Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - Western Iowa Energy, L.L.C. | c98583exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - Western Iowa Energy, L.L.C. | c98583exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - Western Iowa Energy, L.L.C. | c98583exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - Western Iowa Energy, L.L.C. | c98583exv32w2.htm |
EX-10.20 - EXHIBIT 10.20 - Western Iowa Energy, L.L.C. | c98583exv10w20.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended December 31, 2009
o | Transition report under Section 13 or 15(d) of the Exchange Act. |
For the transition period from to
Commission file number 000-51965
WESTERN IOWA ENERGY, LLC
(Name of registrant in its charter)
Iowa | 41-2143913 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
1220 S. CENTER STREET, P.O BOX 399 | ||
WALL LAKE, IOWA (Address of principal executive offices) |
51466 (Zip Code) |
(712) 664-2173
(Issuers telephone number)
(Issuers telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
26,447
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. o Yes þ No
Note Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those
Sections.
Indicate by check mark whether the registrant (1) 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. þ Yes o No
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). o Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated 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.
o Large accelerated filer | o Accelerated filer | þ Non-accelerated filer | o Smaller reporting company | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes þ No
The aggregate market value of the membership units held by non-affiliates of the registrant was
$1,992,150 at June 30, 2009. There is no established public trading market for the registrants
membership units. In addition, no units of the registrant were traded during the fiscal year ended
December 31, 2009. The aggregate market value was computed by reference to the average bid and
asked price of the membership units in the registrants qualified matching service during the
fourth quarter of the registrants fiscal year ended December 31, 2008, which is the most recent
quarter during which the registrants units were traded.
As of the date of this filing, there are 26,447 membership units of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Section III of this Annual Report is incorporated herein by reference
to the Companys definitive proxy statement to be filed with the Securities and Exchange Commission
within 120 days of the close of the fiscal year ended December 31, 2009.
Table of Contents
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Exhibit 10.20 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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Table of Contents
AVAILABLE INFORMATION
Our website address is www.westerniowaenergy.com. Our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange
Act), are available, free of charge, on our website under the link SEC Compliance, as soon as
reasonably practicable after we electronically file such materials with, or furnish such materials
to, the Securities and Exchange Commission. The contents of our website are not incorporated by
reference in this annual report on Form 10-K.
PART I
ITEM 1. | BUSINESS. |
General Development of Business
Western Iowa Energy, LLC (WIE or the Company) is an Iowa limited liability company formed
on September 21, 2004, for the purpose of developing, constructing, and operating a biodiesel
manufacturing facility in Sac County, Iowa. References to we, us, and our refer to Western
Iowa Energy, LLC. Since May 2006, we have been engaged in the production of biodiesel and
glycerin. We derive our revenues from the sale and distribution of our biodiesel and glycerin.
Our plant has a nameplate production capacity of 30 million gallons of biodiesel per year and
is able to pre-treat crude vegetable oil and crude animal fats for use in the biodiesel production
process. Our pretreatment systems permit us to utilize lower-cost feedstock, such as animal fats,
in place of higher-cost feedstock, such as soybean oil, to optimize our profits.
Our plant is BQ-9000 accredited by the National Biodiesel Board and the National Biodiesel
Accreditation Committee. BQ-9000 is a voluntary quality-assurance program. BQ-9000 accreditation
demonstrates that the quality control processes in place at a plant provide confidence that the
biodiesel produced at the facility will consistently meet applicable American Society of Testing
and Materials (ASTM) biodiesel specifications.
For the fiscal year ended December 31, 2009, we produced a total of 15,830,562 gallons of
biodiesel at our plant. This is significantly less than our annual nameplate production capacity of
30,000,000 gallons (or 2,500,000 gallons per month), and represents a slight decrease from the
fiscal year ended December 31, 2008, when we produced 18,035,289 gallons of biodiesel. The reduced
production schedule in fiscal year 2009 is primarily due to the lower price of petroleum diesel and
the current economic downturn. In January 2010, we operated at approximately 17.4% of our
nameplate capacity, compared with 28% in January 2009. Biodiesel production in January is
historically lower than at other times of the year due to decreased demand for biodiesel during the
winter months. We expect that we will continue to operate at low production levels for the first
quarter of fiscal year 2010 as we move out of the winter months.
On December 31, 2009, the federal tax credit for biodiesel expired. Congress has not yet
enacted an extension of the tax credit. The failure of Congress to enact an extension of the
biodiesel tax credit has led to a significant reduction in demand for biodiesel. If Congress fails
to enact an extension of the biodiesel tax credit, we expect that demand for biodiesel will remain
low indefinitely.
On May 9, 2005, we entered into a Management and Operational Services Agreement (MOSA) with
West Central Cooperative. On September 21, 2006, West Central Cooperative assigned its interests
in the MOSA to Renewable Energy Group, Inc. (REG). Pursuant to the terms of the MOSA, REG
manages our plant, procures feed stock and chemical inputs for our plant, and markets our biodiesel
and glycerin. On April 7, 2009, REG provided twelve months written notice of its intent to
terminate the MOSA. On March 16, 2010, WIE and REG agreed to a one-month extension of the MOSA.
The MOSA, as extended, will terminate as of May 3, 2010. For additional information, see Proposed
Consolidation with REG below.
We expect to fund our operations during the next 12 months using cash flow from continuing
operations and our credit facilities. On May 11, 2009, we cancelled our supplemental line of
credit with Farm Credit Services of America, FLCA (Farm Credit). Cancellation of the supplemental
line of credit was a condition to Farm Credits
consent to a proposed consolidation with REG, which is discussed below. Although we expect to
have sufficient cash flow to fund our operations from our continuing operations and from our
remaining credit facilities, we may not have sufficient cash flow as a result of the termination of
our supplemental line of credit.
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We are subject to industry-wide factors that affect our operating and financial performance.
These factors include, but are not limited to, the available supply and cost of animal fats and
other feedstocks from which we produce our biodiesel and glycerin; dependence on our biodiesel and
glycerin marketer to market and distribute our products; the timely expansion of infrastructure in
the biodiesel industry; the intensely competitive nature of the biodiesel industry; possible
legislation at the federal, state, and/or local level; the recent expiration of the federal
biodiesel tax credit, and the cost of complying with extensive environmental laws that regulate our
industry.
Proposed Consolidation with REG
On November 20, 2009, the Company entered into a Second Amended and Restated Asset Purchase
Agreement with REG, REG Newco, Inc., a Delaware corporation (Newco), and REG Wall Lake, LLC, a
wholly-owned subsidiary of Newco and an Iowa limited liability company (REG Wall Lake), having an
effective date of May 11, 2009 (the Amended and Restated Asset Purchase Agreement), which
superseded the original Asset Purchase Agreement between the parties dated May 11, 2009 and the
Amended and Restated Asset Purchase Agreement between the parties dated August 7, 2009, and
pursuant to which the Company proposed to consolidate its business and operations with REG under
Newco (the Transaction). Since the inception of WIE, REG has provided biodiesel plant
management, feedstock procurement, and product marketing services to WIE under the MOSA. The
proposed consolidation would have occurred through the acquisition by REG Wall Lake of substantially all of
the Companys assets and certain liabilities. The Amended and Restated Asset Purchase Agreement
also contemplated the consolidation of the business and operations of two other biodiesel plants,
Central Iowa Energy, LLC (CIE) and Blackhawk Biofuels, LLC (Blackhawk), under Newco.
The Amended and Restated Asset Purchase Agreement was subject to several closing conditions,
including the approval of a majority of the Membership Voting Interests of the Company. The
Amended and Restated Asset Purchase Agreement also contemplated the subsequent dissolution of the
Company, which was subject to the approval of a 75% majority in interest of the Membership Voting
Interests of the Company. On February 24, 2010, the unit holders of WIE voted to reject the
proposed consolidation by a vote of 38.04% in favor to 40.07% against, with 0.26% of unitholders
abstaining. The unit holders of WIE rejected the proposed dissolution of WIE by a vote of 38.12%
in favor to 39.99% against, with 0.26% of unitholders abstaining. Unitholders holding approximately
21.6% of the outstanding units failed to return ballots.
The rejection of the proposed consolidation with REG may have a significant impact on the
operations of WIE in 2010 and in future years. Since we began operations of our biodiesel plant,
REG has managed and directed the general operations of our plant pursuant to our MOSA.
Pursuant to the MOSA, REG provides us with overall management, sales and marketing, and feedstock
and chemical procurement services. These services include accounting support, credit review,
information technology, and risk management services. We are very reliant on REG for these
services, as we have no relationships with any other parties with respect to the performance of
these services. On April 7, 2009, we received a letter dated April 3, 2009, in which REG provided
twelve months written notice of its intent to terminate the MOSA. Therefore, the MOSA was set to
terminate on April 3, 2010. Our earlier disclosure indicated that the MOSA would terminate on May
1, 2010. That disclosure was based on a misunderstanding of the termination provision in the MOSA
and should have read April 3, 2010. REG indicated that its determination to terminate the MOSA
stemmed from changes in the biodiesel market generally that had occurred since the parties
originally entered into the MOSA. If the unitholders had approved the proposed consolidation with
REG, then REG would have continued to provide the services that it currently provides under the
MOSA. On March 16, 2010, WIE and REG adopted an Extension and Second Amendment to the MOSA (the
MOSA Extension). The MOSA Extension provides for a one-month extension of the MOSA. As a
result, the MOSA will now terminate after May 3, 2010. The MOSA Extension also modified REGs
responsibility to provide a general manager and an operations manager for our plant. Under the
MOSA Extension, REG will remain obligated to provide the same general services to the plant, but
will not be obligated to provide a general manager and an operations manager. Instead, REG will be
obligated to provide the services to WIE using various combinations of management personnel at
REGs sole discretion.
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Table of Contents
Since the unitholders rejected the proposed consolidation with REG, WIE will either have to
negotiate a new contract for these services with REG, identify alternative providers of these
services and negotiate contracts
with these providers, or begin providing these services on its own prior to May 3. This is a
very short timeframe in which to make these arrangements, and each of these options carries
significant risk for the company. There can be no assurance that the Company would be able to
contract with a third party to provide management, sales, and marketing services on terms favorable
to the Company, or that the Company would be able to hire individuals to perform these services.
Any lack of a provider for these services would have a negative impact on our revenues and could
have a material adverse effect on the Company. Accordingly, REGs termination of the MOSA could
adversely affect the Companys ability to generate revenues and the Companys members could lose
some or all of their investment.
Financial Information About Segments
We do not operate any distinct segments, as defined by generally accepted accounting principles.
Principal Products
The principal products that we produce are biodiesel, crude glycerin, and fatty acid.
Biodiesel
Biodiesel is a high-lubricity, clean-burning alternative fuel produced from domestic,
renewable resources and is primarily used in compression ignition (diesel) engines and may also be
used as home heating oil. Biodiesel provides environmental benefits over petroleum-based diesel,
including reduced emissions of carbon dioxide, carbon monoxide, particulate matter, and sulfur.
Biodiesels physical and chemical properties, as they relate to operation of diesel engines, are
similar to petroleum-based diesel fuel. As a result, blends containing 20% biodiesel and 80%
petroleum-based diesel may be used in most standard diesel engines without requiring any engine
modifications.
We derived approximately 96.0% of our revenue from the sale of biodiesel during our fiscal
year ended December 31, 2009. Biodiesel sales accounted for approximately 96.5% and 98.1% of our
revenue for the fiscal years ended December 31, 2008 and 2007, respectively.
Primary Co-Product Crude Glycerin
The primary co-product of the biodiesel production process is crude glycerin, which equals
approximately 10% of the quantity of biodiesel produced. Crude glycerin is highly stable under
typical storage conditions, compatible with a wide variety of other chemicals, and relatively
non-toxic. Glycerin possesses a unique combination of physical and chemical properties that are
used in a large variety of products. It is an ingredient or processing aid in cosmetics,
toiletries, personal care, pharmaceuticals, and food products. In addition, new uses for glycerin
are frequently being discovered and developed due to its versatility. Many of these uses, however,
require refined glycerin. Our plant only produces crude glycerin and does not have the capability
to refine glycerin. Also, glycerin produced from the production of animal fat-based biodiesel
cannot be used in pharmaceutical products.
We derived approximately 1.4% of our revenue from the sale of crude glycerin during our fiscal
year ended December 31, 2009. Crude glycerin sales accounted for approximately 3.5% and 1.9% of
our revenue for the fiscal years ended December 31, 2008 and 2007, respectively.
Primary Co- Product Fatty Acid
An additional co-product of the biodiesel production process is fatty acid. Fatty acid is
generally used as a component of livestock feed. In 2008 and 2009, our marketer, REG, engaged in
efforts to expand the market for fatty acid. As a result of these efforts, we derived
approximately 1.9% of our revenue from the sale of fatty acid during our fiscal year ended
December 31, 2009. In previous years, sales of fatty acid constituted a de minimis portion of our
total revenue.
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Table of Contents
Principal Products Markets
As described below in Distribution Methods, we currently market and distribute all of our
biodiesel, glycerin, and fatty acid through a professional third-party marketer, REG. Our biodiesel,
glycerin, and fatty acid marketer gathers pertinent information on the marketing opportunities for
our products and presents those opportunities to our board of directors. Our board of directors
makes all decisions with regard to where our products are marketed. Our products are primarily
sold in the domestic market. A portion of our products have also been sold in international
markets, particularly to European customers. In 2009, however, the European Commission imposed
anti-dumping and countervailing duties on U.S. biodiesel imported into Europe. These duties
significantly increase the price at which we must sell our biodiesel in European markets, making it
difficult or impossible for us to compete with European biodiesel producers.
We expect our biodiesel and glycerin marketer to explore all markets for our products,
including export markets. However, due to high transportation costs, and the fact that we are not
located near a major international shipping port, we expect a majority of our products to continue
to be marketed and sold domestically. If we negotiate a new MOSA with REG, we will expect REG to
continue exploring all markets for our products. If we negotiate a new marketing contract with a
third party, we expect to require the third party to explore all markets for our products. If we
are unable to negotiate a new contract with REG or an alternative provider of marketing services,
our management will continue to explore all markets for our products. See BUSINESS Proposed
Consolidation with REG.
Distribution Methods
We entered into the MOSA with REG for the purposes of marketing and distributing our
biodiesel, glycerin, and fatty acid. Pursuant to the MOSA, REG has marketed all biodiesel,
glycerin, and fatty acid that we have produced since the inception of our business. We determine
the price at which REG sells our products based on marketing information that REG provides to us on
no less than a monthly basis. REG markets all of our biodiesel and glycerin in its own name. We
pay REG a fee equal to one cent ($0.01) per gallon for all biodiesel marketed from our facility.
We also pay REG a fee for marketing our glycerin, which is based on the amount of biodiesel
marketed and is equal to one fifth of a cent ($0.002) per gallon of biodiesel. We also pay REG an
annual net income bonus equal to 6% of our net income. The amount we paid REG for the annual net
income bonus in the fiscal years ended December 31, 2009, 2008, and 2007 was $103,537, $117,620,
and $0, respectively.
On April 3, 2009, REG provided twelve months written notice of its intent to terminate the
MOSA. We rely exclusively on REG to distribute our biodiesel and glycerin. We do not have
relationships with other providers of these services. REG indicated that its decision to terminate
the MOSA stemmed from changes in the biodiesel market generally that had occurred since the parties
originally entered into the MOSA. The termination also resulted from REGs anticipation of the
proposed consolidation between the Company and REG. In February 2010, the unitholders of WIE
rejected the proposed consolidation with REG. Pursuant to the Second Amended and Restated Asset
Purchase Agreement, if the unitholders had approved the proposed consolidation, then REG would have
continued to provide the services that it currently provides under the MOSA as our parent company.
See BUSINESS Proposed Consolidation with REG for more information about the failed
consolidation with REG. The MOSA, as extended, will terminate as of May 3, 2010.
Since the MOSA is scheduled to terminate on May 3, 2010, WIE will either have to negotiate a
new contract for biodiesel and glycerin distribution services with REG, identify alternative
providers of these services and negotiate contracts with these providers, or begin providing these
services on its own before the MOSA terminates. This is a very short timeframe in which to make
these arrangements, and each of these options carries significant risk for the company. There can
be no assurance that the Company will be able to contract with a third party to provide biodiesel
and glycerin distribution services on terms favorable to the Company, or that the Company would be
able to hire individuals to perform these services. Any lack of a provider for these services would
have a negative impact on our revenues and could have a material adverse effect on the Company.
Accordingly, REGs termination of the MOSA could adversely affect the Companys ability to generate
revenues and the Companys members could lose some or all of their investment.
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Table of Contents
Seasonal Demand for Biodiesel
Biodiesel has different cold flow properties depending on the type of feedstock used in its
manufacture. Cold flow refers to a fuels ability to flow easily at colder temperatures and is an
important consideration in producing and blending biodiesel for use in colder climates. The cloud
point is the temperature at which small solid
crystals are visually observed as the fuel is cooled. When air temperatures fall below the
cloud point, these crystals may plug fuel filters or drop to the bottom of a storage tank; however,
fuels can usually be pumped at temperatures below the cloud point. The pour point for a fuel is
the temperature at which the fuel contains so many crystals that it is essentially a gel and will
no longer flow. Therefore, a lower cloud point and pour point means that the fuel flows better in
colder temperatures. To provide biodiesel with an acceptable cloud point and pour point in cold
weather, we need to blend our biodiesel with petroleum-based diesel. Generally, biodiesel that is
used in blends of 2% to 20% provides acceptable cold flow properties for the Iowa market. We
expect that our biodiesel distributor will sell our biodiesel throughout the nation and abroad.
Cold flow additives can also be used seasonally to provide a higher level of cold weather
protection, similar to the current practice with conventional diesel fuel. Demand for our biodiesel
typically diminishes in colder climates and during the colder fall and winter months as a result of
cold flow concerns. Animal fat-based biodiesel has a higher pour point temperature than other types
of biodiesel. Accordingly, demand for this type of biodiesel may fluctuate by season more than
demand for biodiesel made from other types of feedstock.
General Demand for Biodiesel
The biodiesel industry is still relatively new and unknown especially when compared to the
ethanol industry. The Renewable Fuels Association reported that the U.S. ethanol industry produced
a record of more than 10.75 billion gallons of ethanol in 2009. By contrast, the National
Biodiesel Board estimates that the U.S. biodiesel industry produced only approximately 490 million
gallons of biodiesel in 2009, constituting only a small part of the 53-billion-gallon-per-year U.S.
diesel fuel market and a fraction of the amount of 2009 ethanol production. Total 2009 biodiesel
production is also significantly less than current national biodiesel production capacity. The
National Biodiesel Board estimates that as of June 22, 2009 (the latest date for which information
is available), national biodiesel production capacity totaled approximately 2.69 billion gallons
per year. Some plants are currently closed and some do not currently operate at full capacity due
to this excess production capacity and other economic factors. The National Biodiesel Board
estimates that production capacity could increase by another 427.8 million gallons once the plants
currently under construction or engaged in expansion, if completed, begin production.
Several factors could lead to an increase in biodiesel demand. Biodiesel has received
attention from consumers and policymakers in recent years for several reasons. Biodiesel is made
from renewable sources and provides environmental benefits over petroleum-based diesel, including
reduced emissions of carbon dioxide, carbon monoxide, particulate matter, and sulfur. In addition,
a 2007 study by the U.S. Department of Energy (DOE) and the U.S. Department of Agriculture (USDA)
found that biodiesel has a positive energy balance: for every unit of energy consumed in the
supply chain and production process for biodiesel, there are 3.5 units of energy produced.
Biodiesel mixes easily with diesel fuel at rates between 2% and 100%, and it improves the lubricity
of petroleum-based diesel fuel at levels as low as 3%. The increased lubricity reduces friction of
petroleum-based diesel fuel and may result in longer equipment life and protection of fuel
injectors. Further, the Environmental Protection Agency (EPA) Ultra Low Sulfur Diesel Mandate seeks
to reduce sulfur emissions through regulations that take effect over the next several years.
Because low-sulfur diesel and ultra-low-sulfur diesel have lubricity problems, biodiesel can be an
attractive alternative to satisfying the requirements of the mandate. Future biodiesel demand will
vary directly on the basis of any changes that are made to EPA regulations.
We also anticipate that the Renewable Fuel Standard (RFS), expanded by the Energy Independence
and Security Act of 2007, as described below under Government Regulation and Federal Supports, may
increase demand for biodiesel, as it sets a minimum usage requirement for biodiesel and other types
of biomass-based diesel. There can be no assurance that the RFS will increase the current demand
for biodiesel, however, because it is estimated that current biodiesel production capacity already
exceeds the 2012 RFS biomass-based diesel mandate.
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Sources and Availability of Raw Materials
Feedstock Procurement
Under the MOSA with REG, REG has been responsible for arranging the purchase and procurement
of the feedstock and chemical inputs necessary to produce biodiesel at our plant since the
inception of operations at our plant. Specifically, the MOSA requires REG to:
| Provide analysis and audit of feedstock suppliers; |
||
| Purchase feedstock at competitive prices meeting specifications and in
quantities adequate to satisfy the production schedule of our plant; |
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| Negotiate for discounts on feedstock, where obtainable; |
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| Arrange for transportation, logistics, and scheduling of feedstock deliveries; |
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| Provide analysis and audit of bulk transportation providers; |
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| Perform due diligence requirements for investigation of suppliers of the
chemical inputs; |
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| Provide analysis and audit of chemical suppliers; |
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| Purchase chemical inputs at competitive prices meeting specifications for use
in our plant; |
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| Negotiate for discounts on the purchase of chemical inputs, where obtainable; |
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| Procure adequate chemical inputs to meet our production schedules; and |
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| Arrange for transportation, logistics, and scheduling services for chemical
input deliveries by suppliers. |
The inability of REG to obtain adequate feedstock for our facility at economical prices, or at
all, could have significant negative impacts on our ability to produce biodiesel and on our
revenues. We pay REG a fee equal to one cent ($0.01) per gallon for all biodiesel marketed from
our facility. In addition, we pay REG a fee for marketing our glycerin, which is based on the amount of
biodiesel marketed and is equal to one fifth of a cent ($0.002) per gallon of biodiesel. We also
pay REG an annual net income bonus equal to 6% of our net income. The amount we paid REG for the
annual net income bonus in the fiscal years ended December 31, 2009, 2008, and 2007 was $103,537,
$117,620, and $0, respectively.
As described above, the MOSA, as extended, will terminate on May 3, 2010. Prior to that date,
WIE will either have to negotiate a new contract for feedstock procurement services with REG,
identify alternative providers of these services and negotiate contracts with these providers, or
begin providing these services on its own. This is a very short timeframe in
which to make these arrangements, and each of these options carries significant risk for the
company. There can be no assurance that the Company will be able to contract with a third party to
provide feedstock procurement services on terms favorable to the Company, or that the Company would
be able to hire individuals to perform these services. Any lack of a provider for these services
would have a negative impact on our revenues and could have a material adverse effect on the
Company. If the Company is unable to acquire feedstock, it will be unable to produce biodiesel and
glycerin and will be unable to make any sales of these products. If the Company is unable to sell
biodiesel and glycerin, then it will have no revenue and the value of its membership units may
decline and the Companys members could lose some or all of their investment. See BUSINESS
Proposed Consolidation with REG.
Feedstock Cost and Supply
The cost of feedstock is the largest single component of the cost of biodiesel production,
accounting for 70% to 90% of the overall cost of producing biodiesel. As a result, increased prices
for feedstock greatly impact the biodiesel industry. Soybean oil is the most abundant and widely
used feedstock available in the United States. Our plant is capable of pretreating animal fats
and crude vegetable oil, including soybean oil and corn oil, and utilizing these feedstocks to
produce biodiesel. Our plant is also capable of pretreating used cooking oils. Animal fat has
typically been less expensive to acquire than soybean oil and, accordingly, we attempt to use as
much animal fat feedstock as possible when producing our biodiesel when such use would return
greater profit margins. Demand for animal fat-based biodiesel, however, typically declines in the
colder fall and winter months and, accordingly, our use of animal fats may decline during those
months. Most of the feedstock used in our biodiesel production in fiscal year 2009 was animal
fats. In fiscal year 2009, we also began utilizing a small amount of used cooking oils as a
lower-cost feedstock alternative to soybean oil. Due to legislation that took effect on January 1,
2009 that permits used cooking oils to qualify for the $1.00 per gallon biodiesel tax credit,
rather than a reduced 50-cent tax credit under previous law, the economic viability of using used
cooking oil improved in 2009. We anticipate that we may continue to use used cooking oils as a
feedstock source for so long as its use returns greater profit margins as compared to soybean oil.
In the event we cannot obtain adequate supplies of feedstock at affordable prices, our ability
to operate profitably may be materially impaired. Increased feedstock costs may continue to reduce
our revenues and the value of our units.
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Animal Fats and Other Alternative Feedstocks
Our plant is capable of utilizing animal fats to produce biodiesel. The primary animal fat
that we used as a feedstock in 2009 was choice white grease. In 2009, approximately 68.8% of our
total feedstock usage consisted of a particular animal fat, choice white grease. The percentage of
our total feedstock usage that consists of choice white grease has increased significantly over the
past three years. In fiscal years 2008 and 2007, choice white grease comprised approximately 57%
and 6.7% of our total feedstock usage, respectively. As a result of increased demand for animal
fats, animal fat prices have increased over the past several years. Animal fat prices peaked in
the summer of 2008, and have since fallen as domestic and global economic conditions have worsened.
