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EX-31.2 - EXHIBIT 31.2 - FIRST UNITED ETHANOL LLC | c96647exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - FIRST UNITED ETHANOL LLC | c96647exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - FIRST UNITED ETHANOL LLC | c96647exv32w2.htm |
EX-32.1 - EXHIBIT 32.1 - FIRST UNITED ETHANOL LLC | c96647exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended December 31, 2009
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from
_____ to _____
Commission file number 000-53039
FIRST UNITED ETHANOL, LLC
(Name of registrant as specified in its charter)
Georgia | 20-2497196 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
4433 Lewis B. Collins Road, Pelham, Georgia | 31779 | |
(Address of principal executive offices) | (Zip Code) |
(229) 522-2822
(Registrants telephone number)
(Registrants telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. 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 Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: As of February 15, 2010 there were 81,984 membership units
outstanding.
INDEX
Page | ||||||||
3 | ||||||||
3 | ||||||||
17 | ||||||||
25 | ||||||||
25 | ||||||||
25 | ||||||||
25 | ||||||||
26 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
28 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
December 31, 2009 | September 30, 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 5,412,366 | $ | | ||||
Trade and other accounts receivable, net of allowance for doubtful
accounts of approximately $58,000 and $53,500, respectively |
4,588,167 | 4,080,745 | ||||||
Due from broker |
204,533 | 109,700 | ||||||
Inventory |
6,706,356 | 7,619,273 | ||||||
Other assets |
159,016 | 75,714 | ||||||
Total current assets |
17,070,438 | 11,885,432 | ||||||
PROPERTY AND EQUIPMENT |
||||||||
Office building, furniture and equipment |
808,950 | 808,949 | ||||||
Land |
1,000,000 | 1,000,000 | ||||||
Plant buildings and equipment |
163,071,221 | 163,069,329 | ||||||
164,880,171 | 164,878,278 | |||||||
Less accumulated depreciation |
(11,025,195 | ) | (8,840,707 | ) | ||||
153,854,976 | 156,037,571 | |||||||
RESTRICTED CASH AND CERTIFICATES OF DEPOSIT |
2,980,996 | 4,269,662 | ||||||
FINANCING COSTS, net of amortization of $2,129,112 and $1,876,558 |
4,231,023 | 4,483,577 | ||||||
TOTAL ASSETS |
$ | 178,137,433 | $ | 176,676,242 | ||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Excess of outstanding checks over bank balance |
$ | | $ | 81,555 | ||||
Revolving line of credit |
13,784,129 | 13,784,129 | ||||||
Current portion of long-term debt |
9,339,578 | 9,204,578 | ||||||
Current portion of capital lease obligations |
1,025,393 | 1,019,029 | ||||||
Current portion of interest rate swap liability |
715,160 | 817,718 | ||||||
Accounts payable and accrued expenses |
6,908,627 | 9,243,647 | ||||||
Accrued interest |
93,766 | 615,625 | ||||||
Derivative financial instruments |
| 61,325 | ||||||
Total current liabilities |
31,866,653 | 34,827,606 | ||||||
INTEREST RATE SWAP LIABILITY |
715,160 | 954,004 | ||||||
CAPITAL LEASE OBLIGATIONS |
2,975,231 | 3,073,996 | ||||||
LONG-TERM DEBT |
101,073,889 | 103,325,017 | ||||||
TOTAL LIABILITIES |
136,630,933 | 142,180,623 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
MEMBERS EQUITY |
||||||||
Membership contributions, 81,984 units issued and outstanding |
77,275,443 | 77,226,361 | ||||||
Accumulated deficit |
(35,768,943 | ) | (42,730,742 | ) | ||||
Total members equity |
41,506,500 | 34,495,619 | ||||||
TOTAL LIABILITIES AND MEMBERS EQUITY |
$ | 178,137,433 | $ | 176,676,242 | ||||
See Notes to Consolidated Financial Statements.
3
Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended | Three months ended | |||||||
December 31, 2009 | December 31, 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenues |
$ | 57,434,517 | $ | 33,105,188 | ||||
Cost of goods sold |
47,490,413 | 37,183,398 | ||||||
Gross profit (loss) |
9,944,104 | (4,078,210 | ) | |||||
General and administrative expenses |
1,190,165 | 1,429,216 | ||||||
Operating income (loss) |
8,753,939 | (5,507,426 | ) | |||||
Other income (expense) |
||||||||
Unrealized gain (loss) on interest rate swap |
341,402 | (1,994,284 | ) | |||||
Interest expense |
(2,133,776 | ) | (2,524,609 | ) | ||||
Interest income |
234 | 3,268 | ||||||
(1,792,140 | ) | (4,515,625 | ) | |||||
Net income (loss) |
$ | 6,961,799 | $ | (10,023,051 | ) | |||
Net income (loss) per unit (Basic and Diluted) |
$ | 84.92 | $ | (130.83 | ) | |||
Weighted average units outstanding |
81,984 | 76,610 | ||||||
See Notes to Consolidated Financial Statements.
