UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 2010
Commission file number:
000-52421
ADVANCED BIOENERGY,
LLC
(Exact name of Registrant as
Specified in its Charter)
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Delaware
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20-2281511
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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10201 Wayzata Boulevard, Suite 250
Minneapolis, MN 55305
(763) 226-2701
(Address, including zip code,
and telephone number,
including area code, of
Registrants Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Membership Units
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
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.)
Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Our membership units are not publicly traded; therefore, our
public float is not measurable.
As of December 21, 2010, the number of outstanding units
was 24,714,180.
Portions of the registrants definitive Proxy Statement for
the registrants 2011 Annual Meeting of Members are
incorporated by reference into Part III.
ADVANCED
BIOENERGY, LLC
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2010
INDEX
2
SPECIAL
NOTE REGARDING FORWARD-LOOKING INFORMATION
This Annual Report on
Form 10-K
contains forward-looking statements regarding our business,
financial condition, results of operations, performance and
prospects. All statements that are not historical or current
facts are forward-looking statements and are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve known and
unknown risks, uncertainties and other factors, many of which
may be beyond our control that may cause our actual results,
performance or achievements to be materially different from any
future results, performances or achievements expressed or
implied by the forward-looking statements. Certain of these
risks and uncertainties are described in the Risk
Factors section of this Annual Report on
Form 10-K.
These risks and uncertainties include, but are not limited to,
the following:
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our operational results are subject to fluctuations in the
prices of grain, utilities and ethanol, which are affected by
various factors including weather, production levels, supply,
demand, changes in technology and government support and
regulations;
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margins can be volatile and could evaporate, which may impact
our ability to meet current obligations and debt service
requirements at our operating entities;
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our hedging transactions and mitigation strategies could
materially harm our results;
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cash distributions depend upon our future financial and
operational performance and will be affected by debt covenants,
reserves and operating expenditures;
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current governmental mandated tariffs, credits and standards may
be reduced or eliminated;
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alternative fuel additives may be developed that are superior
to, or cheaper than, ethanol;
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transportation, storage and blending infrastructure may become
impaired, preventing ethanol from reaching markets;
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our operation facilities may experience technical difficulties
and not produce the gallons of ethanol expected; and
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our units are subject to a number of transfer restrictions, no
public market exists for our units, and none is expected to
develop.
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You can identify forward-looking statements by terms such as
anticipates, believes,
could, estimates, expects,
intends, may, plans,
potential, predicts,
projects, should, will,
would, and similar expressions intended to identify
forward-looking statements. Forward-looking statements reflect
our current views with respect to future events, are based on
assumptions, and are subject to risks and uncertainties. Given
these uncertainties, you should not place undue reliance on
these forward-looking statements. Also, forward-looking
statements represent our estimates and assumptions only as of
the date of this report. Except as required by law, we assume no
obligation to update any forward-looking statements publicly, or
to update the reasons actual results could differ materially
from those anticipated in any forward-looking statements, even
if new information becomes available in the future. Readers are
urged to carefully review and consider the various disclosures
made by us in this report and in our other reports filed from
time to time with the Securities and Exchange Commission, which
we refer to as the Commission, that advise interested parties of
the risks and factors that may affect our business.
INTELLECTUAL
PROPERTY
Advanced
BioEnergytm,
our logos and the other trademarks, trade names and service
marks of Advanced BioEnergy mentioned in this report are our
property. This report also contains trademarks and service marks
belonging to other entities.
INDUSTRY
AND MARKET DATA
We obtained the industry, market and competitive position data
used throughout this report from our own research, studies
conducted by third parties, independent industry associations,
governmental associations or general publications and other
publicly available information. In particular, we have based
much of our discussion
3
of the ethanol industry, including government regulation
relevant to the industry and forecasted growth in demand, on
information published by the Renewable Fuels Association
(RFA), the national trade association for the
U.S. ethanol industry. Because the RFA is a trade
organization for the ethanol industry, it may present
information in a manner that is more favorable to that industry
than would be presented by an independent source. Although we
believe these sources are reliable, we have not independently
verified the information. Forecasts are particularly likely to
be inaccurate, especially over long periods of time.
ETHANOL
UNITS
All references in this report to gallons of ethanol are to
gallons of denatured ethanol. Denatured ethanol is ethanol
blended with 2.0% to 2.5% denaturant, such as gasoline, to
render it undrinkable and thus not subject to alcoholic beverage
taxes.
4
PART I
ITEM 1. BUSINESS
COMPANY
OVERVIEW
Advanced BioEnergy, LLC (Company, we,
our, Advanced BioEnergy or
ABE) was formed in 2005 as a Delaware limited
liability company. Our business consists of producing ethanol
and co-products, including wet, modified and dried distillers
grains. Ethanol is a renewable, environmentally clean fuel
source that is produced at numerous facilities in the United
States, mostly in the Midwest. In the U.S., ethanol is produced
primarily from corn and then blended with unleaded gasoline in
varying percentages. The ethanol industry in the U.S. has
grown significantly over the last few years as the use of
ethanol reduces harmful auto emissions, enhances octane ratings
of the gasoline with which it is blended, offers consumers a
cost-effective choice, and decreases the amount of crude oil the
U.S. needs to import from foreign sources.
To execute our business plan, we entered into financial
arrangements to build and operate an ethanol production facility
in Fairmont, Nebraska, and we separately acquired ABE South
Dakota, LLC (f/k/a Heartland Grain Fuels, LP) in November 2006,
which owned existing ethanol production facilities in Aberdeen
and Huron, South Dakota. Construction of our Fairmont, Nebraska
plant began in June 2006, and operations commenced at the plant
in November 2007. Construction of our expansion facility in
Aberdeen, South Dakota began in April 2007, and operations
commenced in January 2008. Our production operations are carried
out primarily through our operating subsidiaries, ABE Fairmont,
LLC (ABE Fairmont) which owns and operates the
Fairmont, Nebraska plant and ABE South Dakota, LLC (ABE
South Dakota) which owns and operates ethanol facilities
in Aberdeen and Huron, South Dakota.
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Based on the related business nature and expected financial
results, the Companys plants are aggregated into one
operating segment.
FACILITIES
The table below provides a summary of our dry mill ethanol
plants in operation as of September 30, 2010:
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Estimated
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Estimated
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Annual
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Estimated
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Annual
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Distillers
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Annual
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Ethanol
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Grains
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Corn
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Energy
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Primary
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Location
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Opened
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Production
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Production(1)
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Processed
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Source
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Builder
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(Million gallons)
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(Tons)
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(Million bushels)
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Fairmont, NE
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November 2007
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110
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334,000
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39.3
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Natural Gas
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Fagen
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Aberdeen, SD I(2)
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December 1992
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9
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27,000
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3.2
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Natural Gas
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Broin
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Aberdeen, SD II(2)
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January 2008
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44
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134,000
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15.7
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Natural Gas
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ICM
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Huron, SD
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September 1999
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32
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97,000
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11.4
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Natural Gas
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ICM
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195
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592,000
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69.6
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(1) |
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Our plants produce and sell wet, modified wet and dried
distillers grains. The stated quantities are on a fully dried
basis operating at nameplate capacity. |
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Our plant at Aberdeen consists of two separate production
facilities which operate on a separate basis. Accordingly, we
report and track production from our Aberdeen facilities
separately. |
We believe that the plants are in adequate condition to meet our
current and future production goals. We believe that the plants
are adequately insured for replacement cost plus related
disruption expenditures.
The senior credit facility of the ABE Fairmont plant is secured
by a first mortgage on the plant real estate and a security
interest lien on the sites personal property. We also
granted a subordinate lien and security interest to the trustee
of the subordinated exempt facilities revenue bonds used to
finance the ABE Fairmont plant. We pledged a
5
first-priority security interest in and first lien on
substantially all of the assets of the ABE South Dakota plants
to the collateral agent for the senior creditor of these plants.
ETHANOL
Ethanol sales have represented 85.5%, 80.8% and 82.3% of our
revenues in the years ended September 30, 2010, 2009 and
2008, respectively. In 2009, the United States consumed
10.9 billion gallons of ethanol representing 8.0% of the
137.8 billion gallons of finished motor gasoline consumed.
The United States produced 9.0 billion gallons of ethanol
in 2009 and imported the remainder. The United States consumed
8.6 billion gallons and produced 8.6 billion gallons
of ethanol in the first nine months of 2010. Ethanol is
currently blended with gasoline to meet regulatory standards as
a clean air additive, an octane enhancer, a fuel extender and as
a gasoline alternative.
Ethanol is most commonly sold as E10, the 10 percent blend
of ethanol for use in all American automobiles. Increasingly,
ethanol is also available as E85, a higher percentage ethanol
blend for use in flexible fuel vehicles. To further drive growth
in ethanol usage, Growth Energy, an ethanol industry trade
association, requested a waiver from the Environmental
Protection Agency (EPA) to increase the allowable
amount of ethanol blended into gasoline from the current 10%
level to a 15% level. A final decision was announced on
October 13, 2010 which will allow for E15 usage in 2007 and
newer vehicles. A decision on 2001 to 2006 vehicles is expected
in the near future.
The
Renewable Fuels Standard
The Renewable Fuels Standard (RFS) is a national
program that imposes requirements with respect to the amount of
renewable fuel produced and used. The RFS was revised by the EPA
in July 2010 (RFS2) and applies to refineries,
blenders, distributors and importers. We believe the RFS2
program will increase the market for renewable fuels, such as
ethanol, as a substitute for petroleum-based fuels. The RFS2
requires that 12.95 billion gallons be sold or dispensed in
2010, increasing to 36.0 billion gallons by 2022,
representing 11% of the anticipated gasoline and diesel
consumption. In 2010, RFS2 requires refiners and importers to
blend renewable fuels totaling at least 8.25% of total fuel
volume, of which 7.47% of total fuel volume can be derived from
corn-based ethanol.
The following chart illustrates the potential United States
ethanol demand based on the schedule of minimum usage
established by the program through the year 2022 (in billions of
gallons).
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RFS Requirement
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Total Renewable
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Cellulosic
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Biodiesel
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that can be Met
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Fuel
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Ethanol Minimum
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Minimum
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Advanced
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with Corn-Based
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Year
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Requirement
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Requirement
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Requirement
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Biofuel
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Ethanol
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2011
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13.95
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.25
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.80
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1.35
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12.60
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2012
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15.20
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1.00
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2.0
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13.20
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2013
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16.55
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1.00
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2.75
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13.80
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2014
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18.15
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1.75
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3.75
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14.40
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2015
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20.50
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3.00
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5.50
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15.00
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2016
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22.25
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4.25
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7.25
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15.00
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2017
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24.00
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5.50
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9.00
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15.00
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2018
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26.00
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7.00
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11.00
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15.00
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2019
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28.00
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8.50
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13.00
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15.00
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2020
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30.00
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10.50
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15.00
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15.00
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2021
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33.00
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13.50
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18.00
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15.00
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2022
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36.00
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16.00
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21.00
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15.00
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The RFS2 went into effect on July 1, 2010 and requires
certain gas emission reductions for the entire lifecycle,
including production of fuels. The greenhouse gas reduction
requirement generally doesnt apply to facilities that
commenced construction prior to December 2007. If this changes
and our plants must meet the standard for emissions reduction,
it may impact the way we procure feed stock and modify the way
we market and transport our products.
6
Clean
Air Additive
A clean air additive is a substance that, when added to
gasoline, reduces tailpipe emissions, resulting in improved air
quality characteristics. Ethanol contains 35% oxygen,
approximately twice that of MTBE, a historically used oxygenate.
The additional oxygen found in ethanol results in more complete
combustion of the fuel in the engine cylinder, which reduces
tailpipe emissions by as much as 30%, including a 12% reduction
in volatile organic compound emissions when blended at a 10%
level. Pure ethanol, which is non-toxic, water soluble and
biodegradable, replaces some of the harmful gasoline components,
including benzene.
Octane
Enhancer
Pure ethanol possesses an average octane rating of 113, enabling
refiners to conform lower octane blend stock to gasoline
standards, while also expanding the volume of fuel produced. In
addition, ethanol is commonly added to finished regular grade
gasoline at the wholesale terminal as a means of producing
higher octane mid-grade and premium gasoline. At present,
ethanol represents one of the few commercially viable sources of
octane enhancer available to refiners.
Fuel
Extender
Ethanol extends the volume of gasoline by the amount of ethanol
blended with conventional gasoline, thereby reducing dependence
on foreign crude oil and refined products. Furthermore, ethanol
is easily added to gasoline after the refining process, reducing
the need for large, capital intensive capacity expansion
projects at refineries.
E85, a
Gasoline Alternative
Ethanol is the primary blend component in E85. The number of
service stations that sell E85 has grown rapidly, and, as of
September 30, 2010, 2,170 retail stations currently
supplied it in the U.S. The National Ethanol Vehicle
Coalition estimates that there are more than eight million
flexible fuel vehicles, or FFVs, on the road in the
U.S. today.
Blending
Incentives
The Volumetric Ethanol Excise Tax Credit (VEETC),
often commonly referred to as the blenders
credit, was created by the American Jobs Creation Act of
2004. This credit allows gasoline distributors who blend ethanol
with gasoline to receive a federal excise tax credit of $0.45
per gallon of pure ethanol used, or $0.045 per gallon for E10
and $0.3825 per gallon for E85. To ensure the blenders
credit spurs growth in domestic production, federal policy has
insulated the domestic ethanol industry from foreign competition
by levying a $0.54 per gallon tariff on all imported ethanol.
Both the VEETC and the tariff were set to expire on
December 31, 2010, but were extended for one year as part
of the Tax Relief, Unemployment Insurance Reauthorization,
and Job Creation Act of 2010 signed into law by President
Obama on December 17, 2010.
California
Low Carbon Fuel Standard
In April 2009, the California air regulators approved the
Low-Carbon Fuel Standard aimed at achieving a 10% reduction in
motor vehicle emissions of greenhouse gases by 2020. Other
states may adopt similar legislation, which may lead to a
national standard. The regulation requires that providers,
refiners, importers and blenders ensure that the fuels they
provide in the California market meet a declining standard of
carbon intensity. This rule calls for a reduction of greenhouse
gas emissions associated with the production, transportation and
consumption of a fuel. The emissions score also includes
indirect land-use change pollution created from converting a
forest to cultivated land for corn feedstock. The final
regulation contains a provision to review the measurement of the
indirect land-use effects and further analysis of the land use
values and modeling inputs.
This standard and others to follow may impact the way ethanol
producers procure feedstocks, produce dry distillers grains and
market and transport ethanol and distillers grains. Ethanol
produced through low carbon methods, including imported ethanol
made from sugarcane, may be redirected to certain markets and
U.S. producers may be required to market their ethanol in
other regions.
7
Imported
Ethanol Tariffs
There is a $0.54 per gallon tariff on imported ethanol, which
expires on December 31, 2011, after a one year extension
was signed into law on December 17, 2010. Ethanol imports
from 24 countries in Central America and the Caribbean region
are exempted from the tariff under the Caribbean Basin
Initiative or CBI, which provides that specified nations may
export an aggregate of 7% of U.S. ethanol production per
year into the U.S., with additional exemptions from ethanol
produced from feedstock in the Caribbean region over the 7%
limit. Ethanol imported from Caribbean basin countries may be a
less expensive alternative to domestically produced ethanol.
Expiration of this tariff could lead to the importation of
ethanol from other countries, which may be a less expensive
alternative to ethanol produced domestically. This could impact
our ability to sell our ethanol at the price we need to operate
profitably.
Ethanol
Competition
The ethanol we produce is similar to ethanol produced by other
plants. The RFA reports that as of October 2010, current
U.S. ethanol production capacity is approximately
13.8 billion gallons per year. On a national level there
are numerous other production facilities with which we are in
direct competition, many of whom have greater resources than we
do. As of March 2010, Nebraska had 26 ethanol plants producing
an aggregate of 1.3 billion gallons of ethanol per year,
and South Dakota had 15 ethanol plants producing an aggregate of
1.0 billion gallons of ethanol per year, including our
plants.
The largest ethanol producers include: Abengoa Bioenergy Corp.,
Archer Daniels Midland Company, Cargill, Inc., Green Plains
Renewable Energy, Inc., POET, LLC and Valero Renewable Fuels.
Producers of this size may have an advantage over us from
economies of scale and negotiating position with purchasers. We
market our ethanol primarily on a regional and national basis.
We believe that we are able to reach the best available markets
through the use of experienced ethanol marketers and by the rail
delivery methods we utilize. Our plants compete with other
ethanol producers on the basis of price, and, to a lesser
extent, delivery service. We believe that we can compete
favorably with other ethanol producers due to our proximity to
ample grain, natural gas, electricity and water supplies at
favorable prices.
Competition
from Alternative Fuels
Alternative fuels and alternative ethanol production methods are
continually under development. The major oil companies have
significantly greater resources than we have to develop
alternative products and to influence legislation and public
perception of ethanol. New ethanol products or methods of
ethanol production developed by larger and better-financed
competitors could provide them competitive advantages and harm
our business.
Ethanol
Marketing
ABE Fairmont entered into a new marketing agreement with Hawkeye
Gold, LLC (Hawkeye Gold), an affiliate of Hawkeye
Energy Holdings, LLC (Hawkeye), which became
effective on January 1, 2010. The marketing agreement with
Hawkeye Gold requires, among other things, that Hawkeye Gold
must use commercially reasonable efforts to submit purchase
orders for, and ABE Fairmont must sell, substantially all of the
denatured fuel-grade ethanol produced by ABE Fairmont. The
initial term of the agreement is for two years and provides for
automatic renewal for successive
18-month
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term.
ABE South Dakota executed new marketing agreements with Hawkeye
Gold which became effective October 1, 2010. The agreements
provide that Hawkeye Gold will use commercially reasonable
efforts to submit purchase orders for, and ABE South Dakota will
sell to Hawkeye Gold, substantially all of the denatured
fuel-grade ethanol produced at the South Dakota plants. The
initial term of the agreement is for three years and provides
for automatic renewal for successive one-year terms unless
either party provides written notice of nonrenewal at least
180 days prior to the end of any term. Prior to
October 1, 2010, ABE South Dakotas ethanol was
marketed by Gavilon, LLC (Gavilon).
8
CO-PRODUCTS
Sales of distillers grains have represented 14.2%, 19.2% and
17.7% of our revenues for the years ended September 30,
2010, 2009 and 2008. When the plants are operating at capacity
they produce approximately 592,000 tons of dried distillers
grains equivalents per year, approximately 17 pounds per bushel
of corn. Distillers grains are a high-protein, high-energy
animal feed supplement primarily marketed to the dairy and beef
industry, as well as the poultry and swine markets. Dry mill
ethanol processing creates three forms of distillers grains: wet
distillers grains with solubles, known as wet distillers grains,
modified wet distillers grains with solubles, known as modified
distillers grains, and dry distillers grains with solubles.
Modified distillers grains have been dried to approximately 44%
moisture, have a slightly longer shelf life than wet of
approximately 10 days, and are often sold to nearby
markets. Dried distillers grains have been dried to 11%
moisture, have an almost indefinite shelf life and may be sold
and shipped to any market regardless of its proximity to an
ethanol plant.
Competition
We compete with other ethanol producers in the sales of
distillers grains, as well as a number of large and smaller
suppliers of competing animal feed. We believe the principal
competitive factors are price, proximity to purchasers and
product quality. Currently 80% of our distillers grain revenues
are derived from the sale of dried distillers grains, which has
an indefinite shelf life and can be transported by truck or
rail, 4% as modified and 16% as wet, which have a shorter shelf
life and are typically sold in local markets.
Co-Product
Marketing
ABE Fairmont is currently self-marketing the distillers grains
it produces. ABE South Dakota currently has a marketing
agreement with Dakotaland Feeds, LLC (Dakotaland
Feeds) for marketing the local sale of ethanol co-products
produced at the Huron plant. ABE South Dakota executed a new
marketing agreement with Hawkeye Gold for distillers grains
produced at the Aberdeen plants which became effective
October 1, 2010. The marketing agreement with Hawkeye Gold
provides that Hawkeye Gold agrees to use commercially reasonable
efforts to submit purchase orders for, and ABE South Dakota
agrees to sell, substantially all of the dried and wet
distillers grains produced at the Aberdeen plants. Dakotaland
Feeds will continue to market the distillers grains produced at
the Huron plant.
DRY MILL
PROCESS
Dry mill ethanol plants produce ethanol by predominantly
processing corn. Other possible feeds are sorghum, milo, or
other cellulosic materials. The corn is received by truck, then
weighed and unloaded in a receiving building. It is then
transported to storage silos. Thereafter, it is transferred to a
scalper to remove rocks, cobs, and other debris before it is fed
to a hammer mill where it is ground into flour and conveyed into
a slurry tank. Water, heat and enzymes are added to the flour in
the slurry tank to start the process of converting starch from
the corn into sugar. The slurry is pumped to a liquefaction tank
where additional enzymes are added. These enzymes continue the
starch-to-sugar conversion. The grain slurry is pumped into
fermenters, where yeast is added, to begin the
batch-fermentation process. Fermentation is the process of the
yeast converting the sugar into alcohol and carbon dioxide.
After the fermentation is complete, a vacuum distillation system
removes the alcohol from the grain mash. The 95% (190-proof)
alcohol from the distillation process is then transported to a
molecular sieve system, where it is dehydrated to 100% alcohol
(200 proof). The 200-proof alcohol is then pumped to storage
tanks and blended with a denaturant, usually gasoline. The
200-proof alcohol and 2.0-2.5% denaturant constitute denatured
fuel ethanol.
Corn mash left over from distillation is pumped into a
centrifuge for dewatering. The liquid from the centrifuge, known
as thin stillage, is then pumped from the centrifuges to an
evaporator, where it is dried into thick syrup. The solids that
exit the centrifuge, known as the wet cake, are conveyed to the
dryer system. Syrup is added to the wet cake as it enters the
dryer, where moisture is removed. The process produces
distillers grains with solubles, which is used as a
high-protein/fat animal-feed supplement. Dry-mill ethanol
processing creates three forms of distillers grains: wet
distillers grains with solubles, known as wet distillers grains;
modified wet distillers grains with solubles, known as modified
distillers grains; and dry distillers grains with solubles,
known as dry distillers grains. Wet and modified distillers
grains have been dried to approximately 64% and 44% moisture
levels,
9
respectively, and are predominately sold to nearby markets.
Dried distillers grains have been dried to 11% moisture, have an
almost indefinite shelf life and may be sold and shipped to any
market regardless of its proximity to an ethanol plant.
RAW
MATERIALS
Corn
In 2009, the ethanol industry consumed approximately
3.9 billion bushels of corn, which approximated 30% of the
13.1 billion bushels of 2009 domestic corn production.
Our production facilities produce ethanol by using a dry-mill
process, which yields approximately 2.8 gallons of denatured
ethanol per bushel of corn. When our facilities are operating at
capacity, they require approximately 69.6 million bushels
of corn per year. At our Fairmont plant, we source our corn both
directly from farmers located near our facilities and from local
dealers. We have a grain origination agreement with South Dakota
Wheat Growers Association to originate, store and deliver corn
to the Aberdeen and Huron plants. The corn for the facilities is
generally delivered to the facilities by truck from the local
area.
We purchase corn through cash fixed-priced contracts and other
physical delivery contracts. Our forward contracts specify the
amount of corn, the price and the time period over which the
corn is to be delivered. These forward contracts are at
fixed-prices or prices based on the Chicago Board of Trade
(CBOT) prices. The parameters of these contracts are
based on the local supply and demand situation and the
seasonality of the price. We purchase approximately 72% of the
ABE Fairmont corn from commercial elevators and the remainder
from local corn producers. Except for the grain origination
agreement with South Dakota Wheat Growers Association, we have
no other significant contracts, agreements or understandings
with any grain producer.
We intend to use forward contracting and hedging strategies to
help guard against price movements that often occur in corn
markets. Hedging means protecting the price at which we buy corn
and the price at which we sell our products in the future. It is
a way to reduce the risk caused by price fluctuation. The
effectiveness of such hedging activities depends on, among other
things, the cost of corn and our ability to sell enough ethanol
and distillers grains to use all of the corn subject to the
futures and option contracts we have purchased as part of our
hedging strategy. Although we will attempt to link hedging
activities to sales plans and pricing activities, hedging
activities themselves can result in costs because price
movements in corn contracts are highly volatile and are
influenced by many factors that are beyond our control.