Although prices for animal fats have declined from their peak, animal fat prices remain above their
historical average. We have also used small amounts of bacon fat, beef tallow, poultry fat, lard,
yellow grease, and used cooking oil as feedstocks for our biodiesel.
It takes approximately 7.75 pounds of choice white grease to make a gallon of biodiesel. In
2009, the average price we paid for choice white grease was 24.92 cents per pound. By contrast, we
paid an average of 36.92 and 25.85 cents per pound for choice white grease in 2008 and 2007,
respectively. The chart below shows the average price of choice white grease for each month during
the previous twelve-month period.
Choice White Grease Prices
Price | ||||
Month | (cents per lb.) | |||
March 2009 |
22.62 | |||
April 2009 |
19.46 | |||
May 2009 |
24.84 | |||
June 2009 |
29.06 | |||
July 2009 |
28.77 | |||
August 2009 |
28.79 | |||
September 2009 |
28.71 | |||
October 2009 |
24.27 | |||
November 2009 |
22.53 | |||
December 2009 |
23.68 | |||
January 2010 |
17.95 | |||
February 2010 |
26.79 |
Soybean Oil
Like many other biodiesel plants, our plant is capable of producing biodiesel from crude
vegetable oils, including soybean oil. Due to the recent high cost of soybean oil, however, we
have significantly limited our use of soybean oil. Between 1980 and 2008, the average price for
soybean oil was approximately 23.5 cents per pound. Following a period of significant volatility in
soybean oil prices in 2008, the price remained relatively stable throughout fiscal year 2009. In
fiscal year 2009, the price of soybean oil ranged from a low of 28.23 cents per pound in March
2009, to a high of 36.81 cents per pound in December 2009, according to USDAs February 2010 Oil
Crops Outlook report. That report also indicates that the average January 2010 soybean oil price
was approximately 34.88 cents per pound. The relative stability in soybean oil prices likely
resulted from changing global economic conditions triggered by the sharp decline in petroleum
prices, the failure of various major U.S. financial institutions, the tightening of credit markets,
and the economic downturn experienced by the U.S. and other countries. The charts below show U.S.
soybean oil prices over the past ten years and for the past twelve months:
U.S.
Soybean Oil Prices for the Past
10 Years
10 Years
Marketing | Price | |||
Year | (cents) | |||
1999/00 |
15.60 | |||
2000/01 |
14.15 | |||
2001/02 |
16.46 | |||
2002/03 |
22.04 | |||
2003/04 |
29.97 | |||
2004/05 |
23.01 | |||
2005/06 |
23.41 | |||
2006/07 |
31.02 | |||
2007/08 |
52.03 | |||
2008/09 |
32.16 | |||
2009/10 |
33.5-36.5 | (1) |
U.S. Soybean Oil Prices
for Preceding Twelve-Month
Period
for Preceding Twelve-Month
Period
Price | ||||
Month | (cents) | |||
February |
28.93 | |||
March |
28.23 | |||
April |
32.76 | |||
May |
36.06 | |||
June |
35.66 | |||
July |
31.08 | |||
August |
33.69 | |||
September |
30.96 | |||
October |
33.15 | |||
November |
36.59 | |||
December |
36.81 | |||
January |
34.88 | (1) |
(1) | Preliminary Price |
Source: USDA, Oil Crops Outlook Report, February 16, 2010
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It takes more than seven pounds of soybean oil to make a gallon of biodiesel. Increases in
soybean oil costs significantly reduce the potential profit margin on each gallon of biodiesel we
sell produced from soybean oil. Any increase in the price of soybean oil without a corresponding
increase in the price of biodiesel will negatively impact our ability to generate revenues and
profits. Due to high soybean oil prices, we have been using alternative forms of feedstock as
substitutes for soybean oil to the greatest extent possible. These substitutes include animal fat
and used cooking oil, as discussed above. However, prices for these alternative feedstocks have
tended to increase along with the cost of soybean oil. Accordingly, we will continue to explore
additional low-cost feedstocks. In 2009, only 8.5% of our total feedstock used consisted of
soybean oil, which is a significant decrease from 2008 and 2007, in which 29.3% and 87.4%,
respectively, of our total feedstock used was soybean oil.
In the event we cannot obtain adequate supplies of feedstock at affordable costs for sustained
periods of time, then we may be forced to shut down the plant temporarily or permanently. Shut
downs and increased feedstock costs may reduce our revenues from operations which could decrease or
eliminate the value of our units.
Feedstock Cold Flow Properties
Because biodiesel has different cold flow properties depending on the type of feedstock used
in its manufacture, cold flow also becomes a primary factor in determining the type of feedstock to
use. Cold flow refers to a fuels ability to flow easily at colder temperatures and is an
important consideration in producing and blending biodiesel for use in colder climates and in
colder seasons. The cloud point is the temperature at which
small solid crystals are visually observed as the fuel is cooled. When air temperatures fall
below the cloud point, these crystals may plug fuel filters or drop to the bottom of a storage
tank; however, fuels can usually be pumped at temperatures below the cloud point. The pour point
for a fuel is the temperature at which the fuel contains so many crystals that it is essentially a
gel and will no longer flow. Therefore, a lower pour point temperature means the fuel flows better
in colder temperatures. The following table represents the cloud points and pour points for
different types of fuels:
Type of Fuel | Cloud Point | Pour Point | ||||||
Soy-based Biodiesel (B100) |
32ºF | 25ºF | ||||||
Choice white grease-based Biodiesel (B100) |
48ºF | 42ºF | ||||||
Beef tallow-based Biodiesel (B100) |
61ºF | 59ºF | ||||||
No. 2 Ultra Low Sulfur Petroleum Diesel |
6ºF | -30ºF | ||||||
B2 Soy Blend with No. 2 Diesel |
7ºF | -25ºF |
To provide biodiesel with acceptable cloud points and pour points in cold weather, we will
need to blend our biodiesel with petroleum-based diesel. Generally, biodiesel that is used in
blends of 2% to 20% will provide acceptable cold weather properties for the Iowa market. However,
we expect that our biodiesel marketer will sell our biodiesel throughout the nation and abroad.
Cold flow additives can also be used seasonally to provide a higher level of cold weather
protection, similar to the current practice with conventional diesel fuel. Demand for our biodiesel
may diminish in colder climates and during the colder months as a result of cold flow concerns. We
are currently producing biodiesel from animal fats, soybean oil, and used cooking oil.
Approximately 91.5% of our biodiesel sales for fiscal year 2009 were animal fat biodiesel blends,
which is a significant increase over the previous two years. In fiscal years 2008 and 2007,
approximately 69.8% and 9.7% of our biodiesel sales were animal fat biodiesel blends. We have also
produced a minimal amount of biodiesel from used cooking oil during fiscal 2009 and 2008. Since
used cooking oil is a vegetable oil, biodiesel produced from used cooking oil has similar cold-flow
properties to biodiesel produced from other vegetable oils, such as soybean oil. As a result,
biodiesel produced from used cooking oil may be used in colder temperatures.
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Hedging
Due to fluctuations in the price and supply of feedstock, we utilize forward contracting and
hedging strategies to manage our commodity risk exposure and to optimize finished product pricing
and supply. Hedging means protecting the price at which we buy feedstock and the price at which we
will sell our products in the future. It is a way to attempt to reduce the risk caused by price
fluctuations that result from our purchase of feedstock in the agricultural market and the sale of
our biodiesel in the energy market. These markets are largely unrelated, so an increase in
feedstock costs does not generally translate into an increase in the price of our biodiesel. The
effectiveness of such hedging activities is dependent upon, among other things, the cost of
feedstock and our ability to sell sufficient amounts of biodiesel. Although we attempt to link
hedging activities to sales plans and pricing activities, such hedging activities can themselves
result in costs because price movements in feedstock contracts are highly volatile and are
influenced by many factors that are beyond our control. We may incur such costs and they may be
significant. The market for soybean oil trades 18 months into the future. The animal grease
market has no futures trade. However, there is a quoting system through the USDA that provides for
price discovery for animal grease. There is not enough volume of biodiesel currently produced to
justify a futures market. As such, there is no spot biodiesel price, making current price
discovery limited. In late 2007, our Board of Directors formed a Risk Management Committee, which
has enacted a strict policy, intended to balance our hedging activities.
Pretreatment Costs
Crude vegetable oils, such as crude soy and corn oil, and all animal fats need to be
pretreated before being processed into biodiesel. Pretreatment removes the impurities from crude
vegetable oils, crude animal fats, and waste greases, and prepares the feedstock to go through the
biodiesel production process. Some types of feedstock need more treatment than others. For example,
virgin soybean oil can be easier and cheaper to pretreat than turkey fat, and turkey fat can be
easier and cheaper to pretreat than beef tallow. The cost of the process is driven by the structure
of the feedstock and the impurities in the feedstock.
For soybean oil, the pretreatment process results in refined and bleached (RB) oil. The price
differential between RB oil and crude soy oil varied between 12 and 15 cents per pound in 2009. Our
processing plant has pretreatment capabilities allowing us to utilize crude vegetable oil and many
types of fat or grease as feedstock in
our facility. This added flexibility allows us to choose the feedstock that will produce
biodiesel in the most cost-effective manner possible.
Utilities, Energy & Infrastructure
Our biodiesel plant requires a significant and uninterrupted supply of electricity, natural
gas, and water to operate. We entered into agreements with providers of these utilities as
follows:
Electricity. Our plant requires a continuous supply of electricity. We entered into
an Electrical Services Agreement with Sac County Electric Cooperative (now known as Raccoon Valley
Electric Cooperative) to supply our electricity. Under the agreement, we pay Sac County Electric
Cooperative a facility charge of $2,100 per month, plus regular rates for delivery of electricity
to our plant. Our current delivery rate is $0.0567 per kilowatt.
Water. We require a significant supply of waterapproximately 100,000 gallons of water
per day. The City of Wall Lake drilled a well on the property adjacent to the plant to supply
process water for our use. The City of Wall Lake has run a line from its pretreatment plant to our
site to supply us with potable water. The rate currently charged by the City of Wall Lake for both
process water and potable water is $1.00 per 1,000 gallons.
Natural Gas. Natural gas is a significant input to our manufacturing process. During
the 2009 fiscal year, our natural gas usage was approximately 109,204 million British thermal units
(mmBTU). Because the volume of animal fat processed through our plant has a large impact on the
volume of gas we use, we estimate a usage between 100,000 mmBTU and 120,000 mmBTU for the 2010
fiscal year. We anticipate that we will average between 7,000 and 11,000 mmBTU per month. In
fiscal year 2009, the average price that we paid for natural gas was $6.42 per mmBTU. Although the
price we will pay for our natural gas during the 2010 fiscal year is uncertain, management expects
that the cost will increase from the cost we experienced in 2009.
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Patent, Trademarks and Licenses.
As part of our design-build agreement with REG, REG agreed to provide us a perpetual and
irrevocable license to use any and all of its technology and propriety property related to or
incorporated into the plant in connection with our operation, maintenance, and repair of the plant.
Since this license is irrevocable, we do not expect REGs termination of the MOSA or the rejection
of the proposed consolidation with REG to affect our license of the REG proprietary technology that
has been incorporated into the plant.
Government Regulation and Federal Biodiesel Supports
The biodiesel industry is dependent on economic incentives to produce biodiesel, including
federal biodiesel supports. The American Jobs Creation Act of 2004, the Energy Policy Act of 2005,
and the Energy Independence and Security Act of 2007 have established the groundwork for biodiesel
market development.
Renewable Fuels Standard
The Energy Policy Act of 2005 created the Renewable Fuel Standard (RFS) which required
refiners to use 7.5 billion gallons of renewable fuels by 2012. The Energy Independence and
Security Act of 2007 (EISA) expanded the existing RFS (often referred to as RFS2) to require
the use of 9 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons of
renewable fuel by 2022. The EISA provides that 600 million gallons of renewable fuel used in 2009
must come from advanced biofuels other than corn-based ethanol, such as ethanol derived from
cellulose, sugar or crop residue, and biomass-based diesel (which includes biodiesel and renewable
diesel), increasing to 21 billion gallons in 2022. The EISA further includes a requirement that 500
million gallons of biodiesel and biomass-based diesel fuel be blended into the national diesel pool
in 2009, gradually increasing to one billion gallons by 2012. In 2008, however, the EPA announced
that the RFS program in 2009 would be applicable to producers and importers of gasoline only, which
meant that the 500 million gallons of biomass-based diesel required by the RFS2 under EISA was not
required to be blended into U.S. fuel supplies in 2009. This was due to the fact that the
regulatory structure of the original RFS program does not provide a mechanism for implementing the
EISA RFS2 requirement for the use of 500 million gallons of biomass-based diesel.
In February 2010, the EPA published final regulations to implement the RFS2 program. The new
rules set volume standards with respect to the amount of specific categories of renewable fuels.
In particular, EPA combined the 2010 biomass-based diesel requirement of 650 million gallons with
the 2009 biomass-based diesel requirement of 500 million gallons to require the use of 1.15 billion
gallons of biomass-based diesel by the end of 2010.
EISA required as part of RFS2 that advanced biofuels reduce life-cycle greenhouse gas
emissions by 50% relative to gasoline sold or distributed for transportation. In May 2009, the EPA
proposed rules that took into account indirect land use changes when calculating greenhouse gas
emissions. Based on the EPAs preliminary findings, soy-based biodiesel was found to reduce
greenhouse gas emissions by only 22%, which would disqualify it from counting towards the RFS2.
Biodiesel from animal fat was found to reduce greenhouse gas emissions by approximately 80%. In
February 2010, the EPA published new rules to confirm that biodiesel made from soy oil complies
with the 50% threshold for reduction in greenhouse gas emissions and therefore soy-based biodiesel
qualifies to count toward the RFS2 requirement. The EPA cautioned that it is committed to reassess
these determinations as the state of scientific knowledge continues to evolve.
The RFS may increase demand for biodiesel in the long-term, as it sets a minimum usage
requirement for biodiesel and other types of biomass-based diesel. There can be no assurances,
however, that demand for biodiesel will be increased by the RFS or RFS2. As of June 22, 2009, the
National Biodiesel Board estimated that national biodiesel production capacity was approximately
2.69 billion gallons per year, which already exceeds the 2012 biodiesel and biomass-based diesel
use mandate contained in EISA. Accordingly, there is no assurance that additional production of
biodiesel and biomass-based diesel will not continually outstrip any additional demand for
biodiesel that might be created by the RFS program. Furthermore, any additional delays in the EPAs
implementation of the RFS2 biomass-based diesel rules could hinder the stimulation of additional
biodiesel demand.
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The RFS system will be enforced through a system of registration, recordkeeping and reporting
requirements for obligated parties and renewable fuel producers (RIN generators), as well as any party
that procures or trades renewable identification numbers, either as part of their renewable fuel
purchases or separately. Any person who violates any prohibition or requirement of the RFS program
may be subject to civil penalties for each day of each violation. For example, a failure to acquire
sufficient RINs to meet a partys renewable fuels obligation would constitute a separate day of
violation for each day the violation occurred during the annual averaging period. The enforcement
provisions are necessary to ensure the RFS program goals are not compromised by illegal conduct in
the creation and transfer of RINs. The EPA has assigned equivalence values to each type of
renewable energy fuel in order to determine compliance with the RFS. The equivalence values used
ethanol as the base-line measurement (such that one gallon of ethanol is equivalent to one credit
towards RFS compliance) and assigned biodiesel an equivalence value of 1.5, such that each gallon
of biodiesel used by an obligated party will be equal to one and one-half gallons credit towards
its RFS compliance.
Production of biofuels, including both biodiesel and ethanol, may continue to increase at a
faster pace than the RFS2 requirements. Should the supply of biofuels increase more rapidly than
demand for biofuels, including biodiesel, it may lead to decreases in the selling price of
biodiesel.
Federal Biodiesel Supports and Programs
The Energy Policy Act of 2005 provided for a tax subsidy for small agri-biodiesel producers
with total annual production capacities of 60 million gallons or less. The subsidy is applicable
to the first 15 million gallons of biodiesel produced annually and is available through December
31, 2010. The subsidy is equivalent to a 10 cent credit per gallon of biodiesel produced annually
and the maximum annual subsidy per biodiesel producer is $1.5 million. This tax credit may foster
additional growth and increase competition among biodiesel producers whose plant capacity does not
exceed 60 million gallons per year. Because we are organized as a limited liability company, this
credit passes through to our members and may be used as a credit against their federal income tax
liability, subject to various limitations.
The American Jobs Creation Act of 2004 originally created the biodiesel mixture tax credits,
including the excise tax credit and the income tax credit (collectively, the blenders credit).
That legislation, as amended, provides an excise tax credit of $1.00 per gallon and an income tax
credit of $1.00 per gallon for biodiesel mixtures. The two credits are coordinated so that a
taxpayer cannot claim both credits for the same biodiesel. The biodiesel blenders credit may be
claimed in both taxable and nontaxable markets, including exempt fleet fuel programs and
off-road diesel markets. The desired effect of the blenders credit is to streamline the use
of biodiesel and encourage petroleum blenders to blend biodiesel as far upstream as possible, which
will allow more biodiesel to be used in the marketplace. The American Jobs Creation Act also
streamlined the tax refund system for below-the-rack blenders to allow a tax refund of the
blenders credit on each gallon of biodiesel blended with diesel (dyed or undyed) to be paid within
20 days of blending. Below-the-rack blenders are those blenders that market fuel that is for
ground transportation engines and is not in the bulk transfer system. The biodiesel blenders
credit expired on December 31, 2009. On December 9, 2009, the U.S. House of Representatives passed
an extension of the blenders credit. That legislation would extend the blenders credit for
one-year, through December 31, 2010. It would also make the extension retroactive to cover sales
of biodiesel that occur after December 31, 2009. The Senate included an identical extension in
legislation that it passed on March 10, 2010, but the Senate legislation must now be reconciled
with the version passed by the House. It remains unclear if and when this reconciliation process
will occur. The loss of the blenders credit decreases our revenue and has a significant adverse
impact on our ability to generate a profit. Therefore, the expiration of this vital incentive
could reduce the value of your investment.
The Energy Policy Act of 2005 also created an incentive for alternative fuel refueling
stations. The provision permits taxpayers to claim a 30% credit (up to $30,000) for the cost of
installing clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer,
or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any
fuel that is at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas,
liquefied petroleum gas, or hydrogen, and any mixture of diesel fuel containing at least 20%
biodiesel. The provision is effective for property placed in service after December 31, 2005 and
before January 1, 2010. Most recently, the American Recovery and Reinvestment Act of 2009 increased
the credit to 50% (up to $50,000) for refueling property placed in service in 2009 or 2010. While
it is unclear how this credit will affect the demand for biodiesel in the short-term, it may help
raise consumer awareness of alternative sources of fuel and could positively impact future demand
for biodiesel.
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The Farm, Nutrition and Bioenergy Act of 2008 reauthorized the Commodity Credit Corporation,
or CCC, Bioenergy Program. The program provides $55.0 million in mandatory funding in each of 2009
and 2010, $85.0 million in funding in 2011, and $105.0 million in funding in 2012 for producers of
advanced biofuels derived from renewable biomass, including biodiesel, other than corn kernel.
Biodiesel producers must apply for this credit and will be paid based on the quantity and duration
of advanced biofuel production and on net nonrenewable energy content of the advanced biofuel.
Funding to a single eligible producer may be limited to ensure equitable distribution of funding.
Producers with production capacity of less than 150 million gallons will be eligible for 95% of the
funds provided under the program. As of December 31, 2009, WIE had received $298,476 under the
program.
State Legislation
Several states are currently researching and considering legislation to increase the amount of
biodiesel used and produced in their states. Minnesota was the first state to mandate biodiesel
use. The Minnesota legislation, which became effective in September 2005, required that all diesel
fuel sold in the state contain a minimum of 2% biodiesel. Effective May 1, 2009, the Minnesota
mandate increased to 5%. The 5% soy biodiesel blend has nearly the same cold flow properties as
No. 2 petroleum diesel, which allows it to be used in Minnesotas colder climate much the same as
petroleum diesel throughout the year. In January 2010, however, due to extreme cold temperatures
in Minnesota and reports of clogged fuel filters, the Minnesota Department of Commerce temporarily
waived the requirement that No. 1 diesel fuel be blended with 5% biodiesel. The waiver was
effective from January 15, 2010 to March 15, 2010. The waiver did not apply to No. 2 diesel fuel.
The Minnesota biodiesel mandate will increase to 10% in 2012 and to 20% in 2015. The increases in
2012 and 2015 are subject to the satisfaction of certain statutory conditions. In July 2008
Massachusetts enacted a law that requires all home heating oil and diesel fuel in the state to
consist of 2% biodiesel by 2010 and 5% biodiesel by 2013. The Massachusetts Department of Energy
Resources has announced that the mandate will begin on July 1, 2010.
In May 2006, several laws were passed in Iowa for the purpose of expanding and funding
consumer access to biodiesel and ethanol-blended fuels through a RFS and a series of retail tax
credits. These laws provide retailers with an opportunity for cost-sharing grants. In addition,
the laws provide certain incentives such as an Iowa RFS starting at 10% in 2009 and increasing to
25% by 2019; a retail tax credit for biodiesel blends of $0.03 per gallon for retailers whose
diesel sales include 50% or greater biodiesel blends; and an expanded infrastructure program
designed to help retailers and wholesalers offset the cost of bringing E85 and biodiesel blends to
customers. While
this legislation does not specifically require increased use of biodiesel, it encourages
renewable fuels usage in Iowa, including increased biodiesel consumption.
Other states have enacted legislation to encourage (but not require) biodiesel production and
use. Several states provide tax incentives and grants for biodiesel-related studies and biodiesel
production, blending, and use. In addition, several governors have issued executive orders
directing state agencies to use biodiesel blends to fuel their fleets.
Effect of Government Incentives and Regulation
The biodiesel industry and our business depend upon continuation of the state and federal
biodiesel supports discussed above. These incentives have supported a market for biodiesel that
might disappear without the incentives. Alternatively, the incentives may be continued at lower
levels than the levels at which they currently exist. The elimination or reduction of such state and federal
biodiesel supports would make it more costly for us to produce our biodiesel and negatively impact
our future financial performance.
Furthermore, environmental regulations that may affect our company change frequently. It is
possible that the government could adopt more stringent federal or state environmental rules or
regulations, which could increase our operating costs and expenses. The government could also
adopt federal or state environmental rules or regulations that may have an adverse effect on the
use of biodiesel. Furthermore, the Occupational Safety and Health Administration (OSHA) governs
our plant operations. OSHA regulations may change such that the costs of operating the plant may
increase. Any of these regulatory factors may result in higher costs or other materially adverse
conditions affecting our operations, cash flows, and financial performance. These adverse effects
could decrease or eliminate the value of our units.
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Competition with Other Biodiesel Producers
We operate in a very competitive environment. Because biodiesel is a relatively uniform
commodity, competition in the marketplace is predominately based on variables other than the
product itself, such as price, consistent quality and, to a lesser extent, delivery service.
Accordingly, the uniform nature of the product limits the competitive advantage that may be gained
based upon unique or improved product features. Nevertheless, the consistent high-quality
biodiesel produced by BQ-9000 certified plants is becoming the standard in the industry.
As of the end of calendar year 2009, the National Biodiesel Board estimates that approximately
490 million gallons of biodiesel were produced in the United States. As of June 22, 2009 (the
latest date for which data is available), the National Biodiesel Board reported that there were 173
operating biodiesel plants in the United States with a total annual production capacity of 2.69
billion gallons. One of these plants was undergoing expansion to increase its annual production
capacity. Another 29 plants were reported to be in the planning stages or under construction as of
June 2009. The additional combined capacity of these plants under construction or expansion is
estimated at 427.8 million gallons per year. Accordingly, biodiesel supply may already far exceed
demand for biodiesel. Currently, there are 15 existing biodiesel plants in Iowa, including our
plant. However, several of these plants may not be operating, may not be operating at full
capacity, or may never begin operations due to economic and market conditions. We expect that
additional biodiesel producers may enter the market if the demand for biodiesel increases. As
additional biodiesel plants are constructed and brought on line, we expect the supply of biodiesel
to increase. The absence of increased demand may cause prices for biodiesel to decrease. We may not
be able to compete successfully or such competition may reduce our ability to generate the profits
necessary to operate our plant.
We must compete with other biodiesel producers in the industry not just in the sale of our
biodiesel, but also in the acquisition of animal fats, soybean oil, and other feedstocks and raw
materials. A majority of biodiesel plants, including many of the largest biodiesel producers,
utilize soybean oil. This may change over time as high soybean oil prices are encouraging
biodiesel producers to find ways to utilize alternative and less costly types of feedstock.
Furthermore, producers may design their plants with the capability to use multiple feedstocks.