4
Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended | Three months ended | |||||||
December 31, 2009 | December 31, 2008 | |||||||
(Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income (loss) |
$ | 6,961,799 | $ | (10,023,051 | ) | |||
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: |
||||||||
Depreciation |
2,184,488 | 2,016,752 | ||||||
Amortization |
252,554 | 252,554 | ||||||
Unit based compensation expense |
49,082 | 27,591 | ||||||
Unrealized (gains) losses on interest rate swap |
(341,402 | ) | 1,994,284 | |||||
Provision for doubtful receivables |
4,500 | | ||||||
Changes in assets and liabilities: |
||||||||
(Increase) in trade and other accounts receivable |
(511,922 | ) | (7,440,502 | ) | ||||
(Increase) in due from broker |
(94,833 | ) | | |||||
(Increase) decrease in inventory |
912,917 | (2,745,282 | ) | |||||
(Increase) decrease in other assets |
(83,302 | ) | 722,873 | |||||
(Decrease) in accounts payable and
accrued expenses |
(2,335,020 | ) | (924,538 | ) | ||||
(Decrease) in accrued interest payable |
216,891 | | ||||||
Increase in deferred revenue |
| 1,510,094 | ||||||
(Decrease) in derivative financial instruments |
(61,325 | ) | | |||||
Net cash provided by (used in) operating activities |
7,154,427 | (14,609,225 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchase of certificates of deposit |
(50,000 | ) | | |||||
Purchase of property and equipment, net of returns |
(1,893 | ) | (3,506,181 | ) | ||||
Net cash (used in) investing activities |
(51,893 | ) | (3,506,181 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Proceeds from issuance of notes payable |
| 10,969,311 | ||||||
Repayment of long-term debt and capital lease obligations |
(1,608,529 | ) | (19,325 | ) | ||||
Proceeds from revolving line of credit |
| 2,384,129 | ||||||
Release (funding) of restricted cash balance |
(84 | ) | (552,370 | ) | ||||
Excess of outstanding checks over bank balance |
(81,555 | ) | | |||||
Net cash provided by (used in) financing activities |
(1,690,168 | ) | 12,781,745 | |||||
Increase (decrease) in cash and cash equivalents |
5,412,366 | (5,333,661 | ) | |||||
Cash and cash equivalents, beginning of period |
| 7,685,978 | ||||||
Cash and cash equivalents, end of period |
$ | 5,412,366 | $ | 2,352,317 | ||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid for interest |
$ | 2,403,081 | $ | 3,026,927 | ||||
Supplemental
disclosure of non-cash investing and financing activities
|
$ | 1,338,750 | $ | 150,000 | ||||
Repayment of notes and interest payable paid by Bond Trustee |
See Notes to Consolidated Financial Statements.
5
Table of Contents
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, 2009 |
81,984 | $ | 77,226,361 | $ | (42,730,742 | ) | $ | 34,495,619 | ||||||||
Unit-based compensation expense
for unit options to employees |
49,082 | | 49,082 | |||||||||||||
Net income for the three months ended December 31, 2009 |
| 6,961,799 | 6,961,799 | |||||||||||||
Balance, December 31, 2009 |
81,984 | $ | 77,275,443 | $ | (35,768,943 | ) | $ | 41,506,500 | ||||||||
See Notes to Consolidated Financial Statements.
6
Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
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.
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.
The accompanying financial information of the Company is unaudited; however, such information
reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and results of operations.
The results of operations for the three months ended December 31, 2009 are not necessarily
indicative of the results that may be expected for the full year. These statements should be read
in conjunction with the financial statements and related notes included in the Companys Annual
Report on Form 10-K for the year ended September 30, 2009.
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 principles
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.
7
Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
Financing Costs
Financing costs associated with the construction and revolving loans discussed in Note 5 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.
Property and Equipment
Property and equipment is stated at cost. 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. 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 December 31, 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.
8
Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
From time to time, 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 December 31, 2009 and September 30,
2009, the Company had corn contracts totaling approximately $4,690,000 and $300,000, respectively,
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 December 31, 2009 and
September 30, 2009 was $42,011,461 and $47,508,877, 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 December
31, 2009 and September 30, 2009, was a liability of approximately $1,430,000 and $1,772,000.
Derivatives not designated as hedging instruments at December 31, 2009 and September 30, 2009 were
as follows:
Balance Sheet | December 31, | September 30, | ||||||||
Classification | 2009 | 2009 | ||||||||
Futures and options contracts |
(Current Liabilities) | $ | | $ | (61,325 | ) | ||||
Interest rate swap |
(Current Liabilities) | 715,160 | 817,718 | |||||||
Interest rate swap |
(Non-Current Liabilities) | 715,160 | 954,004 |
Statement of | Three months | Three months | ||||||||
Operations | December 31, | December 31, | ||||||||
Classification | 2009 | 2008 | ||||||||
Net realized and
unrealized gains
(losses) related to
futures and options
contracts |
Cost of Goods Sold | $ | (112,450 | ) | $ | 1,052,000 | ||||
Net realized and
unrealized
(losses) related to
the interest rate
swap |
Other non-operating (expense) | (114,802 | ) | (2,047,243 | ) |
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.
Interest income is recognized as earned.
9
Table of Contents
FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
Income (Loss) per Membership Unit
Income (loss) per membership unit is computed by dividing net income (loss) by the weighted average
number of membership units outstanding during the period. Diluted income (loss) per membership
unit reflects the potential dilution that could occur if options to purchase membership units were
exercised. For purposes of this calculation, outstanding unit options are considered membership
unit equivalents using the treasury stock method, and are the only such equivalents outstanding.
At both December 31, 2009 and September 30, 2009, 951 membership unit equivalents were not included
in the calculation as their affect would have been anti-dilutive.
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.