Natural
Gas
When our facilities operate at capacity, they require
approximately 5.3 mmbtus of natural gas per year. Natural
gas prices and availability are affected by weather conditions
and overall economic conditions. We have constructed our own
natural gas pipelines for the Aberdeen and Fairmont plants.
These pipelines originate at interstate transport pipelines and
allow our plants to source gas from various national marketers
without paying transportation cost to the local utility. We
purchase natural gas from local utilities and national suppliers
for our Huron plant. We hedge a portion of our exposure to
natural gas price risk from time to time by using fixed-price or
futures contracts.
TECHNOLOGICAL
IMPROVEMENTS
Most ethanol is currently produced from corn. The current trend
in ethanol production research is to develop an efficient method
of producing ethanol from cellulose-based biomass, such as
agricultural waste, forest residue, and municipal solid waste
and energy crops. This trend is driven by the environmental
concerns regarding the carbon footprint of ethanol produced from
corn and legislative supports within RFS2. Additionally,
cellulose-based biomass is generally cheaper than corn, and
producing ethanol from cellulose-based biomass would create
opportunities to produce ethanol in areas that are unable to
grow corn. If an efficient method of producing ethanol from
cellulose-based biomass is developed, we may not be able to
compete effectively. We do not believe it will be cost-effective
to convert our existing plants into a cellulose-based biomass
producing facilities.
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ENVIRONMENTAL
MATTERS
We are subject to various federal, state and local environmental
laws and regulations, including those relating to the discharge
of materials into the air, water and ground; the generation,
storage, handling, use, transportation and disposal of hazardous
materials; and the health and safety of our employees. A
violation of these laws and regulations or permit conditions can
result in substantial fines, natural resource damage, criminal
sanctions, damage claims from third parties, permit revocations
and/or
facility shutdowns. We believe we are currently in substantial
compliance with environmental laws and regulations and do not
anticipate a material adverse effect on our business or
financial condition as a result of our efforts to comply with
these requirements. However, our business is still subject to
risks associated with environmental and other regulations and
associated costs. Protection of the environment requires us to
incur expenditures for equipment, processes and permitting.
Although we include significant pollution control equipment in
our production facilities, our estimated capital expenditures
for environmental controls in 2010 were not material, and we do
not expect material expenditures for environmental controls in
2011.
EMPLOYEES
As of December 1, 2010, we had 127 full-time
employees. None of our employees are covered by a collective
bargaining agreement.
SEASONALITY
Our operating results are influenced by seasonal fluctuations in
the price of our primary operating inputs, corn and natural gas,
and the price of our primary products, ethanol and distillers
grains. Historically, the spot price of corn tends to rise
during the spring planting season in May and June and tends to
decrease during the fall harvest in October and November. The
price for natural gas however, tends to move opposite of corn
and tends to be lower in the spring and summer and higher in the
fall and winter. The price of distillers grains tends to rise
during the fall and winter cattle feeding seasons and be lower
in the spring and summer when pasture grazing is readily
available.
REPORTS
The Companys annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports are available on the
Companys website www.advancedbioenergy.com as soon as
reasonably practicable after it electronically files such
materials with the SEC.
ITEM 1A. RISK
FACTORS
RISKS
RELATED TO OUR BUSINESS
ABE
Fairmont and ABE South Dakota existing debt financing agreements
contain restrictive covenants. The failure to comply with
applicable debt financing covenants and agreements could have a
material adverse effect on our business, results of operations
and financial condition.
The terms of our existing debt financing agreements contain, and
any future debt financing agreements we enter into may contain,
financial, maintenance, organizational, operational or other
restrictive covenants. If ABE Fairmont and ABE South Dakota are
unable to comply with these covenants or service its debt, we
may be forced to reduce or delay planned capital expenditures,
sell assets, restructure our indebtedness or submit to
foreclosure proceedings, all of which could result in a material
adverse effect upon our business, results of operations and
financial condition.
Our
financial performance is highly dependent on commodity prices,
which are subject to significant volatility, uncertainty, and
supply disruptions, so our results may be materially adversely
affected.
Our results of operations and financial condition are
significantly affected by the cost and supply of corn and
natural gas and by the selling price for ethanol, distillers
grains, and gasoline, which are commodities. Changes in the
price and supply of these commodities are subject to and
determined by market forces over which we have no control. We
purchase our corn in the cash market, and from time to time,
hedge corn price risk through futures
11
contracts, options and over-the-counter instruments to reduce
short-term exposure to price fluctuations. We experienced
aggregate corn-related hedging losses of $49,000,
$3.2 million, and $0.5 million in fiscal 2010, 2009,
and 2008, respectively, and these losses may be greater in the
future.
Our revenues are exclusively dependent on the market prices for
ethanol and distillers grains. These prices can be volatile due
to a number of factors. These factors include the overall supply
and demand, the price of gasoline, the level of government
support and the availability and price of competing products.
The price of ethanol tends to increase as the price of gasoline
increases, and decrease as the price of gasoline decreases. Any
lowering of gasoline prices will likely also lead to lower
prices for ethanol, which may reduce revenues.
Certain
members beneficially own a large percentage of our units, which
may allow them to collectively control substantially all matters
requiring member approval and, certain of our principal members,
including Hawkeye Energy Holdings, LLC and Clean Energy Capital,
LLC (f/k/a Ethanol Capital Management, LLC) (CEC),
have been granted other unique rights.
In August 2009, we and each of our directors, South Dakota Wheat
Growers Association, CEC and Hawkeye executed a Voting Agreement
(the Voting Agreement). The Voting Agreement, among
other things, requires the parties to (a) nominate for
election to the board two designees of Hawkeye, two designees of
CEC and the Chief Executive Officer of the Company,
(b) recommend to the members the election of each of the
designees, (c) vote (or act by written consent) all units
(or other voting equity securities) of the Company they
beneficially own, hold of record or otherwise control at any
time, in person or by proxy, to elect each of the designees to
the board, (d) not take any action that would result in
(and take any action necessary to prevent) the removal of any of
the designees from the board or the increase in the size of the
board to more than nine members without the consent of the
Hawkeye, CEC and Chief Executive Officer, and (e) not grant
a proxy with respect to any units that is inconsistent with the
parties obligations under the Voting Agreement. The
Company has granted Hawkeye board observation rights under the
Voting Agreement. At December 21, 2010, the parties to the
Voting Agreement held in the aggregate approximately 59% of the
outstanding units of the Company.
As a result of the Voting Agreement, Hawkeye and CEC will
significantly influence the outcome of any actions taken by our
board of directors. In addition, given the large ownership of
these two entities, they can significantly influence other
actions, such as amendments to our operating agreement, mergers,
going private transactions, and other extraordinary
transactions, and any decisions concerning the terms of any of
these transactions. The ownership and voting positions of these
members may have the effect of delaying, deterring, or
preventing a change in control or a change in the composition of
our board of directors. These members may also use their
contractual rights, including access to management, and their
large ownership position to address their own interests, which
may be different from those of our other members.
We are
required to sell substantially all of our ethanol (and part of
our distillers grains) to Hawkeye Gold an affiliate of Hawkeye,
which may place us at a competitive disadvantage and reduce
profitability.
We have entered into Exclusive Ethanol Marketing Agreements with
Hawkeye Gold to sell all of our ethanol. ABE Fairmont executed
an Exclusive Ethanol Marketing Agreement dated as of
August 28, 2009 with Hawkeye Gold (the ABE Fairmont
Ethanol Agreement), which became effective on
January 1, 2010. ABE South Dakota executed Exclusive
Ethanol Marketing Agreements dated as of April 7, 2010 with
Hawkeye Gold (the ABE South Dakota Ethanol
Agreements, and together with the ABE Fairmont Ethanol
Agreement, the Ethanol Agreements), which became
effective October 1, 2010. Hawkeye Gold is an affiliate of
Hawkeye, a 34% owner of our outstanding membership interests.
The Ethanol Agreements require, among other things, that
(1) Hawkeye Gold must use commercially reasonable efforts
to submit purchase orders for, and ABE Fairmont and ABE South
Dakota must sell, substantially all of the denatured fuel grade
ethanol produced by ABE Fairmont and ABE South Dakota,
(2) a purchase and sale of ethanol under the Ethanol
Agreements must be in the form of either a direct fixed price
purchase order, a direct index price purchase order, a terminal
storage purchase order, a transportation swap or similar
transaction that is mutually acceptable to the parties,
(3) ABE Fairmont or ABE South Dakota will pay any
replacement or other costs incurred by Hawkeye Gold as a result
of any failure to deliver by ABE Fairmont or ABE South Dakota,
respectively, and (4) with certain exceptions, ABE Fairmont
and ABE South Dakota will sell substantially all of the ethanol
they produce to Hawkeye Gold. The initial term of the ABE
Fairmont Agreement is
12
for two years, and provides for automatic renewal for successive
18 month terms unless either party provides written notice
of nonrenewal at least 180 days prior to the end of any
term. The initial terms of the ABE South Dakota Ethanol
Agreements are for three years and provide for automatic renewal
for successive one-year terms unless either party provides
written notice of nonrenewal at least 180 days prior to the
end of any term. Effective October 1, 2010, ABE South Dakota
entered into a similar marketing agreement with Hawkeye Gold for
the sale of distillers grains produced at its Aberdeen plants.
Hawkeye Gold may not effectively manage the logistics of ABE
Fairmont and ABE South Dakotas rail cars to ensure ABE
Fairmont and ABE South Dakota will be able to continue producing
ethanol without exceeding their storage capacity, resulting in
unplanned slowdowns or shut downs or may not otherwise
successfully market ABEs ethanol (and distillers grains).
A default by Hawkeye Gold in its obligations to ABE Fairmont or
ABE South Dakota, ABE Fairmonts or ABE South Dakotas
failure to obtain the best price for their ethanol, or Hawkeye
Golds failure to effectively manage logistics may
negatively affect our profitability.
The
ability of Hawkeye Gold to sustain its business may be at
risk.
Hawkeye, the parent company of Hawkeye Gold, no longer owns any
physical plant assets. Of the four plants formerly owned by
Hawkeye, Hawkeye Gold continues to provide marketing services
for two of the plants. However, we are uncertain as to whether
they will continue to do so in the future. The decline in
Hawkeye Golds business may have a negative impact on the
marketing services it provides for us and on its ability to
market and sell ethanol (and distillers grains) produced by the
Company. Additionally, Hawkeye Gold could be exposed to credit
risk related to potential non-payment by a customer; we are
uncertain as to whether Hawkeye Gold would be able to sustain a
potential default by a large customer. If a default by a large
customer occurred, it could have a negative impact on Hawkeye
Golds ability to continue as a going concern, and to
market and sell the ethanol (and distillers grains) produced by
us, which is the primary means by which we generate revenue.
We
depend on others for sales of our products, which may place us
at a competitive disadvantage and reduce
profitability.
We currently have agreements with a third-party marketing firms
including Hawkeye Gold, an affiliate of Hawkeye, to market all
of the ethanol we produce as well as the distillers grains
produced at the ABE South Dakota Aberdeen plants. We have a
contract with a third party to locally market the sale of
distillers grains produced at the South Dakota Huron plant. If
the ethanol or distillers grains marketers breach their
contracts or do not have the ability, for financial or other
reasons, to market all of the ethanol we produce or to locally
market the distillers grains produced at the South Dakota
plants, we will not have any readily available alternative means
to sell our products. Our lack of a sales force and reliance on
third parties to sell and market most of our products may place
us at a competitive disadvantage. Our failure to sell all of our
ethanol and distillers grains may result in lower revenues and
reduced profitability.
We are
exposed to credit risk resulting from the non-payment from
significant customers.
We have a concentration of credit risk since our subsidiaries
generally sell all of their ethanol to a single customer. We
have increased in-house sales of distillers grains, which
results in credit risks from new customers. Although payments
are typically received within twenty days from the date of sale
for ethanol and distillers grains, we continually monitor this
credit risk exposure. In addition, we may prepay for or make
deposits on undelivered inventories. Concentrations of credit
risk with respect to inventory advances are primarily with a few
major suppliers of petroleum products and agricultural inputs.
The inability of a third party to make payments to us for our
accounts receivable or to provide inventory to us on advances
may cause us to experience losses and may adversely impact our
liquidity and our ability to make our payments when due. As of
September 30, 2010, the total receivable balance at ABE
Fairmont was $8,975,514, of which 86% was due from one customer,
and the total receivable balance at ABE South Dakota was
$5,060,987 of which 86% was due from two customers.
The
spread between ethanol and corn prices can vary significantly
and profitability is dependent on this spread.
Gross profit on gallons produced at our facilities, which
accounts for the substantial majority of our operating income,
is principally dependent on the spread between ethanol and corn
prices. The ethanol industry has built an
13
oversupply in production of ethanol over the existing demand for
ethanol gallons according to the RFA. This has resulted in our
ethanol selling prices being driven by the industrys cost
of ethanol production; more specifically, ethanol prices have
been highly correlated to corn prices for the past ten months.
The price of corn is influenced by weather conditions (including
droughts or over abundant rainfall) and other factors affecting
crop yields, farmer planting decisions and general economic,
market and regulatory factors, including government policies and
subsidies with respect to agriculture and international trade,
and global and local supply and demand.
The
market for natural gas is subject to market conditions that
create uncertainty in the price and availability of the natural
gas that we use in our manufacturing process.
Natural gas costs represented approximately 7% of our cost of
goods sold in the year ended September 30, 2010. We rely
upon third parties for our supply of natural gas, which is
consumed in the production of ethanol. The prices for and
availability of natural gas are subject to volatile market
conditions. These market conditions often are affected by
factors beyond our control such as higher prices resulting from
colder than average weather conditions, hurricanes in the Gulf
of Mexico, and overall economic conditions. Significant
disruptions in the supply of natural gas could impair our
ability to produce ethanol. Furthermore, increases in natural
gas prices or changes in our natural gas costs relative to
natural gas costs paid by competitors may adversely affect our
results of operations and financial position. The price
fluctuations in natural gas prices over the period from
January 1, 2001 through December 1, 2010, based on the
New York Mercantile Exchange or NYMEX, daily futures data, has
ranged from a low of $1.83 per million British Thermal Units, or
mmbtu, on September 26, 2001 to a high of $15.38 per mmbtu
on December 13, 2005. At September 30, 2010, the NYMEX
price of natural gas was $3.87 per mmbtu.
We may
engage in hedging transactions and other risk mitigation
strategies that could harm our results.
We are exposed to a variety of market risks, including the
effects of changes in commodity prices. We may engage in hedging
activities using exchange traded futures and options contracts,
OTC futures or OTC swap agreements. Hedging activities can
result in losses when a position is purchased in a declining
market or a position is sold in a rising market. We experienced
aggregate corn-related hedging losses of $49,000 and
$3.2 million in fiscal 2010 and 2009, respectively. There
is no assurance that we will not experience greater hedging
losses in the future. Hedging arrangements also expose us to the
risk of financial loss in situations where the other party to
the hedging contract defaults on its contract or, in the case of
exchange-traded contracts, where there is a change in the
expected differential between the underlying price in the
hedging agreement and the actual prices paid or received by us.
In addition, failure to have adequate capital to utilize various
hedging strategies may result in a loss for our company or
expose us to substantial risk of loss.
Our
business is subject to seasonal fluctuations.
Our operating results are influenced by seasonal fluctuations in
the price of our primary operating inputs, corn and natural gas,
and the price of our primary products, ethanol and distillers
grains. Historically, the spot price of corn tended to rise
during the spring planting season in May and June and tended to
decrease during the fall harvest in October and November. The
price for natural gas however, tends to move opposite of corn
and tends to be lower in the spring and summer and higher in the
fall and winter. The price of distillers grains tends to rise
during the fall and winter cattle feeding seasons and be lower
in the spring and summer when pasture grazing is readily
available.
Our
lack of business diversification could result in adverse
operating results if our revenues from our primary products
decrease.
Our business consists of ethanol and distillers grains
production and sales. We do not have any other lines of business
or other potential sources of revenue. Our lack of business
diversification could cause us to shut down operations and be
unable to meet financial obligations if we are unable to
generate positive cash flows from the production and sale of
ethanol and distillers grains because we do not currently expect
to have any other lines of business or alternative revenue
sources.
14
Our
operating results may fluctuate significantly, which makes our
future results difficult to predict and could cause our
operating results to fall below expectations.
Our operating results have fluctuated in the past and may
fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. As a result,
comparing our operating results on a period-to-period basis may
not be meaningful, and our past results do not necessarily
indicate our future performance.
We are
dependent on certain key personnel, and the loss of any of these
persons may prevent us from implementing our business plan in an
effective and timely manner.
Our success depends largely upon the continued services of our
chief executive officer and other key personnel. Any loss or
interruption of the services of one of these key personnel could
result in our inability to manage our operations effectively or
pursue our business strategy.
We may
be required to write down our long-lived assets and these
impairment charges would adversely affect our operating
results.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount on
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 assets
at the time of the impairment. Any future impairment could be
significant and could have a material adverse effect on our
reported financial results for the period in which the charge is
taken.
RISKS
RELATED TO OUR UNITS
We
have placed significant restrictions on transferability of the
units, no public trading market exists for our units and there
is no assurance that unitholders will receive cash
distributions.
Our units are subject to substantial transfer restrictions
pursuant to our operating agreement. As a result, investors may
not be able to liquidate their investments in the units and,
therefore, may be required to assume the risks of investments in
us for an indefinite period of time, which may be the life of
our Company. We have not developed an exit strategy.
Further, there is currently no established public trading market
for our units, and an active trading market is not anticipated
for our units. In order for the Company to maintain its
partnership tax status, unitholders may not trade the units on
an established securities market or readily trade the units on a
secondary market (or the substantial equivalent thereof).
To help ensure that a secondary market does not develop, our
operating agreement prohibits transfers without the approval of
our board of directors. The board of directors will not approve
transfers unless they fall within safe harbors
contained in the publicly traded partnership rules under the tax
code, which include, without limitation, the following:
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Transfers by gift to the members descendants,
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Transfer upon the death of a member,
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Transfers between family members, and
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Transfers that comply with the qualifying matching
services requirements.
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Distributions are payable at the sole discretion of our board of
directors, subject to the provisions of the Delaware Limited
Liability Company Act, our operating agreement and the
requirements of our creditors. Cash distributions are not
assured, and we may never be in a position to make
distributions. Our board may elect to retain future profits to
provide operational financing for the plants, debt retirement
and possible plant expansion, the construction or acquisition of
additional plants or other company opportunities. This means
that members may receive little or no return on their investment
and be unable to liquidate their investment due to transfer
restrictions and lack of a public trading market.
15
Our
members have limited voting rights.
Members cannot exercise control over our daily business affairs.
Subject to the provisions in our operating agreement, our board
of directors may modify our business plans without the
members consent.
In addition to the election of directors, the disposition of
substantially all of our assets through merger, exchange or
otherwise, except for dissolution of our company or a transfer
of our assets to a wholly owned subsidiary, requires the
affirmative vote of a majority of our membership voting
interests.
Our members may only propose amendments to the Operating
Agreement and call a unit holder meeting if they hold more than
1% of the units outstanding. Members may demand a member meeting
only if they represent in the aggregate 30% of the membership
voting interests.
Amendments to our operating agreement (other than amendments
that would modify the limited liability of a member or alter a
members economic interest, which requires a two-thirds
vote of the membership interests adversely affected) require the
affirmative vote of a majority of the membership voting
interests represented at a meeting.
RISKS
RELATED TO THE ETHANOL INDUSTRY
If
demand does not sufficiently increase and production capacity
and imported ethanol increase, the current overcapacity state
could continue.
According to the RFA, domestic ethanol production capacity has
increased dramatically from 1.7 billion gallons per year in
January of 1999 to 13.8 billion gallons per year as of
October 2010; however, 10 of the 204 plants in the United
States are idle, reducing current operational output capacity to
12.9 billion gallons per year. In addition to this increase
in supply, excess ethanol production capacity also may result
from decreases in the demand for ethanol or increased imported
supply, which could result from a number of factors, including
but not limited to, regulatory developments and reduced gasoline
consumption in the U.S. Reduced gasoline consumption could
occur as a result of increased prices for gasoline or crude oil,
which could cause businesses and consumers to reduce driving or
acquire vehicles with more favorable gasoline mileage, or as a
result of technological advances, such as the commercialization
of engines utilizing hydrogen fuel-cells, which could supplant
gasoline-powered engines. There are a number of governmental
initiatives designed to reduce gasoline consumption, including
tax credits for hybrid vehicles and consumer education programs.
Any increase in the supply of distillers grains, without
corresponding increases in demand, could lead to lower prices or
an inability to sell our distillers grains. A decline in the
price of distillers grains, or the distillers grains market
generally, could have a material adverse effect on our business,
results of operations and financial condition.
Volatility
in gasoline selling price and production cost may reduce our
gross margins.
Ethanol is utilized both as a fuel additive to reduce vehicle
emissions and as an octane enhancer to improve the octane rating
of the gasoline with which it is blended. Therefore, the supply
and demand for gasoline impacts the price of ethanol, and our
business and future results of operations may be materially
adversely affected if gasoline demand or price decreases.
The
price of distillers grains is affected by the price of other
commodity products; decreases in the price of these commodities
could decrease the price of distillers grains.
Distillers grains compete with other protein-based animal feed
products. The price of distillers grains may decrease when the
price of competing feed products decrease. The prices of
competing animal feed products are based in part on the prices
of the commodities from which they are derived. Downward
pressure on commodity prices, such as corn and soybean meal,
will generally cause the price of competing animal feed products
to decline, resulting in downward pressure on the price of
distillers grains. Because the price of distillers grains is not
tied to production costs, decreases in the price of distillers
grains will result in us generating less revenue and lower
profit margins.
16
Growth
in the sale and distribution of ethanol is dependent on the
changes in and expansion of related infrastructure which may not
occur on a timely basis, if at all, and our operations could be
adversely affected by infrastructure disruptions.
Ethanol is currently blended with gasoline to meet regulatory
standards as a clean air additive, an octane enhancer, a fuel
extender and a gasoline alternative. In 2009, the United States
consumed 10.9 billion gallons of ethanol representing 8.0%
of the 137.8 billion gallons of finished motor gasoline
consumed according to the RFA. Ethanol plants in the United
States produced 10.8 billion gallons. To drive growth in
ethanol usage, Growth Energy, an ethanol industry trade
association, requested a waiver from the EPA to increase the
allowable amount of ethanol blended into gasoline from the
current 10% level to a 15% level. A final decision was announced
on October 13, 2010 which will allow for E15 usage in 2007
and newer vehicles. A decision on 2001 to 2006 vehicles is
expected in the near future. Additional infrastructure will be
required to handle the additional 5% of blending including:
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Expansion of refining and blending facilities to handle ethanol
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Growth in service stations equipped to handle ethanol fuels
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Additional storage facilities for ethanol
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Additional rail capacity
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Increase in truck fleets capable of transporting ethanol within
localized markets
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Without infrastructure investments by unrelated parties, the
demand for ethanol may not increase which could have an adverse
effect on our business.
Current ethanol prices per gallon are approximately $.05 less
than Reformulated Regular Gasoline Blendstock for Blending
(RBOB) and the blenders receive a $.45
blenders credit for each gallon of ethanol blended.
Currently, the blenders credit is set to expire on
December 31, 2011, after a one year extension was signed
into law on December 17, 2010. In the event the blenders
credit is not extended beyond 2011, we believe there would be a
material adverse effect on the market for the sale of our
ethanol, which in turn would have an adverse effect on our
financial results.
Corn-based
ethanol may compete with cellulose-based ethanol in the future,
which could make it more difficult for us to produce ethanol on
a cost-effective basis.
Approximately 95% of ethanol produced in the U.S. is
currently produced from corn, according to the RFA.
The current trend in ethanol production research is to develop
an efficient method of producing ethanol from cellulose-based
biomass, such as agricultural waste, forest residue, and
municipal solid waste and energy crops. This trend is driven by
governmental mandates including the Renewable Fuels Standard, as
most recently amended (RFS2), and the fact that
cellulose-based biomass would create opportunities to produce
ethanol in areas that are unable to grow corn. Furthermore,
ethanol produced from cellulose based biomass is generally
considered to emit less carbon emission than ethanol produced
from corn. If an efficient method of producing ethanol from
cellulose-based biomass is developed, we may not be able to
compete effectively. We do not believe it will be cost-effective
to convert our existing plants into cellulose-based biomass
facilities. If we are unable to produce ethanol as cost
effectively as cellulose-based producers, our ability to
generate revenue will be negatively impacted.
