Attached files
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10-K - FORM 10-K - Sooner Holdings, Inc. | c96795e10vk.htm |
EX-21 - EXHIBIT 21 - Sooner Holdings, Inc. | c96795exv21.htm |
EX-23 - EXHIBIT 23 - Sooner Holdings, Inc. | c96795exv23.htm |
EX-32.1 - EXHIBIT 32.1 - Sooner Holdings, Inc. | c96795exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - Sooner Holdings, Inc. | c96795exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - Sooner Holdings, Inc. | c96795exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - Sooner Holdings, Inc. | c96795exv31w2.htm |
EX-4.1.1 - EXHIBIT 4.1.1 - Sooner Holdings, Inc. | c96795exv4w1w1.htm |
EX-3.3.2 - EXHIBIT 3.3.2 - Sooner Holdings, Inc. | c96795exv3w3w2.htm |
Ex. 99.2
DYNAMIC FUELS, LLC
(A Development Stage Company)
(A Development Stage Company)
FINANCIAL STATEMENTS
SEPTEMBER 30, 2009 and 2008
WITH
INDEPENDENT AUDITORS REPORT
CONTENTS
Independent Auditors Report |
1 | |||
Balance Sheets |
2 | |||
Statements of Operations |
3 | |||
Statements of Members Equity |
4 | |||
Statements of Cash Flows |
5 | |||
Notes to Financial Statements |
6 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Dynamic Fuels, LLC
Dynamic Fuels, LLC
We have audited the accompanying balance sheets of Dynamic Fuels, LLC (a development stage company)
as of September 30, 2009 and 2008, and the related statements of operations, members equity and
cash flows for the years then ended and for the period from June 22, 2007 (date of inception)
through September 30, 2009. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. Tullius Taylor Sartain & Sartain LLP audited the financial statements of Dynamic Fuels,
LLC as of and for the period ended September 30, 2008, and merged with Hogan & Slovacek, P.C. to
form HoganTaylor LLP effective January 7, 2009.
We conducted our audits 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 consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Dynamic Fuels, LLC, as of September 30, 2009 and 2008, and the
results of its operations and its cash flows for the years then ended, and for the period from June
22, 2007 (date of inception) through September 30, 2009, in conformity with accounting principles
generally accepted in the United States of America.
December 3, 2009
1
DYNAMIC FUELS, LLC
(A Development Stage Company)
(A Development Stage Company)
BALANCE SHEETS
September 30, 2009 and 2008
2009 | 2008 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 32,321,714 | $ | 25,489,560 | ||||
Restricted cash |
42,775,005 | | ||||||
Accounts receivable |
| 16,523 | ||||||
Prepaid expenses and other current assets |
1,916,918 | 3,668,115 | ||||||
Total current assets |
77,013,637 | 29,174,198 | ||||||
Property, plant and equipment, net |
76,432,295 | 6,954,612 | ||||||
Other |
1,192,133 | 274,240 | ||||||
Total assets |
$ | 154,638,065 | $ | 36,403,050 | ||||
Liabilities and Members Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 13,020,431 | $ | 1,130,446 | ||||
Due to related parties |
2,946,556 | 300,892 | ||||||
Total current liabilities |
15,966,987 | 1,431,338 | ||||||
Asset retirement obligation |
16,434 | | ||||||
Notes payable |
100,000,000 | | ||||||
Total liabilities |
115,983,421 | 1,431,338 | ||||||
Commitments and contingencies |
||||||||
Members equity: |
||||||||
Syntroleum Corporation capital contributions |
24,250,000 | 18,250,000 | ||||||
Tyson Foods, Inc. capital contributions |
24,250,000 | 18,250,000 | ||||||
Deficit accumulated during the development stage |
(9,845,356 | ) | (1,528,288 | ) | ||||
Total members equity |
38,654,644 | 34,971,712 | ||||||
Total liabilities and members equity |
$ | 154,638,065 | $ | 36,403,050 | ||||
See notes to financial statements.
