Attached files
file | filename |
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EX-23.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-23a.htm |
EX-21.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-21a.htm |
EX-23.(B) - REX AMERICAN RESOURCES Corp | c65168_ex-23b.htm |
EX-23.(D) - REX AMERICAN RESOURCES Corp | c65168_ex-23d.htm |
EX-23.(C) - REX AMERICAN RESOURCES Corp | c65168_ex-23c.htm |
EX-23.(E) - REX AMERICAN RESOURCES Corp | c65168_ex-23e.htm |
EX-32 - REX AMERICAN RESOURCES Corp | c65168_ex32.htm |
EX-99.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-99a.htm |
EX-99.(C) - REX AMERICAN RESOURCES Corp | c65168_ex-99c.htm |
EX-99.(B)(1) - REX AMERICAN RESOURCES Corp | c65168_ex-99b1.htm |
10-K - REX AMERICAN RESOURCES Corp | c65168_10k.htm |
EX-31 - REX AMERICAN RESOURCES Corp | c65168_ex31.htm |
EX-4.(O) - REX AMERICAN RESOURCES Corp | c65168_ex-4o.htm |
EX-4.(P) - REX AMERICAN RESOURCES Corp | c65168_ex-4p.htm |
Exhibit 99(b)
Patriot Renewable Fuels, LLC
Financial Statements for the Years Ended
December 31,
2010 and December 31, 2009
And Report of Independent Registered Public
Accounting Firm
PATRIOT RENEWABLE FUELS, LLC
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TABLE OF CONTENTS |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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1 |
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FINANCIAL STATEMENTS: |
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Balance Sheets |
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2 |
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Statements of Operations |
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3 |
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Statements of Members Equity |
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4 |
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Statements of Cash Flows |
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5 |
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Notes to Financial Statements |
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6-18 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Patriot Renewable Fuels, LLC
Annawan, Illinois
We have audited the accompanying balance sheets of Patriot Renewable Fuels, LLC as of December 31, 2010 and 2009 and the related statements of operations, changes in members equity, and cash flows for each of the years in the two-year period ended December 31, 2010. Patriot Renewable Fuels, LLCs management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an 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 financial statements referred to above present fairly, in all material respects, the financial position of Patriot Renewable Fuels, LLC as of December 31, 2010 and 2009 and the results of its operations and its cash flows for the years in the two-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
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/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P. |
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Certified Public Accountants |
Minneapolis, Minnesota
March 14, 2011
1
PATRIOT RENEWABLE FUELS, LLC
Balance Sheets
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December 31, |
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December 31, |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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$ |
5,350,666 |
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$ |
11,028,894 |
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Restricted cash |
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1,352,276 |
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Accounts receivable, net |
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3,673,146 |
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6,587,083 |
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Inventory |
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9,170,120 |
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5,764,097 |
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Prepaid expenses and other current assets |
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1,102,232 |
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1,386,711 |
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Total current assets |
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20,648,440 |
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24,766,785 |
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PROPERTY AND EQUIPMENT |
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Property and equipment, at cost |
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157,764,916 |
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155,859,646 |
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Accumulated depreciation |
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(20,627,139 |
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(11,799,466 |
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Property and equipment, net |
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137,137,777 |
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144,060,180 |
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OTHER NON-CURRENT ASSETS |
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Deferred financing costs, net |
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415,646 |
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558,107 |
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Long-term investments |
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333,100 |
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Notes receivable |
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32,754,979 |
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32,754,979 |
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Interest receivable |
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3,445,215 |
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2,580,819 |
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Total other non-current assets |
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36,948,940 |
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35,893,905 |
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TOTAL ASSETS |
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$ |
194,735,157 |
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$ |
204,720,870 |
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LIABILITIES AND MEMBERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
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$ |
3,668,313 |
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$ |
2,529,484 |
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Accrued expenses and other current liabilities |
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2,323,434 |
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3,218,317 |
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Commodity derivative instruments |
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1,980,225 |
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90,255 |
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Current portion of interest rate swap |
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1,507,124 |
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1,618,486 |
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Current portion of long-term debt |
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9,625,439 |
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15,484,485 |
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Total current liabilities |
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19,104,535 |
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22,941,027 |
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LONG-TERM LIABILITIES |
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Long-term debt |
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61,064,371 |
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75,288,353 |
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Interest rate swap |
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2,685,152 |
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2,747,249 |
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Deferred income |
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31,213,573 |
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33,600,244 |
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Total long-term liabilities |
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94,963,096 |
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111,635,846 |
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COMMITMENTS AND CONTINGENCIES |
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MEMBERS EQUITY, 65,000 units authorized; 45,741 units issued and outstanding |
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80,667,526 |
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70,143,997 |
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TOTAL LIABILITIES AND MEMBERS EQUITY |
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$ |
194,735,157 |
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$ |
204,720,870 |
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Notes to the Financial Statements are an integral part of this Statement.
2
PATRIOT RENEWABLE FUELS, LLC
Statements of Operations
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Years Ended December 31, |
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2010 |
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2009 |
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REVENUES |
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$ |
261,116,700 |
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$ |
231,077,345 |
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COST OF GOODS SOLD |
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234,180,432 |
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205,366,591 |
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GROSS MARGIN |
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26,936,268 |
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25,710,754 |
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OPERATING EXPENSES |
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2,334,448 |
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2,446,600 |
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OPERATING INCOME |
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24,601,820 |
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23,264,154 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
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(6,190,729 |
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(8,381,686 |
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Gain on debt extinguishment |
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1,929,828 |
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Interest income |
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864,397 |
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551,127 |
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Interest rate swap gain |
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98,530 |
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1,796,231 |
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Other income |
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80,832 |
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58,033 |
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Total other expense, net |
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(3,217,142 |
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(5,976,295 |
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NET INCOME |
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$ |
21,384,678 |
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$ |
17,287,859 |
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Notes to the Financial Statements are an integral part of this Statement.