Competition
from new or advanced technology may lessen the demand for
ethanol and negatively impact our profitability.
Alternative fuels, gasoline oxygenates and ethanol production
methods are continually under development. A number of
automotive, industrial and power generation manufacturers are
developing more efficient engines, hybrid engines and
alternative clean power systems using fuel cells or clean
burning gaseous fuels. Vehicle manufacturers are working to
develop vehicles that are more fuel efficient and have reduced
emissions using conventional gasoline. Vehicle manufacturers
have developed and continue to work to improve hybrid
technology, which powers vehicles by engines that utilize both
electric and conventional gasoline fuel sources. In the future,
the emerging fuel cell industry will offer a technological
option to address increasing worldwide energy costs, the long-
17
term availability of petroleum reserves and environmental
concerns. Fuel cells have emerged as a potential alternative to
certain existing power sources because of their higher
efficiency, reduced noise and lower emissions. Fuel cell
industry participants are currently targeting the
transportation, stationary power and portable power markets in
order to decrease fuel costs, lessen dependence on crude oil and
reduce harmful emissions. If the fuel cell and hydrogen
industries continue to expand and gain broad acceptance, and
hydrogen becomes readily available to consumers for motor
vehicle use, we may not be able to compete effectively. This
additional competition could reduce the demand for ethanol,
which would negatively impact our profitability and reduce the
value of your investment.
Competition
in the ethanol industry could limit our growth and harm our
operating results.
The market for ethanol and other biofuels is highly competitive.
Our current and prospective competitors include many large
companies that have substantially greater market presence, name
recognition and financial, marketing and other resources than we
do. We compete directly or indirectly with large companies, such
as Abengoa Bioenergy Corp., Archer Daniels Midland Company,
Cargill, Inc., Green Plains Renewable Energy, Inc., POET, LLC
and Valero Energy Corporation and with other companies that are
seeking to develop large-scale ethanol plants and alliances.
Pressure from our competitors could require us to reduce our
prices or increase our spending for marketing, which would erode
our margins and could have a material adverse effect on our
business, financial condition and results of operations.
Imported
ethanol may be a less expensive alternative to domestic ethanol,
which would cause us to lose market share and reduce the value
of your investment.
Brazil is currently the worlds second largest producer and
exporter of ethanol. In Brazil, ethanol is produced primarily
from sugarcane, which is less costly to produce than corn-based
ethanol because of the higher sugar content of sugarcane.
Ethanol imported from Brazil may be a less expensive alternative
to domestically produced ethanol. The current $0.54 per gallon
tariff imposed by the U.S. on ethanol imported from Brazil
through December 31, 2011 significantly reduces competition
from Brazilian ethanol producers for sales of ethanol in the
U.S. In the event tariffs presently protecting
U.S. ethanol producers are reduced or eliminated, a
significant barrier to entry into the U.S. ethanol market
would be removed or reduced. Competition from ethanol imported
from Brazil may affect our ability to sell our ethanol
profitably.
Ethanol produced or processed in certain countries in Central
America and the Caribbean region is eligible for tariff
reduction or elimination upon importation to the U.S. under
a program known as the Caribbean Basin Initiative. Large ethanol
producers, such as Cargill, have expressed interest in building
dehydration plants in participating Caribbean basin countries,
such as El Salvador, which would convert ethanol into fuel-grade
ethanol for shipment to the U.S. Competition from ethanol
imported from Caribbean basin countries may affect our ability
to sell our ethanol profitably.
RISKS
RELATED TO ETHANOL PRODUCTION
Operational
difficulties at our plants could negatively impact our sales
volumes and could cause us to incur substantial
losses.
Our operations are subject to unscheduled downtime and
operational hazards inherent to our industry, such as equipment
failures, utility outages, fires, explosions, abnormal
pressures, blowouts, pipeline ruptures, transportation
disruptions and accidents and natural disasters. We may have
difficulty managing the process maintenance required to maintain
our nameplate production capacities. If our ethanol plants do
not produce ethanol and distillers grains at the levels we
expect, our business, results of operations, and financial
condition may be materially adversely affected.
18
Improperly
trained employees may not follow procedures that could damage
certain parts of the ethanol production facility which could
negatively impact operating results if our plants do not produce
ethanol and its by-products as anticipated.
The production of ethanol and distillers grains demands
continuous supervision and judgments regarding mixture rates,
temperature and pressure adjustments. Errors of judgment due to
lack of training or improper manufacturer instructions could
send chemicals into sensitive areas of production, which may
reduce or halt ethanol or distillers grains production at our
facilities.
We may
have difficulty obtaining enough corn to operate the plants
profitably.
There may not be an adequate supply of corn produced in the
areas surrounding our plants to satisfy our requirements. Even
if there is an adequate supply of corn and we make arrangements
to purchase it, we could encounter difficulties finalizing the
sales transaction and managing the delivery of the corn,
including difficulties caused by inclement weather. If we do not
obtain corn in the quantities we plan to use, we may not be able
to operate our plants at full capacity. If the price of corn in
our local markets is higher due to lack of supply, drought, or
other reasons, our profitability may suffer and we may incur
significant losses from operations. As a result, our ability to
make a profit may decline.
RISKS
RELATED TO REGULATION AND GOVERNMENTAL ACTION
We are
exposed to additional regulatory risk that may prevent the sale
of our products to customers located in certain states or
require us to change the way we operate.
Recent legislative acts by the State of California and the
Environmental Protection Agency (i.e. RFS2) require cleaner
emissions and reduced carbon footprints including effects caused
by indirect land use. These acts, when implemented, may prohibit
the sale of our products to certain customers which may
materially adversely impact our results from operations, or may
require us to procure feedstock and market our products in a
fashion that negatively impacts our financial performance.
The
use and demand for ethanol and its supply are impacted by
federal and state legislation and regulation, and any changes in
legislation or regulation could cause the demand for ethanol to
decline or its supply to increase, which could have a material
adverse effect on our business, results of operations and
financial condition, and the ability to operate at a
profit.
Various federal and state laws, regulations and programs impact
the demand for ethanol as a fuel or fuel additive. Tariffs
generally apply to the import of ethanol from other countries.
These laws, regulations and programs are constantly changing.
Federal and state legislators and environmental regulators could
adopt or modify laws, regulations or programs that could
adversely affect the use of ethanol. The elimination or
reduction of tax incentives for the ethanol industry, or the
elimination or reduction of tariffs that apply to imported
ethanol could reduce the market for ethanol generally or for
domestically produced ethanol. Such changes could reduce prices
and our revenues by making it more costly or difficult for us to
produce and sell ethanol. If the federal tax incentives are
eliminated or sharply curtailed, we believe that demand for
ethanol could decrease, which could materially adversely affect
our business, results of operations and financial condition.
The
elimination or significant reduction in the federal ethanol tax
incentive or the elimination or expiration of other federal or
state incentive programs could have a material adverse effect on
our business, results of operations and financial
condition.
Currently, refiners and marketers receive a $0.45 per gallon tax
incentive for each gallon of ethanol blended with gasoline. This
incentive is scheduled to expire in December 2011. The federal
ethanol tax incentives may not be renewed in 2011 or they may be
renewed on different terms. In addition, the federal ethanol tax
incentives, as well as other federal and state programs
benefiting ethanol, generally are subject to
U.S. government obligations under international trade
agreements and may be subject to termination or reduction in
scale. The elimination of or significant reduction in the
federal ethanol tax incentives could have a material adverse
effect on our business, results of operations and financial
condition.
19
The
State of Nebraska may not reimburse us for the tax incentives
laid out in our Nebraska Advantage Act contract.
We received approximately $3.0 million from the State of
Nebraska for reimbursement of sales taxes paid on construction
bills related to our ABE Fairmont plant. We also anticipate
receiving additional sales tax and employment credits over the
next seven years. Any delay or termination of payments under the
State of Nebraskas Advantage Act could have a material
adverse effect on our business, results of operations and
financial condition.
Current
tariffs effectively limit imported ethanol into the U.S., and
their reduction or elimination could undermine the ethanol
industry in the U.S.
Imported ethanol is generally subject to a $0.54 per gallon
tariff that was designed to offset the $0.45 per gallon ethanol
incentive available under the federal excise tax incentive
program for refineries that blend ethanol in their fuel. There
is, however, a special exemption from this tariff for ethanol
imported from 24 countries in Central America and the Caribbean
Islands, which is limited to a total of 7% of U.S. ethanol
production per year. Imports from the exempted countries may
increase as a result of new plants in development. Since
production costs for ethanol in these countries are
significantly less than what they are in the U.S., the duty-free
import of ethanol through the countries exempted from the tariff
may negatively affect the demand for domestic ethanol and the
price at which we sell our ethanol.
We do not know the extent to which the volume of imports would
increase or the effect on U.S. prices for ethanol if the
tariff is not renewed beyond its current expiration date of
December 31, 2011. Any changes in the tariff or exemption
from the tariff could have a material adverse effect on our
business, results of operations and financial condition.
Various
studies have criticized ethanol, which could lead to the
reduction or repeal of incentives and tariffs that promote the
use and domestic production of ethanol.
Although many trade groups, academics and governmental agencies
have supported ethanol as a fuel additive that promotes a
cleaner environment, others have criticized ethanol production
as consuming considerably more energy and emitting more
greenhouse gases than other biofuels. Other studies have
suggested that corn-based ethanol is less efficient than ethanol
produced from switch grass or wheat grain and that
ethanols demand on corn has resulted in higher food prices
and shortages. If these views gain acceptance, support for
existing measures promoting use and domestic production of
corn-based ethanol could decline, leading to reduction or repeal
of these measures.
We may
be adversely affected by environmental, health and safety laws,
regulations and liabilities.
We are subject to extensive air, water and other environmental
regulations, including those relating to the discharge of
materials into the air, water and ground, the generation,
storage, handling, use, transportation and disposal of hazardous
materials, and the health and safety of our employees, and the
plants we operate or manage need to maintain a number of
environmental permits. Each ethanol plant we operate or manage
is subject to environmental regulation by the state in which the
plant is located and by the EPA. These laws, regulations and
permits can often require expensive pollution control equipment
or operational changes to limit actual or potential impacts on
the environment. A violation of these laws and regulations or
permit conditions can result in substantial fines, natural
resource damages, criminal sanctions, permit revocations
and/or
facility shutdowns, liability for the costs of investigation
and/or
remediation and for damages to natural resources. Our operating
subsidiaries may also be subject to related claims by private
parties alleging property damage and personal injury due to
exposure to hazardous or other materials from those plants, and
ABE may have exposures to such claims arising from its
management services.
Environmental issues, such as contamination and compliance with
applicable environmental standards, could arise at any time
during operation of an ethanol plant. If this occurs, our
operating subsidiaries could be required to spend significant
resources to remedy the issues and may limit operation of the
ethanol plant. Our operating subsidiaries may be liable for the
investigation and cleanup of environmental contamination that
might exist or could occur at each of the properties that they
own or operate where they handle hazardous substances. If these
20
substances have been or are disposed of or released at sites
that undergo investigation
and/or
remediation by regulatory agencies, our operating subsidiaries
may be responsible under the CERCLA or other environmental laws
for all or part of the costs of investigation
and/or
remediation, and for damages to natural resources. Our operating
subsidiaries may also be subject to related claims by private
parties, including our employees and property owners or
residents near their plant, alleging property damage and
personal injury due to exposure to hazardous or other materials
at or from those plants. Additionally, employees, property
owners or residents near our ethanol plants could object to the
air emissions or water discharges from our ethanol plants.
Ethanol production has been known to produce an unpleasant odor.
Environmental and public nuisance claims or toxic tort claims
could be brought against us as a result of this odor or their
other releases to the air or water. Some of these matters may
require us to expend significant resources for investigation,
cleanup, installation of control technologies or other
compliance-related items, or other costs.
Additionally, the hazards and risks associated with producing
and transporting our products (such as fires, natural disasters,
explosions, abnormal pressures and blowouts) may also result in
personal injury claims by third parties or damage to property
owned by us or by third parties. We could sustain losses for
uninsurable or uninsured events, or in amounts in excess of
existing insurance coverage. Events that result in significant
personal injury to third parties or damage to property owned by
us or third parties or other losses that are not fully covered
by insurance could have a material adverse effect on our
business, results of operations and financial condition.
We also cannot assure that our operating subsidiaries will be
able to comply with all necessary permits to continue to operate
their ethanol plants. Failure to comply with all applicable
permits and licenses could subject our operating subsidiaries to
future claims or increase costs and materially adversely affect
our business, results of operations and financial condition.
Additionally, environmental laws and regulations, both at the
federal and state level, are subject to change and such changes
can be made retroactively. Consequently, even if our operating
subsidiaries obtain the required permits, they may be required
to invest or spend considerable resources to comply with future
environmental regulations or new or modified interpretations of
those regulations, which could materially adversely affect our
business, results of operations and financial condition. Present
and future environmental laws and regulations (and
interpretations thereof) applicable to the operations of our
operating subsidiaries, more vigorous enforcement policies and
discovery of currently unknown conditions may require
substantial expenditures that could have a material adverse
effect on our business, results of operations and financial
condition.
Our employees are exposed to the physical hazards of heights,
rotating, motorized mechanical and mobile machinery, and
equipment and chemicals. Despite procedures, training, physical
and engineered barriers and preventative measures, we may still
be exposed to liabilities of OSHA fines and incur potential
punitive damages as a result of employee injuries that fall
outside the workmans compensation program and insurable
losses.
RISKS
RELATED TO TAX ISSUES
The
restructuring of ABE South Dakotas debt could cause
investors to have taxable income without receiving cash
distributions, which means investors could have to pay tax on
their investment with personal funds.
ABE South Dakota will recognize taxable income from cancellation
of indebtedness as a result of the debt restructuring. ABE South
Dakota could determine to include that income in its gross
income for the current year. If it did so, that income would
flow through to the owners of ABE South Dakota, including ABE,
and our unitholders would have to include their proportionate
interests in that income on their tax returns (certain
exceptions for insolvent unitholders could apply). ABE South
Dakota could also elect to defer the inclusion of that income in
its gross income, which would result in a concurrent deferral to
our unitholders. If ABE South Dakota did so elect, the income
would be included in gross income ratably over a five-year
period beginning in 2014. In either case, ABE may not make
distributions sufficient to pay tax on any income from
cancellation of indebtedness that is recognized by an investor,
which means that such an investor may have to pay tax on that
income with personal funds.
21
IRS
classification of the company as a corporation rather than as a
partnership would result in higher taxation and reduced
profits.
We are a Delaware limited liability company that has elected to
be taxed as a partnership for federal and state income tax
purposes, with income, gain, loss, deduction and credit passed
through to the holders of the units. However, if for any reason
the IRS successfully determines that we should be taxed as a
corporation rather than as a partnership, we would be taxed on
our net income at rates of up to 35% for federal income tax
purposes, and all items of our income, gain, loss, deduction and
credit would be reflected only on our tax returns and would not
be passed through to the holders of the units. If we were to be
taxed as a corporation for any reason, distributions we make to
investors will be treated as ordinary dividend income to the
extent of our earnings and profits, and the payment of dividends
would not be deductible by us, thus resulting in double taxation
of our earnings and profits. If we pay taxes as a corporation,
we will have less cash to distribute to our unitholders.
Treatment of our company as a corporation for tax purposes could
materially adversely affect our business and financial condition.
We
might elect to convert our entity status from a limited
liability company to a corporation, which would increase our tax
burden.
Although we have no current plans to convert to a corporation,
our company might elect in the future to convert to a
corporation. If we convert to a corporation, no profits will be
allocable to unitholders, there will be no tax liability to our
unitholders unless we pay a dividend and our company, as a
result, would not make tax distributions to our unitholders with
respect to these allocable profits. Conversion to a corporation
would require an approval by member vote pursuant to our
operating agreement. If we elect to be organized as a
corporation, we will be subject to Subchapter C of the Internal
Revenue Code. We would be taxed on our net income at rates of up
to 35% for federal income tax purposes, and all items of our
income, gain, loss, deduction and credit would be reflected only
on our tax returns and would not be passed through to the
unitholders. Distributions, if made to investors, would be
treated as ordinary dividend income to the extent of our
earnings and profits, and the payment of dividends would not be
deductible by us, resulting in double taxation of our earnings
and profits. If we pay taxes as a corporation, we will also have
less cash to distribute to our unitholders. Treatment of our
company as a corporation for tax purposes could materially
adversely affect our business and financial condition.
The
IRS may classify your investment as a passive activity,
resulting in the inability of unitholders to deduct losses
associated with their investment.
It is likely that an investors interest in us will be
treated as a passive activity for tax purposes. If
an investor is an individual, estate, trust or a closely held
corporation, and if the investors interest is deemed to be
a passive activity, then the investors
allocated share of any loss we incur will be deductible only
against income or gains the investor has earned from other
passive activities. Passive activity losses that are disallowed
in any taxable year are suspended and may be carried forward and
used as an offset against passive activity income in future
years. These rules could restrict a unitholders ability to
currently deduct any of our losses that are passed through to
such unitholder.
Income
allocations assigned to unitholders units may result in
taxable income in excess of cash distributions, which means
unitholders may have to pay income tax on their investment with
personal funds.
Unitholders will be required to pay tax on their allocated
shares of our taxable income. It is likely that a unitholder
will receive allocations of taxable income in certain years that
result in a tax liability that is in excess of any cash
distributions we may make to the unitholder. Among other things,
this result might occur due to accounting methodology, lending
covenants that restrict our ability to pay cash distributions,
or our decision to retain the cash generated by the business to
fund our operating activities and obligations.
An IRS
audit could result in adjustments to our allocations of income,
gain, loss and deduction, causing additional tax liability to
unitholders.
The IRS may audit our income tax returns and may challenge
positions taken for tax purposes and allocations of income,
gain, loss and deduction to investors. If the IRS were
successful in challenging our allocations in a manner that
reduces loss or increases income allocable to unitholders, our
unitholders may have additional tax liabilities. In addition,
such an audit could lead to separate audits of a
unitholders tax returns, especially if
22
adjustments are required, which could result in adjustments on
unitholders tax returns. Any of these events could result
in additional tax liabilities, penalties and interest to
unitholders, and the cost of filing amended tax returns.
ITEM 2. PROPERTIES
The table below provides a summary of our ethanol plants in
operation as of September 30, 2010. We currently own each
of these facilities.
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Estimated
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Estimated
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Annual
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Annual
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Distillers
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Estimated
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Ethanol
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Grains
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Annual Corn
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Energy
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Primary
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Location
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Opened
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Production
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Production(1)
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Processed
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Source
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Builder
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(Million gallons)
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(Tons)
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(Million bushels)
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Fairmont, NE
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November 2007
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110
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334,000
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39.3
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Natural Gas
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Fagen
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Aberdeen, SD I(2)
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December 1992
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9
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27,000
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3.2
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Natural Gas
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Broin
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Aberdeen, SD II(2)
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January 2008
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44
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134,000
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15.7
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Natural Gas
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ICM
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Huron, SD
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September 1999
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32
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97,000
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11.4
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Natural Gas
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ICM
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195
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592,000
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69.6
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(1) |
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Our plants produce and sell wet, modified wet and dried
distillers grains. The stated quantities are on a fully dried
basis operating at nameplate capacity. |
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(2) |
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Our plant at Aberdeen consists of two separate production
facilities which operate on a separate basis. Accordingly, we
report and track production from our Aberdeen facilities
separately. |
We have entered into a new lease agreement for our corporate
headquarters which will become effective in February, 2011. Our
new corporate headquarters, located in Bloomington, Minnesota,
is approximately 4,400 square feet, and will be under lease
until June 2016. This building provides offices for our
corporate and administrative staff. We believe this space will
be sufficient for our needs until the end of the lease period.
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Location
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Owned/Leased
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Square Feet
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Fairmont, NE
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Owned
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134,850
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Aberdeen, SD
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Owned
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94,002
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Huron, SD
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Owned
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44,082
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We believe that each of the operating facilities is in adequate
condition to meet our current and future production goals. We
believe that these plants are adequately insured for replacement
cost plus related disruption expenditures.
The senior creditor of the Fairmont plant is secured by a first
mortgage on the plant real estate and a lien on the sites
personal property. We also granted a subordinate lien and
security interest to the trustee of the subordinated exempt
facilities revenue bonds used to finance the Fairmont plant. We
pledged a first-priority security interest and first lien on
substantially all of the assets of the South Dakota plants to
the collateral agent for the senior creditor of these plants.
ITEM 3. LEGAL
PROCEEDINGS
In June 2009, Revis Stephenson, the Companys former
director and chairman of the board and former chief executive
officer, filed a demand for arbitration with the American
Arbitration Association alleging that the Company breached its
employment agreement with Mr. Stephenson and defamed him
when it terminated his employment in January 2009.
Mr. Stephenson is seeking additional compensation and
damages, including but not limited to two years of compensation
and benefits.
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ITEM 4.
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[REMOVED
AND RESERVED.]
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ITEM X.
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EXECUTIVE
OFFICERS OF THE REGISTRANT
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The Companys sole executive officer is:
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|
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Employee
|
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|
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Name
|
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Since
|
|
Age
|
|
Position
|
|
Richard R. Peterson
|
|
|
2006
|
|
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45
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|
President, Chief Executive Officer, Chief Financial Officer
|
Mr. Peterson joined our company as vice president of
accounting and finance and chief financial officer in November
2006. He was named interim chief executive officer in October
2008, and chief executive officer in December 2008. From July
2001 until November 2006, Mr. Peterson served as the
director of finance, North American Operations for Nilfisk
Advance, Inc., a manufacturer of commercial and industrial
cleaning equipment. Prior to joining Nilfisk Advance,
Mr. Peterson served as the chief financial officer for PPT
Vision, Inc., a manufacturer of 2D and 3D vision inspection
equipment from April 1999 to July 2001 and the chief financial
officer of Premis Corporation, a point-of-sale software
development company from December 1996 to April 1999.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED UNITHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
There is no established trading market for our membership units.
Our membership units are subject to substantial transfer
restrictions pursuant to our operating agreement, which
prohibits transfers without the approval of our board of
directors. The board of directors will not approve transfers
unless they fall within safe harbors contained in
the publicly traded partnership rules under the tax code, which
include, without limitation, the following:
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|
transfers by gift to the members descendants;
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|
transfers upon the death of a member;
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transfers between family members; and
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|
transfers that comply with the qualifying matching
services requirements.
|
Holders
There were 1,207 holders of record of our units as of
December 1, 2010.
Issuer
Purchases of Equity Securities
We did not make any purchases of our equity securities during
the fourth quarter of fiscal 2010.
Distributions
We did not make any distributions in the fiscal years ended
September 30, 2010 or 2009. Subject to any loan covenants
or restrictions with any lenders, we may elect to make future
distributions to our members in proportion to the units that
each member holds relative to the total number of units
outstanding. However, there can be no assurance that we will
ever be able to pay any distributions to our unitholders. Our
board may elect to retain future profits to provide operational
financing for the plants, debt retirement, implementation of new
technology and various expansion plans, including the possible
construction of additional plants and development of new product
lines. Additionally, our lenders may further restrict our
ability to make distributions. Unitholders will be required to
report on their income tax return their allocable share of the
income, gains, losses and deductions we have recognized without
regard to whether we make any cash distributions to our members.
24
Performance
Graph
As disclosed above under Market Information and
elsewhere in this
Form 10-K,
there is no established trading market for our membership units,
which are subject to substantial transfer restrictions pursuant
to our operating agreement. Given that our units are not
publicly traded on an exchange or any over-the-counter market
and we have very limited valuation data on our membership units,
we have omitted the performance graph showing the change in our
unitholder return.
Unregistered
Sales of Equity Securities
We previously disclosed all sales of equity securities that were
not registered under the Securities Act during the last fiscal
year on Current Reports on
Form 8-K
filed on October 9, 2009, June 7, 2010 and
June 22, 2010.
Securities
Authorized for Issuance under Equity Compensation
Plans
There are no securities authorized for future issuance under
equity compensation plans.
ITEM 6. SELECTED
FINANCIAL DATA
The following table presents selected consolidated financial and
operating data as of the dates and for the periods indicated.
The selected consolidated income statement data and other
financial data for the years ended September 30, 2007 and
2006 and as of September 30, 2008, 2007 and 2006 have been
derived from our audited consolidated financial statements that
are not included in this
Form 10-K.
