ | | $ | 1,771,722 | ||||||||
Total liabilities |
$ | 61,325 | $ | 1,771,722 | $ | | $ | 1,833,047 | ||||||||
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
NOTE 9. COMMITMENTS AND CONTINGENCIES
Liquidity
Our liquidity, results of operations and financial performance will be impacted by many variables,
including the market price for commodities such as, but not limited to, corn, ethanol and other
energy commodities, as well as the market price for any co-products generated by the facility and
the cost of labor and other operating costs. Assuming future relative price levels for corn,
ethanol and distillers grains remain consistent with the relative price levels as of September 30,
2009, we expect operations to generate adequate cash flows to maintain operations. The assumptions
assume that we will be able to sell all the ethanol that is produced at the plant. We expect to be
able to satisfy our cash requirements for the next 12 months using only our revolving line of
credit, senior credit facility, and earnings from operations.
As mentioned above, we have been involved in discussions with our primary lender, WestLB, regarding
certain past and potential future non-compliance with our financial loan covenants that have
resulted from the current conditions in the ethanol industry and our financial condition. Under the
terms of our senior credit agreement with WestLB, we are required to repay the amount that our
working capital loans outstanding exceed our borrowing base. Our borrowing base is 80% of the value
of certain accounts receivable and certain inventory owned by the Company and calculated on a
monthly basis. As of September 30, 2009 our working capital loans exceeded our borrowing base by
$4,426,694 and we were not able to repay that amount to WestLB. Accordingly, we requested a waiver
for the covenant contained in the credit agreement requiring us to repay the difference between our
working capital loans outstanding and our borrowing base. WestLB granted us a waiver of this
covenant through December 15, 2009. WestLB and tbe lending syndicate have indicated their
willingness to work with us; however, at any time WestLB and tbe lending syndicate could decide not
to grant this waiver and we would be in default on our senior credit agreement. If we violate the
terms of our loan or fail to obtain a waiver of any such term or covenant, our Administrative Agent
could deem us in default of our loans and require us to immediately repay a significant portion or
possibly the entire outstanding balance of our loans.
Commitments and Major Customers
The Company has an agreement with an unrelated entity and major customer for marketing, selling,
and distributing all of the ethanol produced by the Company. Under the agreement, the Company will
pay the entity $.01 per net gallon for each gallon of ethanol sold via railcar and $.012 per net
gallon for ethanol sold via truck. For the years ending September 30, 2009 and 2008, the Company
expensed approximately $870,000 and none, respectively under this agreement. Revenues with this
customer were approximately $135,876,000 and none for the years ending September 30, 2009 and 2008,
respectively. Trade accounts receivable of approximately $2,134,000 and none were due from the
customer as of September 30, 2009 and 2008, respectively. This agreement is effective through
October 2010, at which time it will automatically renew for an additional two years without written
notice.
The Company also has an agreement with an unrelated entity for marketing, selling and
distributing the distillers grains with solubles DDGS to the rail market and for the supply of
grain to the Company. Under the agreement, the Company will pay the entity $.50 per ton for DDGS
sold and $.0025 per bushel of grain supplied. In addition, the Company is required to pay the
marketer $0.01 per bushel for non-brokered corn purchases. For the years ending September 30, 2009
and 2008, the Company expensed approximately $117,000 and none, respectively under this agreement.
There were no revenues with this customer for the years ending
September 30, 2009 and 2008 and no
trade accounts receivable due from this customer as of September 30, 2009 and 2008 as the marketer
acts purely in the broker capacity. In June 2009 we notified Palmetto that our distillers grains
marketing agreement expiring in December 2009 needed to be amended to better accommodate our
development of the local distillers grains markets. We have reached a tentative understanding with
Palmetto for our amended distillers grains marketing agreement, which we expect to finalize in
January 2010.
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
NOTE 10. CONTINGENCY
In April 2008, Air Liquide Industrial U.S., LP (Air Liquide) brought an action against First
United Ethanol and Southwest Georgia Ethanol in U.S. District Court for the Middle District of
Georgia Albany Division. Air Liquide alleges that it has an agreement to purchase carbon dioxide
gas from First United Ethanol and Southwest Georgia Ethanol and is requesting specific performance
of the purported contractual obligations or, in the
alternative, damages for breach of the purported contract. First United Ethanol and Southwest
Georgia Ethanol disagree with Air Liquides allegations and intend to defend the suit vigorously.
NOTE 11. SUBSEQUENT EVENTS
Subsequent events have been evaluated through December 23, 2009 and include the WestLB waiver
dated October 15, 2009 discussed in Note 7 and the October 31, 2009 official close of the private
placement offering commenced in May 2009.
On November 2, 2009, the Company reached an Amended Carbon Dioxide Supply Agreement with
Airgas Carbonic, Inc. (Airgas) with an effective date of May 15, 2009. Pursuant to the
agreement, Airgas is constructing a carbon dioxide facility to purify, liquefy, refine and store
carbon dioxide produced by the Company as a co-product of its ethanol production process. The
carbon dioxide facility is being constructed on land leased by the Company to Airgas and is
expected to be complete in summer 2010. Once the new carbon dioxide facility is operational, we
expect our carbon dioxide to be another source of revenue for the Company.
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ITEM 9. | CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9A(T). | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
Management of First United Ethanol is responsible for maintaining disclosure controls and
procedures that are designed to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 (the Exchange Act) is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. In addition, the disclosure controls and procedures
must ensure that such information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required financial and other required disclosures.