2
DYNAMIC FUELS, LLC
(A Development Stage Company)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Period from | ||||||||||||
June 22, 2007, | ||||||||||||
Date of | ||||||||||||
Year ended | Year ended | Inception, to | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Expenses: |
||||||||||||
General and administrative |
$ | 5,203,280 | $ | 1,470,059 | $ | 6,985,442 | ||||||
Depreciation and amortization |
57,426 | 431 | 57,857 | |||||||||
Total expenses |
5,260,706 | 1,470,490 | 7,043,299 | |||||||||
Loss from operations |
(5,260,706 | ) | (1,470,490 | ) | (7,043,299 | ) | ||||||
Interest income |
604,415 | 176,936 | 858,720 | |||||||||
Interest rate swap valuation adjustment |
(3,678,664 | ) | | (3,678,664 | ) | |||||||
Other income (expense) |
17,887 | | 17,887 | |||||||||
Net loss |
$ | (8,317,068 | ) | $ | (1,293,554 | ) | $ | (9,845,356 | ) | |||
Allocation of net loss to members: |
||||||||||||
Syntroleum Corporation |
$ | (4,158,534 | ) | $ | (646,777 | ) | $ | (4,922,678 | ) | |||
Tyson Foods, Inc. |
(4,158,534 | ) | (646,777 | ) | (4,922,678 | ) | ||||||
$ | (8,317,068 | ) | $ | (1,293,554 | ) | $ | (9,845,356 | ) | ||||
See notes to financial statements.
3
DYNAMIC FUELS, LLC
(A Development Stage Company)
(A Development Stage Company)
STATEMENTS OF MEMBERS EQUITY
Period June 22, 2007 (Date of Inception) to September 30, 2009
Deficit | ||||||||||||||||
Accumulated | ||||||||||||||||
Capital Contributions | During the | |||||||||||||||
Syntroleum | Tyson | Development | ||||||||||||||
Corporation | Foods, Inc. | Stage | Total | |||||||||||||
Balance, June 22, 2007
(date of inception) |
$ | | $ | | $ | | $ | | ||||||||
Cash contributions |
4,250,000 | 4,250,000 | | 8,500,000 | ||||||||||||
Net loss |
| | (234,734 | ) | (234,734 | ) | ||||||||||
Balance, September 30, 2007 |
4,250,000 | 4,250,000 | (234,734 | ) | 8,265,266 | |||||||||||
Cash contributions |
14,000,000 | 14,000,000 | | 28,000,000 | ||||||||||||
Net loss |
| | (1,293,554 | ) | (1,293,554 | ) | ||||||||||
Balance, September 30, 2008 |
18,250,000 | 18,250,000 | (1,528,288 | ) | 34,971,712 | |||||||||||
Cash contributions |
6,000,000 | 6,000,000 | | 12,000,000 | ||||||||||||
Net loss |
| | (8,317,068 | ) | (8,317,068 | ) | ||||||||||
Balance, September 30, 2009 |
$ | 24,250,000 | $ | 24,250,000 | $ | (9,845,356 | ) | $ | 38,654,644 | |||||||
See notes to financial statements.