The selected consolidated balance sheet financial data as of
September 30, 2010 and 2009 and the selected consolidated
income statement data and other financial data for each of the
three years in the period ended September 30, 2010 have
been derived from the audited Consolidated Financial Statements
included elsewhere in this
Form 10-K.
You should read the following table in conjunction with
Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
consolidated financial statements and the accompanying notes
included elsewhere in this
Form 10-K.
Among other things, those financial statements include more
detailed information regarding the basis of presentation for the
following consolidated financial data.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2010(2)
|
|
|
2009
|
|
|
2008(1)
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per unit data)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and related products
|
|
$
|
379,909
|
|
|
$
|
354,997
|
|
|
$
|
393,746
|
|
|
$
|
57,754
|
|
|
$
|
|
|
Other
|
|
|
670
|
|
|
|
719
|
|
|
|
612
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
380,579
|
|
|
|
355,716
|
|
|
|
394,358
|
|
|
|
58,377
|
|
|
|
|
|
Cost of goods sold
|
|
|
347,194
|
|
|
|
345,720
|
|
|
|
389,483
|
|
|
|
67,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
33,385
|
|
|
|
9,996
|
|
|
|
4,875
|
|
|
|
(8,999
|
)
|
|
|
|
|
Selling, general and administrative
|
|
|
7,346
|
|
|
|
7,687
|
|
|
|
13,781
|
|
|
|
14,233
|
|
|
|
2,602
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
29,148
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
28,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
26,039
|
|
|
|
(25,951
|
)
|
|
|
(38,054
|
)
|
|
|
(23,232
|
)
|
|
|
(2,602
|
)
|
Other income
|
|
|
470
|
|
|
|
870
|
|
|
|
786
|
|
|
|
297
|
|
|
|
15
|
|
Gain on extinguishment of debt
|
|
|
17,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt restructuring costs
|
|
|
(2,149
|
)
|
|
|
(2,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
89
|
|
|
|
217
|
|
|
|
611
|
|
|
|
977
|
|
|
|
1,518
|
|
Interest expense
|
|
|
(10,888
|
)
|
|
|
(26,909
|
)
|
|
|
(20,583
|
)
|
|
|
(1,303
|
)
|
|
|
(49
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,221
|
|
|
$
|
(54,298
|
)
|
|
$
|
(57,240
|
)
|
|
$
|
(25,032
|
)
|
|
$
|
(1,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted units outstanding
|
|
|
19,751,948
|
|
|
|
12,691,650
|
|
|
|
9,863,618
|
|
|
|
8,854,151
|
|
|
|
3,717,635
|
|
Income (loss) per unit basic and diluted
|
|
$
|
1.58
|
|
|
$
|
(4.28
|
)
|
|
$
|
(5.80
|
)
|
|
$
|
(2.83
|
)
|
|
$
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010,
|
|
|
2010(2)
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands)
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,772
|
|
|
$
|
26,367
|
|
|
$
|
14,762
|
|
|
$
|
7,111
|
|
|
$
|
10,814
|
|
Property and equipment, net
|
|
|
181,701
|
|
|
|
203,364
|
|
|
|
251,611
|
|
|
|
242,937
|
|
|
|
39,909
|
|
Total assets
|
|
|
246,197
|
|
|
|
262,353
|
|
|
|
309,706
|
|
|
|
296,835
|
|
|
|
87,603
|
|
Total debt
|
|
|
166,715
|
|
|
|
222,928
|
|
|
|
217,172
|
|
|
|
163,250
|
|
|
|
7,000
|
|
Total equity
|
|
|
63,818
|
|
|
|
21,789
|
|
|
|
67,425
|
|
|
|
92,954
|
|
|
|
64,550
|
|
|
|
|
(1) |
|
The September 30, 2008 results include the ABE Fairmont
facility opening in November 2007, and the Aberdeen plant
expansion, which opened in January 2008. |
|
(2) |
|
The September 30, 2010 results include the ABE South Dakota
debt restructuring. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
GENERAL
The following discussion and analysis provides information which
management believes is relevant to an assessment and
understanding of our consolidated financial condition and
results of operations. This discussion should be read in
conjunction with the consolidated financial statements included
herewith and notes to the consolidated financial statements
thereto and the risk factors contained herein.
OVERVIEW
Advanced BioEnergy, LLC (Company, we,
our, Advanced BioEnergy or
ABE) was formed in 2005 as a Delaware limited
liability company. Our business consists of producing ethanol
and co-products, including wet, modified and dried distillers
grains. Ethanol is a renewable, environmentally clean fuel
source that is produced at numerous facilities in the United
States, mostly in the Midwest. In the U.S., ethanol is produced
primarily from corn and then blended with unleaded gasoline in
varying percentages. Ethanol is most commonly sold as E10.
Increasingly, ethanol is also available as E85, which is a
higher percentage ethanol blend for use in flexible-fuel
vehicles.
To execute our business plan, we entered into financial
arrangements to build and operate ethanol production facilities
in Fairmont, Nebraska. Separately, we acquired ABE South Dakota,
LLC (ABE South Dakota) f/k/a Heartland Grain Fuels,
LP in November 2006, which owned existing ethanol production
facilities in Aberdeen and Huron, South Dakota. Construction of
our Fairmont, Nebraska plant began in June 2006, and operations
commenced at the plant in November 2007. Construction of our new
facility in Aberdeen, South Dakota began in April 2007, and
operations commenced in January 2008. Our production operations
are carried out primarily through our operating subsidiaries,
ABE Fairmont which owns and operates the Fairmont, Nebraska
plant and ABE South Dakota, which owns and operates plants in
Aberdeen and Huron, South Dakota.
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources in assessing performance.
Based on the related business nature and expected financial
results, the Companys plants are aggregated into one
operating segment.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Distillers
|
|
Estimated
|
|
|
|
|
|
|
|
|
Ethanol
|
|
Grains
|
|
Annual Corn
|
|
Energy
|
|
Primary
|
Location
|
|
Opened
|
|
Production
|
|
Production(1)
|
|
Processed
|
|
Source
|
|
Builder
|
|
|
|
|
(Million gallons)
|
|
(Tons)
|
|
(Million bushels)
|
|
|
|
|
|
Fairmont, NE
|
|
November 2007
|
|
|
110
|
|
|
|
334,000
|
|
|
|
39.3
|
|
|
Natural Gas
|
|
Fagen
|
Aberdeen, SD I(2)
|
|
December 1992
|
|
|
9
|
|
|
|
27,000
|
|
|
|
3.2
|
|
|
Natural Gas
|
|
Broin
|
Aberdeen, SD II(2)
|
|
January 2008
|
|
|
44
|
|
|
|
134,000
|
|
|
|
15.7
|
|
|
Natural Gas
|
|
ICM
|
Huron, SD
|
|
September 1999
|
|
|
32
|
|
|
|
97,000
|
|
|
|
11.4
|
|
|
Natural Gas
|
|
ICM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195
|
|
|
|
592,000
|
|
|
|
69.6
|
|
|
|
|
|
|
|
|
(1) |
|
Our plants produce and sell wet, modified wet and dried
distillers grains. The stated quantities are on a fully dried
basis operating at nameplate capacity. |
|
(2) |
|
Our plant at Aberdeen consists of two separate production
facilities which operate on a separate basis. Accordingly, we
report and track production from our Aberdeen facilities
separately. |
We believe that each of the operating facilities is in adequate
condition to meet our current and future production goals. We
believe that these plants are adequately insured for replacement
cost plus related disruption expenditures.
PLAN OF
OPERATIONS THROUGH SEPTEMBER 30, 2011
Over the next year we will continue our focus on operational
improvements at each of our operating facilities. These
operational improvements include exploring methods to improve
ethanol yield per bushel and increasing production output at
each of our plants, continued emphasis on safety and
environmental regulation, reducing our operating costs, and
optimizing our margin opportunities through prudent
risk-management policies. We also intend to improve the rail
facilities at the Huron plant location, and plan to evaluate
adding corn oil extraction technology to one or more of our
facilities as well.
RESULTS
OF OPERATIONS
Year
Ended September 30, 2010 Compared to Year Ended
September 30, 2009
The following table reflects quantities of our products sold at
average net prices as well as bushels of corn ground and therms
of gas burned at average costs for fiscal 2010 and fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Sold/Consumed
|
|
Net Price/Cost
|
|
Sold/Consumed
|
|
Net Price/Cost
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
|
Ethanol (gallons)
|
|
|
198,301
|
|
|
$
|
1.64
|
|
|
|
187,330
|
|
|
$
|
1.53
|
|
Dried distillers grains (tons)
|
|
|
466
|
|
|
|
92.57
|
|
|
|
352
|
|
|
|
120.48
|
|
Wet/modified distillers grains (tons)
|
|
|
322
|
|
|
|
33.36
|
|
|
|
530
|
|
|
|
47.33
|
|
Corn (bushels)
|
|
|
71,006
|
|
|
$
|
3.43
|
|
|
|
68,349
|
|
|
$
|
3.79
|
|
Gas (mmbtus)
|
|
|
5,429
|
|
|
|
4.76
|
|
|
|
5,086
|
|
|
|
4.14
|
|
Net
Sales
Net sales for the year ended September 30, 2010 were
$380.6 million, compared to $355.7 million for the
year ended September 30, 2009, an increase of
$24.9 million or 7%. During the years ended
September 30, 2010 and 2009, 86% and 81%, respectively, of
our net sales were derived from the sale of ethanol, and our
remaining net sales were derived from the sale of distillers
grains.
27
The sales increase is the result of a 6% increase, or an
additional 11.0 million gallons, of ethanol sold from the
year ended September 30, 2009 to September 30, 2010,
due to optimized production at the Fairmont and Aberdeen plants.
Revenues also increased due to the average selling price per
gallon of ethanol increasing from $1.53 per gallon in the year
ended September 30, 2009 to $1.64 per gallon in the year
ended September 30, 2010. The increase in prices was a
result of rising ethanol demand as well as ABE Fairmont ethanol
sales being recorded at gross selling price. Prior to
January 1, 2010, ABE Fairmont was not responsible for
freight charges. This change took place when the Hawkeye Gold
marketing agreement became effective on January 1, 2010.
Dried and wet/modified distillers grains selling prices per ton
decreased 23% and 30%, respectively, in the year ended
September 30, 2010 compared to September 30, 2009, as
a result of saturated local and regional markets, and a
reduction in corn prices.
Cost
of Goods Sold
Cost of goods sold for the year ended September 30, 2010
was $347.2 million, compared to $345.7 million for the
year ended September 30, 2009, an increase of
$1.5 million. Corn costs represented 70% and 76% of cost of
sales for the years ended September 30, 2010 and 2009,
respectively. Natural gas costs represented 7% and 6% of cost of
sales for the years ended September 30, 2010 and 2009,
respectively.
Corn prices fell from an average price in 2009 of $3.79, to the
2010 average price of $3.43 a bushel. Corn and natural gas usage
increased due to the increased production. The shift in
marketing of distillers grains to more dried and less
wet/modified, increased the usage of natural gas by 7% compared
to a 6% increase in ethanol production, and the cost per mmbtu
also increased 15% in the year ended September 30, 2010,
compared to the year ended September 30, 2009. The 2009
cost of sales includes a $3.2 million corn-related hedge
loss compared to a $49,000 loss in 2010. ABE Fairmont now
recognizes ethanol freight in cost of goods sold pursuant to the
Hawkeye Gold agreement which commenced on January 1, 2010.
Ethanol freight costs totaled $12.0 million for the year
ended September 30, 2010 compared to $0 for the same period
in 2009. Prior to January 1, 2010, ethanol freight cost
would have been reflected as a reduction in sales revenues.
Gross
Profit
Our gross profit for the year ended September 30, 2010 was
$33.4 million, compared to $10.0 million for the year
ended September 30, 2009. Our gross profit fluctuations are
primarily driven by the volatile selling prices of ethanol and
distillers grains less the input costs of corn and, to a lesser
extent, natural gas. Ethanol prices increased 3% net of freight
in the year ended September 30, 2010 compared to the same
period in 2009, while corn costs dropped 9%. Additionally, we
sold 6% more gallons of ethanol in the current twelve month
period.
Selling,
General, and Administrative Expenses
Overall selling, general and administrative costs decreased
approximately $341,000, or 4.4%, to $7.3 million for the
year ended September 30, 2010 compared to the year ended
September 30, 2009. As a percentage of sales, selling,
general and administrative expenses are approximately 1.9% of
sales in the year ended September 30, 2010 and
approximately 2.2% of sales in the year ended September 30,
2009.
Impairment
of Long-Lived Assets
The Company performed an impairment analysis of its assets and
determined that no impairment exists for fiscal 2010. In 2009
the Company performed a fair market value analysis of ABE South
Dakota and recorded a $28.3 million impairment charge for
the amount that the existing carrying value exceeded the
estimated fair value of the assets.
Effective June 18, 2010, ABE South Dakota entered into a
troubled debt restructuring agreement with its lenders. In the
restructuring, the outstanding principal amount of the loans and
certain other amounts under interest rate protection agreements
under the senior credit facility were converted to a senior term
loan in an aggregate principal amount equal to $84.3 million.
The interest accrued on outstanding term and working capital
loans under the existing credit agreement was reduced to zero.
ABE South Dakota paid $2.25 million and the remaining $601,000
of net funds in the restricted cash accounts in full
satisfaction of the $19.0 million owed with respect to certain
subordinated solid waste revenue bonds and accrued interest of
$1.5 million, resulting in a gain on extinguishment of debt of
$17.7 million. Refer to Note 4 to the financial statements.
28
Debt
Restructuring Costs
The Company incurred legal and professional services fees
related to the restructuring of ABE South Dakota debt of
$2.1 million and $2.5 million in the years ended
September 30, 2010 and 2009, respectively.
Interest
Expense
Interest expense for the year ended September 30, 2010 was
$10.9 million, compared to $26.9 million for the year
ended September 30, 2009, a decrease of $16.0 million.
The decrease was attributed to the prior year $4.9 million
write off of deferred financing costs originally recorded on ABE
South Dakota debt that was in default and a $4.2 million
expense related to the termination of the interest rate swap
agreements in December 2008. In May 2010, ABE borrowed
$3 million from ABE Fairmont and used cash on hand to pay
off the remaining balance on a secured term note issued to PJC
Capital LLC (the PJC Capital Note), which also contributed to
the reduction in interest expense. The Company was also able to
decrease its interest expense by making principal payments and
receiving a reduction of interest rate on the ABE South Dakota
senior credit facility on April 1, 2010 as part of the
restructuring agreement.
Year
Ended September 30, 2009 Compared to Year Ended
September 30, 2008
The following table reflects quantities of our products sold at
average net prices as well as bushels of corn ground and thermos
of gas burned at average costs for fiscal 2009 and fiscal 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Sold/Consumed
|
|
Net Price/Cost
|
|
Sold/Consumed
|
|
Net Price/Cost
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
|
Ethanol (gallons)
|
|
|
187,330
|
|
|
$
|
1.53
|
|
|
|
151,678
|
|
|
$
|
2.15
|
|
Dried distillers grains (tons)
|
|
|
352
|
|
|
|
120.48
|
|
|
|
292
|
|
|
|
142.36
|
|
Wet distillers grains (tons)
|
|
|
530
|
|
|
|
47.33
|
|
|
|
388
|
|
|
|
46.32
|
|
Corn (bushels)
|
|
|
68,349
|
|
|
$
|
3.79
|
|
|
|
55,455
|
|
|
$
|
5.12
|
|
Gas (mmbtus)
|
|
|
5,086
|
|
|
|
4.14
|
|
|
|
4,449
|
|
|
|
8.66
|
|
Net
Sales
Net sales for fiscal 2009 were $355.7 million, compared to
$394.4 million for fiscal 2008, a decrease of
$38.6 million or 9.8%. The decrease is due in large part to
the decline in the net price of ethanol and dried distillers
grains sold in fiscal 2009 of 28.8% and 15.4%, respectively from
the prior fiscal year period. These price declines were due to
the rapid expansion of ethanol plants in the United States over
the past three years resulting in supply capacity exceeding
demand for the products we produce. The price decreases were
partially offset by an increase in quantities sold as a result
of our Fairmont and Aberdeen expansion plants operating for the
entire year in fiscal 2009. Ethanol revenues were offset by
ethanol-related hedging losses of $2.6 million in fiscal
2008. During fiscal 2009 and 2008, 80.8% and 82.3%,
respectively, of our net sales were derived from the sale of
ethanol and our remaining net sales were derived from the sale
of distillers grains.
Cost
of Goods Sold
Cost of goods sold for fiscal 2009 were $345.7 million,
compared to $389.5 million for fiscal 2008, a decrease of
$43.8 million or 11.2%. Cost of goods sold included
corn-related hedging losses of $3.2 million in fiscal 2009
and $478,000 in fiscal 2008. Corn costs represented 75.9% of
cost of goods sold for fiscal 2009 and 72.6% for fiscal 2008.
Physically delivered corn costs decreased 26.0% from $5.12 per
bushel in fiscal 2008 to $3.79 per bushel for fiscal 2009 as a
result of a strong growing season and less worldwide demand
stemming from the current economic recession. Natural gas costs
represented 6.1% of cost of sales for fiscal 2009 and 9.9% for
2008. Our average gas prices decreased from $8.66 per mmbtu in
fiscal 2008 to $4.14 per mmbtu in fiscal 2009 due to a reduction
in demand from the recession and mild hurricane season.
29
Gross
Profit
Our gross profit for fiscal 2009 was $10.0 million,
compared to a gross profit of $4.9 million for fiscal 2008.
The increase was primarily due to increased production from
having the Fairmont and Aberdeen expansion plants operating for
the entire twelve month period in fiscal 2009, the 52.2% drop in
natural gas cost per mmbtu and our wet distillers grains selling
prices remaining stable despite the 26% decline in average corn
cost per bushel.
Selling,
General, and Administrative Expenses
Selling, general, and administrative expenses are comprised of
recurring administrative personnel compensation, legal,
technology, consulting, insurance and accounting fees as well as
certain non-recurring charges. Overall selling, general and
administrative costs declined approximately $3.6 million,
or 25.9%, to $10.2 million for fiscal 2009 compared to
fiscal 2008. The prior years costs include the impairment
of $750,000 of acquisition costs related to our acquisition of
Indiana Renewable Fuels, LLC and a $1.5 million contract
termination settlement paid to ABE South Dakotas former
ethanol marketer. Selling, general and administrative expenses
as a percentage of sales have declined from 3.5% in fiscal 2008
to 2.9% in fiscal 2009.
ABE
South Dakota Asset Impairments
Despite ABE South Dakotas efforts to increase capacity and
replace ethanol marketers, ABE South Dakota was unable to
generate positive cash flows and in October 2008 ABE South
Dakota was not able to make an interest payment to its senior
secured creditor. Additionally, the tightening credit markets,
the ethanol industrys capacity surplus, the narrow margins
created by commodity movements and the global financial crisis,
as well as liquidations of certain competitors resulted in a
significant decline in the market value of ABE South Dakota. As
a result, the Company recorded a non-cash charge of
$29.1 million in September 2008, representing the full
impairment of the carrying value of the goodwill recorded in
connection with the purchase of ABE South Dakota. In March 2009,
upon determination that ABE South Dakota would be foreclosed on
by the senior creditor, the Company recorded an impairment of
$8.7 million based on expected receipt of future cash
flows. The Company reflected ABE South Dakota results as
discontinued operations for the quarterly reports filed on
Form 10-Q
for the quarters ending March 31, 2009 and June 30,
2009. In September 2009, the senior lenders of ABE South Dakota
commenced discussions with the Company to explore alternatives
to foreclosing on ABEs equity interest in ABE South
Dakota, including a restructuring of the terms of the borrowing
arrangements with those lenders. As a result of the financial
restructuring that followed in June 2010, as described in Note 4
to the financial statements, we are no longer reflecting ABE
South Dakotas financial results as discontinued operations
in our financial statements. The Company performed a fair market
value analysis of ABE South Dakota to reconsolidate its results
in our financial statements and recorded an additional
$19.6 million impairment charge for the amount that the
existing carrying value exceeded the estimated fair market value
of the assets.
Interest
Expense
Interest expense for fiscal 2009 was $26.9 million,
compared to $20.6 million for fiscal 2008, an increase of
$6.3 million or 30.6%. The increase includes
$4.2 million of additional expense recognized from the
termination of our swap agreements with the ABE South Dakota
senior lenders, $4.9 million with respect to the write-off
of deferred financing costs upon default by ABE South Dakota and
the additional 2% default interest on the ABE South Dakota
senior credit facility and subordinated revenue bonds for the
entire year in fiscal 2009.
LIQUIDITY
AND CAPITAL RESOURCES
Our business activities and plant operations are conducted
through Advanced BioEnergy, ABE Fairmont and ABE South Dakota.
The liquidity and capital resources for each entity are based on
the entitys existing financing arrangements and capital
structure. ABE Fairmont has traditional project financing in
place, including senior secured financing, working capital
facilities and subordinate exempt-facilities revenue bonds. In
June 2010, ABE South Dakota entered into the Senior Credit
Agreement (as defined below), which eliminated the subordinated
debt. There are provisions contained in the various financing
agreements at each operating entity preventing cross-default or
collateralization between operating entities. Advanced BioEnergy
is highly restricted in its ability to utilize the
30
cash and other financial resources of each subsidiary for the
benefit of Advanced BioEnergy, with the exception of allowable
distributions as defined in the separate financing agreements.
Advanced
BioEnergy, LLC (ABE)
ABE had cash and cash equivalents of $1.1 million on hand
at September 30, 2010. ABE does not have any debt
outstanding as of September 30, 2010. ABE does not expect
to make any distributions to its unit holders in the next
12 months. ABEs primary source of operating cash
comes from charging a monthly management fee to ABE Fairmont and
ABE South Dakota for services provided in connection with
operating the ethanol plants. The primary management services
provided include risk management, accounting and finance, human
resources and other general management related responsibilities.
From time to time ABE may also receive certain allowable
distributions from ABE Fairmont and ABE South Dakota based on
the terms and conditions in their respective senior credit
agreements. For fiscal 2010, ABE anticipates receiving a
distribution from ABE Fairmont of approximately
$4.7 million based on the fiscal 2010 financial results of
ABE Fairmont. This distribution is subject to ABE Fairmont
remaining in compliance with all loan covenants and terms and
conditions of its senior secured credit agreement. ABE is not
expecting any distribution from ABE South Dakota for its fiscal
2010 financial results.
ABE raised equity in 2010 and 2009 through private offerings.
Our offering in May and June of 2010 of 6,900,000 membership
units at $1.50 per unit raised $10.4 million ($10.0 million
after offering expenses of $0.4 million). Those funds were
contributed to ABE South Dakota as part of the debt
restructuring agreement. In August, September and October 2009,
ABE issued 5,164,218 membership units at $1.50 per unit raising
$7.7 million ($7.5 million after offering expenses of $0.2).
These funds were used for debt repayment in connection with the
forbearance agreement with PJC Capital. The remaining principle
balance of the PJC Capital note was paid in full in May 2010.
We believe ABE has sufficient financial resources available to
fund current operations and capital expenditure requirements for
at least the next 12 months.
ABE
Fairmont
ABE Fairmont had cash and cash equivalents of $12.8 million
and restricted cash of $2.1 million on hand at
September 30, 2010. The restricted cash is held in escrow
for future debt service payments. As of September 30, 2010,
ABE Fairmont had total debt outstanding of $72.1 million
consisting of $65.1 million in senior secured credit and
$7.0 million of subordinate exempt-facilities revenue
bonds. ABE Fairmont is required to make monthly interest
payments on its senior secured credit and semi-annual interest
payments on its outstanding subordinate exempt revenue bonds.
ABE Fairmont is required to make quarterly principal payments of
$2.6 million on its senior secured credit. Annual principal
payments of $815,000 on the subordinate exempt facilities
revenue bonds commenced in December 2010.
ABE Fairmont is allowed to make cash distributions to ABE if ABE
Fairmont meets all conditions required in its senior secured
credit agreement at the end of a fiscal year. This annual
distribution is limited to 40% of net income calculated in
accordance with generally accepted accounting principles and
other terms contained in its senior secured credit agreement.
The distribution is subject to the completion of ABE
Fairmonts annual financial statement audit and ABE
Fairmont remaining in compliance with all loan covenants and
terms and conditions of the senior secured credit agreement. The
annual distribution based on ABE Fairmont fiscal 2010 financial
results is approximately $4.7 million. The distribution can
be made anytime during fiscal 2011.