The Company adopted the accounting guidance for uncertainty in income taxes. Management has
evaluated their material tax positions and determined there is no income tax effect with respect to
the financial statements at December 31, 2009. With few exceptions, the Company is no longer
subject to U.S. federal or state income tax examinations by tax authorities for years before
December 31, 2005. The Company has not been notified of any impending examinations by tax
authorities, and no examinations are in process.
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.
Reclassification
Certain items in the three months ended December 31, 2008 consolidated statement of operations have
been reclassed to conform to classification adopted for the three months ended December 31, 2009,
with no effect on net income.
NOTE 2. INVENTORIES
A summary of inventories at December 31, 2009 and September 30, 2009 is as follows:
December 31, | September 30, | |||||||
2009 | 2009 | |||||||
Corn |
$ | 3,142,066 | $ | 3,958,543 | ||||
Denaturant and chemical supplies |
455,818 | 287,640 | ||||||
Work in process |
1,361,220 | 1,095,000 | ||||||
Ethanol |
1,476,091 | 1,649,895 | ||||||
Distiller grains |
271,161 | 628,195 | ||||||
Total |
$ | 6,706,356 | $ | 7,619,273 | ||||
10
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
NOTE 3. 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 December 31, 2009 and September 30, 2009.
The Company purchased corn at market prices in the amount of $732,600 and $119,865 for the three
months ended December 31, 2009 and 2008, respectively, from certain Directors in the normal course
of business.
NOTE 4. 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 December 31, 2009 and September 30, 2009.
Accumulated depreciation totaled $19,707 and $15,766 as of December 31, 2009 and September 30,
2009, respectively.
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 December 31, 2009 and September 30, 2009.
Accumulated depreciation totaled $114,656 and $91,726 as of December 31, 2009 and September 30,
2009, respectively, calculated using a 20 year useful life.
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 December 31, 2009 and
September 30, 2009. Accumulated depreciation totaled $173,622 and $138,898 as of December 31, 2009
and September 30, 2009, respectively, calculated using a 20 year useful life.
A summary of capital leases as of December 31, 2009 and September 30, 2009 is as follows:
December 31, 2009 | September 30, 2009 | |||||||
De Lage Landen Financial Services, 60 months, interest rate of 7.5% |
$ | 119,145 | $ | 126,327 | ||||
Georgia Power Substation lease, 36 months, interest rate of 5.85% |
1,299,364 | 1,299,364 | ||||||
Natural Gas Facilities lease, 80 months, interest rate of 6.59% |
2,582,115 | 2,667,334 | ||||||
4,000,624 | 4,093,025 | |||||||
Less current portion |
(1,025,393 | ) | (1,019,029 | ) | ||||
$ | 2,759,231 | $ | 3,073,996 | |||||
The Company also entered into operating leases with Trinity Industries Leasing Company for the use
of rail cars and tanker cars. The tanker car leases expire
January 2010 through November 2017 and
the rail car lease expires in February 2012. During the year ended 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 remaining accrual as of December 31, 2009 is
approximately $522,000.
11
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
NOTE 5. DEBT FINANCING ARRANGEMENTS
The Companys long-term debt outstanding as of December 31, 2009 and September 30, 2009 is
summarized as follows:
December 31, 2009 | September 30, 2009 | |||||||
West LB Term Loan,
variable interest
rates from 4.03% to
7.81%, described
below |
$ | 97,000,000 | $ | 98,500,000 | ||||
Subordinated Fagen
note, 4% through
June 30, 2010 and
8% thereafter |
3,977,545 | 3,977,545 | ||||||
Subordinated debt
facility, interest
rate of 7.5%,
described below |
9,250,000 | 9,850,000 | ||||||
Notes payable John
Deere Credit,
interest rate of
5.3%, described
below |
185,922 | 202,050 | ||||||
110,413,467 | 112,529,595 | |||||||
Less current portion |
(9,339,578 | ) | (9,204,578 | ) | ||||
$ | 101,073,889 | $ | 103,325,017 | |||||
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. On February 19, 2010 WestLB
agreed to extend the maturity date on the Companys working capital loan to February 20, 2011. 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 with the remaining
principal amounts are fully due and payable on February 20, 2015. 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).
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.
12
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
As of December 31, 2009 and September 30, 2009, the Company had drawn $13,784,129 on the
$15,000,000 working capital loan.
As of February 8, 2010 the Companys working capital loans exceeded its borrowing base by
$2,703,000 and the Company was not able to repay that amount to WestLB so it 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 covenants requiring the Company to repay the difference between its working
capital loan outstanding and its borrowing base and to report its borrowing base calculations to
WestLB. On February 19, 2010, WestLB and the lending syndicate granted the Company a waiver of
these covenants through March 15, 2010 so long as its working capital loans do not exceed the
borrowing base by more than $4,500,000. WestLB and the lending syndicate have indicated a
willingness to work with the Company to address its loan covenant compliance issues; however, at
any time WestLB and the lending syndicate could decide not to grant a waiver. If the Company fails
to obtain a waiver of any such term or covenant, WestLB and the lending syndicate could deem the
Company to be in default on the outstanding loans and require the Company to immediately repay a
significant portion or possibly the entire outstanding balance of our loans.
As a result of fiscal year 2009 net losses, the Company is currently experiencing limited liquidity
and has nearly exhausted the funds available under our debt facilities and does not have further
commitments for additional funds from any lender. If the Company is unable to secure the financing
necessary to satisfy our working capital needs, or if relative price levels change, our Companys
lack of available funds could cause us to scale back production at the ethanol plant or cease
operations altogether. Any shutdown could be temporary or permanent depending on the cash available
to continue operations.