4
DYNAMIC FUELS, LLC
(A Development Stage Company)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Period from | ||||||||||||
June 22, 2007, | ||||||||||||
Date of | ||||||||||||
Year ended | Year ended | Inception, to | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Cash Flows from Operating Activities |
||||||||||||
Net loss |
$ | (8,317,068 | ) | $ | (1,293,554 | ) | $ | (9,845,356 | ) | |||
Adjustments to reconcile net loss to net cash used in
operating activities: |
||||||||||||
Depreciation and amortization |
57,426 | 431 | 57,857 | |||||||||
Mark-to-market interest rate swap in excess
of cash collateral |
2,088,663 | | 2,088,663 | |||||||||
Changes in: |
||||||||||||
Accounts receivable |
16,523 | (16,523 | ) | | ||||||||
Prepaid expenses and other |
(367,319 | ) | (3,942,355 | ) | (4,309,674 | ) | ||||||
Accounts payable and accrued liabilities |
427,790 | 17,709 | 1,558,236 | |||||||||
Due to related parties |
557,001 | (90,338 | ) | 857,893 | ||||||||
Asset retirement obligation |
16,434 | | 16,434 | |||||||||
Net cash used in operating activities |
(5,520,550 | ) | (5,324,630 | ) | (9,575,947 | ) | ||||||
Cash Flows from Investing Activities |
||||||||||||
Payments for the purchase of property, plant and
equipment |
(56,530,791 | ) | (5,447,302 | ) | (63,485,834 | ) | ||||||
Change in restricted cash |
(42,775,005 | ) | | (42,775,005 | ) | |||||||
Net cash used in investing activities |
(99,305,796 | ) | (5,447,302 | ) | (106,260,839 | ) | ||||||
Cash Flows from Financing Activities |
||||||||||||
Proceeds from sale of tax-exempt bonds |
100,000,000 | | 100,000,000 | |||||||||
Proceeds from capital contributions |
12,000,000 | 28,000,000 | 48,500,000 | |||||||||
Debt issuance costs |
(341,500 | ) | | (341,500 | ) | |||||||
Net cash provided by financing activities |
111,658,500 | 28,000,000 | 148,158,500 | |||||||||
Net change in cash |
6,832,154 | 17,228,068 | 32,321,714 | |||||||||
Cash, beginning of year |
25,489,560 | 8,261,492 | | |||||||||
Cash, end of year |
$ | 32,321,714 | $ | 25,489,560 | $ | 32,321,714 | ||||||
See notes to financial statements.
5
DYNAMIC FUELS, LLC
(A Development Stage Company)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
Note 1 Summary of Significant Accounting Policies
Nature of operations
Dynamic Fuels, LLC, a Delaware limited liability company (the Company), was formed on June 22,
2007, as a joint venture between Syntroleum Corporation (Syntroleum), and Tyson Foods, Inc.,
(Tyson) (collectively, the Members). The Limited Liability Company Agreement between the Members
provides for management and control of the Company to be exercised jointly by representatives of
the Members equally, with no member exercising control. The Company is in the development stage
and was organized to engage in the development, production, marketing and sale of Bio-Synfined
renewable fuels produced using Syntroleums Bio-Synfining technology in the United States
including, the development, construction, financing, testing, ownership, operation and maintenance
of one or more Bio-Synfining renewable fuels production plants. The Bio-Synfining technology
converts triglycerides and/or fatty acids from fats and vegetable oils with heat, hydrogen and
proprietary catalysts to make renewable synthetic fuels, such as diesel, jet fuel (subject to
certification), kerosene, naphtha and LPG. The fats and vegetable oil feedstock will be procured
by Tyson.
As a limited liability company, the Members are not personally liable for any debts, liabilities,
or obligations of the Company beyond the Members equity accounts, except to the extent that they
have obligated themselves (see Note 4). Income and losses are allocated to the Members on the
basis of their ownership.
Cash
The Company maintains bank accounts which are insured by the Federal Deposit Insurance Corporation
(FDIC). At times, cash balances may be in excess of the FDIC insurance limit.
Restricted cash
Restricted cash consists of cash held in an escrow account for the payment of qualified invoices
and/or interest during construction of the plant in Geismar, Louisiana.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line method over the estimated useful lives of the related assets.
Initial construction costs and plant engineering costs associated with the construction of the
synthetic fuels plant are capitalized and included in plant construction in progress. These
capitalized costs will be depreciated when the plant is placed in service. Expenditures for
repairs and maintenance are charged to expense as incurred, whereas major improvements are
capitalized.
6
Interest
The Company capitalized approximately $4,615,000 in interest expense during construction for the
year ended September 30, 2009. The amount capitalized will begin to be amortized over the life of
the plant upon plant start up.
Other assets
Other assets include $1.2 million at September 30, 2009, of debt issuance costs that were incurred
by the Company in connection with the issuance of the $100 million tax exempt bonds. (See Note 4.)
The debt issuance costs are being amortized over the bond 25 year term. The Company incurred
approximately $49,000 of amortization expense for the year ended September 30, 2009.