ABE Fairmonts senior secured credit agreement also
requires an annual cash sweep subject to a free cash flow
calculation, as defined in its senior secured credit agreement.
The cash sweep requires that, for each fiscal year ending in
2010 through 2012, ABE Fairmont must make a payment equal to the
lesser of $8.0 million or 75% of its free cash flow after
distributions, not to exceed $16.0 million in the aggregate
for all of the free cash flow payments. ABE Fairmont anticipates
making a cash sweep payment of $5.0 million in December
2010 for the fiscal 2010 financial results of ABE Fairmont. The
cash sweep payment is subject to compliance with all loan
covenants and terms and conditions of the senior secured credit
agreement.
31
We believe ABE Fairmont has sufficient financial resources
available to fund current operations and capital expenditure
requirements for at least the next 12 months. In addition
to the cash on hand, ABE Fairmont has a $6.0 million
revolving credit facility for financing eligible grain inventory
and equity in Chicago Board of Trade futures positions, which
expires April 1, 2011. ABE Fairmont had $6.0 million
available on the revolving credit facility as of
September 30, 2010. ABE Fairmont also has a
$2.0 million revolving credit facility for financing
third-party letters of credit, which expires in February 2012.
ABE Fairmont issued a letter of credit in connection with a rail
car lease, reducing the financing available from the
$2.0 million revolving credit facility by $911,000 as of
September 30, 2010.
ABE Fairmonts senior secured credit facility agreement
contains financial and restrictive covenants, including
limitations on additional indebtedness, restricted payments, and
the incurrence of liens and transactions with affiliates and
sales of assets. In addition, the senior secured credit facility
requires ABE Fairmont to comply with certain financial
covenants, including maintaining monthly minimum working
capital, monthly minimum net worth, annual debt service coverage
ratios and capital expenditure limitations. ABE Fairmont was in
compliance with all covenants at September 30, 2010.
ABE
South Dakota (f/k/a Heartland Grain Fuels, L.P.)
ABE South Dakota had cash and cash equivalents of
$8.9 million and $5.2 million of restricted cash on
hand at September 30, 2010. The restricted cash consists of
$3.0 million for a debt service payment reserve,
$2.0 million for the construction of certain rail
infrastructure at its Huron, South Dakota ethanol facility, and
$0.2 million in an account for maintenance capital
expenditures. As of September 30, 2010, ABE South Dakota
had interest bearing term debt outstanding of $81.4 million.
In June 2010, ABE South Dakota entered into an Amended and
Restated Senior Credit Agreement dated as of June 16, 2010
(the Senior Credit Agreement) among ABE South
Dakota, the lenders from time to time party thereto, and WestLB
AG, New York Branch, as Administrative Agent and Collateral
Agent. The Senior Credit Agreement converted the outstanding
principal amount of the loans and certain other amounts under
interest rate protection agreements under the existing senior
credit agreement to a senior term loan in an aggregate principal
amount equal to $84.3 million. Interest accrued on
outstanding term and working capital loans under the existing
credit agreement was reduced to zero on June 18, 2010. The
principal amount of the term loan facility is payable in equal
quarterly payments of $750,000, with the remaining principal
amount fully due and payable on March 31, 2016. ABE South
Dakota has agreed to pay a $3.0 million restructuring fee
to the lender due at the earlier of March 31, 2016 and the
date on which the loans are repaid in full. The Company recorded
the restructuring fee as long-term, non-interest bearing debt.
See Note 4 to the consolidated financial statements for the
effects of the restructuring.
ABE South Dakotas obligations under the Senior Credit
Agreement are secured by a first-priority security interest in
all of the equity in and assets of ABE South Dakota.
ABE South Dakota is allowed to make equity distributions (other
than certain tax distributions) to ABE only upon ABE South
Dakota meeting certain financial conditions and if there is no
more than $25 million of principal outstanding on the
senior term loan. Loans outstanding under the Senior Credit
Agreement are subject to mandatory prepayment in certain
circumstances, including, but not limited to, mandatory
prepayments based upon receipt of certain proceeds of asset
sales, casualty proceeds, termination payments, and cash flows.
The Senior Credit Agreement and the related loan documentation
include, among other terms and conditions, limitations (subject
to specified exclusions) on ABE South Dakotas ability to
make asset dispositions; merge or consolidate with or into
another person or entity; create, incur, assume or be liable for
indebtedness; create, incur or allow liens on any property or
assets; make investments; declare or make specified restricted
payments or dividends; enter into new material agreements;
modify or terminate material agreements; enter into transactions
with affiliates; change its line of business; and establish bank
accounts. Substantially all cash of ABE South Dakota is required
to be deposited into special, segregated project accounts
subject to security interests to secure obligations in
connection with the Senior Credit Agreement. The Senior Credit
Agreement contains customary events of default and also includes
an event of default for defaults on other indebtedness by ABE
South Dakota and certain changes of control. ABE South Dakota
was in compliance with all covenants at September 30, 2010.
32
We believe ABE South Dakota has sufficient financial resources
available to fund current operations, make debt service payments
and fund capital expenditure requirements, including
$2.0 million for a rail infrastructure project at Huron,
over the next 12 months.
CREDIT
ARRANGEMENTS
A summary of debt is as follows (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
Interest Rate
|
|
|
2010
|
|
|
2009
|
|
|
ABE Fairmont:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility variable
|
|
|
3.65
|
%
|
|
$
|
45,050
|
|
|
$
|
55,450
|
|
Senior credit facility fixed
|
|
|
7.53
|
%
|
|
|
20,000
|
|
|
|
20,000
|
|
Seasonal line
|
|
|
3.35
|
%
|
|
|
|
|
|
|
3,000
|
|
Subordinate exempt facilities bonds fixed
|
|
|
6.75
|
%
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,050
|
|
|
|
85,450
|
|
ABE South Dakota:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt principal variable
|
|
|
1.81
|
%
|
|
|
81,352
|
|
|
|
87,979
|
|
Restructuring fee
|
|
|
0.0
|
%
|
|
|
3,000
|
|
|
|
|
|
Additional carrying value of restructured debt
|
|
|
N/A
|
|
|
|
10,313
|
|
|
|
|
|
Working capital line
|
|
|
|
|
|
|
|
|
|
|
7,100
|
|
Subordinated solid waste facilities revenue bonds
|
|
|
|
|
|
|
|
|
|
|
19,000
|
|
Notes payable swaps
|
|
|
|
|
|
|
|
|
|
|
4,213
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
9,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,665
|
|
|
|
128,209
|
|
ABE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured term loan
|
|
|
|
|
|
|
|
|
|
|
9,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding
|
|
|
|
|
|
$
|
166,715
|
|
|
$
|
222,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional carrying value of restructured debt
|
|
|
N/A
|
|
|
|
(10,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated principal
|
|
|
|
|
|
$
|
156,402
|
|
|
$
|
222,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of debt at September 30, as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
Additional Carrying
|
|
|
|
|
|
|
Stated
|
|
|
Value of
|
|
|
|
|
|
|
Principal
|
|
|
Restructured Debt
|
|
|
Total
|
|
|
2011
|
|
$
|
19,199
|
|
|
$
|
846
|
|
|
$
|
20,045
|
|
2012
|
|
|
14,215
|
|
|
|
1,143
|
|
|
|
15,358
|
|
2013
|
|
|
14,215
|
|
|
|
2,113
|
|
|
|
16,328
|
|
2014
|
|
|
12,681
|
|
|
|
2,555
|
|
|
|
15,236
|
|
2015
|
|
|
13,815
|
|
|
|
2,462
|
|
|
|
16,277
|
|
Thereafter
|
|
|
82,277
|
|
|
|
1,194
|
|
|
|
83,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
156,402
|
|
|
$
|
10,313
|
|
|
$
|
166,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
CONTRACTUAL
OBLIGATIONS
The following table summarizes our contractual obligations as of
September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending September 30:
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Long-Term Debt obligations(1)
|
|
$
|
23,513
|
|
|
$
|
18,218
|
|
|
$
|
18,346
|
|
|
$
|
16,572
|
|
|
$
|
17,473
|
|
|
$
|
83,942
|
|
|
$
|
178,064
|
|
Operating lease obligations(2)
|
|
|
5,530
|
|
|
|
4,446
|
|
|
|
1,226
|
|
|
|
143
|
|
|
|
136
|
|
|
|
104
|
|
|
$
|
11,585
|
|
Commodity purchase obligations(3)
|
|
|
34,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
63,193
|
|
|
$
|
22,664
|
|
|
$
|
19,572
|
|
|
$
|
16,715
|
|
|
$
|
17,609
|
|
|
$
|
84,046
|
|
|
$
|
223,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent principal and interest due under our credit
facilities. |
|
(2) |
|
Operating lease obligations consist primarily of rail cars and
office space, offset by subleased rail cars. |
|
(3) |
|
Commodity obligations include corn purchases for our production
facilities. |
SUMMARY
OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Note 1 to our consolidated financial statements contains a
summary of our significant accounting policies, many of which
require the use of estimates and assumptions. Accounting
estimates are an integral part of the preparation of financial
statements and are based upon managements current
judgment. We use our knowledge and experience about past events
and certain future assumptions to make estimates and judgments
involving matters that are inherently uncertain and that affect
the carrying value of our assets and liabilities. We believe
that of our significant accounting policies, the following are
noteworthy because changes in these estimates or assumptions
could materially affect our financial position and results of
operations:
Revenue
Recognition
Ethanol revenue is recognized when product title and all risk of
ownership is transferred to the customer as specified in the
contractual agreements with the marketers. At ABE Fairmont,
revenue is recognized upon the release of the product for
shipment and at ABE South Dakota, revenue is recognized when the
product is loaded onto the rail cars. Revenue from the sale of
co-products is recorded when title and all risk of ownership
transfers to customers, which generally occurs at the time of
shipment. Co-products and related products are generally shipped
free on board (FOB) shipping point. Interest income is
recognized as earned. In accordance with the Companys
agreements for the marketing and sale of ethanol and related
products, commissions due to the marketers are deducted from the
gross sale price at the time of payment.
Fair
Value Measurements
In determining fair value of its derivative financial
instruments and warrant liabilities, the Company uses various
methods including market, income and cost approaches. Based on
these approaches, the Company often utilizes certain assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk
and/or the
risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market-corroborated, or
generally unobservable inputs. Financial assets and liabilities
carried at fair value will be classified and disclosed in one of
the following three fair-value hierarchy categories:
Level 1: Valuations for assets and
liabilities traded in active markets from readily available
pricing sources for market transactions involving identical
assets or liabilities.
Level 2: Valuations for assets and
liabilities traded in less-active dealer or broker markets.
Valuations are obtained from third-party pricing services for
identical or similar assets or liabilities.
Level 3: Valuations incorporate certain
assumptions and projections in determining the fair value
assigned to such assets or liabilities.
34
Commodity futures and exchange-traded commodity options
contracts are reported at fair value, utilizing Level 1
inputs. For these contracts, the Company obtains fair-value
measurements from an independent pricing service. The fair-value
measurements consider observable data that may include dealer
quotes and live-trading levels from the Chicago Board of Trade
(CBOT) and New York Mercantile Exchange
(NYMEX) markets.
Inventories
Corn, chemicals and supplies, work in process, ethanol and
distillers grains inventories are stated at the lower of
weighted cost or market.
Property
and Equipment
Property and equipment is carried at cost less accumulated
depreciation computed using the straight-line method over the
estimated useful lives:
|
|
|
|
|
Office equipment
|
|
|
5-7 Years
|
|
Process equipment
|
|
|
10 Years
|
|
Buildings
|
|
|
40 Years
|
|
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 on 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 estimated fair market value.
INTEREST
RATE/FOREIGN EXCHANGE RISK
Our future earnings may be affected by changes in interest rates
due to the impact those changes have on our interest expense on
borrowings under our credit facility. As of September 30,
2010, we had $126.4 million of outstanding borrowings with
variable interest rates. With each 1% increase in interest rates
we will incur additional annual interest charges of
$1.26 million.
We have no international sales. Substantially all of our
purchases are denominated in U.S. dollars.
IMPACT OF
INFLATION
We believe that inflation has not had a material impact on our
results of operations since inception. We cannot assure you that
inflation will not have an adverse impact on our operating
results and financial condition in future periods.
OFF-BALANCE
SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
GOVERNMENT
PROGRAMS, TAX CREDITS AND TAX INCREMENT FINANCING
We have applied for income and sales tax incentives available
under a Nebraska Advantage Act Project Agreement. As of
September 30, 2010, we have received approximately
$3.0 million in refunds under the Nebraska Advantage Act.
We anticipate additional recovery of certain sales taxes paid on
construction costs, and up to 10% of the cost of the Fairmont
plant construction pursuant to reductions in income taxes over
the next 12 years. Under the Nebraska Advantage Act, we
also anticipate recovery of 5% of the annual costs of the newly
created employment positions, pursuant to offsets to future
payroll taxes. Although we may apply under several programs
simultaneously and may be awarded grants or other benefits from
more than one program, some combinations of programs are
mutually exclusive. Under some state and federal programs,
awards are not made to applicants in cases where construction on
the project has started prior to the award date. There is no
guarantee that applications will result in awards of grants or
credits or deductions.
35
In December 2006 we received net proceeds of $6.7 million
from tax incremental financing from the Village of Fairmont,
Nebraska. We anticipate paying off the outstanding obligation
with future property tax payments, assessed on the Fairmont
plant.
The State of South Dakota pays an incentive to operators of
ethanol plants to encourage the growth of the ethanol industry.
The Huron plant is eligible to receive an aggregate of
$10 million, payable up to $1 million per year. The
amounts are dependent on annual allocations by the State of
South Dakota and the number of eligible plants. ABE South Dakota
has historically received a payment between $700,000 and
$800,000 for the Huron plant per year and expects this incentive
to terminate for the plant in 2011.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We consider market risk to be the impact of adverse changes in
market prices on our results of operations. We are subject to
significant market risk with respect to the price of ethanol and
corn. For the year ended September 30, 2010, sales of
ethanol represented 86% of our total revenues and corn costs
represented 70% of total cost of goods sold. In general, ethanol
prices are affected by the supply and demand for ethanol, the
cost of ethanol production, the availability of other fuel
oxygenates, the regulatory climate and the cost of alternative
fuels such as gasoline. The price of corn is affected by weather
conditions and other factors affecting crop yields, farmer
planting decisions and general economic, market and regulatory
factors. At September 30, 2010, the price per gallon of
ethanol and the price per bushel of corn on the CBOT were $1.99
and $4.96, respectively.
We are also subject to market risk on the selling prices of our
distillers grains, which represented 14% of our total revenues
for the fiscal year ended September 30, 2010. These prices
fluctuate seasonally when the price of corn or other cattle feed
alternatives fluctuate in price. The dried distillers grains
spot for local customers was $127.50 per ton at
September 30, 2010.
We are also subject to market risk with respect to our supply of
natural gas that is consumed in the ethanol production process.
Natural gas costs represented 7.4% of total cost of sales for
the year ended September 30, 2010. The price of natural gas
is affected by weather conditions and general economic, market
and regulatory factors. At September 30, 2010, the price of
natural gas on the NYMEX was $3.87 per mmbtu.
To reduce price risk caused by market fluctuations in the cost
and selling prices of related commodities, we have entered into
forward purchase/sale contracts and derivative transactions. We
entered into off-take agreements which guaranteed prices on 52%
of our ethanol gallons sold through December 2010. At
September 30, 2010 we had entered into forward sale
contracts representing 51% of our expected distillers grains
production and we had entered into forward purchase contracts
representing 47% of our current corn requirements through
December 2010. At September 30, 2010, we had entered into
forward purchase contracts representing 43% of our gas
requirements through December 2010.
The following represents a sensitivity analysis that estimates
our annual exposure to market risk with respect to our current
corn and natural gas requirements and ethanol sales. Market risk
is estimated as the potential impact on operating income
resulting from a hypothetical 10% change in the fair value of
our current corn and natural gas requirements and ethanol sales,
net of corn and natural gas forward contracts used to hedge
market risk with respect to our current corn and natural gas
requirements. The results of this analysis, which may differ
from actual results, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Hypothetical
|
|
|
|
|
|
|
at Risk
|
|
|
|
Change in
|
|
Spot
|
|
Change in Annual
|
|
|
Volume(1)
|
|
Units
|
|
Price
|
|
Price(2)
|
|
Operating Income
|
|
|
(In millions)
|
|
|
|
|
|
|
|
(In millions)
|
|
Ethanol
|
|
|
93.3
|
|
|
gallons
|
|
|
10.0
|
%
|
|
$
|
1.99
|
|
|
$
|
18.6
|
|
Distillers grains
|
|
|
.29
|
|
|
tons
|
|
|
10.0
|
%
|
|
|
127.50
|
|
|
|
3.7
|
|
Corn
|
|
|
37.1
|
|
|
bushels
|
|
|
10.0
|
%
|
|
|
4.96
|
|
|
|
18.4
|
|
Natural gas
|
|
|
3.1
|
|
|
mmbtus
|
|
|
10.0
|
%
|
|
|
3.87
|
|
|
|
1.2
|
|
|
|
|
(1) |
|
The volume of ethanol at risk is based on the assumption that we
will enter into contracts for 52% of our expected annual gallons
capacity of 195 million gallons. The volume of distillers
grains at risk is based on the |
36
|
|
|
|
|
assumption that we will enter into contracts for 51% of our
expected annual distillers grains production of 592,000 tons.
The volume of corn is based on the assumption that we will enter
into forward contracts for 47% of our estimated current
69.6 million bushel annual requirement. The volume of
natural gas is based on the assumption that we will continue to
lock in 43% of our estimated gas usage. |
|
(2) |
|
Current spot prices include the CBOT price per gallon of ethanol
and the price per bushel of corn, the NYMEX price per mmbtu of
natural gas and our listed local advertised dried distillers
grains price per ton as of September 30, 2010. |
37
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Financial
Statements
|
|
|
|
|
|
|
Page
|
|
Advanced BioEnergy, LLC
|
|
|
|
|
|
|
|
39
|
|
Financial Statements:
|
|
|
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
38
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Members
Advanced BioEnergy, LLC
We have audited the accompanying consolidated balance sheets of
Advanced BioEnergy, LLC & subsidiaries as of
September 30, 2010 and 2009, and the related consolidated
statements of operations, changes in members equity and
cash flows for each of the three years in the period ended
September 30, 2010. 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.
We conducted our audits in accordance with the auditing
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. The
Company is not required to have, nor were we engaged to perform
and audit of its internal control over financial reporting. Our
audit included 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Advanced BioEnergy, LLC & subsidiaries as
of September 30, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended September 30, 2010 in conformity with
United States generally accepted accounting principles.