Subordinated Debt Facility
The Company has 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. 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 of at least
$1,180,000. This note is subordinated to the West LB debt agreement, which currently prohibits
the Company from making any debt service payments. As a result, the Bond Trustee made the annual
interest and principal payment to the bond holders of approximately $1,339,000 in December 2009
from the debt service reserve. 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 2010 of $635,000, in 2011 of $530,000, in 2012 of $570,000, in 2013 of $615,000 and
$6,900,000 thereafter.
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 $185,922 and $202,050 as of December 31,
2009 and September 30, 2009, respectively.
13
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
NOTE 6. FAIR VALUE MEASUREMENTS
The Company has 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 December 31, 2009:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: |
||||||||||||||||
Investments in
marketable securities,
included in restricted
cash |
$ | 258,457 | $ | | $ | | $ | 258,457 | ||||||||
Total assets |
$ | 258,457 | $ | | $ | | $ | 258,457 | ||||||||
Liabilities: |
||||||||||||||||
Derivative instruments: |
||||||||||||||||
Interest rate swap |
$ | | $ | 1,430,320 | $ | | $ | 1,430,320 | ||||||||
Total liabilities |
$ | | $ | 1,430,320 | $ | | $ | 1,430,320 | ||||||||
14
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
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 |
$ | 61,235 | $ | 61,235 | ||||||||||||
Interest rate swap |
$ | | $ | 1,771,722 | $ | | $ | 1,771,722 | ||||||||
Total liabilities |
$ | 61,235 | $ | 1,771,722 | $ | | $ | 1,833,047 | ||||||||
NOTE 7. 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 December 31,
2009, the Company expects operations to generate adequate cash flows to maintain operations. The
assumptions assume that the Company will be able to sell all the ethanol that is produced at the
plant. The Company expects to be able to satisfy our cash requirements for the next 12 months using
only the revolving line of credit, senior credit facility, and earnings from operations.
As mentioned above, the Company has been involved in discussions with its primary lender, WestLB,
regarding certain past and potential future non-compliance with its financial loan covenants that
have resulted from the current conditions in the ethanol industry and the Companys financial
condition. Under the terms of its senior credit agreement with WestLB, the Company is required to
repay the amount that the working capital loan outstanding exceeds the borrowing base. The
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 February 8,
2010 the Companys working capital loan exceeded the borrowing
base by $2,703,000 and the Company was not able to repay that amount
to WestLB so 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 covenants requiring the Company to
repay the difference between the working
capital loan outstanding and our borrowing base and to report our borrowing base calculations to
WestLB. On February 19, 2010, WestLB and our lending syndicate
granted the Company a waiver of these
covenants through March 15, 2010 so long as the working capital
loan does not exceed the borrowing
base by more than $4,500,000. WestLB and the lending syndicate have indicated a willingness to work
with the Company to address our loan covenant compliance issues;
however, at any time the lender could
decide not to grant a waiver. If we fail to obtain a waiver of any such term or covenant, our
primary lender could deem the Company in default of the loans and
require the Company to immediately repay a
significant portion or possibly the entire outstanding balance of the loans.
NOTE 8. 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. On February 16, 2010, Air Liquide proposed a dismissal with prejudice and First
United Ethanol and Southwest Georgia Ethanol have agreed to the dismissal of the case. It is
expected that the dismissal will be finalized by March 1, 2010.
15
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FIRST UNITED ETHANOL, LLC AND SUBSIDIARY
Notes to Financial Statements
(Unaudited)
Notes to Financial Statements
(Unaudited)
NOTE 9. SUBSEQUENT EVENTS
Subsequent events have been evaluated through February 19, 2010 and include: (i) the WestLB waiver
dated February 19, 2010 discussed in Note 7, (ii) the renewal of the working capital loan for 12
months effective February 19, 2010, and (iii) a contract to sublease 50 railcars for 12 months and
20 railcars for 4 months effective February 2010 for $250/car per month.
16
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statements Regarding Forward-Looking Statements
Cautionary Statements Regarding Forward-Looking Statements
This report contains forward-looking statements that involve future events, our future
performance and our 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. 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
following factors:
| Changes in our business strategy, capital improvements or development plans; |
| Volatility of corn, natural gas, ethanol, unleaded gasoline, 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 debt service requirements
and capital expenditures; |
| Our ability to comply with our loan covenants and to obtain waivers from our lender
for any non-compliance with those covenants; |
| Our ability to secure the financing we require to maintain liquidity and operate our
business; |
| The results of our hedging transactions and other risk management strategies; |
| Our 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; |
| 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.
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 Quarterly Report on Form
10-Q.
17
Table of Contents
Overview
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. We completed construction of our ethanol plant in October 2008 and plant operations
commenced on October 10, 2008. We are currently in our second 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.
Our revenues are derived from the sale and distribution of our ethanol and distillers grains
primarily in the southeastern United States. Our ethanol plant currently operates at approximately
92 percent of its nameplate capacity, producing ethanol at a rate of approximately 92 million
gallons of ethanol per year. A significant percentage of our corn is supplied to us by train and
is originated primarily from the eastern Corn Belt; however, we are able to originate an increasing
percentage of our corn from local producers. Currently, approximately 95% of our ethanol is being
shipped out of our facility by truck to local and regional blending terminals. Additionally, as of
the date of this report, approximately 90% of our dried distillers grains are being shipped out of
our facility by truck to local livestock and poultry operations.