Nonetheless, we expect that increased biodiesel production will continue to increase the demand and
cost of not only soybean oil, but also animal fats and other inputs. We expect this will make it
more expensive for us to produce our biodiesel from soybean oil alternatives, such as animal fat,
and will reduce our profit margins from biodiesel. This is because there is little or no
correlation between the cost of feedstock and the market price of biodiesel. Therefore,
we cannot pass along increased feedstock costs to our biodiesel customers. In order to stay
competitive in the diesel industry, biodiesel must be competitively priced with petroleum-based
diesel. Therefore, biodiesel prices fluctuate more in relation to petroleum-based diesel market
prices than with feedstock market prices. As a result, increased feedstock costs may result in
decreased profit margins when we are engaged in ordinary biodiesel production.
Many current plants are capable of using only vegetable oil for feedstock. Our plant is
able to use both vegetable oils and animal fats to produce biodiesel, allowing us to use whichever
types of feedstock provide the greatest return at any given time. This is beneficial because the
cost of feedstock is the highest cost associated with biodiesel production. Our ability to utilize
animal fats is also significant because animal fat-based biodiesel has some favorable advantages
over soybean oil-based biodiesel, such as better lubricity, lower nitrogen oxide (NOx) emissions,
and higher cetane values. The tendency of animal-fat based biodiesel to gel at higher temperatures
than soybean oil-based biodiesel, however, limits our ability to sell animal fat-based biodiesel
during winter months.
Although most biodiesel plants are not equipped to process raw materials (such as soybeans)
into feedstock (such as soybean oil), several of our competitors have soy-crushing facilities and
are therefore not reliant upon third parties for their feedstock supply like we are. As a result,
we face a competitive challenge from biodiesel plants owned and operated by the companies that
supply our inputs, such as Cargill, Inc., Ag Processing, Inc. (AGP), and ADM. Cargill, AGP and ADM
have significant crush capabilities throughout North America and are large suppliers of soybean oil
and own and operate their own biodiesel plants in the Midwest. Cargill, Inc. owns a 37.5 million
gallon plant in Iowa Falls, Iowa and AGP owns a 30 million gallon per year plant in Sergeant Bluff,
Iowa, both of which process soy oil into biodiesel. ADM has constructed an 85 million gallon plant
in Velva, North Dakota that processes canola oil into biodiesel. Although Maple River Energy, LLC,
recently commenced operation of a soy-crushing facility and biodiesel plant near Galva, Iowa, which
is capable of crushing 3 million bushels of soybeans and producing 5 million gallons of biodiesel
each year, that plant recently suspended operation. Increasing feedstock costs have spurred, and
will likely continue to spur, additional development of crush facilities throughout the country.
Such vertical integration provides these plants with greater control over their feedstock supplies,
thereby providing them with a competitive advantage over plants like ours that do not have
soy-crushing capabilities, especially as prices and competition for soybean oil and other
feedstocks have increased.
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Furthermore, we must compete with REG, the entity that currently manages our plant and markets
our products. REG owns a plant located in Ralston, Iowa which produces biodiesel primarily from
feedstock produced at its soybean crushing facility and has an annual production capacity of 12
million gallons. Additionally, in June 2008, REG acquired a 35 million gallon per year plant in
Houston, Texas, which now operates under the name REG Houston. In September 2009, REG acquired
the assets of Nova Biofuels Seneca, LLC and Nova Biosource Technologies, LLC, including a biodiesel
plant capable of producing 60 million gallons of biodiesel per year. REG has placed its previous
plans to construct two additional biodiesel plants in Kansas and Louisiana on hold due to
unfavorable economic and industry conditions. In February 2010, REG acquired
Central Iowa Energy, LLC, located in Newton, Iowa, and merged with Blackhawk Biofuels, located in
Danville, Illinois. Accordingly, we are in direct competition with REG for the acquisition of
inputs and the sale of our products. Our MOSA does not prohibit REG from competing with us or from
providing marketing and sales services to our competitors.
There are currently 8 other active biodiesel plants currently producing biodiesel in Iowa,
other than our plant and the REG-owned plants. These plants are listed below.
| Ag Processing Inc. (AGP) in Sergeant Bluff. This facility produces biodiesel
from refined bleached and deodorized soybean oil produced at its solvent extraction
processing plant in Eagle Grove, Iowa. AGP has completed an expansion of its plant,
increasing its production capacity to 30 million gallons per year. |
| Cargill Inc., located in Iowa Falls. Cargills facility has an annual
production capacity of 37.5 million gallons. Cargill uses soybean oil as its primary
feedstock and its biodiesel plant is located adjacent to its soybean crush facility. |
| Clinton County BioEnergy, L.L.C., located in Clinton, Iowa. This facility has
capacity to produce 10 million gallons of biodiesel annually and uses soybean oil as its
primary feedstock. |
| Iowa Renewable Energy, LLC, located in Washington, Iowa. The facility has
capacity to produce 30 million gallons of biodiesel per year from either vegetable oil or
animal fat. This biodiesel plant was constructed by REG and is currently managed by REG. |
| Riksch Biofuels L.L.C., located in Crawfordsville, Iowa, is capable of
producing 10 million gallons of biodiesel each year. |
| Sioux Biochemical, Inc., located in Sioux Center, Iowa, is capable of producing
2.0 million gallons of biodiesel each year. |
| Soy Solutions of Iowa, LLC, located in Milford, Iowa. This is a stand-alone
facility that purchases soybean oil from the market. The facility has capacity to produce
approximately 2 million gallons of biodiesel annually, and utilizes virgin soybean oil as
its sole feedstock. |
| Western Dubuque Biodiesel, LLC, located near Farley, Iowa. Western Dubuque
Biodiesel has the capacity to produce 30 million gallons of biodiesel per year. It
primarily utilizes soybean oil and is not capable of pretreating animal fats for use in the
production process. This biodiesel plant was constructed by REG and is currently managed
by REG. |
A complete listing of all commercial biodiesel production plants is available on the National
Biodiesel Boards public website.
Competition from Other Fuel Sources and Additives
The biodiesel industry competes with the diesel fuel segment of the petroleum industry.
Historically, biodiesel prices have correlated to the prices of petroleum-based diesel. Over the
past several years, according to the Energy Information Administration, the price of diesel reached
record high prices in July 2008 of approximately $4.70 per gallon for No. 2 ultra low sulfur
diesel. Since that time, however, diesel fuel prices have trended downward as oil prices have
plummeted and the recent U.S. economic downturn and credit crisis have contributed to a decrease in
demand for fuel in general. According to the Energy Information Administration, the average sales
price of No. 2 ultra low sulfur diesel fuel in fiscal year 2009 was $2.47 per gallon, compared with
an average sales price of $3.81 per gallon in fiscal year 2008. Diesel fuel prices per gallon
remain at levels below or equal to the price of biodiesel. Following the trend of diesel prices,
biodiesel prices declined from their peak in the summer of 2008. As of February 19, 2010, USDAs
National Weekly Ag Energy Round-Up reports that B100 biodiesel prices in Iowa ranged from $3.23 to
$3.52 per gallon, which is up from a range of $2.60 to $2.95 per gallon in February 2008, but lower
than the peak prices reached during the summer of 2008. If the diesel fuel industry is able to
produce petroleum-based diesel fuel with acceptable environmental characteristics, we may find it
difficult to compete with diesel fuel. In addition, other more cost-efficient domestic alternative
fuels may be developed and displace biodiesel as an environmentally-friendly alternative. If diesel
prices do not continue to increase or a new fuel is developed to compete with biodiesel, it may be
difficult to market our biodiesel, which could result in the loss of some or all of our ability to
operate profitably.
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At least one large oil company has recently conducted a pilot program to produce
renewable diesel, another form of diesel with which we may be required to compete. Renewable
diesel has characteristics similar to that of petroleum-based diesel fuel and can be co-processed
at traditional petroleum refineries from vegetable oils or animal fats mixed with crude oil through
a thermal de-polymerization process. As a result of an Internal Revenue Service interpretation of
the application of certain biodiesel tax credits created under the Energy Policy Act of 2005,
renewable diesel processed in traditional petroleum-refining equipment is currently eligible for
the blenders tax credit. Opponents of the IRS interpretation argue that the blenders tax credit
was intended for specific, limited production technologies, including the methyl ester biodiesel
production process, and that the IRS interpretation will allow a large subsidy of conventional
petroleum refinery capacity at the expense of free-standing producers of biodiesel. However, the
biodiesel blenders tax credit, as amended by the Emergency Economic Stabilization Act, reduced the
credit available for biodiesel co-processed with petroleum feedstock from $1.00 to 50 cents per
gallon. In 2007, ConocoPhillips and Tyson Foods announced a pilot program using animal fat from a
Tyson processing plant as a feedstock to produce renewable diesel. In late 2008, however,
ConocoPhillips and Tyson suspended the project due to unfavorable economics. Since renewable
diesel is eligible for the 50 cent per gallon blenders tax credit, other large oil companies may
decide to add production capacity for renewable diesel. These large petroleum refiners likely have
greater financial resources than we do and may be able to devote greater production capacity to the
production of renewable diesel than the typical biodiesel plant, which on average has an annual
production capacity of 30 million gallons. Accordingly, if renewable diesel proves to be more
cost-effective than biodiesel, our revenues and our ability to operate profitably may be adversely
affected.
In addition, the EPA has issued regulations to reduce the amount of sulfur in diesel fuel in
order to improve air quality. The removal of sulfur from diesel fuel also reduces its lubricity
which must be corrected with fuel additives, such as biodiesel, which has inherent lubricating
properties. We expect to compete with producers of other diesel additives made from raw materials
other than soybean oil having similar lubricity values as biodiesel,
such as petroleum-based lubricity additives. Some major oil companies produce these
petroleum-based lubricity additives and strongly favor their use because they may be used in lower
concentrations than biodiesel. In addition, much of the infrastructure in place is for
petroleum-based additives. As a result, petroleum-based additives may be more cost-effective than
biodiesel. Therefore, it may be difficult to market our biodiesel as a lubricity additive, which
could result in the loss of some or all of our members investment.
Research and Development
We do not conduct any research and development activities associated with the development of
new technologies for use in producing biodiesel and glycerin.
Dependence on One or a Few Major Customers
We are highly dependent upon REG for the successful marketing of our products and the
procurement of adequate supplies of the inputs needed to produce our products. Pursuant to the MOSA
with REG, REG has marketed all of the biodiesel and glycerin produced at our biodiesel facility and
has procured all of the feedstock and chemical inputs necessary for the production of biodiesel at
our facility. See Sources and Availability of Raw Materials Feedstock Procurement and
Distribution of Principal Products above for a description of the services REG currently provides
us pursuant to the MOSA. The MOSA, as extended, will terminate on May 3, 2010. See BUSINESS
Proposed Consolidation with REG and RISK FACTORS for a discussion of the termination of the
MOSA.
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We do not have our own sales force or any other agreements with any third party for the
marketing and sale of our products or the procurement of inputs. Prior to the termination of the
MOSA, WIE will either have to negotiate a new contract for biodiesel and glycerin distribution
services with REG, identify alternative providers of these services and negotiate contracts with
these providers, or begin providing these services. This is a very short timeframe in which to
make these arrangements, and each of these options carries significant risk for the company. There
can be no assurance that the Company will be able to contract with a third party to provide
biodiesel and glycerin distribution services on terms favorable to the Company, or that the Company
would be able to hire individuals to perform these services. Any lack of a provider for these
services would have a negative impact on our revenues and could have a material adverse effect on
the Company. Accordingly, REGs termination of the MOSA could adversely affect the Companys
ability to generate revenues and the Companys members could lose some or all of their investment.
Furthermore, we are in direct competition with REG due to its ownership and management of
other existing biodiesel plants, including the two plants that REG recently acquired in connection
with our failed consolidation with REG, and any failure by REG to comply with the terms of our MOSA
could negatively impact our ability to generate revenues. The MOSA does not prohibit REG from
competing with us or from providing services to our competitors, and it does not provide any
procedures as to how REG will address any conflicts of interest that may arise during REGs service
to our plant and competitor plants. If REG places the interests of other biodiesel plants which it
owns or manages ahead of our interests, our profitability may be negatively impacted. See
DESCRIPTION OF BUSINESS Competition and RISK FACTORS.
Costs and Effects of Compliance with Environmental Laws
We are subject to extensive air, water, and other environmental regulations and we have been
required to obtain a number of environmental permits to construct and operate the plant. We have
obtained all of the necessary permits to conduct plant operations, including air emissions permits,
a NPDES permit, and boiler permits. We also entered into an agreement with the City of Des Moines
for the discharge of our wastewater into its wastewater reclamation facility. We recently entered
into a one-year extension of this agreement, which will now expire on March 1, 2011. We are now
subject to ongoing environmental regulation and testing. Thompson Environmental Consulting, Inc.
assisted us in obtaining all of our required permits and continues to assist us in ongoing
permitting matters. Although we have been successful in obtaining all of the permits currently
required, any retroactive change in environmental regulations, either at the federal or state
level, could require us to obtain additional or new permits or spend considerable resources on
complying with such regulations. We estimate that we will spend approximately $50,000 to comply
with federal, state, and local environmental laws over the next twelve months.
The governments regulation of the environment changes constantly. It is possible that more
stringent federal or state environmental rules or regulations could be adopted, which would
increase our operating costs and expenses. It also is possible that federal or state environmental
rules or regulations could be adopted that could have an adverse effect on the use of biodiesel.
There is always a risk that the EPA may enforce certain rules and regulations differently than
Iowas environmental administrators. Iowa or EPA rules are subject to change, and any such changes
could result in greater regulatory burdens on plant operations.
We could also be subject to environmental or nuisance claims from adjacent property owners or
residents in the area arising from possible foul smells or other air or water discharges from the
plant. Such claims may result in an adverse result in court if we are deemed to engage in a
nuisance that substantially impairs the fair use and enjoyment of real estate.
Employees
As of December 31, 2009, we had 28 full-time employees. We do not expect to hire any more
employees in the near future. The chart below summarizes the type and number of positions that we
employ as of December 31, 2009.
JOB TITLE | NUMBER EMPLOYEES | |||
Process Operator |
16 | |||
Accounting Manager |
1 | |||
Maintenance Supervisor |
1 | |||
Maintenance Technicians |
2 | |||
Administrative / Accounting Assistant |
1 | |||
Shipping/Receiving |
3 | |||
Operations Supervisor |
1 | |||
Quality Assurance Coordinator |
1 | |||
Laboratory Coordinator |
1 | |||
Compliance Coordinator |
1 | |||
Total |
28 | |||
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Our current general manager and operations manager are employed by REG and placed at our facility
pursuant to our MOSA as extended by the Extension on Second Amendment to the MOSA dated
March 16, 2010. Our current general manager, Larry Breeding, and operations manager, Joe
Reed, were both hired by REG. We directly employ all other employees and have sole responsibility
for the terms and conditions of their employment. Pursuant to the MOSA, as extended, REG is obligated
to provide operations management at our facility. The specific services that REG must provide
include the following:
The functions of the general manager under our management and operational services agreement
are to:
| Planning and scheduling biodiesel production to meet customer needs
and marketing goals; |
| Monitor and maintain quality control processes; |
| Oversee facility and equipment maintenance; |
| Assist with regulatory affairs monitoring and compliance; |
| Assist with budgeting and the monitoring of labor and other expenses in
the operation; |
| Development of an annual budget for presentation to and approval of
Western Iowa Energys board of managers (Board); |
| Attend meetings of the Board and provide information upon its request; |
| Work with Western Iowa Energys Board to formulate Western Iowa
Energys mission and goals; |
| Work towards achievement of such mission and goals; |
| Hire, terminate and replace Biodiesel Facility personnel as necessary; and |
| Such other duties as may be agreed between REG Services
Iowa Energy. |
As a result of REGs termination of the MOSA, and the subsequent rejection by our unitholders of a
proposed consolidation with REG, we may lose the services of our general manager and operations
manager. We will either have to negotiate a new contract with REG for management services,
identify alternative providers of these services and negotiate contracts with these providers, or
hire a general manager and operations manager prior to May 3, 2010. This is a very short timeframe
in which to make these arrangements, and each of these options carries significant risk for the
company. There can be no assurance that the Company will be able to negotiate a new contract with
REG or to contract with a third party to provide management services on terms favorable to the
Company. There can also be no assurance that the Company would be able to identify and hire
qualified individuals to perform these services. If WIE hires individuals for these positions,
these individuals may encounter a steep learning curve. Any lack of management would have a
negative impact on our revenues and could have a material adverse effect on the Company.
Accordingly, REGs termination of the MOSA could adversely affect the Companys ability to generate
revenues and the Companys members could lose some or all of their investment. See BUSINESS
Proposed Consolidation with REG and RISK FACTORS.
ITEM 1A. | RISK FACTORS. |
You should carefully read and consider the risks and uncertainties below and the other information
contained in this report. The risks and uncertainties described below are not the only ones we may
face. The following risks, together with additional risks and uncertainties not currently known to
us or that we currently deem immaterial could impair our financial condition and results of
operations.
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Risks Related to Our Business
Declines in the prices of biodiesel and glycerin will have a significant negative impact on
our financial performance. Our revenues will be greatly affected by the price at which we can sell
our biodiesel and its primary co-product, glycerin. These prices can be volatile as a result of a
number of factors over which we have no control. These factors include the overall supply and
demand of biodiesel and glycerin, the price of diesel fuel, the level of government support, the
availability and price of competing products, and domestic and global economic conditions. The
total production capacity of biodiesel remains significantly above the level of demand for
biodiesel, which may lead to lower prices. Any lowering of biodiesel prices may negatively impact
our ability to generate profits.
During the fiscal year ended December 31, 2009, we operated at approximately 52.8% of our
nameplate capacity. During January and February 2010, we were operating at approximately 23.5% of
our nameplate capacity due to decline in the demand for biodiesel. Historically, the demand for
biodiesel follows a seasonal trend and demand decreases in colder months. We believe that the
recent U.S. recession and global financial market turmoil may also depress biodiesel demand and
prices. Biodiesel prices have significantly declined over the past two years. We expect that we
will operate at similar low production levels throughout the first quarter of the 2010 fiscal year
due to decreased biodiesel demand. Continued operations at less than full capacity will have a
negative impact on our revenues. If Congress fails to enact an extension of the $1.00 federal tax
credit for biodiesel, we expect that we will continue to operate at significantly less than full
capacity indefinitely.
In addition, increased biodiesel production capacity has lead to increased supplies of
co-products from the production of biodiesel, such as glycerin. These increased supplies have led
to lower prices for glycerin. If the price of glycerin declines, our revenue from glycerin may
substantially decrease. Increased expenses and decreased sales prices for our products will result
in decreased revenues.
Our business is sensitive to feedstock costs. Changes in the prices and availability of our
feedstock may hinder our ability to generate revenue. Our results of operations and financial
condition are significantly affected by the cost and supply of feedstock. Biodiesel production at
our plant requires significant amounts of feedstock. Changes in the price and supply of feedstock
are subject to and determined by market forces over which we have no control. Because there is
little or no correlation between the costs of feedstock and the price of biodiesel, we cannot pass
along increased feedstock costs to our biodiesel customers. As a result, increased feedstock cost
may result in decreased profits. If we experience a sustained period of high or volatile feedstock
costs, such pricing may reduce our ability to generate revenues and our profit margins will
decrease, and these decreases may be significant.
Our biodiesel plant processes primarily animal fats and a small amount of soybean oil, and the
cost of feedstock represents approximately 70%-90% of our cost of production. In 2009, the cost of
our primary feedstock, choice white grease, decreased by approximately 32.5% compared to 2008 and
remained relatively consistent throughout the year. In 2008, by contrast, there was significant
price volatility in the market for choice white grease, which was our primary feedstock. In July
2008, the price that we paid for choice white grease reached a record level of 50.75 cents per
pound; however, the price dropped to 12.66 cents per pound in December 2008. If the cost of choice
white grease increases as it did during most of fiscal year 2008, the cost advantages of utilizing
choice white grease as a primary feedstock may diminish and our profits will be negatively
affected.
The price for animal fats, including choice white grease, tends to move in relation to the
price of other feedstocks, such as soybean oil. Accordingly, as soybean oil prices increase, animal
fat prices generally tend to increase. Soybean oil prices were generally consistent throughout the
fiscal year ended December 31, 2009. According to the USDAs Oil Crops Outlook report for February
2010, the average price for soybean oil during the twelve-month period ending December 31, 2009 was
33.01 cents per pound. By contrast, soybean oil prices during the fiscal year ended December 31,
2008 were extremely volatile, spiking to approximately 62.43 cents per pound in June 2008 and
subsequently dropping to 29.30 cents per pound in December 2008. The USDA forecasted that soybean
oil prices during the period from October 2009 to September 2010 would be between 33.5 cents per
pound and 36.5 cents per pound.
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Soybean prices may also be affected by other market sectors, as soybeans are comprised of 80%
protein meal and only 20% oil. Soybean oil is a co-product of processing, or crushing, soybeans
for protein meal used for livestock feed. Soybean meal demand drives the prices we pay for soybean
oil. Currently, soybean crush capacity is concentrated among four companies, Cargill, Inc., Bunge,
ADM, and Ag Processing Inc., which represent more than 80% of crushing operations in the United
States. These companies typically crush soybeans based upon demand for livestock feed and they
will not likely increase the amount of soybeans crushed for soybean oil unless there is an equal
increase in demand for livestock feed. Accordingly, the amount of soybean crushing could create
uncertainty and price volatility in the soybean oil market. We also expect that competition for
raw soy oil, animal fats and other feedstocks from other biodiesel producers may increase our cost
of feedstock and harm our financial performance and reduce our profits. Any inability to obtain
adequate quantities of feedstock at economical prices will result in increased costs and decreases
in our profit margins.
Increases in the price of natural gas could reduce our profitability. Our results of
operations and financial condition are significantly affected by the cost and supply of natural
gas. Changes in the price and supply of natural gas are subject to and determined by market forces
over which we have no control. The average price we paid for natural gas during the fiscal year
ended December 31, 2009 was approximately 39.1% less than the average price we paid for natural gas
during the fiscal year ended December 31, 2008. In 2008, natural gas prices significantly exceeded
historical averages. According to the Energy Information Administration, the industrial price of
natural gas averaged $9.58 per thousand cubic feet in 2008, reaching a peak price of $13.05 per
thousand cubic feet in July 2008. In 2009, by contrast, the Energy Information Administration
Reports that the industrial price of natural gas averaged $5.27 per thousand cubic feet, ranging
from a low of $3.81 to a high of $7.43. A correlation can be made between high energy prices,
which increase our profitability and at the same time increase our energy input costs. Conversely,
when energy prices are low, our profit margins may decrease but the energy input costs will also be
lower. Any increases in the price of natural gas will increase our cost of goods sold.
The price we pay for natural gas affects our costs of production. 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 as a result of colder than
average weather conditions, natural disasters, overall economic conditions, and foreign and
domestic governmental regulations and relations. Significant disruptions in the supply of natural
gas could impair our ability to manufacture biodiesel for our customers. 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 condition.
We are in competition with REG, our current plant manager and product marketer, which could
place us at a competitive disadvantage and cause a conflict of interest for REG. We have
contracted with REG for management, feedstock procurement, and marketing services for our plant. We
are highly dependent upon REG to procure our inputs and market our products. We are also highly
dependent upon REGs experience and relationships
in the biodiesel industry and its knowledge regarding the operation of the plant, as REG was
also the design-builder of our plant.
REG operates its own biodiesel production facilities in Ralston, Iowa and Houston, Texas and
anticipates increasing its biodiesel production through wholly-owned and third-party managed
biodiesel plants in the future. REG recently acquired two additional biodiesel plants, one in
Newton, Iowa, and the other in Danville, Illinois. This means that REG, our current plant manager and
product marketer, is in competition with us in many aspects of our business, including feedstock
procurement and biodiesel production and marketing. We also have to compete with REG for employees.
Because REG operates its own biodiesel production facilities and competes with us in many aspects
of our business, REG may have a conflict of interest in managing our plant and marketing our
products. Although we have entered into a management and operational services agreement with REG
for management and marketing services, there is no assurance that REGs performance of these
services is not compromised by its own biodiesel production operations. As a result of REGs
termination of the MOSA, and the subsequent rejection by our unitholders of a proposed
consolidation with REG, REG may no longer be bound by the restrictions contained in the MOSA.
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If we are unable to negotiate a new agreement with REG, we may be placed at a greater
competitive disadvantage in the biodiesel industry. Pursuant to our MOSA with REG, REG has
provided management, feedstock procurement, marketing, and distribution services for our plant
since we began operation. We are highly dependent upon REGs experience and relationships in the
biodiesel industry. We particularly benefit from the economies of scale that result from REGs
status as a major buyer of feedstock and other inputs and as a major distributor of biodiesel. We
also benefit from REGs reputation in the biodiesel industry for providing quality products. On
April 3, 2009, REG provided twelve months written notice of its intent to terminate the MOSA. In
February 2010, the unitholders of WIE rejected a proposed consolidation with REG. The MOSA, as
extended, will terminate as of May 3, 2010. If we are unable to negotiate a new agreement with
REG, we will have to obtain the services of alternative providers of these services or hire
employees to carry out these responsibilities. Without the economies of scale that REG provides,
we may be unable to purchase feedstock and other inputs on the same terms that we currently
purchase these inputs. Biodiesel buyers generally want a supplier that can deliver a significant
volume of biodiesel at a consistent high quality in order to protect their brands. REG has proven
that it can deliver both volume and quality to these buyers, and therefore has strong relationships
with many of these buyers. Through our current relationship with REG, we are part of a larger
network that can fulfill these requirements of biodiesel buyers. Without the involvement of REG
and operating as a stand-alone plant, however, we may be unable to satisfy these demands of
biodiesel buyers. Furthermore, we will be in direct competition with REG in the biodiesel market.