3
PATRIOT RENEWABLE FUELS, LLC
Statements of Changes in Members Equity
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BALANCE December 31, 2008 |
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$ |
52,856,138 |
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Net income for the year ended December 31, 2009 |
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17,287,859 |
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BALANCE December 31, 2009 |
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70,143,997 |
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Reacquisition of beneficial conversion feature upon retirement of convertible subordinated debt |
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(4,000,000 |
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Member distributions |
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(6,861,149 |
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Net income for the year ended December 31, 2010 |
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21,384,678 |
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BALANCE December 31, 2010 |
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$ |
80,667,526 |
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Notes to the Financial Statements are an integral part of this Statement.
4
PATRIOT RENEWABLE FUELS, LLC
Statements of Cash Flows
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Years Ended December 31, |
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2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
21,384,678 |
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$ |
17,287,859 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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7,003,031 |
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6,953,274 |
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Loss on disposal of property and equipment |
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16,815 |
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Interest income on tax increment financing notes receivable |
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(864,396 |
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(547,313 |
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Change in fair value of interest rate swap |
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(98,530 |
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(1,796,231 |
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Change in fair value of derivative instruments |
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3,366,896 |
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(364,959 |
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Interest expense related to debt discount amortization |
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466,865 |
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1,333,333 |
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Gain on debt extinguishment |
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(1,929,828 |
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Patronage dividend received |
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(333,100 |
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Changes in operating assets and liabilities: |
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Restricted cash commodity margin account |
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(1,352,276 |
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Accounts receivable |
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2,913,937 |
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(490,165 |
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Inventory |
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(3,406,023 |
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466,738 |
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Prepaids and other current assets |
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284,479 |
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466,135 |
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Commodity derivative instruments |
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(1,476,926 |
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118,658 |
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Accounts payable |
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971,968 |
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(1,896,114 |
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Accrued expenses |
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(969,812 |
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(358,533 |
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Net cash flows provided by operating activities |
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25,977,778 |
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21,172,682 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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(2,174,792 |
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(669,769 |
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Proceeds from the disposal of property and equipment |
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39,059 |
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Net cash flows used in investing activities |
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(2,174,792 |
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(630,710 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments on line of credit, net |
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(2,013,204 |
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Proceeds from debt |
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1,008,290 |
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Payments on long-term debt |
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(18,620,065 |
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(10,690,125 |
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Reacquisition of beneficial conversion feature upon retirement of convertible debt |
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(4,000,000 |
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Distributions paid |
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(6,861,149 |
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Net cash flows used in financing activities |
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(29,481,214 |
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(11,695,039 |
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NET INCREASE IN CASH |
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(5,678,228 |
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8,846,933 |
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CASH BEGINNING OF PERIOD |
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11,028,894 |
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2,181,961 |
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CASH END OF PERIOD |
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$ |
5,350,666 |
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$ |