/s/ McGladrey &
Pullen, LLP
Des Moines, Iowa
December 29, 2010
39
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
22,772
|
|
|
$
|
26,367
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
Trade accounts receivable, net of allowance for doubtful
accounts of $255 and $104 at September 30, 2010 and 2009,
respectively (Note 7)
|
|
|
13,519
|
|
|
|
9,613
|
|
Other receivables
|
|
|
1,543
|
|
|
|
3,090
|
|
Due from broker
|
|
|
252
|
|
|
|
|
|
Derivative financial instruments
|
|
|
314
|
|
|
|
|
|
Inventories
|
|
|
14,102
|
|
|
|
7,618
|
|
Prepaid expenses
|
|
|
2,666
|
|
|
|
2,242
|
|
Current portion of restricted cash
|
|
|
4,169
|
|
|
|
6,767
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
59,337
|
|
|
|
55,697
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
181,701
|
|
|
|
203,364
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
3,145
|
|
|
|
1,146
|
|
Other assets
|
|
|
2,014
|
|
|
|
2,146
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
246,197
|
|
|
$
|
262,353
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,337
|
|
|
$
|
6,057
|
|
Accrued expenses
|
|
|
5,818
|
|
|
|
5,490
|
|
Current portion of long-term debt (stated principal amount of
$19,199 at September 30, 2010)
|
|
|
20,045
|
|
|
|
146,303
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,200
|
|
|
|
157,850
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
628
|
|
|
|
535
|
|
Deferred income
|
|
|
4,881
|
|
|
|
5,554
|
|
Long-term debt (stated principal amount of $137,203 at
September 30, 2010)
|
|
|
146,670
|
|
|
|
76,625
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
182,379
|
|
|
$
|
240,564
|
|
Members equity:
|
|
|
|
|
|
|
|
|
Members capital, no par value, 24,714,180 and
15,985,295 units outstanding and 0 and 971,003 units
subscribed for at September 30, 2010 and 2009, respectively
|
|
|
171,200
|
|
|
|
160,392
|
|
Accumulated deficit
|
|
|
(107,382
|
)
|
|
|
(138,603
|
)
|
|
|
|
|
|
|
|
|
|
Total members equity
|
|
|
63,818
|
|
|
|
21,789
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and members equity
|
|
$
|
246,197
|
|
|
$
|
262,353
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
Consolidated
Statements of Operations and Comprehensive Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands, except per unit data)
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol and related products (Note 7)
|
|
$
|
379,909
|
|
|
$
|
354,997
|
|
|
$
|
393,746
|
|
Other
|
|
|
670
|
|
|
|
719
|
|
|
|
612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
380,579
|
|
|
|
355,716
|
|
|
|
394,358
|
|
Cost of goods sold
|
|
|
347,194
|
|
|
|
345,720
|
|
|
|
389,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
33,385
|
|
|
|
9,996
|
|
|
|
4,875
|
|
Selling, general and administrative
|
|
|
7,346
|
|
|
|
7,687
|
|
|
|
13,781
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
29,148
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
28,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
26,039
|
|
|
|
(25,951
|
)
|
|
|
(38,054
|
)
|
Other income
|
|
|
470
|
|
|
|
870
|
|
|
|
786
|
|
Gain on extinguishment of debt
|
|
|
17,660
|
|
|
|
|
|
|
|
|
|
Debt restructuring costs
|
|
|
(2,149
|
)
|
|
|
(2,525
|
)
|
|
|
|
|
Interest income
|
|
|
89
|
|
|
|
217
|
|
|
|
611
|
|
Interest expense
|
|
|
(10,888
|
)
|
|
|
(26,909
|
)
|
|
|
(20,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,221
|
|
|
$
|
(54,298
|
)
|
|
$
|
(57,240
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap obligation
|
|
|
|
|
|
|
1,786
|
|
|
|
(1,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
31,221
|
|
|
$
|
(52,512
|
)
|
|
$
|
(59,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic & diluted weighted average units outstanding
|
|
|
19,751,948
|
|
|
|
12,691,650
|
|
|
|
9,863,618
|
|
Income (loss) per unit basic and diluted
|
|
$
|
1.58
|
|
|
$
|
(4.28
|
)
|
|
$
|
(5.80
|
)
|
See notes to consolidated financial statements
41
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
Consolidated
Statements of Changes in Members Equity
For the
Years Ended September 30, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Member
|
|
|
Member
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Units
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
MEMBERS EQUITY September 30, 2007
|
|
|
9,848,028
|
|
|
$
|
120,019
|
|
|
$
|
(27,065
|
)
|
|
$
|
|
|
|
$
|
92,954
|
|
Issuance of 450,000 warrants in connection with note payable
|
|
|
|
|
|
|
2,260
|
|
|
|
|
|
|
|
|
|
|
|
2,260
|
|
Issuance of contingently issuable units in connection with
Indiana Renewable Fuels purchase
|
|
|
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
750
|
|
Unit compensation expense
|
|
|
142,000
|
|
|
|
636
|
|
|
|
|
|
|
|
|
|
|
|
636
|
|
Issuance of subscribed membership units for note conversion
|
|
|
|
|
|
|
30,318
|
|
|
|
|
|
|
|
|
|
|
|
30,318
|
|
Put options exercised
|
|
|
(45,403
|
)
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
(467
|
)
|
Membership units forfeited
|
|
|
(25,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(57,240
|
)
|
|
|
|
|
|
|
(57,240
|
)
|
Interest rate swap obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,786
|
)
|
|
|
(1,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY September 30, 2008
|
|
|
9,919,162
|
|
|
$
|
153,516
|
|
|
$
|
(84,305
|
)
|
|
$
|
(1,786
|
)
|
|
$
|
67,425
|
|
Issuance of previously subscribed units
|
|
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 532,671 warrants in connection with note payable
|
|
|
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
489
|
|
Unit compensation expense, net of contingently returnable units
|
|
|
(10,000
|
)
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
197
|
|
Put options exercised
|
|
|
(7,200
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
Interest rate swap obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,786
|
|
|
|
1,786
|
|
Units issued in private offering, net of offering costs of
$249,000
|
|
|
3,333,333
|
|
|
|
4,751
|
|
|
|
|
|
|
|
|
|
|
|
4,751
|
|
Units subscribed in private offering
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
1,457
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(54,298
|
)
|
|
|
|
|
|
|
(54,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY September 30, 2009
|
|
|
15,985,295
|
|
|
$
|
160,392
|
|
|
$
|
(138,603
|
)
|
|
$
|
|
|
|
$
|
21,789
|
|
Cumulative effect of change in accounting principle
October 1, 2009 reclassification of embedded feature of
equity-linked financial instrument to derivative warrant
liability
|
|
|
|
|
|
|
(489
|
)
|
|
|
|
|
|
|
|
|
|
|
(489
|
)
|
Issuance of previously subscribed units
|
|
|
971,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit compensation expense
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Put options exercised
|
|
|
(2,000
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Units issued private placement offerings, net of
offering expenses of $387,000
|
|
|
7,759,882
|
|
|
|
11,253
|
|
|
|
|
|
|
|
|
|
|
|
11,253
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
31,221
|
|
|
|
|
|
|
|
31,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY September 30, 2010
|
|
|
24,714,180
|
|
|
$
|
171,200
|
|
|
$
|
(107,382
|
)
|
|
$
|
|
|
|
$
|
63,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
42
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,221
|
|
|
$
|
(54,298
|
)
|
|
$
|
(57,240
|
)
|
Adjustments to reconcile net income (loss) to operating
activities cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
22,118
|
|
|
|
19,233
|
|
|
|
22,129
|
|
Asset impairment
|
|
|
|
|
|
|
28,260
|
|
|
|
29,148
|
|
Loss on disposal of site development costs
|
|
|
|
|
|
|
|
|
|
|
751
|
|
Gain on extinguishment of debt
|
|
|
(17,660
|
)
|
|
|
|
|
|
|
|
|
Debt restructuring costs
|
|
|
2,149
|
|
|
|
2,525
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
132
|
|
|
|
5,493
|
|
|
|
1,087
|
|
Amortization of deferred revenue
|
|
|
(673
|
)
|
|
|
(1,178
|
)
|
|
|
|
|
Idle lease liability reduction
|
|
|
(383
|
)
|
|
|
|
|
|
|
|
|
Amortization of additional carrying value
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
(489
|
)
|
|
|
|
|
|
|
2,260
|
|
Impairment of Indiana Renewable Fuels purchase intangible
|
|
|
|
|
|
|
|
|
|
|
750
|
|
Unit compensation expense
|
|
|
47
|
|
|
|
197
|
|
|
|
636
|
|
Interest expense converted to membership units
|
|
|
|
|
|
|
|
|
|
|
3,187
|
|
Unrealized (gain) loss on derivative financial instruments
|
|
|
(314
|
)
|
|
|
(1,242
|
)
|
|
|
70
|
|
Unrealized gain on warrant derivative
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
Interest rate swap obligations
|
|
|
|
|
|
|
4,213
|
|
|
|
|
|
Changes in working capital components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(2,611
|
)
|
|
|
3,652
|
|
|
|
(8,292
|
)
|
Inventories
|
|
|
(6,484
|
)
|
|
|
5,969
|
|
|
|
(5,789
|
)
|
Prepaid expenses
|
|
|
(424
|
)
|
|
|
(305
|
)
|
|
|
(735
|
)
|
Accounts payable
|
|
|
(1,720
|
)
|
|
|
(2,909
|
)
|
|
|
6,638
|
|
Accrued expenses
|
|
|
6,931
|
|
|
|
9,559
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
31,583
|
|
|
|
19,169
|
|
|
|
(4,857
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(455
|
)
|
|
|
(1,006
|
)
|
|
|
(54,757
|
)
|
Change in other assets
|
|
|
|
|
|
|
(2,478
|
)
|
|
|
144
|
|
Decrease (increase) in restricted cash
|
|
|
599
|
|
|
|
140
|
|
|
|
(6,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
144
|
|
|
|
(3,344
|
)
|
|
|
(60,888
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on debt
|
|
|
(44,423
|
)
|
|
|
(10,885
|
)
|
|
|
(56,725
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
|
3,000
|
|
|
|
130,588
|
|
Proceeds from issuance of membership units and subscribed units
|
|
|
11,640
|
|
|
|
6,457
|
|
|
|
|
|
Offering costs paid
|
|
|
(387
|
)
|
|
|
(249
|
)
|
|
|
|
|
Payments on debt restructuring costs
|
|
|
(2,149
|
)
|
|
|
(2,525
|
)
|
|
|
|
|
Repurchase of units
|
|
|
(3
|
)
|
|
|
(18
|
)
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(35,322
|
)
|
|
|
(4,220
|
)
|
|
|
73,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,595
|
)
|
|
|
11,605
|
|
|
|
7,651
|
|
Beginning cash and cash equivalents
|
|
|
26,367
|
|
|
|
14,762
|
|
|
|
7,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
22,772
|
|
|
$
|
26,367
|
|
|
$
|
14,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing cost paid from long term debt proceeds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,988
|
|
Unrealized (gain) loss on interest rate swaps
|
|
|
|
|
|
|
(1,786
|
)
|
|
|
1,786
|
|
Financing costs amortized to construction in progress
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Promissory notes and interest converted into membership units
|
|
|
|
|
|
|
|
|
|
|
27,181
|
|
Warrants issued in connection with debt restructuring
|
|
|
|
|
|
|
489
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest of $0 in
2010 and 2009 and $2,724 in 2008
|
|
$
|
5,945
|
|
|
$
|
10,657
|
|
|
$
|
13,337
|
|
See notes to consolidated financial statements.
43
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Organization
and Significant Accounting Policies
|
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, ABE Fairmont, LLC
(ABE Fairmont) and ABE South Dakota, LLC, (formerly
known as Heartland Grain Fuels, LP) (ABE South
Dakota). All intercompany balances and transactions have
been eliminated in consolidation.
The Company currently operates three ethanol production
facilities in the U.S. with a combined production capacity
of 195 million gallons per year. The Company commenced
operations at the 110 million gallon facility in Fairmont,
Nebraska in October 2007. The Company acquired existing
facilities in Aberdeen and Huron, South Dakota in November 2006
and commenced operations at the 44 million gallon Aberdeen
expansion facility in January 2009.
In March 2009, the Company was informed that the senior creditor
intended to foreclose on the equity interest of ABE South
Dakota. The Company reflected ABE South Dakota results as
discontinued operations for the quarterly reports filed on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009. In September 2009, ABE South Dakotas senior lenders
commenced discussions with the Company to explore alternatives
to foreclosing on ABEs equity interest in ABE South
Dakota, including a restructuring of the terms of its current
borrowing arrangements with those lenders. Accordingly, the
Company reconsolidated ABE South Dakotas financial results
in its financial statements effective September 30, 2009.
The debt restructuring became effective June 18, 2010. See
Note 4 for additional information.
Cash,
Cash Equivalents and Restricted Cash
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 restricted for debt
service and has classified these funds according to the future
anticipated use of the funds.
Fair
Value of Financial Instruments
Financial instruments include cash, cash equivalents and
restricted cash, interest rate swaps, derivative financial
instruments, accounts receivable, accounts payable, accrued
expenses, warrants, and long-term debt. The fair value of
derivative financial instruments is based on quoted market
prices. The fair value of warrants is determined using the
Black-Scholes valuation model. 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 other market factors. The Company
believes the carrying value of the debt instruments at ABE
Fairmont approximate fair value. Based on the restructuring
event, the fair value of the debt instruments at ABE South
Dakota is not determinable. The fair value of all other
financial instruments is estimated to approximate carrying value
due to the short-term nature of these instruments.
Fair
Value Measurements
In determining fair value of its derivative financial
instruments and warrant liabilities, the Company uses various
methods including market, income and cost approaches. Based on
these approaches, the Company often utilizes certain assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk
and/or the
risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market-corroborated, or
generally unobservable inputs. Financial assets and liabilities
carried at fair value will be classified and disclosed in one of
the following three fair-value hierarchy categories:
Level 1: Valuations for assets and
liabilities traded in active markets from readily available
pricing sources for market transactions involving identical
assets or liabilities.
44
Level 2: Valuations for assets and
liabilities traded in less-active dealer or broker markets.
Valuations are obtained from third-party pricing services for
identical or similar assets or liabilities.
Level 3: Valuations incorporate certain
assumptions and projections in determining the fair value
assigned to such assets or liabilities.
Commodity futures and exchange-traded commodity options
contracts are reported at fair value, utilizing Level 1
inputs. For these contracts, the Company obtains fair-value
measurements from an independent pricing service. The fair-value
measurements consider observable data that may include dealer
quotes and live-trading levels from the Chicago Board of Trade
(CBOT) and New York Mercantile Exchange
(NYMEX) markets.
The following table summarizes financial assets and financial
liabilities measured at the approximate fair value on
September 30, 2010, utilized to measure fair value (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets derivative financial instruments
|
|
$
|
314
|
|
|
$
|
314
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities warrant derivative
|
|
$
|
474
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
474
|
|
The warrants issued contain a strike price adjustment feature,
as described in Note 5. We calculated the fair value of the
warrants using the Black-Scholes valuation model. During the
year ended September 30, 2010, we recognized an unrealized
gain of $15,000 related to the change in the fair value of the
warrant derivative liability.
The assumptions used in the Black-Scholes valuation model were
as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
October 1,
|
|
|
2010
|
|
2009
|
|
Market value(1)
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
Exercise price
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
Expected volatility
|
|
|
117.08
|
%
|
|
|
107.75
|
%
|
Expected life (years)
|
|
|
2.00
|
|
|
|
2.50
|
|
Risk-free interest rate
|
|
|
0.375
|
%
|
|
|
1.188
|
%
|
Forfeiture rate
|
|
|
|
|
|
|
|
|
Dividend rate
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Market value based on recent unit transactions. |
The following table reflects the activity for liabilities
measured at fair value, using Level 3 inputs for the three
months ended September 30, 2010 (amounts in thousands):
|
|
|
|
|
Initial recognition of warrant derivative as of October 1,
2009
|
|
$
|
489
|
|
Unrealized (gain) related to the change in fair value
|
|
|
(15
|
)
|
|
|
|
|
|
Balance as of September 30, 2010
|
|
$
|
474
|
|
|
|
|
|
|
Receivables
Credit sales are made primarily to a few customers with no
collateral required. Trade receivables are carried at original
invoice amount 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 receivables and considering a
customers financial condition, credit history and current
economic conditions. Receivables are written off if deemed
uncollectible. Recoveries of receivables previously written off
are recorded when received.
Derivative
Instruments/Due From Broker
On occasion, the Company has entered into derivative contracts
to hedge the Companys exposure to price risk related to
forecasted corn purchases and forecasted ethanol sales.
Accounting for derivative contracts requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure
45
those instruments at fair value. If certain conditions are met,
a derivative may be specifically designated as (a) a hedge
of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an
available-for-sale
security, or a foreign-currency-denominated forecasted
transaction.
Although the Company believes its derivative positions are
economic hedges, none have been designated as a hedge for
accounting purposes and derivative positions are recorded on the
balance sheet at their fair market value, with changes in fair
value recognized in current period earnings.
Inventories
Corn, chemicals, supplies, work in process, ethanol and
distillers grains inventories are stated at the lower of
weighted cost or market.
Property
and Equipment
Property and equipment is carried at cost less accumulated
depreciation computed using the straight-line method over the
estimated useful lives:
|
|
|
|
|
Office equipment
|
|
|
5-7 Years
|
|
Process equipment
|
|
|
10 Years
|
|
Building
|
|
|
40 Years
|
|
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 on the asset may
not be recoverable. An impairment loss is recognized when
estimated undiscounted future cash flows from operations are
less than the carrying value of the asset group. An impairment
loss is measured by the amount by which the carrying value of
the asset exceeds the estimated fair value on that date. Fair
value was determined based on sale prices of ethanol plants
occurring in the market at the time of the change to bring ABE
South Dakota out of discontinued operations. During the year
ended September 30, 2009 the Company recognized a
$28.3 million impairment charge on its ABE South Dakota
plants.
Deferred
Financing Costs
The Company defers costs incurred to raise debt financing until
the related debt is issued that are amortized into interest
expense using the effective interest method over the term of the
debt instruments through November 2017. In March 2009 the
Company wrote off $4.9 million of deferred financing costs
incurred on ABE South Dakotas 2007 financing due to ABE
South Dakota being in default and the uncertainty in receiving
future benefit from these fees.
Deferred
Income
The Company recorded the net funds received from the Village of
Fairmont Nebraska Tax Incremental Financing (TIF) as
deferred income and is amortizing against property tax expense
over the life of the process equipment. ABE Fairmont has
guaranteed the payment of the TIF bond obligations. The Company
anticipates that its future property tax payments will be
adequate to service the bonds.
Revenue
Recognition
Ethanol revenue is recognized when product title and all risk of
ownership is transferred to the customer as specified in the
contractual agreements with the marketers. At ABE Fairmont,
revenue is recognized upon the release of the product for
shipment and at ABE South Dakota, revenue is recognized when the
product is loaded onto the rail cars. Revenue from the sale of
co-products is recorded when title and all risk of ownership
transfers to customers, which generally occurs at the time of
shipment. Co-products and related products are generally shipped
free on board (FOB) shipping point. Interest income
is recognized as earned. In accordance with the Companys
46
agreements for the marketing and sale of ethanol and related
products, commissions due to the marketers are deducted from the
gross sale price at the time of payment.
Unit
Based Compensation
The Company uses the estimated market value at the time the
units are granted to value those units granted to officers and
directors. The Company records compensation cost on the straight
line method over the vesting period. If the units vest upon
achievement of a certain milestone, the Company recognizes the
expense in the period in which the goal was met.
Shipping
Costs
Effective January 1, 2010, ABE Fairmont changed its
marketing relationship for ethanol and as a result of the terms
of the new marketing agreement no longer records its ethanol
sales net of freight cost. During the year ending
September 30, 2010, the Company recorded approximately
$12.0 million in freight cost from the sale of ethanol that
would have been reflected as a reduction of sales revenues in
periods prior to the change in marketers. The Company classifies
shipping costs as a component of cost of goods sold in the
statements of operations.
Debt
Restructuring Costs
In the quarter ended June 30, 2010, ABE South Dakota
entered into a troubled debt restructuring agreement with its
lenders. See Note 4 for a description of the accounting
treatment. ABE South Dakota incurred legal and professional
services fees related to the restructuring of ABE South Dakota
debt and has reclassified these costs from selling, general and
administrative expenses for the years ending September 30,
2010 and 2009.
Income
(Loss) Per Unit
Basic and diluted income per unit is computed using the
weighted-average number of vested units outstanding during the
period. Unvested units are considered unit equivalents and are
considered in the diluted
income-per-unit
computation, but have not been included in the computations of
diluted income (loss) per unit as their effect would be
anti-dilutive. Basic earnings and diluted earnings per unit data
were computed as follows (in thousands except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for basic earnings per unit
|
|
$
|
31,221
|
|
|
$
|
(54,298
|
)
|
|
$
|
(57,240
|
)
|
Gain in fair value of warrant derivative liability
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for diluted earnings per unit
|
|
|
31,206
|
|
|
|
(54,298
|
)
|
|
|
(57,240
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted common units outstanding
|
|
|
19,752
|
|
|
|
12,692
|
|
|
|
9,864
|
|
Income (loss) per unit basic and diluted
|
|
$
|
1.58
|
|
|
$
|
(4.28
|
)
|
|
$
|
(5.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reporting
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Based on the related business nature and expected financial
results, the Companys plants are aggregated into one
operating segment.
Accounting
Estimates
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect
the reported amounts of assets
47
and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual
results could differ from those estimates.
Income
Taxes
The Company has elected to be treated as a partnership for 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 files income tax returns in
the U.S. federal and various state jurisdictions. The
Companys federal income tax returns are open and subject
to examination from the 2005 tax return year and forward.
Various state income tax returns are generally open from the
2004 and later tax return years based on individual state
statute of limitations.
Risks
and Uncertainties
The ethanol industry is currently receiving an indirect benefit
of the Volumetric Ethanol Excise Tax Credit (VEETC)
provided to gasoline blenders which is set to expire on
December 31, 2011, after a one year extension was signed
into law on December 17, 2010. This credit provides for a
45-cent a gallon tax credit for gasoline blenders and a 54-cent
a gallon tariff on ethanol imports. Although the Renewable Fuels
Standard still exists to maintain the demand for ethanol in the
United States, the Company is uncertain of the potential impact
that the elimination or reduction in the VEETC credit would have
on the Company and the overall ethanol industry.
A summary of inventories is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Corn
|
|
$
|
3,127
|
|
|
$
|
1,341
|
|
Chemicals
|
|
|
1,107
|
|
|
|
489
|
|
Work in process
|
|
|
2,104
|
|
|
|
1,893
|
|
Ethanol
|
|
|
5,427
|
|
|
|
1,678
|
|
Distillers grains
|
|
|
419
|
|
|
|
412
|
|
Supplies and parts
|
|
|
1,918
|
|
|
|
1,805
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,102
|
|
|
$
|
7,618
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Property
and Equipment
|
A summary of property and equipment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
3,962
|
|
|
$
|
3,962
|
|
Buildings
|
|
|
21,341
|
|
|
|
21,295
|
|
Process equipment
|
|
|
215,962
|
|
|
|
215,820
|
|
Office equipment
|
|
|
1,356
|
|
|
|
1,273
|
|
Construction in process
|
|
|
234
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,855
|
|
|
|
242,430
|
|
Accumulated depreciation
|
|
|
(61,154
|
)
|
|
|
(39,066
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
181,701
|
|
|
$
|
203,364
|
|
|
|
|
|
|
|
|
|
|
48
A summary of debt is as follows (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
Interest Rate
|
|
|
2010
|
|
|
2009
|
|
|
ABE Fairmont:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior credit facility variable
|
|
|
3.65
|
%
|
|
$
|
45,050
|
|
|
$
|
55,450
|
|
Senior credit facility fixed
|
|
|
7.53
|
%
|
|
|
20,000
|
|
|
|
20,000
|
|
Seasonal line
|
|
|
3.35
|
%
|
|
|
|
|
|
|
3,000
|
|
Subordinate exempt facilities bonds fixed
|
|
|
6.75
|
%
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,050
|
|
|
|
85,450
|
|
ABE South Dakota:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt principal variable
|
|
|
1.81
|
%
|
|
|
81,352
|
|
|
|
87,979
|
|
Restructuring fee
|
|
|
0.0
|
%
|
|
|
3,000
|
|
|
|
|
|
Additional carrying value of restructured debt
|
|
|
N/A
|
|
|
|
10,313
|
|
|
|
|
|
Working capital line
|
|
|
|
|
|
|
|
|
|
|
7,100
|
|
Subordinated solid waste facilities revenue bonds
|
|
|
|
|
|
|
|
|
|
|
19,000
|
|
Notes payable swaps
|
|
|
|
|
|
|
|
|
|
|
4,213
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
9,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,665
|
|
|
|
128,209
|
|
ABE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured term loan
|
|
|
|
|
|
|
|
|
|
|
9,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding
|
|
|
|
|
|
$
|
166,715
|
|
|
$
|
222,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional carrying value of restructured debt
|
|
|
N/A
|
|
|
|
(10,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated principal
|
|
|
|
|
|
$
|
156,402
|
|
|
$
|
222,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of debt at September 30, as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
|
|
|
|
|
|
|
|
|
|
Additional Carrying
|
|
|
|
|
|
|
Stated
|
|
|
Value of
|
|
|
|
|
|
|
Principal
|
|
|
Restructured Debt
|
|
|
Total
|
|
|
2011
|
|
$
|
19,199
|
|
|
$
|
846
|
|
|
$
|
20,045
|
|
2012
|
|
|
14,215
|
|
|
|
1,143
|
|
|
|
15,358
|
|
2013
|
|
|
14,215
|
|
|
|
2,113
|
|
|
|
16,328
|
|
2014
|
|
|
12,681
|
|
|
|
2,555
|
|
|
|
15,236
|
|
2015
|
|
|
13,815
|
|
|
|
2,462
|
|
|
|
16,277
|
|
Thereafter
|
|
|
82,277
|
|
|
|
1,194
|
|
|
|
83,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
156,402
|
|
|
$
|
10,313
|
|
|
$
|
166,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Credit Facility for the Fairmont Plant
ABE Fairmont has a senior credit facility with Farm Credit
consisting of a term loan (term loan A), and a
revolving term loan, known as term loan B. Farm Credit also
extended a $6.0 million revolving seasonal line for
financing eligible grain inventory, which expires April 1,
2011, and a $2.0 million revolving credit facility for
financing third-party letters of credit.
At September 30, 2010, ABE Fairmont had $40.1 million
outstanding on term loan A. ABE Fairmont must make quarterly
principal installments of $2.6 million through November
2013, followed by a final installment in an
49
amount equal to the remaining unpaid term loan A principal
balance in February 2014. For each fiscal year ending through
September 30, 2012, ABE Fairmont must pay an additional
amount equal to the lesser of $8.0 million or 75% of its
free cash flow. For the year ending September 30, 2010, the
Company is required to pay $5.0 million related to the free
cash flow calculation which has been included in the current
maturities of long term debt.
At September 30, 2010, ABE Fairmont had $25.0 million
outstanding on the revolving term loan B (term loan
B). On the earlier of December 1, 2014 or years
following complete repayment of term loan A, ABE Fairmont will
begin repayment of revolving term loan B in $5.0 million
semi-annual principal payments. ABE Fairmont pays interest
monthly at an annualized interest rate of 7.53% on
$20.0 million and a variable rate based on the
30-day LIBOR
rate on the remaining outstanding debt.
ABE Fairmont had $0 outstanding under the revolving seasonal
line and had the full $6.0 million available at
September 30, 2010. Farm Credit also extended a
$2.0 million revolving credit facility for financing
third-party letters of credit, which expires in February 2012.
ABE Fairmont issued a letter of credit in connection with a
rail-car lease, effectively reducing the financing available
from the $2.0 million revolving credit facility by $911,000.
Fillmore
County Subordinate Exempt Facilities Revenue Bonds for the
Fairmont plant
ABE Fairmont has $7.0 million of subordinate exempt
facilities revenue bonds outstanding under a subordinated loan
and trust agreement with the County of Fillmore, Nebraska and
Wells Fargo, N.A. The loan agreement is collateralized by the
Fairmont plant assets. ABE Fairmonts repayment of the loan
and the security for the loan are subordinate to its senior
credit facility. The loan requires semi-annual interest payments
with annual principal payments of $815,000 starting in December
2010 through December 2016, with the remainder due December 2017.
Senior
Credit Agreement for the South Dakota Plants
ABE South Dakota entered into an Amended and Restated Senior
Credit Agreement (the Senior Credit Agreement)
effective as of June 18, 2010, which was accounted for
under troubled debt restructuring rules. The Senior Credit
Agreement was executed among ABE South Dakota, the lenders from
time to time party thereto, and WestLB AG, New York Branch, as
Administrative Agent and Collateral Agent. The Senior Credit
Agreement converted the outstanding principal amount of the
loans and certain other amounts under interest rate protection
agreements to a senior term loan in an aggregate principal
amount equal to $84.4 million. The interest accrued on
outstanding term and working capital loans under the existing
credit agreement was reduced to zero. ABE South Dakota has
agreed to pay a $3.0 million restructuring fee to the
lender due at the earlier of March 31, 2016 and the date on
which the loans are repaid in full. ABE South Dakota recorded
the restructuring fee as a long-term, non-interest bearing debt
on its consolidated balance sheets. See Effect of Restructuring
below.
The principal amount of the term loan facility is payable in
equal quarterly payments of $750,000 which began on
June 30, 2010, with the remaining principal amount fully
due and payable on March 31, 2016.
ABE South Dakota has the option to select the interest rate on
the senior term loan between base rate and euro-dollar loans.