Therefore, we may be unable to market our biodiesel and glycerin on the competitive terms that we
have received pursuant to the MOSA. This may have a material adverse effect on our financial
position and our members could lose some or all of their investment.
We may be unable to hire a qualified general manager or operations manager for our plant.
Pursuant to our MOSA with REG, REG has provided a general manager and an operations manager for our
plant since we began operation. On April 3, 2009, REG provided twelve months written notice of its
intent to terminate the MOSA. In February 2010, the unitholders of WIE rejected a proposed
consolidation with REG. The MOSA, as extended, will terminate as of May 3, 2010. We do not have
any personnel who are trained to fill these roles if we are unable to negotiate a new agreement
with REG following the termination of the MOSA. If we are unable to negotiate a new agreement with
REG, we may be unable to negotiate an agreement with an alternative provider of plant management
services or we may be unable to identify and hire new employees to fill the roles of general
manager and operations manager during the short period of time before the MOSA terminates. In
addition, any new management personnel would require a period of training to learn about our plant
and our operations. This may have a material adverse effect on our financial position and our
members could lose some or all of their investment.
We may be unable to market and distribute our biodiesel and glycerin as a result of REGs
termination of the MOSA. Pursuant to our MOSA with REG, REG has marketed and distributed our
biodiesel and glycerin since we began operation. We do not have relationships with our customers
since we rely on REGs relationships with purchasers of biodiesel and glycerin, nor do we have
experience in marketing and distributing biodiesel and glycerin. On April 3, 2009, REG provided
twelve months written notice of its intent to terminate the MOSA. In February 2010, the
unitholders of WIE rejected a proposed consolidation with REG. The MOSA, as extended, will
terminate as of May 3, 2010. We do not have any personnel who are trained to market and distribute
biodiesel and glycerin if we are unable to negotiate a new agreement with REG following the
termination of the MOSA. If we are
unable to negotiate a new agreement with REG, we may be unable to negotiate an agreement with
an alternative biodiesel and glycerin marketer or distributor, or we may be unable to identify and
hire new employees to carry out these responsibilities. If the new provider or new employees lack
experience in the biodiesel industry, they may require a period of training to learn about the
industry and to develop relationships with purchasers of biodiesel and glycerin. This may have a
material adverse effect on our financial position and our members could lose some or all of their
investment.
We may be unable to procure feedstock for our plant as a result of REGs termination of the
MOSA. Pursuant to our MOSA with REG, REG has procured all feedstock for our plant, including
animal fats and soybean oil, since we began operation. We do not have relationships with suppliers
of our feedstock since we rely on REGs relationships with these suppliers. On April 3, 2009, REG
provided twelve months written notice of its intent to terminate the MOSA. In February 2010, the
unitholders of WIE rejected a proposed consolidation with REG. The MOSA, as extended, will
terminate as of May 3, 2010. We do not have any personnel who are trained to purchase feedstock if
we are unable to negotiate a new agreement with REG following the termination of the MOSA. If we
are unable to negotiate a new agreement with REG, we may be unable to negotiate an agreement with
an alternative supplier of feedstock, or we may be unable to identify and hire new employees to
carry out these responsibilities. If the new provider or new employees lack experience in the
biodiesel industry, they may require a period of training to learn about the industry and to
develop relationships with suppliers of our feedstock. This may have a material adverse effect on
our financial position and our members could lose some or all of their investment.
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Our exclusive reliance on REG to manage our plant, procure our inputs and market our products
could damage our profitability if REG fails to perform its obligations under the remaining term of
the MOSA. We are highly dependent upon REG to manage our plant, procure our inputs, and market our
products during the remaining term of our MOSA, which will continue until May 3, 2010. We do not
have a soy crushing facility to supply our own raw soybean oil and we do not have any arrangements
with other suppliers of feedstock. Rather, we depend upon REG to acquire our feedstock from third
parties. If REG is unable to provide us with adequate feedstock or other inputs, we may have to
decrease or halt operations which would adversely affect our ability to generate profits and
adversely affect our financial obligations
In addition, we do not have a sales force of our own to market our biodiesel and glycerin and
are highly dependent upon REG to market our products. If REG breaches the terms of the MOSA or
does not have the ability, for financial or other reasons, to market all of the biodiesel and
glycerin we produce, we will not have any readily available means to sell our biodiesel and
glycerin. Our lack of a sales force and reliance on REG to sell and market our products may place
us at a competitive disadvantage. Our failure to sell all of our biodiesel and glycerin products
may result in less income from sales, reducing our revenue, which could adversely affect our
financial position. If REG does not perform its obligations as agreed, we may be unable to
specifically enforce our agreement. Our reliance on REG may place us at a competitive disadvantage
We have limited experience in the biodiesel industry, which increases the risk of our
inability to operate the biodiesel plant. We organized our company in September 2004 and commenced
production of biodiesel at our plant in May 2006. Accordingly, we have a limited operating history
from which you can evaluate our business and prospects. We are presently, and will likely continue
to be, dependent upon our directors to govern the business of the biodiesel plant. Most of our
directors are experienced in business generally but have limited or no prior experience in
operating a biodiesel plant or in governing and operating a public company. Most of our directors
had no prior expertise in the biodiesel industry. In addition, certain directors on our board of
directors are presently engaged in business and other activities that impose substantial demands on
the time and attention of such directors.
Our operating results could fluctuate significantly in the future as a result of a variety of
factors. Many of these factors are outside of our control. As a result of these factors, our
operating results may not be indicative of future operating results and you should not rely on them
as indications of our future performance. There is no assurance that our future financial
performance will improve. In addition, our prospects must be considered in light of the risks and
uncertainties encountered by an early-stage company and in rapidly growing industries, such as the
biodiesel industry, where supply and demand may change substantially in a short amount of time.
Some of these risks relate to our potential inability to effectively manage our business and
operations; recruit and retain key personnel; develop new products that complement our existing
business; and obtain sufficient amounts of credit and capital to support our business operations.
If we cannot successfully address these risks, our business, future results of operations and
financial condition may be materially adversely affected.
We engage in hedging transactions which involve risks that can harm our business. We are
exposed to market risk from changes in commodity prices. Exposure to commodity price risk results
from our dependence on commodities in the biodiesel production process, such as soybean oil and
home heating oil. Hedging activities themselves can result in increased costs because price
movements in soybean oil contracts, home heating oil contracts, and other commodity contracts are
highly volatile and are influenced by many factors that are beyond our control. There are several
variables that could affect the extent to which our derivative instruments are impacted by price
fluctuations in the cost of soybean oil, home heating oil and other commodities. However, it is
likely that commodity cash prices will have the greatest impact on the derivative instruments with
delivery dates nearest the current cash price. We may incur such costs and they may be
significant. If we realize losses with respect to our derivative instruments, our net income could
decrease.
The effectiveness of our hedging strategies with respect to soybean oil is dependent upon the
cost of soybean oil and other commodities and our ability to sell sufficient amounts of our
products to use all of the soybean oil for which we have futures contracts. There is no assurance
that our hedging activities will successfully reduce the risk caused by price fluctuation which may
leave us vulnerable to high soybean oil prices. Alternatively, we may choose not to engage in
hedging transactions. As a result, our results of operations and financial conditions may also be
adversely affected during periods in which soybean oil prices increase.
We compete with other biofuels plants for key management and other personnel who are critical
to our success. Pursuant to the MOSA, REG hired Larry Breeding to be general manager and Joe Reed
to be operations manger of our plant, each of whom has experience with biofuels production
facilities. As a result of REGs termination of the MOSA, we may be forced to identify and hire
new individuals to fill these positions or to contract with another provider of plant management
services. There are a limited number of individuals with expertise in this area. In addition, we
may have difficulty in attracting other competent personnel to relocate to Iowa in the event that
such personnel are not retained. Our failure to attract and retain such individuals could limit or
eliminate any profit that we might make and could result in our failure.
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Our business is not diversified. Our success depends largely on our ability to profitably
operate our biodiesel plant. We do not have any other lines of business or other sources of
revenue if we are unable to operate our biodiesel plant and manufacture biodiesel and glycerin. If
economic or political factors adversely affect the market for biodiesel, we have no other line of
business to fall back on. Our business would also be significantly harmed if our biodiesel plant
does not operate at full capacity for any extended period of time.
If it is necessary to temporarily cease operating our biodiesel plant for sustained periods of
time for any reason, we might not be able to meet our current liabilities and may experience
losses. If we are forced to temporarily cease operations at our biodiesel plant, either due to our
inability to sell the biodiesel we are producing, increased feedstock costs, our lack of working
capital and available credit, defects in our equipment at the plant, violations of environmental
law, or any other reason, our ability to produce revenue would be aversely affected. We do not have
any source of revenues other than production of biodiesel and glycerin at our biodiesel plant. If
our plant were to cease production, we would not generate any revenue and we might not be able to
pay our debts as they become due, including payments required under our loan agreements with our
lender. Failure to make the payments required under our loan agreements would constitute an event
of default, entitling our lender to exercise any number of remedies, including foreclosure on its
security interest in all of our assets. If the plant ceases to operate for enough time, we might
not be able to re-start operations at the plant and our members could lose some or all of their
investment.
We are at a disadvantage in marketing our glycerin because our plant does not produce
pharmaceutical grade glycerin, thereby decreasing the market for the glycerin we produce. A major
use of glycerin is in the production of drugs. The glycerin our plant produces, however, is not
pharmaceutical grade glycerin. This limits our ability to market the glycerin produced by our
biodiesel plant. The glycerin we produce has to be purified in order for it to be used in
pharmaceutical applications. However, any glycerin produced from the production of animal fat-based
biodiesel cannot be used in such pharmaceutical applications. Since the market in which we can sell
our glycerin is limited, we might not be able to sell all of the glycerin we produce or we may not
be able to sell our glycerin at a favorable price. If we cannot sell all of the glycerin we produce
or cannot sell it at a favorable price, our ability to operate our biodiesel plant profitably might
be adversely affected, which could decrease the value of our units.
Concerns about fuel quality may impact our ability to successfully market our biodiesel.
Industry standards impose quality specifications for biodiesel fuel. Actual or perceived problems
with quality control in the industry may lead to a lack of consumer confidence in the product and
hinder our ability to successfully market our biodiesel. An inability to successfully market our
biodiesel will lead to decreased revenues and may adversely impact our ability to operate at all.
Cold weather may cause biodiesel to gel, which could have an adverse impact on our ability to
successfully market our biodiesel. The cloud point is the temperature at which small solid
crystals are visually observed as a fuel is cooled. When air temperatures fall below the cloud
point, these crystals may plug fuel filters or drop to the bottom of a storage tank. The pour
point for a fuel is the temperature at which the fuel contains so many crystals that it is
essentially a gel and will no longer flow. The cloud point of 100% soy-based biodiesel is
approximately 32ºF and the pour point is approximately 25ºF. The cloud point and pour point for
No. 2 ultra low sulfur petroleum diesel fuel, the non-biodiesel fuel currently used in machines,
are approximately 6ºF and -30ºF, respectively. When diesel is mixed with soy-based biodiesel to
make a 2% biodiesel blend, the cloud point and pour point are 7ºF and -25ºF, respectively.
Therefore, we believe we will need to blend soy-based biodiesel and animal fat-based biodiesel with
petroleum diesel in order to provide a biodiesel product that will have an acceptable cloud point
and pour point in cold weather. Generally, biodiesel that is used in blends of 2% to 20% is
expected to provide acceptable cold flow properties for colder markets comparable to the No. 2
petroleum diesel cold flow properties. In colder temperatures, lower blends are recommended to
avoid fuel system plugging. This may cause the demand for our biodiesel in northern markets to
diminish during the colder months.
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The tendency of biodiesel to gel in colder weather may also result in long-term storage
problems. At low temperatures, fuel may need to be stored in a heated building or heated storage
tanks. This may result in a decrease in demand for our product in colder climates due to increased
storage costs.
There are doubts about our ability to continue to generate positive cash flow and if we are
unable to continue our business, our units may have little or no value. As discussed in Note 14 to
the accompanying financial statements, the biodiesel industry has faced numerous challenges since
we commenced production, including significant volatility in the cost of its inputs. Although
input costs have declined somewhat from their peaks during the summer of 2008, the price of
biodiesel has also declined, which may result in lower profit margins since unlike many industries,
historically, we have not been able to pass along increased input costs to our customers. A
sustained narrow spread or any further reduction in the spread between biodiesel and feedstock
prices, whether as a result of sustained high or increased feedstock prices or sustained low or
decreased biodiesel prices, would adversely affect our results of operations and financial
position.
Technological advances could significantly decrease the cost of producing biodiesel or result
in the production of higher-quality biodiesel, and if we are unable to adopt or incorporate
technological advances into our operations, our plant could become uncompetitive or obsolete. We
expect that technological advances in the processes and procedures for processing biodiesel will
continue to occur. It is possible that those advances could make the processes and procedures that
we utilize at our plant less efficient or obsolete, or cause the biodiesel we produce to be of a
lesser quality. Advances and changes in the technology of biodiesel production are expected to
occur. These advances could also allow our competitors to produce biodiesel at a lower cost than
cost at which we produce biodiesel. Our plant is a single-purpose facility and has no use other
than the production of biodiesel and associated products. Much of the cost of the plant is
attributable to the cost of production technology which may be impractical or impossible to update.
If we are unable to adopt or incorporate technological advances, our biodiesel production methods
could be less efficient than our competitors, which could cause our plant to become uncompetitive
or obsolete. If our competitors develop, obtain, or license technology that is superior to ours or
that makes our technology obsolete, we may be required to incur significant costs to enhance or
acquire new technology so that our biodiesel production remains competitive. Alternatively, we may
be required to seek third-party licenses, which could also result in significant expenditures. We
cannot guarantee or assure you that third-party licenses will be available or, once obtained, will
continue to be available on commercially reasonable terms, if at all. These costs could negatively
impact our financial performance by significantly increasing our operating costs, as well as
reducing our net income.
Risks Related to the Biodiesel Industry
The economic recession and tightening of credit markets has caused demand for biodiesel to
decline, which may adversely affect our ability to generate revenues. The collapse of various major
financial institutions and the federal governments bailout and takeover of troubled financial
institutions and corporations over the past year have caused economic upheaval in the United States
and abroad. The United States is currently in an economic recession and credit markets remain
constricted. We believe that these economic factors have contributed to a decrease in demand for
fuel in general, including biodiesel, which may persist throughout all or parts of fiscal year
2010. It is uncertain for how long and to what extent these economic troubles may negatively affect
biodiesel demand in the future. If demand for biodiesel remains low or declines further, we may be
forced to temporarily or permanently cease operations and you may lose some or all of your
investment.
The decline in crude oil and diesel prices may affect our ability to sell biodiesel at
profitable prices. The price for biodiesel is correlated to the price for diesel, as biodiesel is
used primarily as a diesel additive. The price of biodiesel tends to increase as the price of
diesel increases, and the price of biodiesel tends to decrease as the price of diesel decreases.
Diesel prices are typically influenced by crude oil prices. The global economic downturn has
resulted in a rapid decline in crude oil and diesel prices. In January 2009, crude oil prices fell
to their lowest level in more than four years, dropping to $31.76 per barrel, down from more than
$130 per barrel in July 2008. Crude oil prices have rebounded somewhat to approximately $75 per
barrel as of February 26, 2010. Additionally, average retail diesel prices have declined by
approximately 40% since July 2008. Following the trend of crude oil and diesel prices, biodiesel
prices have also fallen since July 2008. If crude oil and diesel prices remain low or decline even
further, biodiesel prices will also likely remain low or decline further. This could make it
difficult for us to produce and sell biodiesel at a profit and you could lose some or all of your
investment as a result.
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The recent downturn in the U.S. economy may limit our customers ability to pay for our
biodiesel and co-products, which may adversely affect our ability to generate revenues In 2008,
one of our customers defaulted on its contract with us for the purchase of biodiesel as a result of
the current economic conditions. As a result, we sold the biodiesel to another customer for a
lower price. We and other biodiesel producers who sold biodiesel to this customer remain in
arbitration to resolve this dispute. If more of our customers become unable to pay for the
biodiesel we produce, we may be forced to reduce production, and you may lose some or all of your
investment.
The European Commission has imposed definitive anti-dumping and countervailing duties on
biodiesel imported into Europe, which may negatively impact biodiesel demand and our revenues. In
March 2009, the European Commission imposed anti-dumping and anti-subsidy tariffs on biodiesel
produced in the United States. These tariffs have reduced European demand for biodiesel produced in
the United States. In July 2009, the European Commission decided to extend these tariffs beyond
their July 2009 expiration until 2014. These duties significantly increase the price at which U.S.
biodiesel producers may be able to sell biodiesel in European markets, making it difficult or
impossible to compete with European biodiesel producers and thereby increasing the supply and
reducing overall demand for biodiesel produced in the United States. Accordingly, these duties on
U.S. biodiesel imported into Europe could significantly harm our financial performance.
The RFS may not result in increased demand for biodiesel since existing biodiesel production
capacity already exceeds the RFS requirement. The EPA recently published regulations to implement
the Renewable Fuel Standard program as it was expanded in the Energy Independence and Security Act
of 2007 (often referred to as RFS2). Pursuant to the new regulations, RFS2 requires that 1.15
billion gallons of biomass-based diesel be blended into the national fuel pool by the end of 2010,
which amount combines the requirements of 2009 and 2010. In 2011, at least 800 million gallons of
biomass-based diesel must be blended into the nations fuel pool; and in 2012, at least 1 billion
gallons of biomass-based diesel must be blended into the national fuel pool. In each year
thereafter, EPA must determine the level of biomass-based diesel required, which amount cannot be
less than 1 billion gallons. At this time it is unclear what impact, if any, the RFS will have on
biodiesel demand since national biodiesel production capacity already exceeds these requirements.
Excess production capacity in the biodiesel industry could make it difficult for us to market
our products at profitable prices. The National Biodiesel Board estimates that current dedicated
biodiesel production capacity of existing plants as of June 22, 2009 (the most recent date for
which data is available) was about 2.69 billion gallons per year, which is up from approximately
1.85 billion gallons per year as of September 2007. The National Biodiesel Board also estimates
that plants under construction and expansion as of June 22, 2009 could add another 427.8 million
gallons to U.S. biodiesel production capacity, for a total annual production capacity of 3.12
billion gallons.
Despite these significant increases in production capacity, the National Biodiesel Board has
reported that only 700 million gallons of biodiesel were produced in 2008 and estimates that only
490 million gallons were produced in 2009. Many biodiesel plants do not operate at full capacity
due in part to the fact that total production capacity significantly exceeds demand. If the demand
for biodiesel does not grow at the same pace as increases in supply, we expect the price for
biodiesel to decline in the long-term, which could adversely affect our profits.
If demand for biodiesel fails to grow at the same rate as planned supply, the excess
production capacity will adversely impact our financial condition. In 2008, approximately 700
million gallons of biodiesel were produced in the United States, according to the National
Biodiesel Board. Our biodiesel plant alone could produce almost 4% of the 2008 domestic production
if we operated at our annual nameplate production capacity. The National Biodiesel Board estimates
the current dedicated U.S. biodiesel production capacity of existing biodiesel plants as of
June 22, 2009 (the latest date for which information is available) is approximately 2.69 billion
gallons per year. Further, plants under construction and expansion as of June 22, 2009, if
completed, are expected to result in another 427.8 million gallons of annual U.S. biodiesel
production capacity, for total annual production capacity of approximately 3.12 billion gallons.
Thus the current annual production capacity of existing plants far exceeds 2008 annual biodiesel
consumption, and will likely far exceed 2009 biodiesel consumption. As production capacity
increases, our competition with other biodiesel producers for the sale of our products increases,
especially if there is not a corresponding increase in demand for biodiesel. Many biodiesel plants
do not operate at full capacity due to the discrepancy between annual domestic biodiesel
consumption and annual U.S. biodiesel production capacity, among other factors. Several biodiesel
plants have even been forced to completely shut down or declare bankruptcy, which may be due in
part to an increase in national excess production capacity without a corresponding increase in
biodiesel demand in combination with the worsening economic conditions. If biodiesel production
capacity continues to expand at its current pace, and demand does not grow to meet the available
supply, we may be forced to suspend production at our plant and the value of your units could be
decreased or eliminated.
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Excess capacity in the biodiesel industry may cause increased competition for inputs and
decreased market prices for biodiesel. Biodiesel production at our plant requires significant
amounts of animal fats and other inputs. If overproduction of biodiesel occurs, we will face
increased competition for inputs which means we may be either unable to acquire the inputs that we
need or unable to acquire them at profitable prices. In addition, if excess capacity occurs, we may
also be unable to market our products at profitable prices. If the demand for biodiesel does not
grow at the same pace as increases in supply, we would expect the price for biodiesel to decline.
Any decrease in the price at which we can sell our biodiesel will negatively impact our future
revenues. Increased expenses and decreased sales prices for biodiesel will result in decreased
revenues and increased losses.
Excess production of glycerin, a co-product of the biodiesel production process, may cause the
price of glycerin to decline, thereby adversely affecting our ability to generate revenue from the
sale of glycerin. It is estimated that every million gallons of biodiesel produced adds
approximately another one hundred thousand gallons of crude glycerin into the market. As biodiesel
production has increased in recent years, the glycerin market has become increasingly saturated, resulting in
significant declines in the price of glycerin. The Jacobsen Company reported average glycerin
prices of 5 to 6 cents in February 2010. However, if the price of glycerin declines further, our revenues
will be adversely affected and we could even be forced to pay to dispose of our glycerin. Any
further excess glycerin production capacity may limit our ability to market our glycerin co-product
and could negatively impact our future revenues.
The biodiesel manufacturing industry is a feedstock limited industry. As more plants are
developed and go into production there may not be an adequate supply of feedstock to supply the
demands of the industry, which could threaten the viability of our plant. The number of biodiesel
manufacturing plants either in production or in the planning or construction phase continues to
increase. As more plants are developed and go into production, and as more existing plants expand
their production capacities, there may not be an adequate supply of feedstock to supply the demand
of the biodiesel industry. Consequently, the price of feedstock may rise to the point where it
threatens the viability of our plant. This is because there is little or no correlation between the
price of feedstock and the market price of biodiesel and, therefore, we cannot pass along increased
feedstock costs to our biodiesel customers. We cannot pass along increased feedstock costs to our
biodiesel customers because in order to stay competitive in the diesel industry, biodiesel must be
competitively priced with petroleum-based diesel. Therefore, biodiesel prices fluctuate more in
relation to petroleum-based diesel market prices than with feedstock market prices. As a result,
increased feedstock costs may result in decreased profit margins. If we experience a sustained
period of high feedstock costs, such pricing may significantly decrease or eliminate our profit
margins. Furthermore,
REG currently owns and operates two biodiesel plants and recently acquired two additional
biodiesel plants. This means that our current plant manager and product marketer, REG and its
affiliates, are competitors for a limited supply of feedstock.
The biodiesel industry is becoming increasingly competitive and we compete with some larger,
better financed entities which could impact our ability to operate profitably. We face a
competitive challenge from larger biodiesel plants and from biodiesel plants owned and operated by
the companies that supply our inputs. We also expect to compete with plants that are capable of
producing significantly greater quantities of biodiesel than the amount we expect to produce.
Moreover, some of these plants may not face the same competition we do for inputs as the companies
that own them are suppliers of the inputs. Such competition could result in lower prices for
biodiesel, which would adversely affect our ability to generate profits and adversely affect our
financial obligations.
Competition from other sources of fuel may decrease the demand for our biodiesel. Although
the price of diesel fuel has increased over the last several years and reached near record high
prices in the summer of 2008 before sharply decreasing in the fall and winter of 2008, diesel fuel
prices per gallon remain at levels below or equal to the price of biodiesel. In addition, other
more cost-efficient domestic alternative fuels may be developed and displace biodiesel as an
environmentally-friendly alternative. If diesel prices do not increase or a new fuel is developed
to compete with biodiesel, it may be difficult to market our biodiesel, which could result in
decreased revenues.
Asian soybean rust and other plant diseases may decrease our ability to obtain a sufficient
feedstock supply. Our feedstock supply is partially dependent upon the availability and price of
soybeans. Asian soybean rust is a plant fungus that attacks certain plants including soybean
plants. Asian soybean rust is abundant in certain areas of South America, and is present in the
United States. Although soybean rust has not found in Iowa, in 2009, it was found in 16 states,
including as far north as Illinois. Left untreated, it can reduce soybean harvests by as much as
80%. Although it can be killed with chemicals, the treatment increases production costs for
farmers by approximately 20%. Increases in production costs and reduced soybean supplies could
cause the price of soybeans to rise and increase the cost of soybean oil as a feedstock to our
plant. Such increase in cost would increase the cost of producing our biodiesel.