We are a company with a limited operating history. Accordingly, we do not yet have perfectly
comparable income, production and sales data for the three months ended December 31, 2009. Our
fiscal quarter ended December 31, 2008 was the quarter in which we commenced operations therefore,
our plant was not in production the entire quarter. We have included some comparisons of our
fiscal quarter ended December 31, 2009 to our fiscal quarter ended December 31, 2008, so it is
important to keep in mind that these are not perfectly comparable periods.
Results of Operations for the Three Months Ended December 31, 2009 and 2008
The following table shows the result of our operations and the percentage of revenues, cost of
goods sold, operating expenses and other items to total revenues in our statement of operations for
the three months ended December 31, 2009 and 2008:
The three month period ended December 31, 2008 was not a full quarter as operations commenced on
October 10, 2008.
Three Months Ended | Three Months Ended | |||||||||||||||
December 31, 2009 | December 31, 2008 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Statement of Operations Data | Amount | Percent | Amount | Percent | ||||||||||||
Revenues |
$ | 57,434,517 | 100.00 | % | $ | 33,105,188 | 100.00 | % | ||||||||
Cost of Goods Sold |
$ | 47,490,413 | 82.69 | % | $ | 37,183,398 | 112.32 | % | ||||||||
Gross Profit (Loss) |
$ | 9,944,104 | 17.31 | % | $ | (4,078,210 | ) | (12.32 | )% | |||||||
General and
Administrative
Expenses |
$ | 1,190,165 | 2.07 | % | $ | 1,429,216 | 4.32 | % | ||||||||
Operating Income (Loss) |
$ | 8,753,939 | 15.24 | % | $ | (5,507,426 | ) | (16.64 | )% | |||||||
Other (Expense) |
$ | (1,792,140 | ) | (3.12 | )% | $ | (4,515,625 | ) | (13.64 | )% | ||||||
Net Income (Loss) |
$ | 6,961,799 | 12.12 | % | $ | (10,023,051 | ) | (30.28 | )% |
18
Table of Contents
Revenues
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 three months ended December 31,
2009 and 2008.
Three Months Ended | Three Months Ended | |||||||||||||||
December 31, 2009 | December 31, 2008 | |||||||||||||||
Revenue Source | Amount | % of Revenues | Amount | % of Revenues | ||||||||||||
Ethanol Sales |
$ | 48,564,366 | 84.56 | % | $ | 27,222,236 | 82.23 | % | ||||||||
Dried Distillers Grains
Sales |
$ | 8,438,770 | 14.69 | % | $ | 5,838,497 | 17.63 | % | ||||||||
Wet Distillers Grains Sales |
$ | 426,954 | 0.74 | % | 44,898 | 0.14 | % | |||||||||
Other Revenue |
$ | 4,427 | 0.01 | % | (443 | ) | 0.00 | % | ||||||||
Total Revenues |
$ | 57,434,517 | 100.00 | % | $ | 33,105,188 | 100.00 | % | ||||||||
Our ethanol revenue has increased sharply during the three month period ended December 31,
2009 compared to the three month period ended December 31, 2008 as a result of increased production
and increased per gallon sales prices. We sold approximately 22,410,000 gallons of ethanol during
the three month period ended December 31, 2009 at an average price of $2.17 per gallon, compared to
16,942,104 gallons of ethanol sold during the three month period ended December 31, 2008 at an
average price of $1.61 per gallon.
Our distillers grain revenue also increased compared to the three month period ended December
31, 2008. We produced approximately 62,000 tons of dried distillers grains and approximately
24,000 tons of wet distillers grains, which is an increase of approximately 41,000 tons compared to
the quarter ended December 31, 2008. In addition to the increase in distillers grains production
we also experienced an increase in the sales price of our dried distillers grains of approximately
13.2%. Our average selling price for our dried distillers grains and our wet distillers grains
for our quarter ended December 31, 2009 was approximately $136.00 per ton and $18.00 per ton,
respectively.
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 a 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. The
ethanol industry needs to continue to expand the market for distillers grains in order to maintain
current price levels.
Cost of Goods Sold
Our cost of goods sold was approximately $47,490,000 or 82.69% of our revenues for the three
month period ended December 31, 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 8.9% 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 generally. 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 our quarter ended December 31, 2009 was approximately
$4.48 per bushel.
Our other costs of goods sold include denaturant, process chemicals, electricity,
transportation, and direct labor. Together these costs represent approximately 17% 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.
At December 31, 2009 and September 30, 2009, the Company had corn contracts totaling
approximately $4,690,000 and $300,000, respectively, based upon the average per bushel price.
19
Table of Contents
General and Administrative Expenses
Our general and administrative expenses as a percentage of revenues were 2.07% for the three
month period ended December 31, 2009, and our general and administrative expenses as a percentage
of revenues were 4.32% for the three month period ended December 31, 2008. Operating expenses
consist primarily of payroll,
employee benefits, and professional fees and have been decreasing since beginning operations due to
our ability to make our internal operations more efficient.