Asset retirement obligations
The Company records the fair value of a liability for an asset retirement obligation in the period
in which is it incurred and a corresponding increase in the carrying amount of the related
long-lived asset. The Company records the discounted fair value of the retirement obligation as a
liability at the time the plants are constructed. The asset retirement obligation represents the
present value of the estimated costs associated with the future plant dismantlement of the
Companys Geismar plant, discounted at 15% per annum. The liability accretes over time with a
charge to accretion expense. There was no accretion expense for the year ended September 30, 2009.
Income taxes
As a limited liability company, the Members of the Company report individually the taxable income
of the Company. Accordingly, no provision for income taxes has been recorded in the financial
statements.
As long as the Company complies with applicable regulations, it is not subject to income taxes.
However, events or interpretations of such regulations could result in contingent income tax
obligations. During fiscal year 2009, management adopted certain accounting guidance that was
issued to clarify the accounting for contingent income tax obligations as permitted by the
standards.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities,
and the reported amounts of revenues and expenses. Actual results could differ from those
estimates.
Fair value of financial instruments
The carrying amounts of financial instruments, including cash, accounts payable and accrued
liabilities approximates fair value due to the short maturity of these instruments. The carrying
amount of long-term debt approximates fair value.
7
Subsequent events
We have evaluated subsequent events through the time that we issued our financial statements on
November 17, 2009, and have noted there are no subsequent events to disclose.
Note 2 Related Party Transactions
The accompanying financial statements include transactions with members of the Company, including
engineering, accounting, travel expenses, letter of credit fees and collateral for interest rate
swaps associated with plant construction and financing of plant construction. Expenditures made by
the Company during the year ended September 30, 2009, to Syntroleum and Tyson were approximately
$2,822,000 and $6,420,000, respectively, and for the year ended September 30, 2008, were $3,063,000
and $738,000, respectively, since inception were approximately $6,484,000 and $7,263,000,
respectively. Due to related parties at September 30, 2009 and 2008, included amounts owed to
Syntroleum and Tyson of approximately $223,000 and $2,554,000, respectively and $223,000 and
$78,000, respectively.
Note 3 Property, Plant and Equipment
Property, plant and equipment consist of the following at September 30:
2009 | 2008 | |||||||
Plant construction in progress |
$ | 76,038,984 | $ | 6,941,781 | ||||
Computer hardware and software |
314,237 | | ||||||
Furniture and automobile |
87,259 | 13,262 | ||||||
76,440,480 | 6,955,043 | |||||||
Accumulated depreciation |
8,185 | 431 | ||||||
Property, plant and equipment, net |
$ | 76,432,295 | $ | 6,954,612 | ||||
Depreciation expense for the years ended September 30, 2009 and 2008, was $7,754 and $431,
respectively.
Note 4 Notes Payable
In October 2008, Dynamic Fuels received $100 million in proceeds from the issuance of Gulf
Opportunity Zone tax-exempt bonds made available by Louisiana Public Facilities Authority. These
floating rate bonds are due October 1, 2033. In November 2008, Tyson entered into an interest rate
swap related to these bonds on the Companys behalf to mitigate interest rate risk on a portion of
the bonds for five years. The Company reimburses Tyson for all monthly settlements and any margin
calls related to the swap. Tyson also provided a letter of credit as a guarantee for the entire
bond issuance. The guarantee is for the life of the bonds, 25 years. Monthly fees for this letter
of credit are paid by Tyson. The Company reimburses Tyson for these monthly fees and expenses the
monthly fees accordingly. The unexpended proceeds from the bond issuance are held in trust and can
only be used for the construction of the Dynamic Fuels facility. Accordingly, the unused proceeds
are recorded as restricted cash.
8
Note 5 Commitments and Contingencies
The Company has various construction purchase commitments associated with plant construction. As
of September 30, 2009, total commitments were approximately $25 million and are payable throughout
2009 and 2010, upon completion of construction milestones in accordance with the terms of the
various contracts.