11,028,894 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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Cash paid for interest |
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$ |
6,346,351 |
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$ |
8,152,636 |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
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Property and equipment additions included in accounts payable and accrued expenses |
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$ |
166,861 |
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$ |
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Notes receivable included in deferred income |
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$ |
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$ |
8,966,896 |
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Reduction of deferred income for exchange of constructed roadway |
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$ |
385,815 |
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$ |
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Retainage refund used to reduce property and equipment amounts due contractor |
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$ |
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$ |
582,110 |
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Notes to the Financial Statements are an integral part of this Statement.
5
PATRIOT RENEWABLE FUELS, LLC
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Notes to Financial Statements |
December 31, 2010 |
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1. |
NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES |
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Nature of Business Patriot Renewable Fuels, L.L.C. (an Illinois Limited Liability Company, the Company) is a dry mill, corn-based processing facility that produces fuel-grade ethanol and distillers grains, a co-product of the ethanol production, that are derived from corn. The ethanol plant is located in Annawan, Illinois and the Company sells its production of ethanol and distillers grains throughout the United States and various international locations. The ethanol plant has a nameplate capacity (guaranteed by the design-builder) to produce 100 million gallons per year of denatured fuel-grade ethanol and approximately 320 thousand tons of dried distillers grains with solubles (DDGS) and process 35.7 million bushels of corn. |
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Use of Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property and equipment, realizability of accounts receivable, valuation of inventory and inventory purchase commitments, valuation of tax increment financing and subordinated debt, and the assumptions used in the impairment analysis of long-lived assets. Actual results may differ from previously estimated amounts, and such differences, if any, may be material to our financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. For the years ended December 31, 2010 and 2009, the Company did not make any revisions to the financial statements for actual results that differed from previously estimated amounts. |
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Revenue Recognition The Company sells ethanol and DDGS pursuant
to marketing agreements as discussed further in Note 8, and generally
recognizes revenue at the time of loading ethanol or distillers grains into
trucks, railcars, or containers. This is the point at which the marketer has
taken title and assumed the risks and rewards of ownership, prices are fixed
or determinable and collectability is reasonably assured. Title is generally
assumed by the buyer at the Companys shipping point. In certain instances
where the sales price of the Companys ethanol is not fixed or determinable
at the time title transfers to the customer, the Company defers the income
until the price does become fixed or determinable. |
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Expense Recognition Cost of goods sold consists primarily of costs for raw materials, utilities, conversion costs, warehousing costs, salaries, wages and expenses for plant operating staff and plant management, depreciation and amortization expenses, general facility overhead charges, property taxes, and property and casualty insurance. General and administrative expenses consist primarily of salaries and expenses for management, administrative and accounting employees, and fees paid to outside service providers such as legal, accounting, and consulting firms. |
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Cash The Company maintains cash and cash equivalents primarily in accounts with three financial institutions which, at times, exceed federally insured limits. The Company has not experienced any losses in such accounts or any losses in connection with these balances. |
6
PATRIOT RENEWABLE FUELS, LLC
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Notes to Financial Statements |
December 31, 2010 |
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Accounts Receivable Accounts receivable are recorded at their estimated net realizable value and do not bear interest. Amounts collected on accounts receivable are included in net cash provided by operating activities in the statement of cash flows. The Company does not have any off-balance sheet credit exposure related to its customers. Accounts are considered past due if payment is not made on a timely basis in accordance with the Companys credit terms. Accounts considered uncollectible are written off. The Company follows a policy of providing an allowance for doubtful accounts when deemed necessary; however, based on historical experience, and its evaluation of the status of receivables, the Company believes that such accounts are collectible in all material respects and thus an allowance was not necessary at December 31, 2010 or 2009. It is possible this estimate will change in the future. |
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The Company performs periodic credit evaluations of its marketers and has not required collateral. The Companys operations vary with the volatility of the market for inputs (including corn, natural gas, chemicals, and denaturant) and for finished products (ethanol and DDGS), and to mitigate that volatility the Company actively seeks to minimize inventory and accounts receivable levels. |
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Inventory Inventory is stated at the lower of cost or market. Cost is determined using the first in, first out (FIFO) method. Market is based on current replacement values except that it does not exceed net realizable values and it is not less than net realizable values reduced by allowances from normal profit margin. Inventories consist of raw materials (corn, chemicals, denaturant), work in process, finished goods (ethanol and DDGS) and spare parts. |
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All materials and production costs related to the production of ethanol and distillers grains not sold are capitalized as inventory and recognized as cost of sales when the sale of the products is recognized. |