Operating Income (Loss)
Our income from operations for the three months ended December 31, 2009 was approximately
15.24% of our revenues, our loss for the three months ended December 31, 2008 was approximately
16.64% of our revenues. The operating income (loss) is primarily the result of our cost of goods
sold relative to our revenues during these two quarters of operations. Our operating loss for our
quarter ended December 31, 2008 is primarily a result of negative operating margins due to the high
cost of our inputs relative to the revenue generated by the sale of our ethanol and distillers
grains and our inability to operate the plant at capacity due operational issues associated with
the commencement of plant operations. Our operating income for our quarter ended December 31, 2009
is primarily a result of positive operating margins from the relatively low cost of corn and
relatively strong price of ethanol in conjunction with our ability to operate the plant near its
capacity.
Other (Expense)
We had total other expense for the fiscal quarter ended December 31, 2009 of approximately
$1,790,000 resulting primarily from our interest expense for the period. Interest expense for the
period was approximately $2,130,000 which was offset by an unrealized gain of approximately
$340,000 for the change in fair value of our interest rate swap agreement.
Additional Information
The following table shows additional data regarding production and price levels for our
primary inputs and products for the three months ended December 31, 2009 and 2008.
Three Months ended | Three Months ended | |||||||
December 31, 2009 | December 31, 2008 | |||||||
Production: |
||||||||
Ethanol sold (gallons) |
22,410,205 | 16,942,104 | ||||||
Dried distillers grains sold (tons) |
61,959 | 44,912 | ||||||
Wet distillers grains sold (tons) |
23,994 | 741 | ||||||
Revenues: |
||||||||
Ethanol average price per gallon |
2.170 | 1.610 | ||||||
Dried distillers grains revenue per gallon of ethanol sold |
0.385 | 0.340 | ||||||
Wet distillers grains revenue per gallon of ethanol sold |
0.019 | 0.003 | ||||||
Total revenue per gallon of ethanol sold |
2.574 | 1.954 | ||||||
Costs: |
||||||||
Corn cost per gallon of ethanol sold (including freight) |
1.550 | 1.535 | ||||||
Overhead and other direct costs per gallon of ethanol sold |
0.536 | 0.544 | ||||||
Total cost per gallon of ethanol sold |
2.086 | 2.079 |
During the quarter ended December 31, 2009, our market price of ethanol varied between
approximately $1.99 per gallon and approximately $2.36 per gallon. Our average price per gallon of
ethanol was $2.17. If our average price received per gallon of ethanol had been $0.01 lower, our
gross margin for the quarter would have decreased by approximately $62,000, assuming our other
revenues and costs remained unchanged.
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During the quarter ended December 31, 2009, the market price of dried distillers grains varied
between approximately $123 per ton and approximately $148 per ton. Our average price per ton of
dried distillers grains was $136. If our average price received per ton of dried distillers grains
had been $1.00 lower, our gross margin for the quarter would have decreased by approximately
$82,000, assuming our other revenues and costs remained unchanged.
During the quarter ended December 31, 2009, the market price of corn varied between
approximately $4.05 per bushel and approximately $4.63 per bushel. Our average price per bushel of
corn was $4.48. If our average price paid per bushel of corn had been $0.10 higher, our gross
margin for the quarter would have decreased by approximately $1,077,000, assuming our other
revenues and costs remained unchanged.
Changes in Financial Condition for the Three Months Ended December 31, 2009
We experienced an increase in our current assets at December 31, 2009 compared to our fiscal
year ended September 30, 2009. As of December 31, 2009, we had been experiencing positive margins
which enabled us to increase our inventory of corn and to hold additional cash. We had
approximately $5,400,000 more cash on hand at December 31, 2009 compared to September 30, 2009.
Additionally, at December 31, 2009 we had accounts receivable of approximately $4,590,000 compared
to approximately $4,081,000 accounts receivable at September 30, 2009.
Our net property and equipment was slightly lower at December 31, 2009 compared to September
30, 2009 as a result of depreciation expense taken for the quarter. We do not expect any
significant additional capital expenditures as our plant is now complete.
We experienced a decrease in our total current liabilities on December 31, 2009 compared to
September 30, 2009 and also a decrease in our long-term liabilities as of December 31, 2009
compared to September 30, 2009, primarily as a result of repayment of our long-term debt and
capital lease obligations in the amount of approximately $1,608,000. At December 31, 2009, we had
approximately $101,074,000 outstanding in the form of long-term loans, compared to approximately
$103,325,000 at September 30, 2009.
Liquidity and Capital Resources
We have completed approximately sixteen months of operations as of the filing of this report.
The relative price levels of corn, ethanol and distillers grains have resulted in tight operating
margins and net losses for us in our first four quarters of operations through September 30, 2009.
If substantial losses return, or if we are unable to obtain additional working capital, liquidity
concerns may require us to curtail operations or pursue other actions that could adversely affect
future operations. We are currently working with our senior lender to actively review proposals
addressing potential liquidity constraints that may surface during our second year of operations.
As a result of fiscal year 2009 net losses, we are currently experiencing limited liquidity
and have nearly exhausted the funds available under our debt facilities and do not have further
commitments for additional funds from any lender. If we are unable to secure the financing
necessary to satisfy our working capital needs, or if relative price levels change, our lack of
available funds could cause us to scale back production at our ethanol plant or cease operations
altogether. Any shutdown could be temporary or permanent depending on the cash we have available to
continue operations.