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Automobile manufacturers and other industry groups have expressed reservations regarding the
use of biodiesel, which could negatively impact our ability to market our biodiesel. Because it is
a relatively new product, the research on biodiesel use in automobiles and its effect on the
environment is ongoing. Some industry groups, including the World Wide Fuel Charter, have
recommended that blends of no more than 5% biodiesel be used for automobile fuel due to concerns
about fuel quality, engine performance problems and possible detrimental effects of biodiesel on
rubber components and other parts of the engine. Although some manufacturers have encouraged use
of biodiesel fuel in their vehicles, cautionary pronouncements by others may impact our ability to
market our product.
In addition, studies have shown that nitrogen oxide emissions increase by 10% when pure
biodiesel is used. Nitrogen oxide is the chief contributor to ozone or smog. New engine technology
is available and is being implemented to eliminate this problem. However, these emissions may
decrease the appeal of our product to environmental groups and agencies who have been historic
supporters of the biodiesel industry, which may result in our inability to market our biodiesel.
Competition from other diesel fuel lubricity additives for ultra low sulfur diesel may be a
less expensive alternative to our biodiesel, which would cause us to lose market share and
adversely affect our ability to generate revenues. The Environmental Protection Agency (EPA) has
issued regulations to reduce the amount of sulfur in diesel fuel in order to improve air quality.
These regulations affect all diesel fuel available for retail sale since October 2006. The removal
of sulfur from diesel fuel also reduces its lubricity which must be corrected with fuel additives,
such as biodiesel which has inherent lubricating properties. Our biodiesel plant is expected to
compete with producers of other diesel additives made from raw materials other than soybean oil
having similar lubricity values as biodiesel, such as petroleum-based lubricity additives. Many
major oil companies produce these petroleum-based lubricity additives and strongly favor their use
because they may be used in lower concentrations than biodiesel. In addition, much of the
infrastructure in place is for petroleum-based additives. As a result, petroleum-based additives
may be more cost-effective than biodiesel. Therefore, it may be difficult to market our biodiesel
as a lubricity additive, which could adversely affect our ability to generate revenues.
Several biofuels companies throughout the country have recently filed for Chapter 1l
bankruptcy due to industry and economic conditions. Several biofuels companies have recently filed
for Chapter 11 bankruptcy. Unfavorable worldwide economic conditions, the decreasing availability
of credit, and volatile biofuels prices and input costs have likely contributed to the necessity of
these bankruptcy filings. If biodiesel prices drop to extremely low levels or feedstock prices
increase significantly, we may find ourselves in a similar situation to these other biofuels
plants.
Risks Related to Regulation and Governmental Action
Loss of or ineligibility for favorable tax benefits for biodiesel production could hinder our
ability to operate at a profit and reduce the value of our units. The biodiesel industry and our
business are assisted by various federal biodiesel incentives. One such incentive is the blenders
tax credit for biodiesel mixtures, which has provided a tax credit of $1.00 per gallon of
biodiesel. On December 31, 2009, the $1.00 federal tax credit expired and Congress has so far
failed to enact an extension of this incentive for biodiesel production. Management expects that
the expiration of the federal tax credit will negatively impact our ability to sell biodiesel. If
Congress fails to enact an extension of the tax credit, it may be uneconomical for refiners of
petroleum-based diesel to blend biodiesel with petroleum-based diesel fuel due to the higher cost
of biodiesel. Unless the federal tax credit is extended, we believe that a decreased demand for
biodiesel will result, which could depress biodiesel markets and negatively impact our financial
performance.
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A change in environmental regulations or violations thereof could be expensive and increase
our costs. We are subject to extensive air, water, and other environmental regulations. In
addition, some of these laws require our plant to operate under a number of environmental permits.
These laws, regulations, and permits can often require expensive pollution-control equipment or
operation changes to limit actual or potential impact to the environment. A violation of these
laws and regulations or permit conditions can result in substantial fines, damages, criminal
sanctions, permit revocations, and/or plant shutdowns. To the best of our knowledge, we have at
all times been in complete compliance with these laws, regulations, or permit conditions and we
have all permits required to operate our business. Additionally, any changes in environmental laws
and regulations, both at the federal and state level, could require us to invest or spend
considerable resources in order to comply with future environmental regulations. The expense of
compliance could be significant enough to increase our operating costs and decrease our profits,
negatively affecting our financial condition.
Risks Related to Conflicts of Interest
We may have conflicts of interest with REG, which may cause difficulty in enforcing claims
against REG. We expect that one or more employees or associates of REG will continue to advise our
directors throughout the remaining term of our MOSA with REG. We anticipate REG will continue to be
involved in substantially all material aspects of our operations throughout the remaining term of
our MOSA. Pursuant to our MOSA with REG, REG acquires feedstock and the basic chemicals necessary
for our operation, and performs the sales and marketing functions for our plant. There is no
assurance that our arrangements with REG are as favorable to us as they could have been if obtained
from unaffiliated third parties. In addition, because of the extensive roles that REG has in the
operation of the plant, it may be difficult or impossible for us to enforce claims that we may have
against REG. REG is also one of our unitholders. Such conflicts of interest may negatively affect our financial performance and reduce
the value of our units.
REG and its affiliates may also have conflicts of interest because employees or agents of REG
are involved as owners, creditors and in other capacities with other biodiesel plants in the United
States. We cannot require REG to devote its full time or attention to our activities. As a result,
REG may have conflicts of interest in allocating personnel, materials and other resources to our
biodiesel plant.
On April 3, 2009, REG provided twelve months written notice of its intent to terminate the
MOSA. In February 2010, the unitholders of WIE rejected a proposed consolidation with REG. The
MOSA, as extended, will terminate as of May 3, 2010. As a result, REG may no longer have a
significant interest in the success of our plant. Instead, REG may devote its primary efforts to
its wholly owned biodiesel plants, including the two biodiesel plants that REG acquired in
connection with the proposed consolidation with WIE. In addition, we may be unable to negotiate a
new agreement with REG on terms that are as favorable as the terms under our current MOSA.
Risks Related to Tax Issues in a Limited Liability Company
We expect to continue to be taxed as a partnership, however, if we are taxed as a corporation
we would be subject to corporate level taxes which would decrease our net income and decrease the
amount of cash available to distribute to our members. We expect that our company will continue to
be taxed as a partnership. This means that our company does not pay any company-level taxes.
Instead, the members are allocated any income generated by our company based on the members
ownership interest, and would pay taxes on the members share of our income. If we are not taxed as
a partnership, our company would be liable for corporate level taxes which would decrease our net
income which may decrease the cash we have to distribute to our members.
We may be unable to make any distributions to our members to satisfy tax obligations unless we
obtain the approval of our lender. On June 5, 2008, we executed an amendment to our Master Loan
Agreement with our lender. Pursuant to this amendment, we agreed to a negative covenant
prohibiting us from distributing any profits to our members unless the proposed distribution is
agreed to in writing by our lender. As a result of this amendment, we may be unable to make future
distributions to our members, including distributions to satisfy members income tax obligations,
and members would have to satisfy any tax liability resulting from the ownership of our units using
their personal funds.
Members may be allocated a share of our taxable income that exceeds any cash distributions
received, therefore members may have to pay this tax liability using their personal funds. We
expect to continue to be taxed as a partnership. This means members are allocated a percentage of
our taxable income or losses based on their ownership interest in our company. Members may have tax
liability based on their allocation of this income. We may make distributions that are less than
the amount of tax members owe based on their allocated percentage of our taxable income, or we may
not make any distributions at all. If this is the case, members would have to satisfy this tax
liability using their personal funds.
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If we are audited by the IRS resulting in adjustments to our tax returns, this could cause the
IRS to audit members tax returns, which could lead to additional tax liability for our members.
The IRS could audit our tax returns and could disagree with tax decisions we have made on our
returns. This could lead to the IRS requiring us to reallocate items of income, gain, losses,
deductions, or credits that could change the amount of our income or losses that is allocated to
members. This could require adjustments to members tax returns and could lead to audits of
members tax returns by the IRS. If adjustments are required to members tax returns, this could
lead to additional tax liabilities for members as well as penalties and interest being charged to
members.
Even if we operate profitably, our lender may not approve future distributions of profits to
our members. We have produced a net income of $1,622,075 as of our fiscal year ended December 31,
2009. Pursuant to our agreement with our lender, however, we must secure the prior written approval
of our lender before declaring any distribution of profits. Accordingly, members may not receive
distributions on their units and, in the event that members incur any tax liability as a result of
their ownership of units in the company, members may be required to satisfy such liability with
their personal funds.
ITEM 2. | PROPERTIES |
Our property consists primarily of the plant and the real estate upon which the plant sits in
Wall Lake, Iowa in Sac County. The plant is located on an approximately 38.3-acre site near both US
Highway 20 and US Highway 30. We commenced plant operations in May 2006. Our plant has the
capacity to produce a total of 30 million gallons of biodiesel per year.
The completed plant consists of the following buildings:
| Principal office building |
| Processing building |
| Pretreatment building |
| Loading/receiving building |
| Storage warehouse |
| Storage tank farm |
| Iron treatment facility |
In December 2009, the Company exercised an option to purchase approximately 35 acres of land
adjacent to the property on which the plant is situated. The purchase was completed in January
2010 for a total cost of $70,496. Substantially all of our property, real and personal, serves as
the collateral for our debt financing with Farm Credit Services of America, FLCA. Money borrowed
under an Iowa Department of Economic Development loan is also secured by substantially all of the
Companys assets, but is subordinate to the agreements with Farm Credit Services of America, FLCA.
See MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources.
ITEM 3. | LEGAL PROCEEDINGS. |
From time to time in the ordinary course of business, WIE may be named as a defendant in legal
proceedings related to various issues, including without limitation, workers compensation claims,
tort claims, or contractual disputes. Other than the arbitration matter described below, we are
not currently involved in any material legal proceedings, directly or indirectly, and we are not
aware of any claims pending or threatened against us or any of the directors that could result in
the commencement of legal proceedings.
In 2008, one of our customers defaulted on its contract with us for the purchase of biodiesel
due to revocation of the customers letter of credit after we shipped the biodiesel for exporting.
As a result, we sold the biodiesel to another customer for a lower price. We and other biodiesel
producers who sold biodiesel to this customer are now in continued arbitration to resolve this
dispute.
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ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Reserved.
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES. |
Market Information
There is no public trading market for our membership units. We have created a qualified
online matching service in order to facilitate trading of our units. Our online matching service
consists of an electronic bulletin board that provides information to prospective sellers and
buyers of our units. The Company does not receive any compensation for creating or maintaining the
matching service. The Company does not become involved in any purchase or sale negotiations
arising from our qualified matching service. In advertising our qualified matching service, we do
not characterize the Company as being a broker or dealer or an exchange. We do not give advice
regarding the merits or shortcomings of any particular transaction. We do not receive, transfer,
or hold funds or securities as an incident of operating the online matching service. We do not use
the bulletin board to offer to buy or sell securities other than in compliance with the securities
laws, including any applicable registration requirements. We have no role in effecting the
transactions beyond approval, as required under our operating agreement, and the issuance of new
certificates. So long as we remain a publicly reporting company, information about the Company
will be publicly available through the SECs filing system. However, if at any time we cease to be
a publicly reporting company, we anticipate continuing to make information about the Company
publicly available on our website in order to continue operating the QMS.
Effective on May 18, 2009, the Company suspended trading on its qualified online matching
service in connection with the proposed consolidation with REG. Following rejection of the
proposed consolidation by the unitholders of the Company, and the subsequent termination of the
Second Amended and Restated Asset Purchase Agreement by REG, the Company resumed operation of the
matching service on March 29, 2010.
The following table contains historical information by quarter for the past two years
regarding the actual unit transactions that were completed by the Companys unit-holders during the
periods specified. The Company believes this most accurately represents the current trading value
of the Companys units. The information was
compiled by reviewing the completed unit transfers that occurred on our qualified matching
service bulletin board during the quarters indicated.
# of | ||||||||||||||||
Quarter | Low Price | High Price | Average Price | Units Traded | ||||||||||||
2008 1st |
$ | | $ | | $ | | 0 | |||||||||
2008 2nd |
$ | 750 | $ | 750 | $ | 750 | 20 | |||||||||
2008 3rd |
$ | | $ | | $ | | 0 | |||||||||
2008 4th |
$ | 950 | $ | 950 | $ | 950 | 10 | |||||||||
2009 1st |
$ | | $ | | $ | | 0 | |||||||||
2009 2nd |
$ | | $ | | $ | | 0 | |||||||||
2009 3rd |
$ | | $ | | $ | | 0 | |||||||||
2009 4th |
$ | | $ | | $ | | 0 |
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The following table contains the bid and asked prices that were posted on the Companys
qualified matching service bulletin board and includes some transactions that were not completed.
The Company believes the table above more accurately describes the trading value of its units as
the bid and asked prices below include some offers that never resulted in completed transactions.
The information was compiled by reviewing postings that were made on the Companys qualified
matching service bulletin board.
# of | ||||||||||||||||
Sellers Quarter | Low Price | High Price | Average Price | Units Listed | ||||||||||||
2008 1st |
$ | 750 | $ | 1,050 | $ | 900 | 31 | |||||||||
2008 2nd |
$ | 1,000 | $ | 1,100 | $ | 1,050 | 45 | |||||||||
2008 3rd |
$ | 1,000 | $ | 1,250 | $ | 1,125 | 30 | |||||||||
2008 4th |
$ | | $ | | $ | | 0 | |||||||||
2009 1st |
$ | 750 | $ | 750 | $ | 750 | 20 | |||||||||
2009 2nd |
$ | | $ | | $ | | 0 | |||||||||
2009 3rd |
$ | | $ | | $ | | 0 | |||||||||
2009 4th |
$ | | $ | | $ | | 0 |
# of | ||||||||||||||||
Buyers Quarter | Low Price | High Price | Average Price | Units Listed | ||||||||||||
2008 1st |
$ | | $ | | $ | | 0 | |||||||||
2008 2nd |
$ | | $ | | $ | | 0 | |||||||||
2008 3rd |
$ | | $ | | $ | | 0 | |||||||||
2008 4th |
$ | | $ | | $ | | 0 | |||||||||
2009 1st |
$ | | $ | | $ | | 0 | |||||||||
2009 2nd |
$ | | $ | | $ | | 0 | |||||||||
2009 3rd |
$ | | $ | | $ | | 0 | |||||||||
2009 4th |
$ | | $ | | $ | | 0 |
As a limited liability company, we are required to restrict the transfers of our membership
units in order to preserve our partnership tax status. Our membership units may not be traded on
any established securities market or readily traded on a secondary market (or the substantial
equivalent thereof). All transfers are subject to a determination that the transfer will not cause
the Company to be deemed a publicly traded partnership.
Unit Holders
As of February 28, 2010, there were approximately 746 holders of our membership units.
Distributions
Distributions are payable at the sole discretion of our board of directors, subject to the
provisions of the Iowa Revised Uniform Limited Liability Company Act and our operating agreement.
Under our operating agreement, we may distribute a portion of the net profits generated from plant
operations to our unit holders in proportion to the number of units held by each unit holder. A
unit holders distribution is determined by dividing the number of units owned by such unit holder
by the total number of units outstanding. Our unit holders are entitled to receive distributions
of cash or property if and when a distribution is declared by our board of directors. However,
there can be no assurance as to our ability to declare or pay distributions in the future or that
past distributions (described below) will be indicative of future distributions.
Our operating agreement requires our directors to endeavor to make cash distributions at such
times and in such amounts as will permit our unit holders to satisfy their income tax liability in
a timely fashion. However, under our Master Loan Agreement, we are required to make additional
loan payments based on excess cash flow. In addition, on June 5, 2008, we executed an amendment to
our Master Loan Agreement, pursuant to which we agreed to an additional negative covenant
prohibiting us from distributing any profits to the our members unless the proposed distribution is
agreed to in writing by our lender. These loan covenants and restrictions are described in greater
detail under Item 7Managements Discussion and Analysis of Financial Condition and Results of
OperationsIndebtedness. As a result of our loan covenants and restrictions, we may be unable to
make future distributions to our members, including for income tax purposes. Accordingly, if our
lender does not allow us to make distributions on our units and our unit holders incur any tax
liability as a result of unit ownership, our unit holders may be required to satisfy such liability
with their personal funds.
We did not declare or pay any distributions during the fiscal years ended December 31, 2009
and December 31, 2008.
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Performance Graph
The following graph shows a comparison of cumulative total member return since December 31,
2005, calculated on a dividend reinvested basis, for WIE, the NASDAQ Composite Index (the NASDAQ)
and an index of other companies that have the same SIC code as WIE (the Industry Index). The
graph assumes $100 was invested in each of our units, the NASDAQ, and the Industry Index on
December 31, 2006. Data points on the graph are annual. Note that historic stock price
performance is not necessarily indicative of future unit price performance.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the
performance graph and the information set forth therein shall not be deemed to be filed for
purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed to be
incorporated by reference in any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Equity Compensation Plans
We do not have any equity compensation plans under which equity securities of WIE are
authorized for issuance.
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Sale of Unregistered Securities
We did not make any sales of equity securities that were unregistered during the fiscal year
ended December 31, 2009.
Repurchases of Equity Securities
Neither we, nor anyone acting on our behalf, has repurchased any of our outstanding units.
ITEM 6. | SELECTED FINANCIAL DATA. |
The following table sets forth selected consolidated financial data of the Company, which is
derived from the audited financial statements for the periods indicated. The information below is
only a summary. This information should be read in conjunction with MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and our audited financial statements
included in this annual report. Our past performance may not be indicative of future financial
condition or results of operations for many reasons, including the risks described in Item 1ARisk
Factors and elsewhere in this annual report.
Statement of | ||||||||||||||||||||
Operations Data: | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Revenues |
$ | 50,109,924 | $ | 79,782,833 | $ | 78,676,998 | $ | 31,991,876 | $ | | ||||||||||
Cost of Goods Sold |
$ | 46,475,116 | $ | 75,431,492 | $ | 78,253,820 | $ | 23,715,252 | $ | | ||||||||||
Gross Profit |
$ | 3,634,808 | $ | 4,351,341 | $ | 423,178 | $ | 8,276,624 | $ | | ||||||||||
Operating Expenses |
$ | 2,052,040 | $ | 1,915,675 | $ | 1,750,886 | $ | 1,606,516 | $ | 282,249 | ||||||||||
Other Income (Expense) |
$ | 39,307 | $ | (592,957 | ) | $ | (1,278,545 | ) | $ | (337,583 | ) | $ | 324,427 | |||||||
Net Income (Loss) |
$ | 1,622,075 | $ | 1,842,709 | $ | (2,606,253 | ) | $ | 6,332,525 | $ | 42,178 | |||||||||
Weighted Average Units Outstanding |
26,447 | 26,447 | 26,447 | 25,674 | 15,405 | |||||||||||||||
Net Income (Loss) Per Unit |
$ | 61.33 | $ | 69.68 | $ | (98.55 | ) | $ | 246.65 | $ | 2.74 | |||||||||
Cash Distributions per Unit |
$ | | $ | | $ | 80.21 | $ | | $ | |
Balance Sheet Data: | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
Total Assets |
$ | 35,804,989 | $ | 37,478,401 | $ | 49,080,864 | $ | 48,831,373 | $ | 26,530,635 | ||||||||||
Long-Term Debt, less current maturities |
$ | 3,262,222 | $ | 6,725,056 | $ | 12,366,667 | $ | 12,851,239 | $ | 10,432 | ||||||||||
Members Equity |
$ | 28,550,785 | $ | 26,928,710 | $ | 25,086,001 | $ | 29,813,568 | $ | 22,481,043 | ||||||||||
Units Outstanding at End of Year |
26,447 | 26,447 | 26,447 | 25,674 | 15,405 | |||||||||||||||
Book Value Per Capital Unit |
$ | 1,079.55 | $ | 1,018.21 | $ | 948.54 | $ | 1,161.24 | $ | 1,459.33 |
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ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. |
We prepared the following discussion and analysis to help you better understand our financial
condition, changes in our financial condition, and results of operations for the fiscal year ended
December 31, 2009. This discussion should be read in conjunction with the financial statements and
related notes for the fiscal year ended December 31, 2009.
Cautionary Statements Regarding Forward Looking Statements
This report contains forward-looking statements that involve known and unknown risks and
relate to future events, our future financial performance, or our expected future operations and
actions. In some cases, you can identify forward-looking statements by terminology such as may,
will, should, expect, plan, anticipate, believe, estimate, future, intend,
could, hope, predict, target, potential, or continue or the negative of these terms or
other similar expressions. These forward-looking statements are only our predictions based upon
current information and involve numerous assumptions, risks and uncertainties. Our actual results
or actions may differ materially from these forward-looking statements for many reasons, including
the reasons described under RISK FACTORS and elsewhere in this report. While it is impossible to
identify all such factors, factors that could cause actual results to differ materially from those
estimated by us include:
| Overcapacity within the biodiesel industry resulting in increased competition and
costs for feedstock and/or decreased prices for our biodiesel and glycerin; |
| Competition with other manufacturers in the biodiesel industry; |
| The availability and adequacy of our cash flow to meet our requirements; |
| Results of our hedging strategies; |
| Changes in interest rates and the availability of credit to support capital
improvements, development, expansion and operations; |
| Our ability to keep up with the latest technology for the production of biodiesel; |
| Decrease in the demand for biodiesel; |
| Changes in plant production capacity or technical difficulties in operating the
plant; |
| Actual biodiesel and glycerin production varying from expectations; |
| Availability and cost of products and raw materials, particularly soybean oil and
animal fats; |
| Changes in the price and market for biodiesel and its co-products; |
| Our ability to market and our reliance on third parties to market our products; |
| Our ability to identify and enter into contractual arrangements with third parties
to procure feedstock for our plant and to market our products; |
| Fluctuations in petroleum prices; |
| Competition from alternative fuels and alternative fuel additives; |
| Changes in our business strategy, capital improvement or development plans; |
| Consequences of the domestic and global economic downturn and recent financial
crisis; |
| Our ability to generate free cash flow to invest in our business and service our
debt; |
| Changes in general economic conditions or the occurrence of certain events causing
an economic impact in the agriculture, oil or transportation industries; |
| Changes in the environmental regulations or in our ability to comply with the
environmental regulations that apply to our plant operations; |
| Changes and advances in biodiesel production technology; |
| Our ability to continue to export our biodiesel; |
| Changes in federal, state, or local incentives for biodiesel production, including
without limitation the expiration of the federal tax credit for biodiesel; |
| Changes to the rules related to the Renewable Fuels Standard; |
| Our ability to comply with the financial covenants in our loan agreements; |
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| The imposition of tariffs or other duties on biodiesel imported into Europe; |
| Changes to our operations related to the rejection of the proposed consolidation
with REG, including without limitation our ability to retain and/or train a general
manager for the plant, our ability to procure feedstock for our plant, and our ability
to market and sell our finished products; and |
| Other factors described elsewhere in this report. |
We undertake no duty to update these forward-looking statements, even though our situation may
change in the future. Furthermore, we cannot guarantee future results, events, levels of activity,
performance, or achievements. We caution you not to put undue reliance on any forward-looking
statements, which speak only as of the date of this report. You should read this report and the
documents that we reference in this report and have filed as exhibits completely and with the
understanding that our actual future results may be materially different from what we currently
expect. We qualify all of our forward-looking statements by these cautionary statements.
Overview
Our revenues are derived from the sale and distribution of our biodiesel, glycerin, and fatty
acid throughout the continental United States and internationally. We currently rely heavily on
REG, Inc. to procure our feedstock and market our biodiesel, glycerin, and fatty acid. Through
REG, we have been exporting some of our biodiesel internationally when we believe export sales will
return greater profits than domestic biodiesel sales.
Our operating results are largely driven by the prices at which we sell our biodiesel and
glycerin and the costs of our feedstock and operating costs. Our revenues are generally impacted
by such factors as the available
supply and demand for biodiesel, the price of diesel fuel (with which biodiesel prices often
correlate), general economic conditions, the weather, our dependence on one major customer who
markets and distributes our products, the intensely competitive nature of our industry, the
extensive environmental laws that regulate our industry, possible legislation at the federal, state
and/or local level, and changes in federal biodiesel tax incentives.
The primary components of cost of goods sold from the production of biodiesel are feedstock
(primarily animal fats and soybean oil) and other raw materials (methanol and other chemicals),
energy (natural gas and electricity), labor, and depreciation on process equipment. The cost of
feedstock is the largest single component of the cost of biodiesel production, typically accounting
for 70-90% of the overall cost of producing biodiesel. Changes in the price or supply of feedstock
are subject to and determined by market forces and other factors over which we have no control,
such as crop production, carryout, exports, government policies and programs, and weather. Because
biodiesel prices are so strongly correlated to diesel fuel prices, it is difficult for biodiesel
producers to pass along increased input costs to customers. We have experienced a large variation
in the cost of our feedstocks since we began operation. In addition, we have also seen large
variations in prices within the energy complex. The profitability of our operation is dependent
upon the correlation of the agricultural market and the energy market.
We expect to fund our operations during the next twelve months using cash flow from our
continuing operations and our remaining credit facilities. Management is directing its efforts
toward increasing production and operating efficiencies while maintaining or decreasing operating
costs. As part of these efforts, we plan, to the extent possible, to reduce feedstock costs by
continuing to produce biodiesel from less-costly feedstocks, such as animal fat. A majority of the
feedstock used in the production of our biodiesel for the calendar year of 2009 was animal fats,
and predominately choice white grease.