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Prepaid Expenses Prepaid expenses are recorded for non-inventory purchases that will be consumed in less than one year. Included in prepaid expenses and other assets are certain costs paid in advance for natural gas. As of December 31, 2010 and 2009 the total amount included on the balance sheet for prepaid natural gas was $222,527 and $775,094, respectively. |
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Property and Equipment Property and equipment is stated at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the assets ranging from 3 to 30 years as shown in the table below: |
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Asset Description |
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Years |
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Land improvements |
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10-30 years |
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Buildings |
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15-30 years |
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Process equipment |
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10-20 years |
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Grain handling equipment |
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10 years |
|
|
Railroad and rail equipment |
|
|
20 years |
|
|
Office and computer equipment |
|
|
3-5 years |
|
|
|
|
The Company expenses maintenance and repair costs as incurred and major betterments and improvements are capitalized. |
|
|
|
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including, but not limited to, discounted |
7
PATRIOT RENEWABLE FUELS, LLC
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
|
cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company has identified no such impairment losses for the years ended December 31, 2010 or 2009. |
|
|
|
Notes Receivable During the year ended December 31, 2009, the Company received a promissory note from the Village of Annawan (the Village) under a tax increment financing (TIF) agreement. The Village provided funds in the form of interest bearing notes. The notes bear interest at a fixed rate established at the time of issuance based on the prime rate, not to exceed 9% per annum. See Note 4 for further discussion. |
|
|
|
Deferred Financing Costs Costs incurred in connection with the acquisition of financing for the ethanol plant discussed in Note 5 were deferred and amortized over the term of the respective financing using the effective interest method. Accumulated amortization was $486,278 and $422,058 at December 31, 2010 and 2009, respectively. As discussed in Note 5, the Companys convertible subordinated debt was retired in 2010, and accordingly, the related deferred financing costs and accumulated amortization were written off. |
|
|
|
Accounts Payable Accounts payable are recorded as invoices are received from vendors at the invoiced amount. Accrued payables for raw materials received but not invoiced are included in accounts payable. |
|
|
|
Interest Rate Swap The Company entered into derivative contracts to fix the interest rate for a portion of its long-term debt. The Company records the interest rate swap at fair value with changes in fair value recognized in earnings because the interest rate swap was not designated as a cash flow hedge. See Note 6 for further discussion. |
|
|
|
Deferred Income Proceeds received from the Village under the TIF agreement are recorded as deferred income and will be amortized into income over the life of the related property and equipment. See Note 4 for further discussion. |
|
|
|
Convertible Debt The Company issued $4,000,000 of convertible subordinated notes on November 25, 2008, the proceeds of which are recorded as long term debt, at a discount based on the conversion feature. The notes bear interest at a rate of 16%, compounded quarterly, and are convertible to units each year at the anniversary date as follows: $1,500 per unit at November 25, 2009, $1,000 per unit at November 25, 2010, and $500 per unit at November 25, 2011 The intrinsic value of the beneficial conversion feature at the time of issuance was recorded as a discount on note and a component of members equity. The discount is amortized to expense over the three year term of the convertible subordinated debt. Non-cash amortization expense of $466,865 and $1,333,333 was recorded for the years ended December 31, 2010 and 2009, respectively. On June 30, 2010, the Company retired this debt and recorded a $1,929,828 non-cash gain on the early extinguishment of debt. See Note 5 for further discussion. |
|
|
|
Income Taxes The Company is treated as a partnership for federal and state income tax purposes and generally does not incur income taxes. Instead, the 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. Differences between the financial statement basis of assets and tax basis of assets is related to capitalization and amortization of organization and start-up costs for tax purposes, whereas these costs are expensed for financial statement purposes. In addition, the Company uses the modified accelerated cost recovery system method (MACRS) for tax depreciation instead of the straight-line method that is used for book depreciation, which also causes temporary differences. The Company has no uncertain tax positions as of December 31, 2010 or 2009. |
|
|
|
Fair Value On January 1, 2009, the Company adopted guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. On January 1, 2010, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance |
8
PATRIOT RENEWABLE FUELS, LLC
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
|
|
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). |
|
|
|
|
|
The three levels of the fair value hierarchy are as follows: |
|
|
|
|
|
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
|
|
|
|
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
|
|
|
|
|
Level 3 inputs are unobservable inputs for the asset or liability. |
|
|
|
|
The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. |
|
|
|
|
|
No events occurred during the years ended December 31, 2010 or 2009 that required adjustment to the recognized balances of assets or liabilities, which are recorded at fair value on a nonrecurring basis. |
|
|
|
|
|
The carrying value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity of these instruments. Fair values of interest rate swap agreements are obtained from the counterparty, who computes the values based on nominal and current interest rates, and have been evaluated for credit swap default risk. The fair value of long-term debt has been estimated using discounted cash flow analysis based upon the Companys current incremental borrowing rates for similar types of financing arrangements. The fair value of outstanding debt will fluctuate with changes in applicable interest rates. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued. The fair value of a companys debt is a measure of its current value under present market conditions. It does not impact the financial statements under current accounting rules. As of December 31, 2010, the Company believes the carrying amount of the long-term debt approximates the fair value due to the variable market rate charged by the lenders. |