The following table shows cash flows for the three months ended December, 2009 and 2008:
Three Months Ended December 31, |
||||||||
2009 | 2008 | |||||||
Net cash provided by (used in ) operating activities |
$ | 7,154,427 | $ | (14,609,225 | ) | |||
Net cash (used in) investing activities |
$ | (51,893 | ) | $ | (3,506,181 | ) | ||
Net cash provided by (used in) financing activities |
$ | (1,690,168 | ) | $ | 12,781,745 | |||
Net increase (decrease) in cash and cash equivalents |
$ | 5,412,366 | $ | (5,333,661 | ) | |||
Cash and cash equivalents, end of period |
$ | 5,412,366 | $ | 2,352,317 |
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Operating Cash Flows. We experienced a significant increase in net cash provided by operating
activities during the three months ended December 31, 2009 compared to the same period of 2008.
This increase in net cash provided by operating activities was primarily a result of the
significant increase in net income we experienced during the three months ended December 31, 2009.
Cash provided by operating activities was approximately
$7,154,000 for the three months ended December 31, 2009 compared to $14,609,000 of cash used
in operations for the same period in 2008. Our net income from operations for the three months
ended December 31, 2009 was approximately $6,962,000 due to the favorable market conditions the
ethanol industry experienced.
Investing Cash Flows. Cash used in investing activities was approximately $52,000 for the
three months ended December 31, 2009. This amount is small when compared to the $3,500,000 used in
investing activities for three months ended December 31, 2008, when we finished investing in our
property and equipment to complete the plant.
Financing Cash Flows. Cash used in financing activities was approximately $1,690,000 for the
three months ended December 31, 2009 primarily for the repayment of long term debt and capital
lease obligations. During our three months ended December 31, 2008 we borrowed approximately
$12,780,000 to fund our property and equipment as well as our working capital.
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
December 31, 2009 and assuming we have the liquidity necessary to operate the plant at nameplate
capacity, we expect operations to generate adequate cash flows to maintain operations. This
expectation assumes 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.
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. On February 19, 2010 WestLB agreed to extend the maturity date on
our working capital loan to February 20, 2011. The primary purpose of the senior credit facility
was 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 this quarterly payment in the
future 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.
As of February 8, 2010 our working capital loans exceeded our borrowing base by $2,703,000 and
we were not able to repay that amount to WestLB so 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 covenants
requiring us to repay the difference between our working capital loan outstanding and our borrowing
base and to report our borrowing base calculations to WestLB. On February 19, 2010, WestLB and our
lending syndicate granted us a waiver of these covenants through March 15, 2010 so long as our
working capital loans do not exceed our borrowing base by more than $4,500,000. WestLB and our
lending syndicate have indicated a willingness to work with us to address our loan covenant
compliance issues; however, at any time our lender could decide not to grant a waiver. If we 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.
As of December 31, 2009, we had an outstanding term loan balance of approximately $97,000,000
and had $13,784,129 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 $1,339,000 in December 2009. 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 principal payment due in December 2010 is $635,000.
On June 30, 2009 we agreed on the amount due to Fagen, Inc. for retainage withheld under our
design-build contract. As consideration for Fagen, Inc.s completion of our facility, we executed
a subordinated promissory note dated June 30, 2009 in favor of Fagen, Inc. in the amount of
approximately $4,000,000. The first principal payment of $500,000 was due September 30, 2009 and
annual principal payments of $1,738,772 are due June 30, 2010 and June 30, 2011. The note is
subordinated to the WestLB debt agreement, which currently prohibits the Company from making any
principal payments on the schedule described above.
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 $185,922 as of December 31, 2009.
Our long-term debt outstanding as of December 31, 2009 is summarized as follows:
West LB Term Loan, variable interest rates from 4.03% to 7.81% |
$ | 97,000,000 | ||
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% |
9,250,000 | |||
Notes payable John Deere Credit, interest rate of 5.3% |
185,922 | |||
110,413,467 | ||||
Less current portion |
(9,339,578 | ) | ||
Long-term debt outstanding as of December 31, 2009 |
$ | 101,073,889 | ||
Debt Covenants
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 of February 8, 2010 our
working capital loans exceeded our borrowing base by $2,703,000 and we were not able to repay that
amount to WestLB so 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 covenants requiring us to repay the
difference between our working capital loan outstanding and our borrowing base and to report our
borrowing base calculations to WestLB. On February 19, 2010, WestLB and our lending syndicate
granted us a waiver of these covenants through March 15, 2010 so long as our working capital loans
do not exceed our borrowing base by more than $4,500,000. WestLB and our lending syndicate have
indicated a willingness to work with us to address our loan covenant compliance issues; however, at
any time our lender could decide not to grant a waiver. If we 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.
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Summary of Critical Accounting Policies and Estimates
Management uses estimates and assumptions in preparing our financial statements in accordance
with generally accepted accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. The fair value of our cash and equivalents approximates their
carrying value.
Derivative Instruments
We occasionally enter into short-term cash grain, option and futures contracts as a means of
securing corn for the ethanol plant and managing exposure to changes in commodity. We may also
enter into short-term forward, option and futures contracts for sales of ethanol to manage exposure
to changes in energy prices. All of our derivatives are designated as non-hedge derivatives, and
accordingly are recorded at fair value with changes in fair value recognized in net income.
Although the contracts are considered economic hedges of specified risks, they are not designated
as and accounted for as hedging instruments.
As part of our trading activity, we use futures and option contracts offered through regulated
commodity exchanges to reduce our risk and we are exposed to risk of loss in the market value of
inventories. To reduce that risk, we generally take positions using cash and futures contracts and
options.