Base rate loans bear interest at the administrative agents
base rate plus an applicable margin of 0.50% increasing to 3.0%
on June 16, 2013. Euro-dollar loans bear interest at LIBOR
plus the applicable margin of 1.5% increasing to 4.0% on
June 16, 2013. Each loan can be entered for one, two, three
or six month maturities.
ABE South Dakotas obligations under the Senior Credit
Agreement are secured by a first-priority security interest in
all of the equity of and assets of ABE South Dakota.
ABE South Dakota is allowed to make equity distributions (other
than certain tax distributions) to ABE only upon ABE South
Dakota meeting certain financial conditions and if there is no
more than $25 million of principal outstanding on the
senior term loan. Loans outstanding under the Senior Credit
Agreement are subject to mandatory prepayment in certain
circumstances, including, but not limited to, mandatory
prepayments based upon receipt of certain proceeds of asset
sales, casualty proceeds, termination payments, and cash flows.
The Senior Credit Agreement and the related loan documentation
include, among other terms and conditions, limitations (subject
to specified exclusions) on ABE South Dakotas ability to
make asset dispositions; merge or consolidate with or into
another person or entity; create, incur, assume or be liable for
indebtedness; create, incur or
50
allow liens on any property or assets; make investments; declare
or make specified restricted payments or dividends; enter into
new material agreements; modify or terminate material
agreements; enter into transactions with affiliates; change its
line of business; and establish bank accounts. Substantially all
cash of ABE South Dakota is required to be deposited into
special, segregated project accounts subject to security
interests to secure obligations in connection with the Senior
Credit Agreement. The Senior Credit Agreement contains customary
events of default and also includes an event of default for
defaults on other indebtedness by ABE South Dakota and certain
changes of control.
Subordinate
Solid Waste Facilities Revenue Bonds
Effective June 18, 2010, in connection with the debt
restructuring described above, ABE South Dakota paid
$2.25 million and the remaining $601,000 of net funds in
the restricted cash accounts in full satisfaction of the
$19.0 million bonds and accrued interest of
$1.5 million resulting in a gain on extinguishment of debt
of $17.7 million. The subordinated claimholders terminated
all documents related to the Subordinated Solid Waste Facilities
Revenue Bonds.
Effect
of ABE South Dakota Debt Restructuring
The following table summarizes the impact of restructured senior
and subordinated debt, including the gain on extinguishment of
subordinated Solid Waste Facilities Revenue Bonds and the
deferred gain on the troubled debt restructured Senior Credit
Agreement (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
|
|
|
Senior
|
|
|
Total
|
|
|
|
Revenue
|
|
|
Credit
|
|
|
Debt
|
|
|
|
Bonds
|
|
|
Facility
|
|
|
Restructured
|
|
|
Principal balance
|
|
$
|
19,000
|
|
|
$
|
99,292
|
|
|
$
|
118,292
|
|
Accrued interest
|
|
|
1,511
|
|
|
|
14,518
|
|
|
|
16,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance prior to restructuring
|
|
$
|
20,511
|
|
|
$
|
113,810
|
|
|
$
|
134,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement payments
|
|
|
(2,250
|
)
|
|
|
(15,000
|
)
|
|
|
(17,250
|
)
|
Settlement interest payments
|
|
|
(601
|
)
|
|
|
(963
|
)
|
|
|
(1,564
|
)
|
Interest forgiven
|
|
|
|
|
|
|
(13,555
|
)
|
|
|
(13,555
|
)
|
Restructuring fee
|
|
|
|
|
|
|
3,000
|
|
|
|
3,000
|
|
Gain on extinguishment
|
|
|
(17,660
|
)
|
|
|
|
|
|
|
(17,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance after restructuring
|
|
$
|
|
|
|
$
|
87,292
|
|
|
$
|
87,292
|
|
Principal payments subsequent to restructuring
|
|
|
|
|
|
|
(2,940
|
)
|
|
|
(2,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated balance, principal September 30,
2010
|
|
$
|
|
|
|
$
|
84,352
|
|
|
$
|
84,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since the future maximum undiscounted cash payments on the
amended and restated senior credit facility (including
principal, interest and the restructuring fee) exceed the
adjusted carrying value, no gain for the forgiven interest was
recorded, the carrying value was not adjusted and the
modification of terms will be accounted for on a prospective
basis, via a new effective interest calculation, amortized over
the life of the note, offsetting interest expense. Based on the
treatment of the troubled debt restructuring which will result
in the additional carrying value being amortized as a reduction
in interest expense over the term of the loan, the
Companys effective interest rate over the term of the
restructuring note agreement is approximately 0.39% over LIBOR
(0.68% at September 30, 2010).
Secured
Term Loan Note Advanced Bioenergy LLC
On October 17, 2007, the Company issued a secured term loan
note in the original principal amount of $10.0 million to
PJC Capital LLC (the PJC Capital Note). On
October 16, 2008, the Company failed to pay the outstanding
principal and accrued interest due under the note and on
October 17, 2008, the Company received a notice of an event
of default. The note accrued interest at the default rate of 18%
from October 16, 2008 to May 31,
51
2009. During the default, PJC Capital was entitled to enforce
its rights including the sale of all or part of the pledged
collateral. The pledged collateral constituted 100% of the
voting equity interest in ABE Fairmont.
In October 2009, the Company received an additional
$1.3 million from the issuance of additional units and
remitted these funds to PJC Capital to pay down a portion of our
obligation. In October 2009, the Company also remitted
$1.7 million of funds previously used to collateralize a
letter of credit to PJC Capital. In May 2010, the Company used
cash at ABE Fairmont to pay off the remaining principal balance
of the PJC Capital Note. On September 30, 2010, the Company
repaid the $3 million intercompany note payable to ABE
Fairmont.
Private
Offering
In October 2009, the Company completed a private offering in
which it raised $7.4 million in net proceeds from the
issuance of 5,164,218 units. The Company received net
proceeds of $4.7 million from the issuance of
3,333,333 units to Hawkeye Energy Holdings, LLC, and
$1.4 million from 971,003 units which were subscribed
for by certain accredited investors prior to September 30,
2009. Subsequent to September 30, 2009, the Company
received an additional $1.3 million in net proceeds from
the issuance of 859,882 units.
In June 2010, the Company completed a private offering in which
it issued 6,900,000 membership units of the Company at a price
of $1.50 per unit for an aggregate purchase price of
$10.4 million. The net proceeds from the private placement,
after deducting offering expenses, were used to contribute
$10.0 million in cash to ABE South Dakota required by the
terms of the debt restructuring.
Employment
Agreements
The Company previously issued 70,000 restricted units to
employees in connection with employment agreements of which
21,000 were subsequently forfeited. At September 30, 2010,
the Company had a total of 9,000 unvested units issued. Each of
the remaining awards vests as to 20% each year. The Company
recorded related compensation expense (benefit) net of
recoveries from forfeitures of $46,000, $215,000 and $131,000 in
the years ended September 30, 2010, 2009 and 2008,
respectively, and expects to record an additional $53,000 of
compensation expense over the next three years. Each employee
has put rights to sell up to 40% of the units vesting to the
Company for the then current market price to cover the related
tax requirements of the individual officers. In the year ended
September 30, 2010, two employees were eligible to exercise
their put rights for the total sale of 2,000 units at $1.50
per unit.
Warrants
In connection with the PJC Capital Note, the Company issued
532,671 warrants to purchase units of the Company. The warrants
have an exercise price of $1.50 per unit and expire in October
2014. The warrants contain a strike price adjustment feature,
which, upon the adoption of accounting guidance related to
embedded features of equity-linked financial instruments on
October 1, 2009, resulted in the instruments no longer
being considered indexed to the Companys own units.
Accordingly, on October 1, 2009, the Company reclassified
$489,000 from equity to a liability representing the fair value
of the warrants, based on $.92 per warrant, as calculated using
the Black Scholes valuation model. During the year
ended September 30, 2010, the liability was adjusted for
the change in fair value of the warrants, and the Company
recorded an unrealized gain of $15,000. A liability of $474,000
related to the warrants is included in other liabilities in the
consolidated balance sheet as of September 30, 2010.
Board
Representation and Voting Agreement
The Company, certain directors of the Company, South Dakota
Wheat Growers Association, CEC and Hawkeye have each executed a
voting agreement (the Voting Agreement). The Voting
Agreement requires the parties to (a) nominate for election
to the board two designees of Hawkeye, two designees of CEC and
the Chief Executive Officer of the Company, (b) recommend
to the members the election of each of the designees,
(c) vote all units of the Company they beneficially own or
otherwise control to elect each of the designees to the board,
(d) not
52
take any action that would result in the removal of any of the
designees from the board or the increase in the size of the
board to more than nine members, and (e) not grant a proxy
with respect to any units that is inconsistent with the
parties obligations under the Voting Agreement. At
December 21, 2010, the parties to the Voting Agreement held
in the aggregate approximately 59% of the outstanding units of
the Company.
Restricted
Unit Agreements
The Company entered into restricted unit agreements with two
former officers under which the Company issued 90,850 units
valued between $14.00 and $20.00 per unit, of which
14,463 units were subsequently forfeited. The Company
recorded related compensation expense (benefit) net of
recoveries from forfeitures of $0, $(18,000) and $504,000 in the
years ended September 30, 2010, 2009 and 2008, respectively
and will not incur additional compensation expense related to
these agreements.
|
|
6.
|
Lease
Commitments and Contingencies
|
Lease
Commitments
The Company leases various railcars, equipment and an office
facility under operating lease agreements with the following
approximate future minimum rental commitments for the years
ended September 30 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Minimum
|
|
|
|
|
|
|
Rental
|
|
|
Sublease
|
|
|
Net Rental
|
|
|
|
Commitments
|
|
|
Income
|
|
|
Commitments
|
|
|
2011
|
|
$
|
5,950
|
|
|
$
|
420
|
|
|
$
|
5,530
|
|
2012
|
|
|
4,761
|
|
|
|
315
|
|
|
|
4,446
|
|
2013
|
|
|
1,226
|
|
|
|
|
|
|
|
1,226
|
|
2014
|
|
|
143
|
|
|
|
|
|
|
|
143
|
|
2015
|
|
|
136
|
|
|
|
|
|
|
|
136
|
|
Thereafter
|
|
|
104
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,320
|
|
|
$
|
735
|
|
|
$
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized rent expense related to the above leases
of approximately $3.2 million, $5.7 million, and
$2.3 million for the years ended September 30, 2010,
2009, and 2008, respectively. In the year ended
September 30, 2009, the Company recognized rent expense of
approximately $5.7 million, including an idle lease expense
of approximately $917,000. In December 2009, the Company
subleased 100 rail cars through June 2012 which has been
reflected in the minimum sublease income amounts above.
Contingencies
In June 2009, the Companys former director and chairman of
the board and former chief executive officer, filed a demand for
arbitration with the American Arbitration Association alleging
that the Company breached its employment agreement with him and
defamed him when it terminated his employment in January 2009.
This individual is seeking additional compensation, including
but not limited to two years of compensation and benefits as
well as other damages. As of September 30, 2010 the Company
has not recorded a liability for payment of a potential
settlement that could result from these proceedings.
The Company has entered into Exclusive Ethanol Marketing
Agreements with Hawkeye Gold to sell substantially all of its
ethanol. ABE Fairmont executed an Exclusive Ethanol Marketing
Agreement dated as of August 28, 2009 with Hawkeye Gold
(the ABE Fairmont Ethanol Agreement), which became
effective on January 1, 2010. Prior to that time, ABE
Fairmonts ethanol was marketed by Gavilon. ABE South
Dakota executed Exclusive Ethanol Marketing Agreements dated as
of April 7, 2010 with Hawkeye Gold (the ABE South
Dakota Ethanol Agreements, and together with the ABE
Fairmont Ethanol Agreement, the Ethanol Agreements),
which became effective October 1, 2010. Prior to
October 1, 2010, ABE South Dakotas ethanol was
marketed by Gavilon. Hawkeye Gold is an affiliate of Hawkeye.
The Ethanol Agreements require, among other things, that
(1) Hawkeye
53
Gold must use commercially reasonable efforts to submit purchase
orders for, and ABE Fairmont and ABE South Dakota must sell,
substantially all of the denatured fuel grade ethanol produced
by ABE Fairmont and ABE South Dakota, (2) a purchase and
sale of ethanol under the Ethanol Agreements must be in the form
of either a direct fixed price purchase order, a direct index
price purchase order, a terminal storage purchase order, a
transportation swap or similar transaction that is mutually
acceptable to the parties, (3) ABE Fairmont or ABE South
Dakota will pay any replacement or other costs incurred by
Hawkeye Gold as a result of any failure to deliver by ABE
Fairmont or ABE South Dakota, respectively, and (4) with
certain exceptions, ABE Fairmont and ABE South Dakota will sell
substantially all of the ethanol they produce to Hawkeye Gold.
The initial term of the ABE Fairmont Agreement is for two years,
and provides for automatic renewal for successive 18 month
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term. The initial
terms of the ABE South Dakota Ethanol Agreements are for three
years and provide for automatic renewal for successive one-year
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term.
ABE Fairmont is currently self-marketing the distillers grains
it produces. ABE South Dakota is party to a co-product marketing
agreement with Dakotaland Feeds, LLC (Dakotaland
Feeds), whereby Dakotaland Feeds markets the local sale of
distillers grains produced at the ABE South Dakota Huron plant
to third parties for an agreed upon commission. We currently
have an agreement with Hawkeye Gold to market the distillers
grains produced at the ABE South Dakota Aberdeen plants.
Sales and receivables from the Companys major customers
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Hawkeye Gold(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve month revenues
|
|
$
|
146,180
|
|
|
$
|
|
|
|
$
|
|
|
Receivable balance
|
|
|
8,406
|
|
|
|
|
|
|
|
|
|
Gavilon
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve month revenues
|
|
$
|
194,737
|
|
|
$
|
289,139
|
|
|
$
|
59,476
|
|
Receivable balance
|
|
|
4,275
|
|
|
|
8,480
|
|
|
|
4,570
|
|
Dakotaland Feeds
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
11,834
|
|
|
$
|
17,428
|
|
|
$
|
8,157
|
|
Receivable balance
|
|
|
421
|
|
|
|
379
|
|
|
|
309
|
|
|
|
|
(1) |
|
At September 30, 2010 Hawkeye, an affiliate of Hawkeye
Gold, owned 34% of the Companys membership units. |
The Company is exposed to a variety of market risks, including
the effects of changes in commodity prices and interest rates.
These financial exposures are monitored and managed by the
Company as an integral part of its overall risk management
program. The Companys risk management program seeks to
reduce the potentially adverse effects that the volatility of
these markets may have on its current and future operating
results. To reduce these effects, the Company generally attempts
to fix corn purchase prices and related sale prices of ethanol
and distillers grains, with forward purchase and sale contracts
to lock in future operating margins. In addition to entering
into contracts to both purchase 16.3 million bushels of
corn and sell 8.7 million gallons of ethanol in which the
basis was not locked, the Company had entered into the following
fixed price forward contracts at September 30, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
Quantity
|
|
Amount
|
|
Period Covered
|
|
Corn
|
|
|
8,124 bushels
|
|
|
$
|
34,150
|
|
|
|
April 2011
|
|
Ethanol
|
|
|
25,410 gallons
|
|
|
|
43,676
|
|
|
|
December 2010
|
|
Distillers Grains
|
|
|
75 tons
|
|
|
|
8,185
|
|
|
|
April 2011
|
|
Unrealized gains and losses on forward contracts, in which
delivery has not occurred, are deemed normal purchases and
normal sales, and, therefore are not marked to market in
the financial statements.
54
When forward contracts are not available at competitive rates,
the Company may engage in hedging activities using exchange
traded futures contracts, OTC futures options or OTC swap
agreements. Changes in market price of ethanol related hedging
activities are reflected in revenues and changes in market price
of corn related items are reflected in cost of goods sold. The
following table represents the approximate amount of realized
and unrealized gains (losses) and changes in fair value
recognized in earnings on commodity contracts for the years
ended September 30, 2010, 2009, and 2008 and the fair value
of futures contracts as of September 30, 2010, 2009, and
2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
|
|
Unrealized
|
|
Total Gain
|
|
|
Income Statement Classification
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
(Loss)
|
|
|
2010
|
|
|
Cost of Goods Sold
|
|
$
|
(323
|
)
|
|
$
|
274
|
|
|
$
|
(49
|
)
|
|
2009
|
|
|
Cost of Goods Sold
|
|
|
(3,158
|
)
|
|
|
|
|
|
|
(3,158
|
)
|
|
2008
|
|
|
Ethanol & Related Products
|
|
$
|
(2,594
|
)
|
|
|
|
|
|
|
(2,594
|
)
|
|
2008
|
|
|
Cost of Goods Sold
|
|
|
764
|
|
|
|
(1,242
|
)
|
|
|
(478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
|
September 30,
|
|
September 30,
|
|
|
Classification
|
|
2010
|
|
2009
|
|
Derivative financial instrument futures contract
|
|
|
Current Assets
|
|
|
$
|
314
|
|
|
$
|
|
|
The Company sponsors a 401(k) plan for eligible employees who
are at least 21 years of age. Eligible employees may make
elective deferral contributions to the plan. The Companys
matching contribution is 100% of the employees elective
deferrals, not to exceed 5% of the employees eligible
wages. The Company contributed approximately $257,000, $264,000,
and $276,000 to the plan in the years ended September 30,
2010, 2009, and 2008, respectively.
|
|
10.
|
Related
Party Transactions
|
Corn
purchases from directors
The Company purchased $306,000, $525,000, and $2.1 million
of corn for the operation of the Nebraska plant during the years
ended September 30, 2010, 2009 and 2008, respectively, from
several of the Companys directors and entities associated
with the directors.
Grain
Purchases from South Dakota Wheat Growers Association
(SDWG).
The Company purchased $101.8 million, $107.9 million
and $131.3 million of corn from SDWG in the years ended
September 30, 2010, 2009 and 2008 pursuant to a grain
origination agreement. SDWG owns 5.1% of the Companys
outstanding units.
Marketing
Agreements with Hawkeye Gold, LLC (Hawkeye Gold).
The Company has entered into Exclusive Ethanol Marketing
Agreements with Hawkeye Gold to sell substantially all of its
ethanol. Hawkeye Gold is an affiliate of Hawkeye, a 34% owner of
the Companys outstanding membership units. ABE Fairmont
executed the ABE Fairmont Ethanol Agreement dated as of
August 28, 2009 with Hawkeye Gold, which became effective
on January 1, 2010. ABE South Dakota executed the ABE South
Dakota Ethanol Agreements dated as of April 7, 2010 with
Hawkeye Gold, which became effective October 1, 2010. The
Ethanol Agreements require, among other things, that
(1) Hawkeye Gold must use commercially reasonable efforts
to submit purchase orders for, and ABE Fairmont and ABE South
Dakota must sell, substantially all of the denatured fuel grade
ethanol produced by ABE Fairmont and ABE South Dakota,
(2) a purchase and sale of ethanol under the Ethanol
Agreements must be in the form of either a direct fixed price
purchase order, a direct index price purchase order, a terminal
storage purchase order, a transportation swap or similar
transaction that is mutually acceptable to the parties,
(3) ABE Fairmont or ABE South Dakota will pay any
replacement or other costs incurred by Hawkeye Gold as a result
of any failure to deliver by ABE Fairmont or ABE South Dakota,
respectively, and (4) with certain exceptions, ABE Fairmont
and ABE South Dakota will sell
55
substantially all of the ethanol they produce to Hawkeye Gold.
The initial term of the ABE Fairmont Agreement is for two years,
and provides for automatic renewal for successive 18 month
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term. The initial
terms of the ABE South Dakota Ethanol Agreements are for three
years and provide for automatic renewal for successive one-year
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term. In
addition, ABE South Dakota executed a new marketing agreement
with Hawkeye Gold for distillers grains produced at the Aberdeen
plants which became effective October 1, 2010. As of
September 30, 2010, the total receivable balance from
Hawkeye Gold was $8.4 million, and total revenues during
fiscal 2010 were $146.2 million.
|
|
11.
|
Quarterly
Financial Data (Unaudited)
|
The following table presents summarized quarterly financial data
for the years ended September 30, 2010, 2009, and 2008.
Dollars in thousands, except per unit amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2010
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Total revenues
|
|
$
|
96,256
|
|
|
$
|
98,741
|
|
|
$
|
90,337
|
|
|
$
|
95,245
|
|
Gross profit
|
|
|
12,128
|
|
|
|
10,542
|
|
|
|
4,144
|
|
|
|
6,571
|
|
Net income
|
|
|
6,154
|
|
|
|
5,106
|
|
|
|
16,474
|
(1)
|
|
|
3,487
|
|
Basic income per common unit
|
|
$
|
0.35
|
|
|
$
|
0.29
|
|
|
$
|
0.88
|
|
|
$
|
0.18
|
|
Diluted income per common unit
|
|
$
|
0.35
|
|
|
$
|
0.28
|
|
|
$
|
0.88
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2009
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Total revenues
|
|
$
|
98,854
|
|
|
$
|
86,466
|
|
|
$
|
85,457
|
|
|
$
|
84,939
|
|
Gross profit (loss)
|
|
|
76
|
|
|
|
(320
|
)
|
|
|
3,877
|
|
|
|
6,363
|
|
Net (loss)
|
|
|
(10,708
|
)
|
|
|
(21,210
|
)(2)
|
|
|
(1,670
|
)
|
|
|
(20,710
|
)(3)
|
Basic and diluted loss per common unit
|
|
$
|
(0.90
|
)
|
|
$
|
(1.68
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(1.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2008
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Total revenues
|
|
$
|
52,762
|
|
|
$
|
120,103
|
|
|
$
|
117,745
|
|
|
$
|
103,748
|
|
Gross profit (loss)
|
|
|
4,741
|
|
|
|
6,213
|
|
|
|
820
|
|
|
|
(6,899
|
)
|
Net (loss)
|
|
|
(2,608
|
)
|
|
|
(1,027
|
)
|
|
|
(9,596
|
)
|
|
|
(44,009
|
)(4)
|
Basic and diluted loss per common unit
|
|
$
|
(0.27
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.97
|
)
|
|
$
|
(4.46
|
)
|
|
|
|
(1) |
|
Includes a gain on extinguishment of debt of $17,660 |
|
(2) |
|
Includes impairment charges of $13,565 |
|
(3) |
|
Includes impairment charges of $14,695 |
|
(4) |
|
Includes impairment charges of $29,148 |
56
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
As of the end of the period covered by this report, our
management conducted an evaluation, under the supervision and
with the participation of our chief executive officer and chief
financial officer of the effectiveness of our disclosure
controls and procedures (as defined in
Rule 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934). Based on this
evaluation, the officer serving as both our chief executive
officer and chief financial officer concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed by our Company in reports
that we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time
periods specified in Commission rules and forms.
Managements
Annual Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over our financial reporting. Internal
control over financial reporting is a process designed to
provide reasonable assurance to our management and board of
directors regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles. Our internal control over financial reporting
includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect our transactions and dispositions of our
assets; (ii) provide reasonable assurance that transactions
are recorded as necessary for preparation of our financial
statements; (iii) provide reasonable assurance that
receipts and expenditures of Company assets are made in
accordance with management authorization; and (iv) provide
reasonable assurance that unauthorized acquisition, use or
disposition of Company assets that could have a material effect
on our financial statements would be prevented or detected on a
timely basis.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because changes in conditions may occur or the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control
over financial reporting as of September 30, 2010. This
assessment is based on the criteria for effective internal
control described in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on its assessment, management
concluded that our internal control over financial reporting was
effective as of September 30, 2010.
This annual report does not include an attestation report of our
registered public accounting firm regarding internal control
over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that
permit us to provide only managements report in this
annual report.
Changes
in Internal Controls over Financial Reporting
Our management, with the participation of the officer serving as
both our chief executive officer and chief financial officer,
performed an evaluation as to whether any change in the internal
controls over financial reporting (as defined in
Rules 13a-15
and 15d-15
under the Securities Exchange Act of 1934) occurred during
our fourth fiscal quarter. Based on that evaluation, the chief
executive officer and chief financial officer concluded that no
change occurred in the internal controls over financial
reporting during the period covered by this report that
materially affected, or is reasonably likely to materially
affect, our internal controls over financial reporting.
57
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Incorporated herein by reference is the information appearing
under the headings Election of Directors and
Company Governance in the Companys proxy
statement for the Companys 2011 Annual Meeting of Members
(the Proxy Statement) to be filed no later than
120 days after the end of the fiscal year ended
September 30, 2010. See also Part I hereof under the
heading Item X. Executive Officers of the
Registrant.