|
|
|
|
|
Environmental Liabilities The Companys operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of material in its location. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational heath, and the production, handling, storage and use of hazardous materials to prevent environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Companys liability is probable and the costs can be reasonably estimated. No such liabilities were recorded at December 31, 2010, and 2009 and the Company is not currently a party to any unsettled environmental legal proceedings at December 31, 2010. |
|
|
|
|
|
Reclassifications Certain reclassifications have been made to the previously issued 2009 balance sheet, statement of operations, and cash flows for comparability purposes. This reclassification had no effect on the reported net income, members equity, and operating cash flows as previously reported. |
|
|
|
|
|
Subsequent Events The Company has evaluated subsequent events through March 14, 2011, the date the financial statements were available to be issued. |
9
PATRIOT RENEWABLE FUELS, LLC
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
|
2. |
INVENTORY |
|
|
|
|
|
A summary of inventory at December 31, 2010 and 2009 is as follows: |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Raw materials |
|
$ |
3,648,999 |
|
$ |
1,914,494 |
|
Work in process |
|
|
1,404,402 |
|
|
1,147,920 |
|
Finished goods |
|
|
2,924,560 |
|
|
1,940,412 |
|
Spare parts |
|
|
1,192,159 |
|
|
761,271 |
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
9,170,120 |
|
$ |
5,764,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company performs a lower of cost or market analysis on inventory to determine if the market values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or market analysis, the Company was not required to record a lower of cost or market charge on certain inventories for the years ended December 31, 2010 or 2009. |
|
|
|
|
3. |
PROPERTY AND EQUIPMENT |
|
|
|
|
|
A summary of property and equipment at December 31, 2010 and 2009 is as follows: |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Land and land equipment |
|
$ |
18,089,340 |
|
$ |
18,047,564 |
|
Process and grain handling equipment |
|
|
110,713,369 |
|
|
110,629,526 |
|
Buildings |
|
|
26,198,663 |
|
|
26,202,724 |
|
Furniture, fixtures and computer equipment |
|
|
1,620,744 |
|
|
856,188 |
|
Construction in progress |
|
|
1,142,800 |
|
|
123,644 |
|
|
|
|
|
|
|
|
|
|
|
|
157,764,916 |
|
|
155,859,646 |
|
Accumulated depreciation |
|
|
(20,627,139 |
) |
|
(11,799,466 |
) |
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
137,137,777 |
|
$ |
144,060,180 |
|
|
|
|
|
|
|
|
|
|
|
4. |
TAX INCREMENT FINANCING |
|
|
|
During the years ended December 31, 2009, 2008 and 2007, the Company received amounts from the Village of Annawan, Illinois under a TIF agreement. The Village provided funds in the form of interest bearing notes in 2009 and 2008, as well as cash proceeds from a TIF bond issuance in 2007. The notes bear interest at a fixed rate established at the time of issuance based on the prime rate, not to exceed 9% per annum. Bonds issued to fund the TIF arrangement are not a liability of the Company but are an obligation of the Village since the Company does not guarantee the TIF debt and has no obligation to satisfy any shortfall in annual debt service requirements. The bonds and related notes are to be repaid by the Village from the incremental increase in property taxes related to the improvement of the Companys real property. The proceeds of the financing have been recorded as deferred income and will be amortized into income with such amortization amount based on the life of the related property and equipment. The amount of reimbursements to be received under the TIF agreement is not to exceed $41,772,000 plus related interest on the TIF notes receivable. As of December 31, 2010, the Company had received $9,000,000 in cash from the Village in addition to a $32,754,979 note receivable. At December 31, 2010 and 2009, the amount recorded by the Company as deferred income related to the amounts received was $41,754,979. Included in the statement of operations for the years ended December 31, 2010 and 2009, the Company amortized $2,000,856 and |
10
PATRIOT RENEWABLE FUELS, LLC
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
|
$2,013,016 of deferred income, respectively, which was netted against depreciation expense and is included as a component of costs of goods sold. |
|
|
|
In 2008, the Company reduced deferred income by $5,608,792 related to the transfer of property rights for the plant access road from the Company to the Village. In 2010, the Company reduced deferred income by an additional $385,815 related to the transfer of additional construction costs for the plant access road from the Company to the Village. The fair value of these assets was deemed to approximate the cost basis due to the recent construction of the roadway. |
|
|
|
As of December 31, 2010 and 2009, the unamortized deferred income balance was $31,213,573 and $33,600,244, respectively. The notes, net of the valuation allowance of $2,519,196 and 1,374,009, had accrued interest receivable of $3,445,215 and $2,580,819 at December 31, 2010 and 2009, respectively, and is recorded separate from the notes received as interest receivable. The Company has recorded a valuation allowance against the interest receivable based on the uncertainty of future cash flows of the Village. Non-cash interest income was accrued on the notes receivable at an interest rate of 6.1% for both the years ended December 31, 2010 and 2009, and was included in the statements of operations as interest income. At December 31, 2010 and 2009, the Company has recorded a valuation allowance of $2,519,196 and $1,374,009, respectively, against the interest receivable based on the uncertainty of future cash flows of the Village. |
|
|
5. |
LONG-TERM DEBT and REVOLVING LINE OF CREDIT |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Secured by substantially all assets: |
|
|
|
|
|
|
|
Fixed rate loan, variable rate interest of 90 day LIBOR plus 300 basis points, swapped to a fixed rate of 8.655%, due October 2013 |
|
$ |
39,528,635 |
|
$ |
42,998,088 |
|
Variable rate loan, variable interest of 90 day LIBOR plus 450 basis points with a minimum rate of 5.5%, due October 2013 |
|
|
20,661,175 |
|
|
28,811,787 |
|
Long-term reducing revolving loan, variable interest of 90 day LIBOR plus 450 basis points with a minimum rate of 5.5%, due October 2013 |
|
|
10,500,000 |
|
|
17,500,000 |
|
Unsecured: |
|
|
|
|
|
|
|
Convertible subordinated debt, fixed interest rate of 16%, convertible to membership units, paid in full during 2010 |
|
|
|
|
|
4,000,000 |
|
Discount on convertible subordinated debt |
|
|
|
|
|
(2,537,037 |
) |
|
|
|
|
|
|
|
|
Total debt |
|
|
70,689,810 |
|
|
90,772,838 |
|
Less: current maturities |
|
|
(9,625,439 |
) |
|
(15,484,485 |
) |
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
61,064,371 |
|
$ |
75,288,353 |
|
|
|
|
|
|
|
|
|
|
|
|