Unrealized gains and losses related to derivative contracts for corn purchases are included as
a component of cost of goods sold and derivative contracts related to ethanol sales are included as
a component of revenues in the accompanying financial statements. The fair values of derivative
contracts are presented on the accompanying balance sheet as derivative financial instruments.
As of December 31, 2009, we had cash corn contracts totaling approximately $4,690,000.
Lower of cost or market accounting for inventory and forward purchase contracts
With the significant change in the prices of our main inputs and outputs, the lower of cost or
market analysis of inventories and purchase commitments can have a significant impact on our
financial performance. The impact of market activity related to pricing of corn and ethanol will
require us to continuously evaluate the pricing of our inventory and purchase commitments under a
lower of cost or market analysis.
Impairment Analysis
Maintenance and repairs are charged to expense as incurred; major improvements and betterments
are capitalized. 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 our
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 December 31,
2009.
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, derivative instruments, 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 the Company for similar issues of debt, taking into account the current credit risk of
the Company and the other market factors.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
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.
Item 4T. Controls and Procedures.
Management of FUEL 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) under the Exchange Act of 1934, as amended)
as of December 31, 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.
There were no changes in our internal control over financial reporting that occurred during
the period covered by this quarterly report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. 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. On February 16, 2010, Air Liquide proposed a dismissal with prejudice and
First United Ethanol and Southwest Georgia Ethanol have agreed to the dismissal of the case. It is
expected that the dismissal will be finalized by March 1, 2010.
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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 may violate 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 primary lender, 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 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 calculated on a monthly basis. As of February 8, 2010 our working capital loans exceeded
our borrowing base by $2,703,000 and we were not able to repay that amount to WestLB so 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 covenants requiring us to repay the difference between our working capital
loan outstanding and our borrowing base and to report our borrowing base calculations to WestLB. On
February 19, 2010, WestLB and our lending syndicate granted us a waiver of these covenants through
March 15, 2010 so long as our working capital loans do not exceed our borrowing base by more than
$4,500,000. WestLB and our lending syndicate have indicated a willingness to work with us to
address our loan covenant compliance issues; however, at any time our lender could decide not to
grant a waiver. If we 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.
We may require additional debt financing to continue to operate our ethanol plant which may
not be available and may result in our inability to operate the ethanol plant profitably. We
currently have a revolving line of credit with WestLB of $15,000,000, however, we periodically
reach our borrowing limit on our line of credit. We use our revolving line of credit primarily for
working capital purposes including purchasing corn and other inputs necessary for ethanol
production. Due to current conditions in the credit markets, we may not be able to secure such
additional financing. If we are unable to secure the additional financing, we may be forced to
shut down the ethanol plant or reduce ethanol production at the plant, either on a short term basis
or permanently. This may reduce or eliminate the value of our units.
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) making us vulnerable to increases in
prevailing interest rates; (c) placing us at a competitive disadvantage because we may be
substantially more leveraged than some of our competitors; (d) subjecting all or substantially all
of our assets to liens, which means that there may be no assets left for shareholders in the event
of a liquidation; and (e) 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.
Our financial performance will be significantly dependent on corn 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 will be significantly affected by the cost and supply of corn. Changes in the
price and supply of corn are subject to and determined by market forces over which we have no
control.
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Ethanol production requires substantial amounts of corn. Corn, as with most other crops, is
affected by weather, disease and other environmental conditions. The price of corn is also
influenced by general economic, market and government factors. These factors include weather
conditions, farmer planting decisions, domestic and foreign government farm programs and policies,
global demand and supply and quality. Changes in the price of corn will significantly affect our
business. Generally, higher corn prices will produce lower profit margins and, therefore,
represent unfavorable market conditions. This is especially true if market conditions do not allow
us to pass along increased corn costs to our customers. The price of corn has fluctuated
significantly in the past and may fluctuate significantly in the future. Over the course of the
last year, the price of corn has exceeded historical averages. If a period of high corn prices
were to be sustained for some time, such pricing may reduce our ability to generate revenues
because of the higher cost of operating our plant. We cannot offer any assurance that we will be
able to offset any increase in the price of corn by increasing the price of our products. If we
cannot offset increases in the price of corn, our financial performance may be materially and
adversely affected.
Our revenues will be greatly affected by the price at which we can sell our ethanol and
distillers grains. These prices can be volatile as a result of a number of factors. These factors
include the overall supply and demand, the price of gasoline, level of government support, and the
availability and price of competing products. For instance, the price of ethanol tends to increase
as the price of gasoline increases, and the price of ethanol tends to decrease as the price of
gasoline decreases. Any lowering of gasoline prices will likely also lead to lower prices for
ethanol, which may decrease our ethanol sales and reduce revenues.
Our business is not diversified. Our success depends largely on our ability to profitably
operate our ethanol plant. We do not have any other lines of business or other sources of revenue
if we are unable to operate our ethanol plant and manufacture ethanol and distillers grains. If
economic or political factors adversely affect the market for ethanol and distillers grains, we
have no other line of business to fall back on. Our business would also be significantly harmed if
the ethanol plant could not operate at full capacity for any extended period of time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits. The following exhibits are included herein:
Exhibit No. | Description | |||
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. § 1350. |
|||
32.2 | Certificate Pursuant to 18 U.S.C. § 1350. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FIRST UNITED ETHANOL, LLC | ||||
Date: February 19, 2010
|
/s/ Murray Campbell
|
|||
Chief Executive Officer | ||||
Date: February 19, 2010
|
/s/ Lawrence Kamp
|
|||
Chief Financial Officer |
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