Throughout 2009, we operated on an as-ordered basis. Under our as-ordered production
philosophy, we produce biodiesel when an order has been placed and pursuant to our forecasted
demand for biodiesel. This helps us to ensure that our finished inventory does not significantly
exceed the contracts for sale that we have at any given time. For the fiscal year ended December
31, 2009, we produced approximately 15,830,562 gallons of biodiesel at our plant and operated at an
average of approximately 52.8% of our nameplate capacity. This is a significant reduction from
fiscal year 2008, when we produced approximately 18,035,289 gallons of biodiesel and operated at an
average of approximately 67% of our nameplate capacity.
The reduced production schedule in fiscal year 2009 is primarily due to the lower cost of
petroleum diesel throughout the year. As a result of persistent low prices for petroleum diesel,
as well as the failure of Congress to extend the biodiesel tax credit and the imposition of
countervailing and anti-dumping duties on biodiesel by the European Union, we expect that we will
continue to operate at lower production levels well into 2010. Although we have historically
experienced higher demand during the summer months, in light of these other factors, there is no
assurance that this trend will continue in 2010.
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We are very reliant on REG to manage and direct the general operations of our plant. Pursuant
to the MOSA, REG provides us with overall management, sales and marketing, and feedstock and
chemical procurement services. On April 7, 2009, REG provided twelve months written notice of its
intent to terminate the MOSA. The MOSA will terminate as of May 3, 2010. On February 24, 2010, the
unit holders of WIE voted to reject a proposed consolidation of the Company with REG. The
termination of the MOSA and the rejection of the proposed consolidation with REG may have a
significant impact on the operations of WIE in 2010 and in future years. See BUSINESS Proposed
Consolidation with REG and RISK FACTORS for additional information.
Results of Operations
Comparison of Fiscal Years Ended December 31, 2009 and December 31, 2008
The following table shows the results of our operations and the percentage of revenues, costs
of goods sold, operating expenses, and other items to total revenues in our statements of
operations for the fiscal years ended December 31, 2009 and 2008.
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
Income Statement Data | December 31, 2009 | December 31, 2008 | ||||||||||||||
Revenues |
$ | 50,109,924 | 100.00 | % | $ | 79,782,833 | 100.00 | % | ||||||||
Cost of Sales |
$ | 46,475,116 | 92.75 | % | $ | 75,431,492 | 94.55 | % | ||||||||
Gross Profit |
$ | 3,634,808 | 7.25 | % | $ | 4,351,341 | 5.45 | % | ||||||||
Operating Expenses |
$ | 2,052,040 | 4.10 | % | $ | 1,915,675 | 2.40 | % | ||||||||
Operating Income |
$ | 1,582,768 | 3.16 | % | $ | 2,435,666 | 3.05 | % | ||||||||
Other Income (Expense) |
$ | 39,307 | 0.08 | % | $ | (592,957 | ) | (0.74 | )% | |||||||
Net Income |
$ | 1,622,075 | 3.24 | % | $ | 1,842,709 | 2.31 | % |
Revenues
Our revenues from operations primarily come from biodiesel, fatty acid, and glycerin sales.
The following table shows the sources of our revenues for the fiscal years ended December 31, 2009
and December 31, 2008:
Fiscal Year Ended December 31, 2009 |
Fiscal Year Ended December 31, 2008 |
|||||||||||||||
Revenue Source | Amount | % of Revenues | Amount | % of Revenues | ||||||||||||
Biodiesel Sales |
$ | 48,097,635 | 96.0 | % | $ | 76,970,163 | 96.5 | % | ||||||||
Fatty Acid Sales |
$ | 939,542 | 1.9 | % | | | ||||||||||
Glycerin Sales |
$ | 703,169 | 1.4 | % | $ | 2,812,670 | 3.5 | % | ||||||||
USDA Bioenergy Program |
$ | 298,476 | 0.6 | % | | | ||||||||||
Custom Processing |
$ | 71,102 | 0.1 | % | | | ||||||||||
Total Revenues |
$ | 50,109,924 | 100.0 | % | $ | 79,782,833 | 100 | % | ||||||||
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Revenues from operations for the fiscal year ended December 31, 2009 totaled $50,109,924
compared with $79,782,833 for the fiscal year ended December 31, 2008. Included within our total
revenues for the fiscal year ended December 31, 2009 and 2008 are approximately $6,986,655 and
$10,068,612 respectively, in incentives we received or which were receivable from certain federal
government incentive programs for the sale of our biodiesel. Revenues in fiscal year 2009 were
approximately 37% lower than revenues in fiscal year 2008. The decrease in revenues was due
primarily to decreased production and sales volume of biodiesel and its co-products, and lower
per-unit sales prices for our biodiesel and its co-products.
Because biodiesel is primarily used as an additive to petroleum-based diesel fuel, biodiesel
prices have generally correlated to diesel fuel prices. Diesel prices have climbed over the past
several years, reaching record highs in the summer of 2008. Since that time, however, diesel fuel
prices have since trended downward as oil prices have plummeted and the recent U.S. economic
downturn and credit crisis have contributed to a decrease in demand for fuel in general. According
to the Energy Information Administration, the average sales price of No. 2 ultra low sulfur diesel
fuel in fiscal year 2009 was $2.47 per gallon, compared with an average sales price of $3.81 per
gallon in fiscal year 2008. The average sales price that we received for our biodiesel in fiscal
year 2009 was $2.7961 per gallon, compared with an average sales price of $2.9150 in fiscal year
2008. As of February 19, 2010, USDAs National Weekly Ag Energy Round-Up reports that B100
biodiesel prices in Iowa ranged from $3.23 to $3.52 per gallon, which is up from a range of $2.60
to $2.95 per gallon approximately one year ago.
Our results of operations benefit from federal and state biodiesel supports and tax
incentives. Biodiesel has generally been more expensive to produce than petroleum-based diesel and,
as a result, the biodiesel industry depends on such incentives to be competitive. On December 31,
2009, the $1.00 federal tax credit expired and Congress has so far failed to enact an extension of
this incentive for biodiesel production. Management expects that the recent expiration of the
federal tax credit will negatively impact our ability to sell biodiesel. If Congress fails to
enact an extension of the tax credit, it may be uneconomical for refiners of petroleum-based diesel
to blend biodiesel with petroleum-based diesel fuel due to the higher cost of biodiesel. See
BUSINESS Government Regulation and Federal Biodiesel Supports.
Biodiesel demand is also subject to significant seasonal variation. Based on historical
trends, management anticipates that seasonal demand for biodiesel will decrease in the fall and
winter months when blenders have typically decreased their biodiesel blend percentages due to
cold-flow concerns. This seasonal variation has historically caused downward pressure on biodiesel
sales prices.
The EPA recently published regulations to implement the Renewable Fuel Standard program as it
was expanded in the Energy Independence and Security Act of 2007 (often referred to as RFS2).
Pursuant to the new regulations, RFS2 requires that 1.15 billion gallons of biomass-based diesel be
blended into the national fuel pool by the end of 2010, which amount combines the requirements of
2009 and 2010. In 2011, at least 800 million gallons of biomass-based diesel must be blended into
the nations fuel pool; and in 2012, at least 1 billion gallons of biomass-based diesel must be
blended into the national fuel pool. In each year thereafter, EPA must determine the level of
biomass-based diesel required, which amount cannot be less than 1 billion gallons. At this time it
is unclear what impact, if any, the RFS will have on biodiesel demand since national biodiesel
production already exceeds these requirements. Our financial condition may be negatively affected
if the RFS2 does not result in greater demand for biodiesel. See BUSINESS Government Regulation
and Federal Biodiesel Supports.
Excess production capacity in the biodiesel industry could make it difficult for us to market
our products at profitable prices. The National Biodiesel Board estimates that current dedicated
biodiesel production capacity of existing plants as of June 22, 2009 (the most recent date for
which data is available) was about 2.69 billion gallons per year, which is up from approximately
1.85 billion gallons per year as of September 2007. The National Biodiesel Board also estimates
that plants under construction and expansion as of June 22, 2009 could add another 427.8 million
gallons to U.S. biodiesel production capacity, for a total annual production capacity of 3.12
billion gallons. Despite these significant increases in production capacity, the National
Biodiesel Board has reported that only 700 million gallons of biodiesel were produced in 2008 and
estimates that only 490 million gallons were produced in 2009. Many biodiesel plants do not operate
at full capacity due in part to the fact that total production capacity significantly exceeds
demand. If the demand for biodiesel does not grow at the same pace as increases in supply, we
expect the price for biodiesel to decline in the long-term.
Lower crude glycerin sales prices in fiscal 2009 compared to fiscal 2008 and lower production
levels of crude glycerin also contributed to lower total revenues in fiscal year 2009. The average
sales price for our glycerin decreased by 11.7% for the year ended December 31, 2009 compared to
the average sales price for glycerin for the year ended December 31, 2008. The sales price of
glycerin has decreased due to the abundant supply of crude glycerin. In addition, since crude
glycerin is a by-product of the production of biodiesel, our production level of glycerin also
decreased in 2009. As a result of the reduced biodiesel production levels nationally following the
lapse of the federal biodiesel tax credit, management expects crude glycerin prices to increase.
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During the fiscal year ended December 31, 2009, WIE received $298,476 from the Commodity
Credit Corporation Bioenergy Program. See ITEM 1. BUSINESS Government Regulation and Federal
Biodiesel Supports - Federal Biodiesel Supports and Programs. WIE did not receive any revenue
from the Bioenergy Program during the fiscal year ended December 31, 2008.
During the fiscal year ended December 31, 2009, WIE was retained by several companies to
process experimental oils through the use of its pretreatment system. WIE received $71,102 for its
custom processing services during the fiscal year ended December 31, 2009. WIE did not receive any
revenue from custom processing during the fiscal year ended December 31, 2008.
Cost of Goods Sold
Although our sales volume decreased 38% from fiscal 2008 to fiscal 2009, our cost of goods
sold as a percentage of our revenues decreased approximately 1.8% from fiscal 2008 to fiscal 2009.
Cost of sales for our products for the year ended December 31, 2009 was $46,475,116, compared to
$75,431,492 for the year ended December 31, 2008. This is primarily due to the combination of the
historically high biodiesel prices that were experienced during a large part of fiscal year 2008
and our utilization of lower-cost feedstocks during fiscal 2008. Average biodiesel sales prices in
2009 were significantly lower than in 2008. In order to minimize our cost of sales, in 2008, we
began to increase our use of lower-cost feedstocks, such as animal fats and used cooking oils, in
place of higher-cost feedstocks, such as soybean oil. We continued this practice throughout the
fiscal year ended December 31, 2009. In fiscal year 2009, approximately 91.5% of the feedstock
used in our biodiesel production was animal fats and 8.5% was soybean oil. In particular,
approximately 68.8% of our total feedstock usage in 2009 was choice white grease.
In 2009, the average price we paid for choice white grease was 24.92 cents per pound, which
represents a decrease of approximately 36.9% from the price we paid in fiscal year 2008. The price
of choice white grease was relatively stable throughout 2009. By contrast, in 2008, the average
price we paid for choice white grease was 39.50 cents per pound.
Our average cost of methanol, another input into the biodiesel production process, decreased
by approximately 52.0% per gallon for fiscal year 2009 compared to 2008 due to increased world
supply.
The average price we paid for natural gas during the fiscal year ended December 31, 2009 was
approximately 39.1% less than the average price we paid for natural gas during the fiscal year
ended December 31, 2008. In 2008, natural gas prices significantly exceeded historical averages.
According to the Energy Information Administration, the industrial price of natural gas averaged
9.67 per thousand cubic feet in 2008, reaching a peak price of 13.05 per thousand cubic feet in
July 2008. In 2009, by contrast, the Energy Information Administration Reports that the
industrial price of natural gas averaged $5.27 per thousand cubic feet, ranging from a low of $3.81
to a high of $7.43. A correlation can be made between high energy prices, which increase our
profitability and at the same time increase our energy input costs. Conversely, when energy prices
are low, our profit margins may decrease but the energy input costs will also be lower. Any
increases in the price of natural gas will increase our cost of goods sold.
The price for animal fats, including choice white grease, tend to move in relation to the
price of other feedstocks, such as soybean oil. Accordingly, as soybean oil prices increase, animal
fat prices generally tend to increase. Soybean oil prices were generally consistent throughout
the fiscal year ended December 31, 2009. According to the USDAs Oil Crops Outlook report for
February 2010, the average price for soybean oil during the twelve-month period ending December 31,
2009 was 33.01 cents per pound. The report also indicates that during that period, the price of
soybean oil reached a low of 28.23 cents per pound in March 2009 and a high of 36.81 cents per
pound in December 2009. By contrast, soybean oil prices during the fiscal year ended December 31,
2008 were extremely volatile, spiking to approximately 62.43 cents per pound in June 2008 and
subsequently dropping to 29.30 cents per pound in December 2008. The USDA forecasted that soybean
oil prices during the period from October 2009 to September 2010 would be between 33.5 cents per
pound and 36.5 cents per pound.
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The prices for animal fats, including lard and edible tallow, have generally correlated to the
price of soybean oil. In addition, animal fats are also used as a feed supplement. Therefore,
animal fat prices are dependent in part on corn prices and the quality of the available corn
supply. According to the USDAs February 2010 Oil Crops Outlook report, the average prices for
lard and edible tallow during the twelve-month period ending December 31, 2009 were 26.81 cents and
27.52 cents per pound, respectively. The estimated average lard and edible tallow prices for
January 2010 were 28.60 cents and 29.48 cents per pound respectively. Increased demand for soybean
oil and animal fats from increased biodiesel production or other changes in demand could keep
soybean oil and animal fat prices higher than currently anticipated. If the RFS-2 increases demand
for biodiesel, increased demand for feedstocks could result in an increase in the cost of those
feedstocks.
Operating Expenses
Operating expenses for the fiscal year ended December 31, 2009 totaled $2,052,040, which is
7.1% higher than operating expenses of $1,915,675 for the same period in 2008. Our operating
expenses as a percentage of revenues were 1.7% higher for the fiscal year ended December 31, 2009
than they were for the fiscal year ended December 31, 2008. These percentages were 4.10% and 2.40%, respectively. Our operating expenses
for the fiscal year ended December 31, 2009, include approximately $450,000 in expenses that we
incurred in connection with the proposed consolidation with REG, which includes legal fees, audit
fees, accounting fees, and consulting fees. See BUSINESS Proposed Consolidation with REG. We
expect that our operating expenses for fiscal 2009 will remain fairly consistent if average plant
production levels remain consistent.
Other Income (Expenses)
Our other income and expenses for the fiscal year ended December 31, 2009 increased from a net
other expense of $592,957, or 0.74% of revenues, during the fiscal year ended December 31, 2008 to
a net other income of $39,307, or 0.08% of revenues, during the fiscal year ended December 31,
2009. This change resulted primarily from the reduction in our interest expense from $759,243
during the fiscal year ended December 31, 2008 to $322,698 during the fiscal year ended December
31, 2009. The reduction in our interest expense resulted primarily from reducing the outstanding
balance under our revolving line of credit by $1,720,000 and paying down our term loan by
$1,800,000. The change from a net other expense to a net other income also resulted from our
receipt of grant income in the amount of $231,525, which includes grant income in the amount of
$131,525 from the Iowa Department of Economic Developments (IDED) New Jobs Training Program and
IDEDs forgiveness of a forgivable loan in the amount of $100,000. See Liquidity and Capital
Resources below. Although we do not expect to receive any grant income in 2010, we expect that
our other income will be similar for fiscal year 2010. We also expect our other expenses to
decrease as we continue to reduce the outstanding principal of our debt.
Comparison of Fiscal Years Ended December 31, 2008 and 2007.
The following table shows the results of our operations and the percentage of revenues, cost
of goods sold, operating expenses and other items to total revenues in our statement of operations
for the fiscal years ended December 31, 2008 and December 31, 2007.
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
Income Statement Data | Amount | Percent | Amount | Percent | ||||||||||||
Revenues |
$ | 79,782,833 | 100.00 | % | $ | 78,676,998 | 100.00 | % | ||||||||
Cost of Sales |
$ | 75,431,492 | 94.55 | % | $ | 78,253,820 | 99.46 | % | ||||||||
Gross Profit |
$ | 4,351,341 | 5.45 | % | $ | 423,178 | 0.54 | % | ||||||||
Operating Expenses |
$ | 1,915,675 | 2.40 | % | $ | 1,750,886 | 2.23 | % | ||||||||
Operating Income |
$ | 2,435,666 | 3.05 | % | $ | (1,327,708 | ) | (1.69 | )% | |||||||
Other Income (Expense) |
$ | (592,957 | ) | (0.74 | )% | $ | (1,278,545 | ) | (1.63 | )% | ||||||
Net Income (Loss) |
$ | 1,842,709 | 2.31 | % | $ | (2,606,253 | ) | (3.31 | )% |
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Revenues
Our revenues from operations primarily come from biodiesel and glycerin sales. The following
table shows the sources of our revenues for the fiscal years ended December 31, 2008 and December
31, 2007:
Fiscal Year Ended December 31, 2008 |
Fiscal Year Ended December 31, 2007 |
|||||||||||||||
Revenue Source | Amount | % of Revenues | Amount | % of Revenues | ||||||||||||
Biodiesel Sales |
$ | 76,970,163 | 96.5 | % | $ | 77,195,818 | 98.1 | % | ||||||||
Glycerin Sales |
$ | 2,812,670 | 3.5 | % | $ | 1,481,180 | 1.9 | % | ||||||||
Total Revenues |
$ | 79,782,833 | 100 | % | $ | 78,676,998 | 100 | % |
Revenues from operations for the fiscal year ended December 31, 2008 totaled $79,782,833
compared with $78,676,998 for the fiscal year ended December 31, 2007. Included within our total
revenues for the fiscal year ended December 31, 2008 and 2007 are approximately $10,068,612 and
$10,081,726 respectively, in incentives we received or which were receivable from certain federal
government incentive programs for the sale of our biodiesel. Revenues in fiscal year 2008 were
approximately 1.4% greater than revenues in fiscal year 2007. The increase in revenues was due
primarily to increased production and sales volume of biodiesel and its co-products, and higher
per-unit sales prices for our biodiesel and its co-products.
Cost of Sales
Although our sales volume decreased 25% from fiscal 2007 to fiscal 2008, our cost of goods
sold as a percentage of our revenues decreased approximately 4.91% from fiscal 2007 to fiscal 2008.
Cost of sales for our products for the year ended December 31, 2008 was $75,431,492, compared to
$78,253,820 for the year ended December 31, 2007. This is primarily due to the combination of the
historically high biodiesel prices that were experienced during a large part of fiscal year 2008
and our utilization of lower-cost feedstocks during fiscal 2008. These factors allowed us to
realize greater profit margins on the sales of biodiesel for the year ended December 31, 2008 as
compared with the same period for 2007.
Operating Expenses
Our operating expenses for the year ended December 31, 2008 totaled $1,915,675, which is 9.4%
higher than operating expenses of $1,750,886 for the same period in 2007. Our operating expenses
as a percentage of revenues were 0.17% higher for the year ended December 31, 2008 than they were
for the year ended December 31, 2007.
Other Income (Expenses)
Our other expenses for the year ended December 31, 2008 totaling $592,957 was 0.74% of our
revenues. Our other expenses were significantly lower during the fiscal year ended December 31,
2008 than they were during the fiscal year ended December 31, 2007, in which other expenses totaled
$1,278,545. The decrease in our other expenses resulted from a significant decrease in our
interest expense between the year ended December 31, 2008 and the year ended December 31, 2007 of
$1,400,721 and $759,243 respectively. The decrease in interest expense resulted from reducing the
outstanding balance under our revolving line of credit from Farm Credit Services of America from
$3,800,000 as of December 31, 2007 to zero as of December 31, 2008. We also paid down the balance
outstanding under our term note from Farm Credit Services of America to $4,150,000 as of December
31, 2008, from $5,950,000 as of December 31, 2007.
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Changes in Financial Condition for Fiscal Years Ended December 31, 2009 and 2008
The following table highlights the changes in our financial condition from December 31, 2008
to December 31, 2009:
December 31, 2009 | December 31, 2008 | |||||||
Current Assets |
$ | 7,424,221 | $ | 7,049,998 | ||||
Current Liabilities |
$ | 3,991,982 | $ | 3,824,635 | ||||
Members Equity |
$ | 28,550,785 | $ | 26,928,710 |
Current Assets
Current assets totaled $7,424,221 at December 31, 2009, an increase from $7,049,998 at
December 31, 2008. The increase of $374,223 during this period is a result of an increase in trade
accounts receivable from $1,428,521 as of December 31, 2008 to $3,106,676 as of December 31, 2009,
as well as an increase in incentive receivables from $312,019 as of December 31, 2008 to $2,946,499
as of December 31, 2009. In addition, our inventory decreased from $4,510,457 at December 31, 2008
to $383,528 at December 31, 2009. The reduction in our inventory resulted from our decision to
operate on an as-ordered production schedule beginning in November 2007. We initiated this
production schedule in response to high feedstock prices and reduced biodiesel orders. Once we
reduced our inventory in late 2007 and early 2008, we continued to maintain significantly lower
levels of inventory. The decrease in our inventory also results from our decision to enter into two separate
sales agreements with REG that provided for the sale of most of our remaining inventory of
biodiesel at a fixed price on or about December 31, 2009. Pursuant to the terms of the sales
agreements, title to the biodiesel transferred to REG on December 31, 2009, although WIE continued
to store the biodiesel in its storage tanks into January 2010.
Current Liabilities
Current liabilities totaled $3,991,982 at December 31, 2009, up from $3,824,635 at
December 31, 2008. The increase of $167,347 during this period resulted primarily from an
increase in accounts payable and an increase in accrued wages and benefits during the fiscal year
ended December 31, 2009. Total current liabilities also includes $333,008 that resulted
from checks that we inadvertently processed in December 2009 that we normally would have processed
in January 2010.
Members Equity
Members contributions at both December 31, 2009 and December 31, 2008 were equal to
$23,516,376. Total members equity as of December 31, 2009 was $28,550,785, an increase from
$26,928,710 as of December 31, 2008. The $1,622,075 increase in total members equity is a result
of net income during the period.
Liquidity and Capital Resources
Comparison of Cash Flows for Fiscal Years Ended December 31, 2009 and December 31, 2008
2009 | 2008 | |||||||
Net cash provided by operating activities |
$ | 3,394,861 | $ | 9,050,603 | ||||
Net cash used in investing activities |
$ | (161,747 | ) | $ | (394,028 | ) | ||
Net cash used in financing activities |
$ | (3,299,214 | ) | $ | (8,622,223 | ) | ||
Net increase (decrease) in cash and equivalents |
$ | (66,100 | ) | $ | 34,352 | |||
Operating Cash Flows
For the twelve months ended December 31, 2009, cash provided by operating activities decreased
by $5,655,742 compared to the twelve months ended December 31, 2008. This decrease was the result
of lower net income and changes in operating assets and liabilities. Our capital needs are being
adequately met through cash from our operating activities and our current credit facilities.
Investing Cash Flows
For the twelve months ended December 31, 2009, cash used in investing activities decreased by
$232,281 compared to the twelve months ended December 31, 2008. This decrease in cash used
resulted from a decrease in expenditures for property, plant and equipment from the twelve months
ended December 31, 2008.
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Financing Cash Flows
For the twelve months ended December 31, 2009, cash used in financing activities decreased by
$5,323,009 compared to the twelve months ended December 31, 2008. This change was largely due to a
reduction in net payments on our revolving line of credit in 2009 compared to 2008 and an increase
in payments on our long-term debt.
Comparison of Cash Flows for Fiscal Years Ended December 31, 2008 and December 31, 2007
2008 | 2007 | |||||||
Net cash provided by (used in) operating activities |
$ | 9,050,603 | $ | 973,435 | ||||
Net cash used in investing activities |
$ | (394,028 | ) | $ | (686,756 | ) | ||
Net cash used in financing activities |
$ | (8,622,223 | ) | $ | (282,953 | ) | ||
Net increase (decrease) in cash and equivalents |
$ | 34,352 | $ | 3,726 | ||||
Operating Cash Flows
For the twelve months ended December 31, 2008, cash provided by operating activities increased
by $8,077,168 compared to the twelve months ended December 31, 2007. This increase was the result
of an increase in net income and changes in operating assets and liabilities.
Investing Cash Flows
For the twelve months ended December 31, 2008, cash used in investing activities decreased by
$292,728 compared to the twelve months ended December 31, 2007. This decrease in cash used
resulted from a decrease in expenditures for property, plant and equipment from the twelve months
ended December 31, 2007. The decrease also resulted from our receipt of a sales tax refund related
to plant construction costs in the amount of $443,535 during the fiscal year ended December 31,
2007. We received no such sales tax refund during the fiscal year ended December 31, 2008.
Financing Cash Flows
For the twelve months ended December 31, 2008, cash used in financing activities increased by
$8,339,270 compared to the twelve months ended December 31, 2007. This change was largely due to
an increase in borrowings under our revolving line of credit. It is also a result of a
distribution to members of $2,121,314 during the fiscal year ended December 31, 2007. We made no
distributions to members during the fiscal year ended December 31, 2008.