On November 28, 2006, the Company entered into a definitive loan agreement (the Agreement) with a financial institution (the Bank) for a Construction Loan of up to $93,900,000, a Revolving Line of Credit of $7,000,000 and Letters of Credit of $3,000,000 to provide financing for construction and operation of the ethanol plant. In connection with the Agreement, the Company also entered into an interest rate swap (the Swap) agreement fixing the interest rate on $46,950,000 of debt at 8.655%. |
11
PATRIOT RENEWABLE FUELS, LLC
|
Notes to Financial Statements |
December 31, 2010 |
|
|
On September 22, 2008, the Agreement was amended (the 2nd Amendment) to increase the amount available under the Construction Loan to $100,000,000, increase the Revolving Line of Credit to $12,000,000, and reduce the Letters of Credit to $972,685. In addition, the 2nd Amendment also provided for a $4,000,000 Bridge Loan to be issued subject to replacement by issuance of convertible subordinated debt (Subordinated Debt) by the Company. |
|
|
|
On October 8, 2008 (Completion Date) the Construction loan was converted into three term loans. One term loan, the Fixed Rate Note, is for $46,950,000, and the balance is subject to the interest rate swap agreement (see Note 6). The remaining amounts of the Construction Loan were converted to a Variable Rate Note of $33,050,000 and a Long-Term Reducing Revolving Loan of $20,000,000. |
|
|
|
The Agreement also provided for a Revolving Loan under which the Company could initially borrow the lesser of (1) a borrowing base calculation defined in the Agreement or (2) $12,000,000. The Revolving Loan matured on April 30, 2009. On April 30, 2009, and May 31, 2009, respectively, the Revolving Loan was amended to reduce the amount available from $12,000,000 to $6,000,000 and to extend the maturity date from April 30, 2009 to August 31, 2009. On August 31, 2009, the Company executed an extension to the Revolving Loan as described in the following paragraph. At December 31, 2010 and at December 31, 2009, the Company did not have any borrowings outstanding under the Revolving Loan. Interest is payable quarterly on outstanding borrowings. |
|
|
|
On August 31, 2009, the Company entered into an amended and restated loan agreement (the Restated Agreement) with the Bank. The Restated Agreement reduced the maximum availability on the Revolving Loan to $5,000,000 and extended the maturity date to July 31, 2010. The Restated Agreement also revised the fixed charge and net worth covenant requirements; eliminated the working capital covenant; increased the base rate on the various loans, except for the Fixed Rate Loan, from LIBOR plus three hundred basis points, to LIBOR plus four hundred fifty basis points with a minimum interest rate of 5.5%; and established a maximum required debt service reserve of $5,000,000 to be funded by an annual excess cash flow calculation. As of December 31, 2009, the Company owed the maximum of $5,000,000 as the result of this calculation and paid that amount on January 22, 2010, which was applied toward the principle outstanding on the Long-term Reducing Revolving Note. This debt service reserve is fully funded and will require no additional contributions for the term of the Restated Agreement. During the year ended December 31, 2010 the $5,000,000 Revolving Loan agreement was renewed until June 1, 2011. |
|
|
|
The Restated Agreement contains various restrictive covenants which, among other matters, require that the Company meet certain financial ratios. The Company is in compliance with the financial covenants of the Restated Agreement as of December 31, 2010 and 2009 and expects to remain in compliance throughout 2011. |
|
|
|
The Fixed Rate Note bears interest at a variable rate of 90 day LIBOR plus three hundred basis points. The Variable Rate Note, the Long Term Reducing Revolving Loan, and the Revolving Loan bear interest at a variable rate of 90 day LIBOR plus four hundred fifty basis points, with a minimum rate of 5.5%. The minimum rate of 5.5% was in effect at December 31, 2010 and 2009. The borrowings under the Agreement are collateralized by substantially all of the assets of the Company. The term loans require quarterly interest and principal payments and mature five years after the Completion Date of the Construction loan. In addition, the Company must make additional annual principle payments up to a maximum of $4,000,000 based on an excess cash flow calculation, as defined in the Restated Agreement. As of December 31, 2010, the Company owed approximately $2,100,000 as a result of this calculation that is included in the current portion of long-term debt on the balance sheet. As of December 31, 2009, the Company owed an additional $4,000,000 as a result of this calculation and paid that amount on January 22, 2010. |
|
|
12
|
PATRIOT RENEWABLE FUELS, LLC |
|
Notes to Financial
Statements |
|
|
|
|
Annual expected maturities for long-term debt as December 31, 2010 are as follows: |
|
|
|
|
|
2011 |
|
$ |
9,625,439 |
|
2012 |
|
|
10,620,599 |
|
2013 |
|
|
50,443,772 |
|
|
|
|
|
|
Total |
|
$ |
70,689,810 |
|
|
|
|
|
|
|
|
|
On November 25, 2008, the Company issued Convertible Subordinated Debt totaling $4,000,000 to five related parties (see Note 7). The Subordinated Debt bears interest at a rate of 16%, has a term of three years, and is convertible to membership units at each anniversary date at a cost of $1,500, $1,000, and $500 per unit, respectively, on November 25, 2009, 2010, and 2011. Due to the favorable conversion rate of this debt, the Company recognized a beneficial conversion feature of $4,000,000, resulting in a discount of $4,000,000 to the convertible subordinated debt. This discount will be recognized as interest expense over the three-year life of the debt. The Company recognized non-cash interest expense related to amortization of this debt discount of $466,865 and $1,333,333 during 2010 and 2009, respectively. As of June 30, 2010, the Company had made payments totaling $4,000,000 to retire this debt and recognized a non-cash gain on the early extinguishment of this debt of $1,929,828 which represents the total settlement amount paid being less than the current carrying value. |
|
|
6. |
DERIVATIVE INSTRUMENTS |
|
|
|
From time to time the Company enters into derivative transactions to hedge its exposures to interest rate and commodity price fluctuations. The Company does not enter into derivative transactions for trading purposes. |
|
|
|
The Company provides qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. |
|
|
|
As of December 31, 2010, the Company had an outstanding interest rate swap agreement along with corn derivative instruments. The Company records its derivative financial instruments as either assets or liabilities at fair value in the balance sheet. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Based upon the exposure being hedged, the Company designates its hedging instruments as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The Company formally documents, designates, and assesses the effectiveness of transactions that receive hedge accounting initially and on an on-going basis. The Company does not currently have any derivative instruments that are designated as effective hedging instruments for accounting purposes. |
|
|
|
Commodity Contracts |
|
|
|