Effective October 1, 2008, the Company entered into a land and office lease agreement associated
with its plant in Geismar, Louisiana, expiring September 30, 2033. Annual lease payments for the
land are $2 million, payable in four quarterly installments of $500,000. In addition,
infrastructure maintenance fees totaling $101,800 are due quarterly. The Company expects to pay at
least $2 million per year in lease payments over the next five years. The lease payments will be
adjusted by the consumer price index in 2013.
The Company has entered into or is currently negotiating additional contracts for utility supplies
of hydrogen, nitrogen, natural gas and electricity. These commitments range from monthly
commitments to 15 years with minimum take or pay of the utility volumes.
Note 6 Members Equity
The Company was initially capitalized on July 13, 2007, with $4,250,000 in capital contributions
from each Member. In July 2008, the Members approved plant sanction and each contributed $14
million in capital contributions. In April 2009, each Member contributed an additional $6 million.
If a Member fails to make a capital contribution, it is in default, and its interest in the Company
will be diluted by $1.50 per $1.00 not contributed. At its option, the other member may fund the
portion of the default, which is considered a loan to the defaulting member at a rate of LIBOR +10%
with a 40-day cure period. The defaulting Member may make a full or partial loan repayment and a
pro rata portion of lost interest will be restored. If the loan is not repaid, it will be
converted into ownership interest for the member making the loan, diluting the defaulting member at
a $1.00 per $1.00 of the loan. No Member is in default at this time.
Note 7 Derivative Financial Instruments
The Companys business operations give rise to certain market risk exposures mostly due to changes
in interest rates. The Company manages this risk through the use of a derivative financial
instrument, to reduce the exposure to interest rate risk associated with a variable-rate borrowing.
The interest rate swap was entered into by Tyson for the Company.
Risk management programs are reviewed and monitored by the Management Committee. These programs
may be revised as market conditions dictate. The current risk management programs utilize
industry-standard models that take into account the implicit cost of hedging. Risks associated
with market risks and those created by derivative instruments and the mark-to-market valuations are
strictly monitored at all times, using value-at-risk and stress tests.
9
The objective of the undesignated interest rate swap is to manage interest rate risk exposure on a
floating-rate bond. The interest rate swap agreement effectively modifies the Companys exposure
to interest rate risk by converting a portion of the floating-rate bond to a fixed rate basis for
the next five years, thus reducing the impact of the interest-rate changes on future interest
expense. This interest rate swap does not qualify for hedge treatment due to differences in the
underlying bond and swap contract interest-rate indices. As of September 30, 2009, the Company had
the flowing aggregate outstanding notionals related to the undesignated position. The Company does
not apply hedge accounting to its interest rate derivative instrument. The Company marks this
position to fair value through earnings at each reporting date. During the year ended September
30, 2009, the Company recognized $3.7 million in mark-to-market swap valuation interest expense on
average notional debt of $64 million, and none during 2008.
Note 8 Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. The fair value
hierarchy contains three levels as follows:
Level 1
|
Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date. | |
Level 2
|
Other significant observable inputs available at the measurement date, including quoted prices for similar securities. | |
Level 3
|
Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize managements estimates of market participant assumptions. |
The interest rate swap is recorded at fair value based on quoted LIBOR swap rates adjusted for
credit and non-performance risk.
The preceding method may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, although the Company believes
its valuation methods are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments
could result in a different fair value measurement at the reporting date.
Derivative assets and liabilities are presented in the Companys balance sheets on a net basis.
The Company nets derivative assets and liabilities, including cash collateral, when a legally
enforceable master netting arrangement exists between the counterparty to a derivative contract and
the Company. At September 30, 2009, it had posted $1.6 million of cash collateral. The net
derivative liability of $2,089,000 is included in due to related parties in the September 30, 2009
balance sheet.
10
The following is a summary of the inputs used in valuing the interest rate swap:
September 30, | ||||
Valuation inputs | 2009 | |||
Level 1 Quoted prices |
$ | | ||
Level 2 Other significant observable inputs |
2,089,000 | |||
Level 3 Significant unobservable inputs |
| |||
Total |
$ | 2,089,000 | ||
11