Indebtedness
Short-Term Debt Sources
On May 30, 2007, we entered into a Statused Revolving Credit Supplement to the MLA that
provided for a revolving line of credit to finance eligible inventory and receivables. The
aggregate amount available under the revolving line of credit was the lesser of (1) $4,000,000, or
(2) the borrowing base as calculated pursuant to our credit facility with Farm Credit. The credit
facility with Farm Credit provided several different interest rate options for the supplemental
line of credit and we paid interest on the unpaid balance of the line in accordance with the
interest rate option selected at the time we requested a draw on the line. The supplemental line
of credit was set to expire on July 1, 2009. On May 11, 2009, WIE cancelled the supplemental line
of credit, which was a condition to Farm Credits consent to the consolidation with REG, which is
discussed above. WIE had no outstanding balance on the supplemental line of credit at the time of
its cancellation.
Long-Term Debt Sources
On June 6, 2005, we closed on $18,000,000 of long-term debt financing with Farm Credit
pursuant to the Master Loan Agreement. Our financing agreement with Farm Credit provides for a
term loan in the amount of $10,000,000 pursuant to a Construction and Term Loan Supplement to the
MLA (the Term Loan Supplement). It also provides for a revolving term loan in an amount not to
exceed $8,000,000 pursuant to a Construction and Revolving Term Loan Supplement to the MLA (the
Revolving Loan Supplement). CoBank, ACB is the administrative agent of Farm Credit pursuant to an
Administrative Agency Agreement dated June 6, 2005.
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Our $10,000,000 term loan bears interest at one of three rates, to be determined by us in our
discretion: (1) at a rate equal to the rate of interest established by the agent as its agent base
rate; (2) at a fixed rate per annum to be quoted by the agent in its sole discretion; or (3) at a
fixed rate per annum equal to LIBOR. Each of the rates is subject to certain performance pricing
adjustments. On May 30, 2007, we amended our Term Loan Supplement. Under the amendment, we are
required to make 20 equal, consecutive quarterly installments of $450,000 each, with the first
installment due on December 20, 2006, and the last installment due on September 20, 2011. We are
also required to make annual payments of 50% of our free cash flow, as that term is defined in
the amendment.
On May 30, 2007, we amended the MLA. The amendment to the MLA places the following
restrictions on our activities:
| During the 2007 fiscal year, we could not expend, in the aggregate, more than
$2,600,000 for the acquisition of fixed or capital assets. In each subsequent year, we
cannot expend, in the aggregate, more than $500,000 for the acquisition of fixed or
capital assets; |
| We cannot declare or pay any dividends or make any distribution of assets to the
members or acquire for value any of our membership units, except that in any fiscal
year we can make a distribution to the Companys members of up to 40% of the net profit
for each fiscal year. |
| We cannot enter into any lease as lessee if the lease should be capitalized in
accordance with GAAP for the rental or hire of any real or personal property, except
leases which do not require the Company to make scheduled payments to the lessors in
any fiscal year in excess of $100,000, in the aggregate. |
| We must maintain working capital, defined as an excess of current assets over
current liabilities, of not less than $6,000,000 at the end of each period for which
financial statements are required to be furnished under the MLA. |
| We must maintain a net worth, defined as an excess of total assets over total
liabilities, of not less than $26,000,000 at the end of each period for which financial
statements are required to be furnished under the MLA. |
Our $8,000,000 revolving term loan bears interest at one of three rates, to be determined by
us in our discretion: (1) at a rate equal to the rate of interest established by the agent as its
agent base rate; (2) at a fixed rate per annum to be quoted by the agent in its sole discretion; or
(3) at a fixed rate per annum equal to LIBOR. Each of the rates is subject to certain performance
pricing adjustments.
On June 5, 2008, we executed an amendment to the MLA, pursuant to which we agreed to an
additional negative covenant prohibiting us from distributing any profits to our members unless the
proposed distribution is agreed to in writing by the administrative agent. As a result of this
amendment, we may be unable to make future distributions to our members, including for income tax
purposes.
As of December 31, 2009 and December 31, 2008, the balance outstanding on our term loan is
$2,350,000 and $4,150,000, respectively. At December 31, 2009 and December 31, 2008, the balance
outstanding under the revolving term loan is $2,630,000 and $4,350,000, respectively.
The loan agreements with Farm Credit and CoBank contain various covenants pertaining to
minimum working capital and minimum net worth requirements. The Company was not in compliance with
the minimum net worth requirement for the period ending May 31, 2009, and obtained a waiver for the
violation. As of December 31, 2009, and for all other periods in 2009, we are in compliance with
our loan covenants.
Although we were in compliance with our loan covenants as of December 31, 2009, we could fail
to comply with one or more of our loan covenants in the future. Failure to comply with our loan
covenants constitutes an event of default under our loan agreements which, at the election of the
lender, could result in the acceleration of the unpaid principal loan balance and accrued interest
under the loan agreements or the loss of the assets securing the loan in the event the lender
elected to foreclose its lien or security interest in such assets. There can be no assurance that
our lender will waive any future failures to comply with any one or more of the loan covenants. In
the event our lender declared a default under the loan agreements and elected to accelerate our
payments under the loan documents or take possession of our assets securing the loans, we may be
forced to shut down the plant and our members could lose some or all of their investment.
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On July 13, 2006, we entered into a Rural Development Loan Agreement with the Glidden Rural
Electric Cooperative (Glidden REC) for a $740,000 no interest loan to be used for operating
expenses for the plant. Pursuant to the terms of the agreement and an associated Promissory Note,
the loan is to be repaid in monthly installments of $6,851 beginning on July 31, 2007, and
continuing on the last day of each month thereafter until the principal sum has been paid in full
or before the final maturity date of the promissory note which shall be on the tenth anniversary of
the first advance of funds. Funds were first advanced on September 19, 2006. The outstanding
balance of the loan as of December 31, 2009 and December 31, 2008 was $534,444 and $616,666,
respectively. We have the right
to prepay the loan in whole or in part without penalty. The loan is secured by a declining
balance Standby Irrevocable Letter of Credit.
We have obtained subordinated debt financing of approximately $400,000 from the Iowa
Department of Economic Development (IDED). The subordinated debt financing included a $300,000
zero-interest deferred loan and a $100,000 forgivable loan. The zero-interest deferred loan
requires monthly installments of $2,500 beginning January 2008 with remaining unpaid principal due
in December 2012. To receive a permanent waiver of the forgivable loan we were required to meet
certain production and operations criteria. On April 30, 2009, IDED notified WIE that WIE had
satisfied all conditions of the forgivable loan and that IDED had forgiven the balance outstanding
under the forgivable loan. The balance that is outstanding on the zero-interest deferred loan at
December 31, 2009 is $207,500.
Contractual Obligations
The following sets forth our contractual obligations as of December 31, 2009, and the maturity
of such obligations.
Payments Due by Period | ||||||||||||||||||||
Total | 2010 | 2011-2012 | 2013-2014 | After 2014 | ||||||||||||||||
Long-Term Debt Obligations |
$ | 5,721,944 | $ | 2,459,722 | $ | 224,444 | $ | 2,684,445 | $ | 353,333 | ||||||||||
Capital Lease Obligations |
||||||||||||||||||||
Operating Lease Obligations |
$ | | $ | 35,627 | $ | 17,313 | $ | | $ | | ||||||||||
Purchase Obligations |
||||||||||||||||||||
Other Long-Term
Liabilities Recorded on
the Balance Sheet |
||||||||||||||||||||
Total |
$ | 5,721,944 | $ | 2,495,349 | $ | 241,757 | $ | 2,684,445 | $ | 353,333 | ||||||||||
Application of Critical Accounting Estimates
Management uses estimates and assumptions in preparing our financial statements in accordance
with generally accepted accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. The following is a discussion of what we believe to be the most
critical of these policies and methods.
Inventories. Inventories are stated at the lower of cost or market value. Costs are
determined using the first-in, first-out method.
Long-Lived Assets. Depreciation and amortization of our property, plant, and equipment
is provided on the straight-line method by charges to operations at rates based upon the expected
useful lives of individual or groups of assets. Economic circumstances or other factors may cause
managements estimates of expected useful lives to differ from actual.
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Long-lived assets, including property, plant and equipment, and investments are evaluated for
impairment on the basis of undiscounted cash flows whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written
down to our estimated fair market value based on the best information available. Considerable
management judgment is necessary to estimate discounted future cash flows and may differ from
actual cash flows.
Recently Adopted Accounting Standards. In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, which was primarily codified into Topic 105, Generally Accepted Accounting Standards,
in the ASC. This standard will become the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (GAAP), superseding existing FASB, American Institute of
Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting
literature. This standard reorganizes the thousands of GAAP pronouncements into roughly 90
accounting topics and displays them using a consistent structure. Also included is the relevant
Securities and Exchange Commission guidance organized using the same topical structure in separate
sections. This guidance will be effective for financial statements issued for reporting periods
that end after September 15, 2009. Beginning in the third quarter of 2009, this guidance impacts the Companys
financial statements and related disclosures as all references to authoritative accounting
literature reflect the newly adopted codification.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of SFAS No. 133, which was primarily codified into Topic 815,
Derivatives and Hedging, in the ASC. This guidance expands the disclosures about an entitys
derivative and hedging activities. The guidance was effective for fiscal years and interim periods
beginning after November 15, 2008. The Company prospectively implemented the new disclosure
effective January 1, 2009. As a result of these requirements, the Company has included in its
financial statements additional information regarding the Companys use of derivatives and the
risks that the Company is managing through the use of derivatives.
In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, which was primarily codified into Topic 825,
Financial Instruments, in the ASC. This standard extends the disclosure requirements concerning the
fair value of financial instruments to interim financial statements of publicly traded companies.
This guidance is effective for interim or annual financial periods ending after June 15, 2009. The
Company adopted the guidance as of April 1, 2009. The adoption of ASC 825 did not have a material
effect on its financial statements and related disclosures.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which was primarily codified
into Topic 855, Subsequent Events, in the ASC. This guidance establishes principles and
requirements for subsequent events. Specifically, it sets forth guidance pertaining to the period
after the balance sheet date during which management should consider events or transactions for
potential recognition or disclosure, circumstances under which an event or transaction would be
recognized after the balance sheet date and the required disclosures that should be made about
events or transactions that occurred after the balance sheet date. This guidance is effective for
interim or annual financial periods ending after June 15, 2009. In February 2010, the FASB issued
Accounting Standards Update 2010-09, which amended ASC Topic 855 to provide that SEC reporting
companies evaluate subsequent events through the date their financial statements are issued. The
Company has adopted this guidance.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We are exposed to the impact of market fluctuations associated with interest rates and
commodity prices as discussed below. We have no exposure to foreign currency risk as all of our
business is conducted in U.S. Dollars. We use derivative financial instruments as part of an
overall strategy to manage market risk. We consider market risk to be the potential loss arising
from adverse changes in market rates and prices. We do not enter into these contracts as hedges
for accounting purposes pursuant to the requirements of ASC Topic 815, Derivatives and Hedging.
Our risk management committee oversees our risk management practices and provides open
communication among management, REG, and the board of directors regarding market risk. The risk
management committee takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to assist in the
identification, assessment, and control of various risks.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. Exposure to interest rate risk
results primarily from our term note and supplemental revolving loan with Farm Credit.
Specifically, we have $4,980,000 outstanding in variable rate debt as of December 31, 2009. The
specifics of the line of credit and revolving loan are discussed in greater detail in Item 7
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity
and Capital Resources, Indebtedness.
Below is a sensitivity analysis we prepared regarding our income exposure to changes in
interest rates. The sensitivity analysis below shows the anticipated effect on our income from a
10% adverse change in interest rates for a one year period.
Outstanding Variable | Interest Rate at | Adverse 10% Change in | Annual Adverse Change | |||||||||
Rate Debt at 12/31/09 | 12/31/09 | Interest Rates | to Income | |||||||||
$2,350,000 |
3.50 | % | 3.85 | % | $ | 8,225 | ||||||
$2,630,000 |
3.50 | % | 3.85 | % | $ | 9,205 |
Commodity Price Risk
We are also exposed to market risk from commodity prices. Exposure to commodity price risk
results from our dependence on animal fats, soybean oil, and natural gas in the biodiesel
production process. We are also exposed to biodiesel and glycerin price risks as our revenues
consist primarily of biodiesel sales and glycerin sales. Currently, we seek to minimize the risks
from fluctuations in the price of soybean oil and biodiesel by using derivative instruments such as
cash, futures, and option contracts for soybean oil and home heating oil. There is currently no
futures market for biodiesel. Instead, we use home heating oil derivatives. Home heating oil is
high sulfur diesel, which is the closest commodity to biodiesel for which there is a futures
market. Currently, we are unable to manage our price risk for animal fats as there are no futures
contracts available for animal fats, and animal fats suppliers are, to date, unwilling to enter
into long-term contracts for animal fats.
In practice, as markets move, we actively manage our risk and adjust hedging strategies as
appropriate. The extent to which we enter into cash, futures, or option contracts varies
substantially from time to time based on a number of factors, including supply and demand factors
affecting the needs of customers or suppliers to purchase biodiesel or glycerin or to sell us raw
materials on a fixed basis, our views as to future market trends, seasonal factors and the costs of
futures contracts.
Although we believe our hedge positions accomplish an economic hedge against our future
purchases, they are not designated as such for hedge accounting purposes, which would match the
gain or loss on our hedge positions to the specific commodity purchase being hedged. As the
current market price of our hedge positions changes, the gains and losses are immediately
recognized in our cost of goods sold. The immediate recognition of hedging gains and losses can
cause net income to be volatile from quarter to quarter due to the timing of the change in value of
the derivative instruments relative to the cost and use of the commodity being hedged. At December
31, 2009 and December 31, 2008, we recorded a net liability and a net asset for derivative
instruments of $2,587 and
$61,360, respectively, with the related mark-to-market effects included in cost of sales in the
statements of operations. During the fiscal year ended December 31, 2009, we recognized a net loss
in earnings on derivative activities of $1,054,297, which is included in our cost of sales in our
statements of operations.
47
Table of Contents
There are several variables that could affect the extent to which our derivative instruments
are impacted by price fluctuations in the cost of soybean oil and biodiesel. However, it is
unlikely that commodity cash prices will have the greatest impact on the derivative instruments
with delivery dates nearest the current cash price. As we move forward, additional protection may
be necessary. As the prices of these hedged commodities move in reaction to market trends and
information, our statement of operations will be affected depending on the impact such market
movements have on the value of our derivative instruments. Depending on the market movements, crop
prospects and weather, these price protection positions may cause immediate adverse effects, but
are expected to produce long-term positive growth for the Company.
We entered into agreements to purchase soybean oil for anticipated production needs. At
December 31, 2008, we held positions on a total of 2.5 million pounds of soybean oil that consisted
of fixed price contracts for 0.0 million pounds and basis contracts for 2.5 million pounds. During
the first two weeks of January 2009, we canceled this contract with no penalty.
A sensitivity analysis has been prepared to estimate our exposure to soybean oil and biodiesel
price risk. The table presents the net fair value of our derivative instruments as of December 31,
2009 and December 31, 2008, and the potential loss in fair value resulting from a hypothetical 10%
adverse change in such prices. The fair value of the positions is a summation of the fair values
calculated by valuing each net position at quoted market prices as of the applicable date. The
results of this analysis, which may differ from actual results, are as follows:
Effect of | ||||||||
Hypothetical Adverse | ||||||||
Fair Value | Change - Market Risk | |||||||
December 31, 2009 |
$ | 533,131 | $ | 53,313 | ||||
December 31, 2008 |
$ | 1,632,902 | $ | 163,290 |
48
Table of Contents
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. | ||||
F-2 | ||||
Financial Statements |
||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 - F-17 |
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members
Western Iowa Energy, LLC
Wall Lake, Iowa
Western Iowa Energy, LLC
Wall Lake, Iowa
We have audited the accompanying balance sheets of Western Iowa Energy, LLC as of December 31, 2009
and 2008, and the related statements of operations, members equity, and cash flows for each of the
years in the three-year period ended December 31, 2009. Western Iowa Energy, 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 audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we do not express such an 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 Western Iowa Energy, LLC as of December 31, 2009 and 2008, and
the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2009 in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a
going concern. As discussed in Note 14 to the financial statements, the Companys management and
operational services agreement has been terminated and will expire in 2010 as well as the federal
blenders tax credit expired on December 31, 2009. These conditions raise substantial doubt about
its ability to continue as a going concern. Managements plans regarding those matters also are
described in Note 14. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Eide Bailly LLP
Minneapolis, Minnesota
March 31, 2010
March 31, 2010
F-2
Table of Contents
WESTERN IOWA ENERGY, LLC
BALANCE SHEETS
December 31, 2009 and 2008
2009 | 2008 | |||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 300 | $ | 66,400 | ||||
Margin deposits |
58,445 | 285,295 | ||||||
Derivative instruments |
| 61,360 | ||||||
Trade accounts receivable related party |
3,106,676 | 1,428,521 | ||||||
Other receivables |
387,883 | 163,470 | ||||||
Incentive receivables |
2,946,499 | 312,019 | ||||||
Inventory |
383,528 | 4,510,457 | ||||||
Prepaid expenses and other assets |
540,890 | 222,476 | ||||||
Total current assets |
7,424,221 | 7,049,998 | ||||||
PROPERTY, PLANT AND EQUIPMENT |
||||||||
Land and land improvements |
1,364,842 | 1,364,842 | ||||||
Office building and equipment |
645,542 | 645,542 | ||||||
Plant and process equipment |
33,854,309 | 33,683,185 | ||||||
Construction in progress |
8,136 | 17,513 | ||||||
Total, at cost |
35,872,829 | 35,711,082 | ||||||
Less accumulated depreciation |
7,669,210 | 5,451,621 | ||||||
Total property, plant and equipment |
28,203,619 | 30,259,461 | ||||||
OTHER ASSETS |
||||||||
Land options |
596 | 596 | ||||||
Other investments |
107,198 | 80,895 | ||||||
Loan origination fees, net of amortization |
69,355 | 87,451 | ||||||
Total other assets |
177,149 | 168,942 | ||||||
TOTAL ASSETS |
$ | 35,804,989 | $ | 37,478,401 | ||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
CURRENT LIABILITIES |
||||||||
Checks issued in excess of bank balance |
$ | 333,008 | $ | | ||||
Accounts payable: |
||||||||
Trade |
824,979 | 794,345 | ||||||
Related party |
88,277 | 28,480 | ||||||
Current portion of long-term debt |
2,459,722 | 2,729,110 | ||||||
Derivative instruments |
2,587 | | ||||||
Accrued interest |
22,226 | 33,372 | ||||||
Accrued wages and benefits |
107,664 | 71,570 | ||||||
Accrued payroll taxes |
3,678 | 4,059 | ||||||
Accrued expenses related party |
103,537 | 117,620 | ||||||
Other current liabilities |
46,304 | 46,079 | ||||||
Total current liabilities |
3,991,982 | 3,824,635 | ||||||
LONG-TERM LIABILITIES |
||||||||
Long-term debt, less current portion above |
3,262,222 | 6,725,056 | ||||||
Total liabilities |
7,254,204 | 10,549,691 | ||||||
MEMBERS EQUITY |
||||||||
Contributed capital |
23,516,376 | 23,516,376 | ||||||
Retained earnings |
5,034,409 | 3,412,334 | ||||||
Total members equity |
28,550,785 | 26,928,710 | ||||||
TOTAL LIABILITIES AND MEMBERS EQUITY |
$ | 35,804,989 | $ | 37,478,401 | ||||
See accompanying notes.
F-3
Table of Contents
WESTERN IOWA ENERGY, LLC
STATEMENTS OF OPERATIONS
Years Ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
REVENUES |
||||||||||||
Related parties |
$ | 43,123,269 | $ | 69,714,221 | $ | 68,595,272 | ||||||
Incentive funds |
6,986,655 | 10,068,612 | 10,081,726 | |||||||||
Total revenues |
50,109,924 | 79,782,833 | 78,676,998 | |||||||||
COST OF SALES |
46,475,116 | 75,431,492 | 78,253,820 | |||||||||
Gross profit |
3,634,808 | 4,351,341 | 423,178 | |||||||||
OPERATING EXPENSES |
||||||||||||
Consulting and professional fees |
622,584 | 289,544 | 302,503 | |||||||||
Office and administrative expenses |
1,429,456 | 1,626,131 | 1,448,383 | |||||||||
Total operating expenses |
2,052,040 | 1,915,675 | 1,750,886 | |||||||||
OTHER INCOME (EXPENSE) |
||||||||||||
Interest income |
13,746 | 9,882 | 16,310 | |||||||||
Interest expense |
(322,698 | ) | (759,243 | ) | (1,400,721 | ) | ||||||
Grant income |
231,525 | | | |||||||||
Patronage dividends |
116,734 | 156,404 | 105,866 | |||||||||
Total other income (expense) |
39,307 | (592,957 | ) | (1,278,545 | ) | |||||||
NET INCOME (LOSS) |
$ | 1,622,075 | $ | 1,842,709 | $ | (2,606,253 | ) | |||||
BASIC AND DILUTED EARNINGS
(LOSS) PER UNIT |
$ | 61.33 | $ | 69.68 | $ | (98.55 | ) | |||||
WEIGHTED AVERAGE UNITS OUTSTANDING,
BASIC AND DILUTED |
26,447 | 26,447 | 26,447 | |||||||||
See accompanying notes.
F-4
Table of Contents
WESTERN IOWA ENERGY, LLC
MEMBERS EQUITY
Years Ended December 31, 2009, 2008 and 2007
Contributed | Retained | |||||||||||||||
Units | Capital | Earnings | Total | |||||||||||||
BALANCE, DECEMBER 31, 2006 |
26,447 | $ | 23,516,376 | $ | 6,297,192 | $ | 29,813,568 | |||||||||
Distributions to members |
| | (2,121,314 | ) | (2,121,314 | ) | ||||||||||
Net loss for the year ended December 31, 2007 |
| | (2,606,253 | ) | (2,606,253 | ) | ||||||||||
BALANCE, DECEMBER 31, 2007 |
26,447 | 23,516,376 | 1,569,625 | 25,086,001 | ||||||||||||
Net income for the year ended December 31, 2008 |
| | 1,842,709 | 1,842,709 | ||||||||||||
BALANCE, DECEMBER 31, 2008 |
26,447 | 23,516,376 | 3,412,334 | 26,928,710 | ||||||||||||
Net income for the year ended December 31, 2009 |
| | 1,622,075 | 1,622,075 | ||||||||||||
BALANCE, DECEMBER 31, 2009 |
26,447 | $ | 23,516,376 | $ | 5,034,409 | $ | 28,550,785 | |||||||||
See accompanying notes.
F-5
Table of Contents
WESTERN IOWA ENERGY, LLC
STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009, 2008 and 2007
2009 | 2008 | 2007 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income (loss) |
$ | 1,622,075 | $ | 1,842,709 | $ | (2,606,253 | ) | |||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||
Depreciation and amortization |
2,235,685 | 2,208,288 | 2,183,988 | |||||||||
Non cash portion of patronage dividends |
(26,303 | ) | (47,085 | ) | (31,810 | ) | ||||||
Non cash forgiveness of debt |
(100,000 | ) | | | ||||||||
Effects of changes in operating assets and liabilities: |
||||||||||||
Margin deposits |
226,850 | 1,141,923 | (1,159,958 | ) | ||||||||
Trade accounts receivable related party |
(1,678,155 | ) | 4,387,564 | (1,484,736 | ) | |||||||
Other receivables |
(224,413 | ) | (157,473 | ) | (5,997 | ) | ||||||
Incentive receivables |
(2,634,480 | ) | 5,206 | 280,653 | ||||||||
Inventory |
4,126,929 | 4,587,894 | (1,302,168 | ) | ||||||||
Derivative instruments |
63,947 | (1,997,735 | ) | 3,204,124 | ||||||||
Prepaid expenses and other assets |
(318,414 | ) | (34,114 | ) | (155,155 | ) | ||||||
Accounts payable |
90,431 | (2,985,924 | ) | 2,466,093 | ||||||||
Accrued interest |
(11,146 | ) | (67,170 | ) | (15,422 | ) | ||||||
Accrued wages and benefits |
36,094 | 14,881 | 10,128 | |||||||||
Accrued payroll taxes |
(381 | ) | 804 | (30,264 | ) | |||||||
Accrued expenses related party |
(14,083 | ) | 117,620 | (379,788 | ) | |||||||
Other current liabilities |
225 | 33,215 | | |||||||||
Net cash provided by operating activities |
3,394,861 | 9,050,603 | 973,435 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Purchase of property, plant and equipment, including
construction in progress |
(161,747 | ) | (394,028 | ) | (1,130,291 | ) | ||||||
Sales tax refund received on plant construction costs |
| | 443,535 | |||||||||
Net cash used in investing activities |
(161,747 | ) | (394,028 | ) | (686,756 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Net increase in checks issued
in excess of bank balance |
333,008 | | | |||||||||
Net payments (borrowings) on revolving line of credit |
| (3,800,000 | ) | 3,800,000 | ||||||||
Proceeds from long-term debt |
12,627,000 | 8,082,566 | 10,109,472 | |||||||||
Payments on long-term debt |
(16,259,222 | ) | (12,904,789 | ) | (12,071,111 | ) | ||||||
Distributions to members |
| | (2,121,314 | ) | ||||||||
Net cash used in financing activities |
(3,299,214 | ) | (8,622,223 | ) | (282,953 | ) | ||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(66,100 | ) | 34,352 | 3,726 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
66,400 | 32,048 | 28,322 | |||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 300 | $ | 66,400 | $ | 32,048 | ||||||
See accompanying notes.