As part of its hedging strategy, the Company may enter into corn commodity-based derivatives, through its corn origination agreement as discussed in Note 8, in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Corn derivative changes in fair market value are included in cost of goods sold. At December 31, 2010, the total notional amount of the Companys outstanding corn derivative instruments was approximately 3,560,000 bushels that were entered into to hedge forecasted corn purchases through December 2011. At December 31, 2009, the total notional amount of the Companys |
13
|
PATRIOT RENEWABLE FUELS, LLC |
|
Notes to Financial
Statements |
|
|
|
|
outstanding corn derivative instruments was approximately 1,360,000 bushels that were entered into to hedge forecasted corn purchases through July 2010. |
|
|
|
Interest Rate Contact |
|
|
|
In accordance with the Agreement as discussed in Note 5 the Company entered into a forward starting interest rate swap in the notional amount of $46,950,000 during 2007 to limit its exposure to the impact of increasing interest rates on its results of operations and future cash flows for interest. The Swap fixed the interest rate portion of the Fixed Rate Loan subsequent to the Completion Date at 8.655%. The Swap is effective as of October 8, 2008 and terminates on October 8, 2013. |
|
|
|
At December 31, 2010, the Company had approximately $39.5 million of notional amount outstanding in swap agreements that exchange the variable interest rate (three-month LIBOR plus 300 basis points) for a fixed interest rate (8.655%) over the term of the agreement. At December 31, 2010, the fair value of the interest rate swap totaled approximately $4,200,000 of which approximately $1,500,000 is classified as a current liability and approximately $2,700,000 is classified as a long-term liability. At December 31, 2009, the fair value of the interest rate swap totaled approximately $4,400,000, of which approximately $1,600,000 is classified as a current liability and approximately $2,800,000 is classified as a current liability. These agreements are not designated as an effective hedge for accounting purposes and the change in fair market value is recorded as Interest rate swap gain in the statement of operations and the associated net settlements are recorded in interest expense in the statement of operations. |
|
|
|
The following table provides details regarding the Companys derivative financial instruments at December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
Assets |
|
Liabilities |
|
|||
|
|
|
|
|
|
|
|
|||
Corn contracts |
|
|
Commodity derivative instruments |
|
$ |
|
|
$ |
1,980,225 |
|
Interest rate swap |
|
|
Interest rate swap current |
|
|
|
|
|
1,507,124 |
|
Interest rate swap |
|
|
Interest rate swap long-term |
|
|
|
|
|
2,685,152 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
$ |
|
|
$ |
6,172,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides details regarding the Companys derivative financial instruments at December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
Assets |
|
Liabilities |
|
|||
|
|
|
|
|
|
|
|
|||
Corn contracts |
|
|
Commodity derivative instruments |
|
$ |
|
|
$ |
90,255 |
|
Interest rate swap |
|
|
Interest rate swap current |
|
|
|
|
|
1,618,486 |
|
Interest rate swap |
|
|
Interest rate swap long-term |
|
|
|
|
|
2,747,249 |
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
|
|
$ |
|
|
$ |
4,455,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides details regarding gains and (losses) from the Companys derivative financial instruments in the statement of operations, none of which are designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations |
|
Year ended |
|
Year ended |
|
|||
|
|
|
|
|
|
|
|
|||
Corn contracts |
|
|
Cost of goods sold |
|
$ |
(3,366,896 |
) |
$ |
364,959 |
|
Interest rate swap |
|
|
Interest rate swap gain |
|
|
98,530 |
|
|
1,796,231 |
|
|
|
|
|
|
|
|
|
|
|
|
Total gain (loss) |
|
|
|
|
$ |
(3,268,366 |
) |
$ |
2,161,190 |
|
|
|
|
|
|
|
|
|
|
|
|
14
|
PATRIOT RENEWABLE FUELS, LLC |
|
Notes to Financial
Statements |
|
|
|
7. |
RELATED PARTY TRANSACTIONS |
|
|
|
The Company has engaged CGB Enterprises Co. (CGB), an equity member to source corn for the plant under a long-term agreement on a fee per bushel basis (discussed further in Note 8). |
|
|
|
The Company engaged Fagen, Inc. (Fagen) as the general contractor for the design and construction of the ethanol plant. The sole owner of Fagen is an equity member of the Company. |
|
|
|
The Company purchases chemicals used in its production process from Michlig Agricenter, Inc. (Michlig), on the basis of price and availability. There are no volume or price commitments by either party. The sole owner of Michlig is a Board member of the Company. |
|
|
|
Total amounts paid to related parties during the years ended December 31, 2010 and 2009 were as follows: |
|
|
|
|
|
|
|
|
|
|
Year ended |
|
Year ended |
|
||
|
|
|
|
|
|
||
CGB |
|
$ |
171,432,515 |
|
$ |
145,489,886 |
|
Fagen |
|
|
|
|
|
2,025,327 |
|
Michlig |
|
|
895,077 |
|
|
678,152 |
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
172,327,592 |
|
$ |
148,193,365 |
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts payable to related parties at December 31, 2010 and 2009 were as follows: |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
CGB |
|
$ |
1,437,265 |
|
$ |
1,189,843 |
|
Michlig |
|
|
55,459 |
|
|
20,112 |
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
1,492,724 |
|
$ |
1,209,955 |
|
|
|
|
|
|
|
|
|
|
|
|
The Company has engaged Murex N.A, LTD, (Murex), an equity member to market ethanol for the plant under a long term agreement on a percentage of revenue commission basis. Total amounts owed to the Company from Murex, as of December 31, 2010 and 2009 were $2,261,462 and $5,997,273, respectively. |
|
|
|
As discussed in Note 5, the Company entered into subordinated debt agreements with certain equity members. Those agreements are related party transactions as each party is an equity member. |
|
|
8. |
COMMITMENTS AND CONTINGENCIES |
|
|
|
Corn Origination Agreement |
|
The Company has a corn origination agreement with CGB, an equity member of the Company, whereby they are entitled to the exclusive right for procurement of 100% of the corn needs for the plant. The contract commenced in 2008 and continues for four years from the first delivery date. The price of the corn purchased will be the bid price CGB establishes with the producer of corn plus a set fee per bushel. At December 31, 2010, the Company had open forward corn purchase commitments for 14,024,519 bushels at an average price of $6.28 with CGB. At December 31, 2009, the Company had open forward corn purchase commitments for 2,296,676 bushels at an average price of $4.23 with CGB. |
15
|
PATRIOT RENEWABLE FUELS, LLC |
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
|
Ethanol Marketing Agreement |
|