Our management, including our Chief Executive Officer, Murray Campbell, along with our Chief
Financial Officer, Larry Kamp, have reviewed and evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) under the Exchange
Act of 1934, as amended) as of September 30, 2009. Based upon this review and evaluation, these
officers have concluded that our disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods required by the forms and
rules of the Securities and Exchange Commission; and to ensure that the information required to be
disclosed by an issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to our management including our principal executive and principal
financial officers, or person performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control Over Financial Reporting
Inherent Limitations Over Internal Controls
The Companys internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. The
Companys internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Companys assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that the Companys receipts and expenditures are being made only in accordance with
authorizations of the Companys management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Companys assets that could have a material effect on the
financial statements.
Management, including the Companys Chief Executive Officer and Chief Financial Officer, does
not expect that the Companys internal controls will prevent or detect all errors and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of internal controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected. Also, any evaluation of the
effectiveness of controls in future periods are subject to the risk that those internal controls
may become inadequate because of changes in business conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
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Managements Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934, as amended). Management conducted an evaluation of the effectiveness of the Companys
internal control over financial reporting based on the criteria set forth in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management has concluded that the Companys internal
control over financial reporting was effective as of September 30, 2009.
This annual report does not include an attestation report of our registered public accounting
firm regarding internal control over financial reporting. Managements report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only managements report in this annual report.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting during the fourth
quarter of our 2009 fiscal year, which were identified in connection with managements evaluation
required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. | OTHER INFORMATION. |
None.
PART III
Pursuant to General Instruction G(3), we omit Part III, Items 10, 11, 12, 13 and 14 and
incorporate such items by reference to an amendment to this Annual Report on Form 10-K or to a
definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days
after the close of the fiscal year covered by this Annual Report (September 30, 2009).
ITEM 10. | DIRECTORS; EXECUTIVE
OFFICERS, AND CORPORATE GOVERNANCE. |
The information required by this Item is incorporated by reference from the definitive proxy
statement for our 2010 Annual Meeting of Members to be filed with the Securities and Exchange
Commission within 120 days after the end of our 2009 fiscal year.
ITEM 11. | EXECUTIVE COMPENSATION. |
The information required by this Item is incorporated by reference from the definitive proxy
statement for our 2010 Annual Meeting of Members to be filed with the Securities and Exchange
Commission within 120 days after the end of our 2009 fiscal year.
ITEM 12. | SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required by this Item is incorporated by reference from the definitive proxy
statement for our 2010 Annual Meeting of Members to be filed with the Securities and Exchange
Commission within 120 days after the end of our 2009 fiscal year.
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ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information required by this Item is incorporated by reference from the definitive proxy
statement for our 2010 Annual Meeting of Members to be filed with the Securities and Exchange
Commission within 120 days after the end of our 2009 fiscal year.
ITEM 14. | PRINCIPAL ACCOUNTING FEES
AND SERVICES. |
The information required by this Item is incorporated by reference from the definitive proxy
statement for our 2010 Annual Meeting of Members to be filed with the Securities and Exchange
Commission within 120 days after the end of our 2009 fiscal year.
PART IV
ITEM 15. | EXHIBITS,
FINANCIAL STATEMENT SCHEDULES. |
The following exhibits are filed as part of, or are incorporated by reference into, this
report:
Exhibit | Method of | |||||||
No. | Description | Filing | ||||||
10.1 | Southwest Georgia Ethanol, LLC Subordinated
Promissory Note Due June 30, 2011 payable to Fagen,
Inc. dated June 30, 2009
|
1 | ||||||
31.1 | Certificate pursuant to 17 CFR 240 15d-14(a)
|
* | ||||||
31.2 | Certificate pursuant to 17 CFR 240 15d-14(a)
|
* | ||||||
32.1 | Certificate pursuant to 18 U.S.C. Section 1350
|
* | ||||||
32.2 | Certificate pursuant to 18 U.S.C. Section 1350
|
* |
(1) | Incorporated by reference to Exhibit of the same number filed with our quarterly report on
Form 10-Q filed with the Securities and Exchange Commission on August 14, 2009. |
|
(*) | Filed herewith. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST UNITED ETHANOL, LLC |
||||
Date: December 23, 2009 | /s/ Murray Campbell | |||
Murray Campbell | ||||
Chief Executive Officer and Director | ||||
Date: December 23, 2009 | /s/ Lawrence Kamp | |||
Lawrence Kamp | ||||
Chief Financial Officer |
In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: December 23, 2009 | /s/ Murray Campbell | |||
Murray Campbell | ||||
Chief Executive Officer and Director | ||||
Date: December 23, 2009 | /s/ Lawrence Kamp | |||
Lawrence Kamp | ||||
Chief Financial Officer | ||||
Date: December 23, 2009 | /s/ Miley Adams | |||
Miley Adams, Director | ||||
Date: December 23, 2009 | /s/ Steve Collins | |||
Steve Collins, Treasurer and Director | ||||
Date: December 23, 2009 | /s/ Michael Harrell | |||
Mike Harrell, Director | ||||
Date: December 23, 2009 | /s/ Donald Shirah | |||
Donald Shirah, Director | ||||
Date: December 23, 2009 | /s/ Tommy Hilliard | |||
Tommy Hilliard, Vice Chairman and Director | ||||
Date: December 23, 2009 | /s/ Thomas H. Dollar, II | |||
Thomas H. Dollar, II, Chairman and Director | ||||
Date: December 23, 2009 | /s/ Robert L. Holden, Sr. | |||
Robert L. Holden, Sr., Director | ||||
Date: December 23, 2009 | /s/ Kenneth Jack Hunnicutt | |||
Kenneth Jack Hunnicutt, Director | ||||
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