There were no material changes to the procedures by which
unitholders may recommend nominees to the board of directors
since our last report.
Incorporated herein by reference is the information appearing
under the heading Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement.
The Company has adopted a code of ethics that applies to its
principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions. The Company has posted this Code
of Business Conduct and Ethics on the Advanced Bioenergy website
at www.advancedbioenergy.com.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Incorporated herein by reference is the information appearing
under the heading Executive Compensation in the
Proxy Statement.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED UNITHOLDER MATTERS
|
Incorporated herein by reference is the information appearing
under the heading Security Ownership of Certain Beneficial
Owners in the 2011 Statement.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Incorporated herein by reference is the information appearing
under the heading Corporate Governance in the Proxy
Statement.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Incorporated herein by reference is the information appearing
under the heading Ratification of the Independent
Registered Public Accounting Firm in the Proxy Statement.
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(1) Financial Statements An index to our
financial statements is located above on page 38 of this
report. The financial statements appear on page 40 through
page 43 of this report.
(2) Exhibits The exhibits filed herewith
are set forth on the Exhibit Index filed as a part of this
report beginning immediately following the signatures.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on December 29, 2010.
ADVANCED BIOENERGY, LLC
(Registrant)
|
|
|
|
By:
|
/s/ Richard
R. Peterson
|
Richard R. Peterson
Chief Executive Officer, President,
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
December 29, 2010.
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
/s/ Richard
R. Peterson
Richard
R. Peterson
|
|
Chief Executive Officer, President, Chief Financial
Officer and Director
(Principal Executive, Financial and Accounting Officer)
|
|
|
|
*
John
E. Lovegrove
|
|
Director, Chairman
|
|
|
|
*
Scott
A. Brittenham
|
|
Director
|
|
|
|
*
Neil
S. Hwang
|
|
Director
|
|
|
|
*
Joshua
M. Nelson
|
|
Director
|
|
|
|
*
Troy
L. Otte
|
|
Director
|
|
|
|
*
Bruce
L. Rastetter
|
|
Director
|
|
|
|
*
Thomas
A. Ravencroft
|
|
Director
|
|
|
|
/s/ Richard
R. Peterson
Richard R. Peterson,
as power of attorney, where designated by *
|
|
|
59
EXHIBIT INDEX
|
|
|
|
|
|
|
|
2
|
.1
|
|
Partnership Interest Purchase Agreement with ABE SOUTH DAKOTA
Acquisition, LLC, Aventine Renewable Energy, Inc., Dakota Fuels,
Inc., South Dakota Wheat Growers Association, Heartland
Producers, LLC, and Heartland Grain Fuels, L.P. dated as of
November 7, 2006
|
|
Incorporated by reference(1)
|
|
2
|
.2
|
|
Partnership Interest and Stock Purchase Agreement with ABE SOUTH
DAKOTA Acquisition, LLC, Heartland Grain Fuels, L.P, Heartland
Producers, LLC, South Dakota Wheat Growers Association and
Dakota Fuels, Inc. dated as of November 7, 2006
|
|
Incorporated by reference(2)
|
|
3
|
.1
|
|
Certificate of Formation
|
|
Incorporated by reference(3)
|
|
3
|
.2
|
|
Fourth Amended and Restated Operating Agreement of the
Registrant, effective as of May 11, 2010
|
|
Incorporated by reference(4)
|
|
4
|
.1
|
|
Form of Certificate of Membership Units
|
|
Incorporated by reference(5)
|
|
4
|
.4
|
|
Warrant to Purchase Units of Advanced BioEnergy, LLC dated
August 28, 2009
|
|
Incorporated by reference(6)
|
|
4
|
.5
|
|
Voting Agreement among Advanced BioEnergy, LLC, Hawkeye Energy
Holdings, LLC Ethanol Investment Partners, LLC South Dakota
Wheat Growers Association, a South Dakota cooperative, and
certain directors of the Company dated as of August 28,
2009. Registration Rights Agreement between Advanced BioEnergy,
LLC and Hawkeye Energy Holdings, LLC dated as of August 28,
2009
|
|
Incorporated by reference(7)
|
|
4
|
.6
|
|
Registration Rights Agreement between Advanced BioEnergy, LLC,
and Hawkeye Energy Holdings, LLC dated as of August 28, 2009
|
|
Incorporated by reference(8)
|
|
4
|
.7
|
|
Second Amendment to Investor Rights Agreement between Advanced
BioEnergy LLC and South Dakota Wheat Growers Association dated
as of August 28, 2009
|
|
Incorporated by reference(9)
|
|
4
|
.8
|
|
First Amendment to Registration Rights Agreement between
Advanced BioEnergy, LLC and Ethanol Investment Partners dated as
of August 28, 2009
|
|
Incorporated by reference(10)
|
|
10
|
.1
|
|
Promissory Note (Operating Loan) and Loan Agreement with Farm
Credit Services of America, PCA dated February 13, 2006
|
|
Incorporated by reference(11)
|
|
10
|
.2
|
|
Master Loan Agreement with Farm Credit Services of America, FLCA
dated February 17, 2006
|
|
Incorporated by reference(12)
|
|
10
|
.3
|
|
Amendment to Master Loan Agreement with Farm Credit Services of
America, FLCA dated April 11, 2006
|
|
Incorporated by reference(13)
|
|
10
|
.4
|
|
Statused Revolving Credit Supplement with Farm Credit Services
of America, FLCA dated February 17, 2006
|
|
Incorporated by reference(14)
|
|
10
|
.5
|
|
Construction and Revolving Term Loan Supplement with Farm Credit
Services of America, FLCA dated February 17, 2006
|
|
Incorporated by reference(15)
|
|
10
|
.6
|
|
Construction and Term Loan Supplement with Farm Credit Services
of America, FLCA dated February 17, 2006
|
|
Incorporated by reference(16)
|
|
10
|
.7
|
|
Loan and Trust Agreement with the County of Fillmore, State
of Nebraska and Wells Fargo N.A. dated April 1, 2006
|
|
Incorporated by reference(17)
|
|
10
|
.8
|
|
Promissory Note issued to the County of Fillmore, State of
Nebraska dated April 27, 2006
|
|
Incorporated by reference(18)
|
|
10
|
.9
|
|
Subordinate Deed of Trust and Construction Security Agreement
with Wells Fargo Bank dated April 27, 2006
|
|
Incorporated by reference(19)
|
|
10
|
.10
|
|
ICM License Agreement with ICM, Inc. dated March 13, 2006
|
|
Incorporated by reference(20)
|
|
10
|
.11
|
|
Contract for Electric Service with Perennial Public Power
District dated April 25, 2006
|
|
Incorporated by reference(21)
|
60
|
|
|
|
|
|
|
|
10
|
.12
|
|
Agreement between Heartland Grain Fuels, LP and ICM, Inc. dated
July 14, 2006
|
|
Incorporated by reference(22)
|
|
10
|
.13
|
|
Investor Rights Agreement with South Dakota Wheat Growers
Association dated as of November 7, 2006
|
|
Incorporated by reference(23)
|
|
10
|
.14
|
|
Amended and Restated Employment Agreement with Richard Peterson
dated December 11, 2007+
|
|
Incorporated by reference(24)
|
|
10
|
.15
|
|
South Dakota Grain Fuels, L.P. Agreement of Limited Partnership
dated August 27, 1991
|
|
Incorporated by reference(25)
|
|
10
|
.16
|
|
Amendment to the Agreement of Limited Partnership of Heartland
Grain Fuels, L.P. dated November 8, 2006
|
|
Incorporated by reference(26)
|
|
10
|
.17
|
|
Master Loan Agreement between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC dated as of November 20, 2006
|
|
Incorporated by reference(27)
|
|
10
|
.18
|
|
Construction and Term Loan Supplement to the Master Loan
Agreement between Farm Credit Services of America, FLCA and ABE
Fairmont, LLC entered into as of November 20, 2006
|
|
Incorporated by reference(28)
|
|
10
|
.19
|
|
Construction and Revolving Term Loan Supplement to the Master
Loan Agreement between Farm Credit Services of America, FLCA and
ABE Fairmont, LLC entered into as of November 20, 2006
|
|
Incorporated by reference(29)
|
|
10
|
.20
|
|
Amendment to the Construction and Term Loan Supplement to the
Master Loan Agreement between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC entered into as of November 20,
2006
|
|
Incorporated by reference(30)
|
|
10
|
.21
|
|
Amendment to the Construction and Revolving Term Loan Supplement
to the Master Loan Agreement between Farm Credit Services of
America, FLCA and ABE Fairmont, LLC entered into as of
November 20, 2006
|
|
Incorporated by reference(31)
|
|
10
|
.22
|
|
Administrative Agency Agreement among Farm Credit Services of
America, FLCA, CoBank, ACB and ABE Fairmont, LLC dated as of
November 20, 2006
|
|
Incorporated by reference(32)
|
|
10
|
.23
|
|
By-Product Marketing Agreement between Heartland Grain Fuels
L.P. and Dakotaland Feeds, LLC dated February 1, 2001*
|
|
Incorporated by reference(33)
|
|
10
|
.24
|
|
Grain Origination Agreement between Heartland Grain Fuels, L.P.
and South Dakota Wheat Growers Association dated
November 8, 2006*
|
|
Incorporated by reference(34)
|
|
10
|
.25
|
|
Amendment to Grain Origination Agreement dated as of
October 1, 2007 between Heartland Grain Fuels, L.P. and
South Dakota Wheat Growers Association
|
|
Incorporated by reference(35)
|
|
10
|
.26
|
|
Form of Change of Control Agreement dated
July , 2007 between Advanced BioEnergy, LLC and
Richard Peterson+
|
|
Incorporated by reference(36)
|
|
10
|
.27
|
|
Restricted Unit Agreement dated July 31, 2007 between
Advanced BioEnergy, LLC and Peterson Holdings, Inc.+
|
|
Incorporated by reference(37)
|
|
10
|
.28
|
|
Registration Rights Agreement with Ethanol Investment Partners,
LLC dated June 25, 2007
|
|
Incorporated by reference(38)
|
|
10
|
.29
|
|
Investor Rights Agreement with South Dakota Wheat Growers
Association dated as of November 7, 2006, as amended
|
|
Incorporated by reference(39)
|
|
10
|
.30
|
|
Amendment to the Master Loan Agreement entered into as of
October 5, 2007 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(40)
|
|
10
|
.31
|
|
Statused Revolving Credit Supplement to the Master Loan
Agreement entered into as of October 5, 2007 between Farm
Credit Services of America, FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(41)
|
|
10
|
.32
|
|
Amendment to the Statused Revolving Credit Supplement entered
into as of October 5, 2007 between Farm Credit Services of
America, FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(42)
|
|
10
|
.33
|
|
Amendment to the Construction and Term Loan Supplement entered
into as of October 5, 2007 between Farm Credit Services of
America, FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(43)
|
61
|
|
|
|
|
|
|
|
10
|
.34
|
|
Settlement Agreement and Release between Advanced BioEnergy,
LLC, certain ABE Parties described therein, Ethanol Investment
Partners, LLC and Clean Energy Capital, LLC
|
|
Incorporated by reference(44)
|
|
10
|
.35
|
|
Amendment to the Master Loan Agreement effective as of
December 24, 2008 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(45)
|
|
10
|
.36
|
|
Statused Revolving Credit Supplement effective as of
December 24, 2008 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(46)
|
|
10
|
.37
|
|
Revolving Credit Supplement, Letters of Credit effective as of
December 24, 2008 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(47)
|
|
10
|
.38
|
|
Construction and Revolving Term Loan Supplement effective as of
December 24, 2008 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(48)
|
|
10
|
.39
|
|
Construction and Term Loan Supplement effective as of
December 24, 2008 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(49)
|
|
10
|
.40
|
|
Amendment to the Master Loan Agreement effective as of
May 12, 2009 between Farm Credit Services of America, FLCA
and ABE Fairmont, LLC
|
|
Incorporated by reference(50)
|
|
10
|
.41
|
|
Amendment to the Construction and Term Loan Supplement effective
as of May 12, 2009 between Farm Credit Services of America,
FLCA and ABE Fairmont, LLC
|
|
Incorporated by reference(51)
|
|
10
|
.42
|
|
Subscription Agreement dated as of August 21, 2009 between
Advanced BioEnergy, LLC and Hawkeye Holding, LLC
|
|
Incorporated by reference(52)
|
|
10
|
.43
|
|
Side Letter dated as of August 21, 2009 executed by
Advanced BioEnergy, LLC in favor of Hawkeye Energy Holdings, LLC
|
|
Incorporated by reference(53)
|
|
10
|
.44
|
|
Exclusive Ethanol Marketing Agreement by and among Hawkeye Gold,
LLC and ABE Fairmont, LLC dated as of August 28, 2009
|
|
Incorporated by reference(54)
|
|
10
|
.45
|
|
Form of Director Indemnification Agreement
|
|
Incorporated by reference(55)
|
|
10
|
.46
|
|
Lock-Up and
Voting Agreement dated as of March 31, 2010 (effective as
of April 7, 2010) among Marshall Financial Group, LLC,
Banco Santander, S.A., New York Branch, Farm Credit Bank of
Texas, Coöperatieve Centrale Raiffeisen-Boerenleenbank
B.A., Rabobank Nederland, New York Branch, KEB NY
Financial Corp., Nordkap Bank AG, WestLB AG, New York Branch,
Heartland Grain Fuels, L.P., Advanced BioEnergy, LLC and
Oppenheimer Rochester National Municipals
|
|
Incorporated by reference(56)
|
|
10
|
.47
|
|
Backstop Commitment Agreement dated as of April 7, 2010
between Advanced BioEnergy, LLC and Hawkeye Company Holdings, LLC
|
|
Incorporated by reference(57)
|
|
10
|
.48
|
|
Exclusive Ethanol Marketing Agreement (Aberdeen, South Dakota
plant) dated as of April 7, 2010 between Hawkeye Gold, LLC
and Heartland Grain Fuels, L.P.
|
|
Incorporated by reference(58)
|
|
10
|
.49
|
|
Exclusive Ethanol Marketing Agreement (Huron, South Dakota
plant) dated as of April 7, 2010 between Hawkeye Gold, LLC
and Heartland Grain Fuels, L.P.
|
|
Incorporated by reference(59)
|
|
10
|
.50
|
|
Distillers Grains Marketing Agreement (Aberdeen, South Dakota
plant) dated as of April 7, 2010 between Hawkeye Gold, LLC
and Heartland Grain Fuels, L.P.
|
|
Incorporated by reference(60)
|
|
10
|
.51
|
|
Amendment No. 1 to Voting Agreement dated as of
April 7, 2010 among Advanced BioEnergy, LLC, Hawkeye Energy
Holdings, LLC, Ethanol Investment Partners, LLC, Ethanol Capital
Partners, Series R, LP, Ethanol Capital Partners,
Series T, LP, Tennessee Ethanol Partners, LP, South Dakota
Wheat Growers Association and the directors of Advanced
BioEnergy, LLC party thereto
|
|
Incorporated by reference(61)
|
62
|
|
|
|
|
|
|
|
10
|
.52
|
|
Restructuring Agreement dated as of June 16, 2010 among
Advanced BioEnergy, LLC, ABE Heartland, LLC, ABE South Dakota,
LLC, Dakota Fuels, Inc., the lenders referred to therein, WestLB
AG, New York Branch, as Administrative Agent and Collateral
Agent, Wells Fargo Bank, National Association, as Trustee of the
Brown County, South Dakota Subordinate Solid Waste Facilities
Revenue Bonds (Heartland Grain Fuels, L.P. Ethanol Plant
Project) Series 2007A, Oppenheimer Rochester National
Municipals, as the sole bondholder, and Brown County, South
Dakota, as issuer of the subordinated bonds
|
|
Incorporated by reference(62)
|
|
10
|
.53
|
|
Amended and Restated Senior Credit Agreement dated as of
June 16, 2010 among ABE South Dakota, LLC, the lenders
referred to therein and WestLB AG, New York Branch, as
Administrative Agent and Collateral Agent
|
|
Incorporated by reference(63)
|
|
10
|
.54
|
|
Amended and Restated Accounts Agreement dated as of
June 16, 2010 among ABE South Dakota, LLC, Amarillo
National Bank, as the Accounts Bank and Securities Intermediary
and WestLB AG, New York Branch, as Administrative Agent and
Collateral Agent
|
|
Incorporated by reference(64)
|
|
21
|
|
|
List of Subsidiaries of the Registrant
|
|
Filed herewith
|
|
24
|
|
|
Powers of Attorney
|
|
Filed herewith
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification by Principal Executive Officer
|
|
Filed herewith
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification by Principal Financial and Accounting Officer
|
|
Filed herewith
|
|
32
|
|
|
Section 1350 Certifications
|
|
Filed herewith
|
|
|
|
* |
|
Material has been omitted pursuant to a request for confidential
treatment and these materials have been filed separately with
the SEC. |
|
+ |
|
Management compensatory plan/arrangement. |
|
(1) |
|
Incorporated herein by reference to Exhibit 2.1 to the
Registrants Current Report on
Form 8-K,
filed on November 8, 2006 (File No.
333-125335). |
|
(2) |
|
Incorporated herein by reference to Exhibit 2.2 to the
Registrants Current Report on
Form 8-K,
filed on November 8, 2006 (File No.
333-125335). |
|
(3) |
|
Incorporated herein by reference to Exhibit 3.1 to the
Registrants Registration Statement on
Form SB-2,
filed on May 27, 2005 (File No.
333-125335). |
|
(4) |
|
Incorporated herein by reference to Exhibit 3.1 to the
Registrants Current Report on
Form 8-K,
filed on September May 13, 2010 (File No.
000-52421). |
|
(5) |
|
Incorporated herein by reference to Exhibit 4.1 to the
Registrants Registration Statement on
Form SB-2,
filed on May 27, 2005 (File No.
333-125335). |
|
(6) |
|
Incorporated herein by reference to Exhibit 4.2 to the
Registrants Registration Statement on
Form SB-2,
filed on May 27, 2005 (File No.
333-125335). |
|
(7) |
|
Incorporated herein by reference to Exhibit 4.2 to the
Registrants Current Report on
Form 8-K,
filed on September 3, 2009 (File No.
000-52421). |
|
(8) |
|
Incorporated herein by reference to Exhibit 4.3 to the
Registrants Current Report on
Form 8-K,
filed on September 3, 2009 (File No.
000-52421). |
|
(9) |
|
Incorporated herein by reference to Exhibit 4.4 to the
Registrants Current Report on
Form 8-K,
filed on September 3, 2009 (File No.
000-52421). |
|
(10) |
|
Incorporated herein by reference to Exhibit 4.5 to the
Registrants Current Report on
Form 8-K,
filed on September 3, 2009 (File No.
000-52421). |
|
(11) |
|
Incorporated herein by reference to Exhibit 4.6 to the
Registrants Current Report on
Form 8-K,
filed on September 3, 2009 (File No.
000-52421). |
|
(12) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
63
|
|
|
(13) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(14) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(15) |
|
Incorporated herein by reference to Exhibit 10.4 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(16) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(17) |
|
Incorporated by reference to Exhibit 10.6 to the
Registrants Registration Statement on
Form SB-2
filed on September 13, 2006 (File
No. 333-137299). |
|
(18) |
|
Incorporated herein by reference to Exhibit 10.6 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(19) |
|
Incorporated herein by reference to Exhibit 10.7 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(20) |
|
Incorporated herein by reference to Exhibit 10.8 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(21) |
|
Incorporated herein by reference to Exhibit 10.10 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on May 15, 2006 (File No.
333-125335). |
|
(22) |
|
Incorporated herein by reference to Exhibit 10.10 to the
Registrants Registration Statement on
Form SB-2,
filed on May 27, 2005 (File No.
333-125335). |
|
(23) |
|
Incorporated herein by reference to Exhibit 10.24 to the
Registrants Annual Report on
Form 10-KSB,
filed on December 29, 2006 (File No.
333-125335). |
|
(24) |
|
Incorporated herein by reference to Exhibit 10 to the
Registrants Current Report on
Form 8-K,
filed on November 8, 2006 (File No.
333-125335). |
|
(25) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on December 17, 2007 (File No.
000-52421). |
|
(26) |
|
Incorporated herein by reference to Exhibit 10.30 to the
Registrants Amendment No. 2 to Registration Statement
on
Form SB-2,
filed on December 20, 2006 (File
No. 333-137299). |
|
(27) |
|
Incorporated herein by reference to Exhibit 10.31 to the
Registrants Amendment No. 2 to Registration Statement
on
Form SB-2,
filed on December 20, 2006 (File
No. 333-137299). |
|
(28) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on November 29, 2006 (File No.
333-125335). |
|
(29) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on November 29, 2006 (File No.
333-125335). |
|
(30) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
filed on November 29, 2006 (File No.
333-125335). |
|
(31) |
|
Incorporated herein by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K,
filed on November 29, 2006 (File No.
333-125335). |
|
(32) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K,
filed on November 29, 2006 (File No.
333-125335). |
|
(33) |
|
Incorporated herein by reference to Exhibit 10.6 to the
Registrants Current Report on
Form 8-K,
filed on November 28, 2006 (File No.
333-125335). |
|
(34) |
|
Incorporated herein by reference to Exhibit 10.39 to the
Registrants Amendment No. 3 to Registration Statement
on
Form SB-2,
filed on February 7, 2007 (File
No. 333-137299). |
|
(35) |
|
Incorporated herein by reference to Exhibit 10.40 to the
Registrants Amendment No. 3 to Registration Statement
on
Form SB-2,
filed on February 7, 2007 (File
No. 333-137299). |
64
|
|
|
(36) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K,
filed on October 15, 2007 (File No.
000-52421). |
|
(37) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on August 6, 2007 (File No.
000-52421). |
|
(38) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
filed on August 6, 2007 (File No.
000-52421). |
|
(39) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on August 14, 2007 (File No.
000-52421). |
|
(40) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Quarterly Report on
Form 10-QSB,
filed on August 14, 2007 (File No.
000-52421). |
|
(41) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on October 23, 2007 (File No.
000-52421). |
|
(42) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
filed on October 23, 2007 (File No.
000-52421). |
|
(43) |
|
Incorporated herein by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K,
filed on October 23, 2007 (File No.
000-52421). |
|
(44) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K,
filed on October 23, 2007 (File No.
000-52421). |
|
(45) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on October 22, 2008 (File No.
000-52421). |
|
(46) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on January 29, 2009 (File No.
000-52421). |
|
(47) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on January 29, 2009 (File No.
000-52421). |
|
(48) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
filed on January 29, 2009 (File No.
000-52421). |
|
(49) |
|
Incorporated herein by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K,
filed on January 29, 2009 (File No.
000-52421). |
|
(50) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K,
filed on January 29, 2009 (File No.
000-52421). |
|
(51) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K,
filed on June 5, 2009 (File No.
000-52421). |
|
(52) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on August 26, 2009 (File No.
000-52421). |
|
(53) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on August 26, 2009 (File No.
000-52421). |
|
(54) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on September 3, 2009 (File No.
000-52421). |
|
(55) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on January 29, 2010 (File No.
000-52421). |
|
(56) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on April 8, 2010 (File No.
000-52421). |
|
(57) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on April 8, 2010 (File No.
000-52421). |
|
(58) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
filed on April 8, 2010 (File No.
000-52421). |
65
|
|
|
(59) |
|
Incorporated herein by reference to Exhibit 10.4 to the
Registrants Current Report on
Form 8-K,
filed on April 8, 2010 (File No.
000-52421). |
|
(60) |
|
Incorporated herein by reference to Exhibit 10.5 to the
Registrants Current Report on
Form 8-K,
filed on April 8, 2010 (File No.
000-52421). |
|
(61) |
|
Incorporated herein by reference to Exhibit 10.6 to the
Registrants Current Report on
Form 8-K,
filed on April 8, 2010 (File No.
000-52421). |
|
(62) |
|
Incorporated herein by reference to Exhibit 10.1 to the
Registrants Current Report on
Form 8-K,
filed on June 22, 2010 (File No.
000-52421). |
|
(63) |
|
Incorporated herein by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K,
filed on June 22, 2010 (File No.
000-52421). |
|
(64) |
|
Incorporated herein by reference to Exhibit 10.3 to the
Registrants Current Report on
Form 8-K,
filed on June 22, 2010 (File No.
000-52421). |
66