The Company has a marketing agreement with Murex, an equity member of the Company, whereby they are entitled to the exclusive right for sale and distribution of 100% the plants ethanol. The Company pays the buyer a percentage of the net sales price for certain marketing costs. The initial term is for five years beginning in August 2008 with one year renewal terms unless notice is given by either party at least 90 days prior to the end of the current term. The Company had approximately $219,800,000 million of ethanol sales to Murex during 2010, of which approximately $2,261,000 is included in accounts receivable at December 31, 2010. During the year ended December 31, 2009, the Company had approximately $197,500,000 of ethanol sales to Murex, of which approximately $6,000,000 is included in accounts receivable at December 31, 2009. For the years ended December 31, 2010 and 2009, ethanol sales are recorded net of commissions totaling approximately $2,050,000 and $2,140,000, respectively. |
|
|
|
Distillers Grains Marketing Agreement |
|
The Company has a marketing agreement with CHS, Inc., whereby they are entitled to the exclusive right for sale and distribution of 100% of the plants dried distillers grains with solubles and wet distillers grains with solubles. The initial term of the agreement was one year, but the agreement is to remain in effect until terminated by either party at its unqualified option, by providing written notice of not less than 90 days to the other party. Neither party to the agreement has provided such notice. For the year ended December 31, 2010, the Company recorded DDGS sales of approximately $43,700,000 net of commissions of approximately $905,000. For the year ended December 31, 2009, the Company recorded DDGS sales of approximately $36,400,000 net of commissions of approximately $800,000. |
|
|
|
Natural Gas Contracts |
|
At December 31, 2010, the Company had forward contracts to purchase approximately 354,000 British thermal units (MMBTU) of natural gas during the months of January and February 2011 at an average price of approximately $4.65 per MMBTU. |
|
|
9. |
CONCENTRATIONS |
|
|
|
For the years ended December 31, 2010 and 2009, two customers accounted for all of the Companys revenues and trade accounts receivable. Accounts receivable for the ethanol marketer represented 62% and 88% of total outstanding receivables at December 31, 2010 and 2009, respectively. Accounts receivable for the dry distiller grains marketer represented 30% and 8% of total outstanding receivables at December 31, 2010 and 2009, respectively. Revenues for the ethanol marketer represented 83% of total revenues for the years ended December 31, 2010 and 2009. Revenues for the dry distiller grains marketer represented 17% of total revenues for the years ended December 31, 2010 and 2009. |
|
|
|
All of the Companys revenue is generated from the sale of two products, ethanol and distillers grains. |
|
|
10. |
MEMBERS EQUITY |
|
|
|
As specified in the Companys operating agreement, the Company has one class of membership units. The Company is authorized to issue up to 65,000 membership units. No additional units may be issued for less than $500 per unit without the consent of the majority of the membership units then outstanding. Profits and losses of the Company are allocated to members based on the proportion of units held. As of December 31, 2010 and 2009 the Company had 45,741 membership units issued and outstanding. |
|
|
|
During 2010, the Company paid a cash distribution of $150.00 per membership unit for a total distribution of $6,861,149 to its unit holders. |
16
|
PATRIOT RENEWABLE FUELS, LLC |
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
11. |
FAIR VALUE MEASUREMENTS |
|
|
|
The Company follows accounting guidance related to fair value disclosures. For the Company, this guidance applies to certain derivative investments. The authoritative guidance also clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. |
|
|
|
The following table sets forth, by level, the Companys assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
Financial |
|
Carrying |
|
Fair Value |
|
Quoted |
|
Significant |
|
Significant |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Corn contracts |
|
$ |
(1,980,225 |
) |
$ |
(1,980,225 |
) |
$ |
(1,980,225 |
) |
$ |
|
|
$ |
|
|
Interest rate swap |
|
|
(4,192,276 |
) |
|
(4,192,276 |
) |
|
|
|
|
(4,192,276 |
) |
|
|
|
|
|
|
The following table sets forth, by level, the Companys assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
Financial |
|
Carrying |
|
Fair Value |
|
Quoted |
|
Significant |
|
Significant |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Corn contracts |
|
$ |
(90,255 |
) |
$ |
(90,255 |
) |
$ |
(90,255 |
) |
$ |
|
|
$ |
|
|
Interest rate swap |
|
|
(4,365,735 |
) |
|
(4,365,735 |
) |
|
|
|
|
(4,365,735 |
) |
|
|
|
|
|
|
Fair values of interest rate swap agreements are obtained from the counterparty, who computes the values based on current market interest rates and yield curves, and have been evaluated for credit swap default risk. The fair value of corn contracts are based on quoted market prices in active markets. |
|
|
12. |
OPERATING LEASES |
|
|
|
The Company has various equipment leases under non-cancelable leases through October 2013. Rent expense for operating leases was approximately $142,000 and $133,000 for the years ended December 31, 2010 and 2009, respectively. |
17
|
PATRIOT RENEWABLE FUELS, LLC |
|
Notes to Financial Statements |
December 31, 2010 |
|
|
|
|
At December 31, 2010, the Company had the following minimum lease commitments for payment of rentals under leases, which at inception had a non-cancelable term of over one year: |
|
|
|
|
|
Periods ending December 31, |
|
|
|
|
2011 |
|
$ |
117,398 |
|
2012 |
|
|
91,902 |
|
|
|
|
|
|
Total minimum lease commitments |
|
$ |
209,300 |
|
|
|
|
|
|
|
|
13. |
RISKS AND UNCERTAINTIES |
|
|
|
The Company has certain risks and uncertainties that it experiences during volatile market conditions, which can have a significant impact on operating results. The Companys revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the U.S. Corn for the production process is supplied to the Companys plant primarily from local agricultural producers and is purchased on the open market. For the year ended December 31, 2010 ethanol sales were 83% of total revenues and corn costs were 79% of cost of goods sold. |
|
|
|
The Companys operating and financial performance is largely driven by the prices at which it sells ethanol and the cost at which it purchases corn. The price of ethanol and the cost of corn are both influenced, not necessarily in similar directions, by factors such as supply and demand, the weather, and by government policies and programs. Ethanol is also influenced by unleaded gasoline prices and the petroleum markets as a whole, which do not necessarily impact the cost of corn. Similarly, the cost of corn may be influenced, independently of ethanol, by other grain markets such as wheat and soybeans. The Company utilizes various risk management policies and programs to protect against the price volatility of these commodities, as well as those of natural gas and distillers grains. |
|
|
14. |
LEGAL PROCEEDINGS |
|
|
|
From time to time in the ordinary course of business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers compensation claims, tort claims, or contractual disputes. The Company is not currently a party to any material pending legal proceedings and they are not currently aware of any such proceedings being contemplated. |
18