F-6
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Western Iowa Energy, LLC located in Wall Lake, Iowa was organized on September 21, 2004 to own and
operate a 30 million gallon biodiesel plant for the production of fuel grade biodiesel. The
Companys fiscal year ends on December 31. Significant accounting policies followed by the Company
are presented below.
Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Basis of Accounting
The Company uses the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America. This method recognizes revenues as earned and expenses
as incurred.
Revenue Recognition
Revenue from the production of biodiesel and related products is recorded upon transfer of the
risks and rewards of ownership which generally occurs upon delivery to customers. The Company
recognizes revenue on biodiesel sales under bill and store relationships when certain criteria are
met including, but not limited to the following; the buyer requests such transactions, terms are
documented in written contracts, risk of ownership and title has passed to the buyer, the seller
requests a schedule for delivery, the product is complete and ready to ship and the product is
segregated from the Companys inventory. For the year ended December 31, 2009 the Company
recognized revenue of $1,750,458 under bill and store transactions with a related party.
Interest income is recognized as earned. Patronage dividends are recognized when received.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains its accounts primarily at one financial institution. At times throughout the
year, the Companys cash and equivalents balances may exceed amounts insured by the Federal Deposit
Insurance Corporation.
Accounts Receivable
Accounts receivable are presented at face value, net of the allowance for doubtful accounts. The
allowance for doubtful accounts is established through provisions charged against income and is
maintained at a level believed adequate by management to absorb estimated bad debts based on
historical experience and current economic conditions. Management has established an allowance for
doubtful accounts of $105,712 at December 31, 2009 and 2008.
F-7
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
The Companys policy is to charge simple interest on trade receivables past due balances; accrual
of interest is discontinued when management believes collection is doubtful. Receivables are
considered past due based upon payment terms set forth at the date of the related sale. The
Company has no receivables accruing interest at December 31, 2009 and 2008.
Derivative Instruments and Hedging Activities
SFAS No. 133, which was primarily codified into Topic 815, Derivatives and Hedging, in the ASC
(Accounting Standards Codification), requires a company to evaluate its contracts to determine
whether the contracts are derivatives. Certain contracts that literally meet the definition of a
derivative may be exempted from ASC 815 as normal purchases or normal sales. Normal purchases and
normal sales are contracts that provide for the purchase or sale of something other than a
financial instrument or derivative instrument that will be delivered in quantities expected to be
used or sold over a reasonable period in the normal course of business. Contracts that meet the
requirements of normal purchase or normal sales are documented as such, and exempted from the
accounting and reporting requirements of ASC 815. The Company has entered into agreements to
purchase soybean oil for anticipated production needs. These contracts are considered normal
purchase contracts and exempted from ASC 815.
Inventories
Inventory is stated at the lower of cost, determined on a first in, first out basis, or market
value.
Property, Plant, and Equipment
Property and equipment are stated at cost. Significant additions are capitalized, while
expenditures for maintenance, repairs and minor renewals are charged to operations when incurred.
Depreciation and amortization are computed using the straight-line method over the estimated useful
lives of the assets determined as follows:
Years | ||||
Land improvements |
20-40 | |||
Office building |
5-40 | |||
Office equipment |
5-20 | |||
Plant and process equipment |
10-40 |
The Company reviews its property and equipment for impairment whenever events indicate that the
carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum
of the future cash flows is less than the carrying amount of the asset. The amount of the loss is
determined by comparing the fair market values of the asset to the carrying amount of the asset.
Loan Origination Fees
Loan origination fees are stated at cost and are amortized on the straight-line method over the
life of the loan agreements. Amortization commenced as the Company borrowed funds on the loans.
Amortization for the years ended December 31, 2009, 2008, and 2007 was $18,096.
Other Investments
Other investments consist of investments in the capital stock and patron equities of the Companys
primary lenders. The investments are stated at cost and adjusted for non cash patronage equities
received.
Grant Income
Grant income consists of amounts received from unaffiliated organizations to assist in the
organization and development of the Company. Amounts are recorded as other income when there is no
obligation to repay the organization.
F-8
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
Income Taxes
The Company is organized as a limited liability company under state law and is treated as a
partnership for income tax purposes. Under this type of organization, the Companys earnings pass
through to the partners and are taxed at the partner level. Accordingly, no income tax provision
has been calculated. Differences between 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, and the difference
between the recorded amounts of financial statement and tax depreciation.
Earnings (Loss) Per Unit
Earnings (loss) per unit are calculated based on the period of time units have been issued and
outstanding. For purposes of calculating diluted earnings per capital unit, units subscribed for
but not issued are included in the computation of outstanding capital units based on the treasury
stock method. As of December 31, 2009, 2008, and 2007, there was not a difference between basic
and diluted earnings per unit as there were no units subscribed.
Cost of Sales
The primary components of cost of sales from the production of biodiesel products are, raw
materials (soybean oil, animal fats, hydrochloric acid, methanol, and sodium methylate), energy
(natural gas and electricity), labor and depreciation on process equipment.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and are included in the cost of sales.
Environmental Liabilities
The Companys operations are subject to federal, state and local environmental laws and
regulations. These laws require the Company to investigate and remediate the effects of the
release or disposal of materials at its location. Accordingly, the Company has adopted policies,
practices and procedures in the areas of pollution control, occupational health, and the
production, handling, storage and use of hazardous materials to prevent material environmental or
other damage; and to limit the financial liability which could result from such events.
Environmental liabilities are recorded when the liability is probable and the costs can be
reasonably estimated.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument held by the Company:
Current assets and current liabilities The carrying value approximates fair value due to the
short maturity of these items.
Long-term debt The carrying amount of long-term obligations approximated fair value based on
estimated interest rates for comparable debt.
F-9
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
New Accounting Standards
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, which was primarily codified into Topic 105,
Generally Accepted Accounting Standards, in the ASC. This standard will become the single source of
authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding
existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task
Force (EITF), and related accounting literature.
This standard reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics
and displays them using a consistent structure. Also included is the relevant Securities and
Exchange Commission guidance organized using the same topical structure in separate sections. This
guidance will be effective for financial statements issued for reporting periods that end after
September 15, 2009. Beginning in the third quarter of 2009, this guidance impacts the Companys
financial statements and related disclosures as all references to authoritative accounting
literature reflect the newly adopted codification.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of SFAS No. 133, which was primarily codified into Topic 815, Derivatives
and Hedging, in the ASC. This guidance expands the disclosures about an entitys derivative and
hedging activities. The guidance was effective for fiscal years and interim periods beginning after
November 15, 2008, which was January 1, 2009 for the Company. The Companys enhanced disclosures
are included in Note 13.
In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments, which was primarily codified into Topic 825, Financial
Instruments, in the ASC. This standard extends the disclosure requirements concerning the fair
value of financial instruments to interim financial statements of publicly traded companies. This
guidance is effective for interim or annual financial periods ending after June 15, 2009. The
Company adopted the guidance as of April 1, 2009. The adoption of ASC 825 did not have a material
effect on its financial statements and related disclosures.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which was primarily codified into
Topic 855, Subsequent Events, in the ASC. This guidance establishes principles and requirements for
subsequent events. Specifically, it sets forth guidance pertaining to the period after the balance
sheet date during which management should consider events or transactions for potential recognition
or disclosure, circumstances under which an event or transaction would be recognized after the
balance sheet date and the required disclosures that should be made about events or transactions
that occurred after the balance sheet date. This guidance is effective for interim or annual
financial periods ending after June 15, 2009. The Company adopted the guidance as of April 1,
2009. The adoption of ASC 855 did not have a material effect on its financial statements and
related disclosures.
NOTE 2 INCENTIVE PAYMENTS AND RECEIVABLE
Revenue from federal incentive programs is recorded when the Company has sold blended biodiesel and
satisfied the reporting requirements under the applicable program. When it is uncertain that the
Company will receive full allocation and payment due under the federal incentive program, it
derives an estimate of the incentive revenue for the relevant period based on various factors
including the most recently used payment factor applied to the program. The estimate is subject to
change as management becomes aware of increases or decreases in the amount of funding available
under the incentive programs or other factors that affect funding or allocation of funds under such
programs. The amount of incentives receivable at December 31, 2009 and December 31, 2008 was
$2,946,499 and $312,019, respectively.
NOTE 3 INVENTORY
Inventory consists of the following:
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
Raw material |
$ | 273,791 | $ | 496,028 | ||||
Work in process |
49,398 | 541,530 | ||||||
Finished goods |
60,339 | 3,472,899 | ||||||
Total |
$ | 383,528 | $ | 4,510,457 | ||||
F-10
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 4 LAND OPTION
The Company entered into two land option agreements with a member to purchase approximately 73
acres of land for $2,000 per acre payable in units of ownership in the Company. The Company was
required to pay option consideration in the amount of $2,000. The options extend to December 31,
2009 to purchase any part of the property or it shall expire automatically and be null and void and
the option consideration shall be forfeited. In June 2005, the Company exercised one of the
options and partially exercised the other for the purchase of approximately 39 acres of land. The
Company issued 81 member units totaling $76,950 in exchange for the land. In December 2009, the
Company exercised the remaining option of approximately 35 acres. The Company completed a cash
purchase in January 2010 for a total cost of $70,496.
NOTE 5 DEBT AND FINANCING
Long-Term Debt
Long-term obligations of the Company are summarized as follows:
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
Note payable to Farm Credit Services of America and
CoBank under term note agreement see details
below |
$ | 2,350,000 | $ | 4,150,000 | ||||
Note payable to Farm Credit Services of America and
CoBank under reducing revolving credit note see
details below |
2,630,000 | 4,350,000 | ||||||
Note payable to the Iowa Department of Economic Development see details below |
207,500 | 337,500 | ||||||
Note payable to Glidden Rural Electric Cooperative see details below |
534,444 | 616,666 | ||||||
Total |
5,721,944 | 9,454,166 | ||||||
Less current portion |
2,459,722 | 2,729,110 | ||||||
Long-term portion |
$ | 3,262,222 | $ | 6,725,056 | ||||
The estimated future maturities of long-term debt at December 31, 2009 are as follows:
2010 |
$ | 2,459,722 | ||
2011 |
112,222 | |||
2012 |
112,222 | |||
2013 |
202,222 | |||
2014 |
2,482,223 | |||
Thereafter |
353,333 | |||
Total |
$ | 5,721,944 | ||
F-11
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
The Company has available loan commitments from Farm Credit Services of America and CoBank totaling
$18,000,000 as of December 31, 2009 and 2008. The commitments consist of a $10,000,000 term note,
a $7,430,000 reducing revolving credit note and a $570,000 letter of credit. As of December 31,
2009 and 2008, the balance outstanding under the term note was $2,350,000 and $4,150,000,
respectively. Principal payments of $450,000 as amended, are required under the term loan and
commenced December 20, 2006 and due each quarter thereafter, with a final payment due no later than
December 20, 2011. As of December 31, 2009 and 2008, the balance outstanding under the reducing
revolving credit note was $2,630,000 and $4,350,000, respectively. Advances under the reducing
revolving credit note are available through the life of the commitment. The commitment reduces by
$900,000 semi-annually beginning July 1, 2012 and continuing through January 1, 2016, with a final
reduction at the expiration of the commitment on July 1, 2016, at which time any outstanding
balance shall be due and payable in full. The notes require interest payments based on unpaid
principal. The agreements also include a provision for additional payments for the fiscal years
ending 2006 through 2010 based on the free
cash flows of the Company. At December 31, 2009, the current portion of debt includes the
estimated free cash flow requirements of $724,020. The agreements provide for several different
interest rate options including variable and fixed options (3.50% and 4.00% variable on the term
note and revolving credit note, as of December 31, 2009 and 2008, respectively). The variable
interest rate options are based on Libor or the agents base rate and include adjustments for
performance which is based on the Companys debt to net worth ratio, measured quarterly. The
Company has issued a $570,000 irrevocable letter of credit through CoBank in favor of Glidden Rural
Electric Cooperative. The notes are secured by essentially all of the Companys assets. At
December 31, 2009, the Company had $4,800,000 of available borrowings under the reducing revolving
credit note.
The loan agreements with Farm Credit and CoBank contain various covenants pertaining to minimum
working capital and minimum net worth requirements. The Company was not in compliance with the
minimum net worth requirement for the period ending May 31, 2009 and obtained waiver for said
violation. As of December 31, 2009, except as noted above, the Company believes it is in
compliance with said covenants.
The Company was awarded $400,000 from the Iowa Department of Economic Development (IDED) consisting
of a $300,000 zero interest deferred loan and a $100,000 forgivable loan, the balance of which was
$207,500 and $337,500 at December 31, 2009 and 2008, respectively. The zero interest deferred loan
requires monthly installments of $2,500 beginning January 2008, with remaining unpaid principal due
at maturity, December, 2012. The Company was required to satisfy the terms of the agreement to
receive a permanent waiver of the forgivable loan. In April 2009, the Company received notice from
the IDED that the Company had satisfied the terms of the agreement and had forgiven the forgivable
loan. The forgiveness of the loan is reflected in other income in the accompanying statement of
operations for the year ended December 31, 2009. The loan is secured by a security agreement
including essentially all of the Companys assets.
In July 2006, the Company entered into a rural development loan agreement under the Rural
Electrification Act of 1936 with Glidden Rural Electric Cooperative. The original loan amount was
$740,000 and requires monthly installments of $6,851, requiring no interest and commencing July 31,
2007. The loan is to be paid in full on or before the tenth anniversary date of the first advance
of funds. The Company has issued an irrevocable letter of credit through CoBank in favor of
Glidden Rural Electric Cooperative as security for the note.
NOTE 6 MEMBERS EQUITY
The Companys operating agreement provides that the net profits or losses of the Company will be
allocated to the members in proportion to the membership units held. Members will not have any
right to take part in the management or control of the Company. Each membership unit entitles the
member to one vote on any matter which the member is entitled to vote. Transfers of membership
units are prohibited except as provided in the operating agreement.
On February 19, 2007, the Board of Directors approved a distribution to members of $80.21 per unit,
for a total payment of $2,121,314.
F-12
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 7 INCOME TAXES
As of December 31, 2009 and 2008, the book basis of assets exceeded the tax basis of assets by
approximately $19,500,000 and $17,485,000, respectively.
The Company is subject to the following material tax jurisdictions: U.S. and Iowa. The tax years
that remain open to examination by the Internal Revenue Service are 2005 through 2009. The tax
years that remain open to examination by the Iowa Department of Revenue are 2005 through 2009. The
Companys policy is to recognize interest and penalties related to uncertain tax benefits in income
tax expense. The Company has no accrued interest or penalties related to uncertain tax positions
as of December 31, 2009 or 2008.
NOTE 8 CASH FLOW DISCLOSURES
Supplemental disclosure for interest paid:
2009 | 2008 | 2007 | ||||||||||
Cash paid for interest |
$ | 333,845 | $ | 826,413 | $ | 1,416,143 | ||||||
NOTE 9 RELATED PARTY TRANSACTIONS
The Companys general contractor (Renewable Energy Group, LLC) used to construct the plant is an
entity related to West Central Coop who was originally contracted to provide the management and
operational services for the Company. Renewable Energy Group, LLC was also issued member units in
July 2006 and December 2006 in exchange for a reduction in the construction payable. In July 2006,
West Central Coop and Renewable Energy Group, LLC joined forces and created Renewable Energy Group,
Inc. (REG, Inc.). On September 21, 2006, the Company consented to the assignment of the contract
to construct the facility and the management and operational services agreement to REG, Inc.
The Company incurred management and operational service fees, feed stock procurement fees and
marketing fees with West Central Coop and REG, Inc. For the years ended December 31, 2009, 2008,
and 2007, the Company incurred service fees of $572,995, $634,040, and $909,960, respectively. The
Company also purchases feed stock from West Central Coop and Bunge North America, Inc. an entity
related by common ownership in REG, Inc. For the years ended December 31, 2009, 2008 and 2007, the
Company purchased feed stocks of $2,839,352, $12,679,380, and $26,748,829, respectively. The
amount payable to related parties as of December 31, 2009 and 2008 was $88,277 and $28,480,
respectively.
The Company has recorded expense of $103,537, $117,620, and $-0- for the net income bonus payable
to REG, Inc. for the years ended December 31, 2009, 2008 and 2007, respectively. The amounts are
included in accrued expenses in the accompanying balance sheet.
On April 7, 2009, the Company received from REG, Inc., a notice of termination of its management
and operational services agreement. The notification from REG, Inc. states that it shall
constitute such twelve month advance termination notice required by the terms of the agreement.
NOTE 10 LEASE COMMITMENTS
During July 2006, the Company entered into an operating lease agreement for rail equipment which
expires in 2011. The lease agreement has a monthly payment amount of $2,969. The following is a
schedule of future minimum lease payments under a non-cancelable lease at December 31, 2009:
2010 |
$ | 35,627 | ||
2011 |
17,813 | |||
Total |
$ | 53,440 | ||
Lease expense for the years ended December 31, 2009, 2008, and 2007 was $35,627.
F-13
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 11 RETIREMENT AND SAVINGS PLAN
The Company has a 401(k) retirement and savings plan, which is available to substantially all
employees. The participants may contribute up to 18% of their compensation. The Companys
matching contribution is discretionary for each plan year. The Company contributions for the years
ended December 31, 2009, 2008, and 2007, was $21,883, $22,855, and $23,396, respectively.
NOTE 12 FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 2008, the company adopted FASB Statement No. 157 (FAS 157), Fair Value
Measurements, which was primarily codified into Topic 820, Fair Value Measurements and
Disclosures, in the ASC. This guidance provides a comprehensive framework for measuring fair value
and expands disclosures which are required about fair value measurements. Specifically, the
guidance sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs
to valuation techniques, giving the highest priority to quoted prices in active markets for
identical assets and liabilities and the lowest priority to unobservable value inputs. The
adoption of this guidance had an immaterial impact on the companys financial statements. The
guidance defines levels within the hierarchy as follows:
| Level 1Unadjusted quoted prices for identical assets and liabilities in active
markets; |
| Level 2Quoted prices for similar assets and liabilities in active markets (other
than those included in Level 1) which are observable for the asset or liability, either
directly or indirectly; and |
| Level 3Valuations derived from valuation techniques in which one or more significant
inputs or significant value drivers are unobservable. |
The following table sets forth financial assets and liabilities measured at fair value in the
consolidated statement of financial position and the respective levels to which the fair value
measurements are classified within the fair value hierarchy as of December 31:
2009 | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Carrying | Active Markets for | Observable | Unobservable | |||||||||||||
Amount on | Identical Assets | Inputs | Inputs | |||||||||||||
Balance Sheet | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Financial liabilities: |
||||||||||||||||
Commodity derivatives |
$ | (2,587 | ) | $ | (2,587 | ) | $ | | $ | | ||||||
2008 | ||||||||||||||||
Significant | ||||||||||||||||
Quoted Prices in | Other | Significant | ||||||||||||||
Carrying | Active Markets for | Observable | Unobservable | |||||||||||||
Amount on | Identical Assets | Inputs | Inputs | |||||||||||||
Balance Sheet | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Financial assets: |
||||||||||||||||
Commodity derivatives |
$ | 61,360 | $ | 2,538 | $ | 58,822 | $ | | ||||||||
The Company enters into various commodity derivative instruments, including forward contracts,
futures, options and swaps. The fair value of the Companys derivatives are determined using
unadjusted quoted prices for identical instruments on the applicable exchange in which the Company
transacts. When quoted prices for identical instruments are not available, the Company uses forward
price curves derived from market price quotations. Market price quotations are obtained from
independent brokers, exchanges, direct communication with market participants and actual
transactions executed by the Company.
F-14
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 13 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2009, the company prospectively implemented the provisions of SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133 (SFAS 161), which was primarily codified into Topic 815 Derivatives and Hedging in the ASC.
This guidance enhances the disclosure requirements of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS
133), to provide users of financial statements with a better understanding of the objectives of a
companys derivative use and the risks managed.
Objectives and Strategies for Holding Derivative Instruments
In the ordinary course of business, the company enters into contractual arrangements (derivatives)
as a means of managing exposure to changes in biodiesel prices and feedstock costs under
established procedures and controls. The company has established a variety of approved derivative
instruments to be utilized in each risk management program, as well as varying levels of exposure
coverage and time horizons based on an assessment of risk factors related to each hedging program.
As part of its trading activity, the Company uses futures, option and swap contracts offered
through regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market
value of biodiesel inventories and input costs.
Commodity Risk Management
Commodity price risk management programs serve to reduce exposure to price fluctuations on
purchases of feedstocks and biodiesel prices. The company enters into over-the-counter and
exchange-traded derivative commodity instruments to hedge the commodity price risk associated with
feedstocks and commodity exposures. These agreements expire throughout 2010.
Accounting for Derivative Instruments and Hedging Activities
All derivatives are designated as non-hedge derivatives. Although the contracts may be effective
economic hedges of specified risks, they do not meet the hedge accounting criteria of ASC 815. At
December 31, 2009 and 2008, the Company had net derivative assets (liabilities) of $(2,587) and
$61,360, respectively, related to these instruments, with the related mark-to-market effects
included in Cost of sales in the statements operations.
The following tables provide information on the location and amounts of derivative fair values in
the balance sheet and derivative gains and losses in the statement of operations:
Fair Value of Derivative Instruments
Balance Sheet | Asset Derivatives | Liability Derivatives | ||||||||||
Classification | December 31, 2009 | December 31, 2009 | ||||||||||
Derivatives not designated
as hedging: |
||||||||||||
Commodity
contracts Heat Oil options and swaps |
Current liabilities | $ | | $ | (2,587 | ) |
F-15
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
During the year ended December 31, 2009, net realized and unrealized losses on derivative
transactions were recognized in the statement of income as follows:
Location of net loss | Net income (loss) | |||||||
recognized in | recognized in income on | |||||||
Derivatives not designated as | earnings on | derivative | ||||||
hedging instruments | derivative activities | activities | ||||||
Commodity contracts
Soybean oil futures and
Heat Oil options and swaps |
Cost of sales | $ | (1,054,297 | ) |
NOTE 14 UNCERTAINTIES
The Company has produced biodiesel for sale to customers since June of 2006. During that time,
crude oil has ranged in price from the mid-$30 per barrel to a high of $147 per barrel on the
NYMEX. We also have experienced a wide swing in the price of soybean oil: between 25¢ per pound
and 70¢ per pound. Because the Company is able to process multiple feed stocks, they have been
able to process lesser expensive animal fats and vegetable oils into biodiesel that meets ASTM D
6751 standards. As a result, for the year ended December 31, 2009, the Companys net income was
$1,622,075. In addition, during the calendar year of 2009, the Company repaid approximately $3.6
million of its long-term obligations.
During the Companys short history, it has dealt with the lack of a direct correlation between the
cost of its inputs and the selling price of the products that it produces. On the input side, it
has to work within the Agricultural market; and on the output side, it has to work within the
Energy market. Historically, there has been no consistent relationship between those two markets.
Because of the relationship of its business within differing markets, it is necessary that
management stay abreast of the varying market conditions to determine the economic relationship
that exists at any given time and under certain market conditions. Because of the subjectivity
involved with the determination and relationships of market conditions, the uncertainties are
exacerbated. The flexibility of the production facilities to process varying feed stocks adds to
the Companys ability to respond to the varying market conditions and to reduce some of the market
uncertainties. The expiration of the federal blenders tax credit on December 31, 2009, subject to
any action that Congress may take in 2010, may also materially impair the Companys ability to
profitably produce and sell biodiesel.
The Company has also received from REG, Inc. a notice of termination of the management and
operational services agreement (see Note 9). Therefore the current agreement will expire on
April 1, 2010. REG has proposed that the parties review and cooperate to negotiate a new contract
mutually beneficial to the Company and REG; however, there is no guarantee that a new contract will
be entered into between the parties. Additionally, on February 24, 2010 a vote was held by
unitholders to approve the proposed asset purchase agreement and merger with REG (see Note 16).
The Company failed to obtain the unitholder votes necessary to approve the transaction.
The accompanying financial statements have been prepared assuming the Company will continue as a
going concern. Due to certain items discussed above, our ability to continue to generate positive
cash flow is uncertain.
NOTE 15 GAIN CONTINGENCIES
The Companys primary customer and marketer (REG, Inc.) has agreed to an arbitration hearing with a
European customer. The Company and REG, Inc. allege breach of contract as the customer failed to
take delivery of the Companys product. The Companys portion of damages associated with
arbitration hearing is $1,054,488. At this time, no estimate can be made as to the time or the
amount, if any, of the ultimate recovery. As such no revenues have been recorded in the
accompanying statement of operations for the year ended December 31, 2009 relating to estimated
damages recoverable. Revenues will be recorded at which time the actual damages are determinable,
which will likely occur upon receipt.
F-16
Table of Contents
WESTERN IOWA ENERGY, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 16 ASSET PURCHASE AGREEMENT
On May 11, 2009, the Company entered into an asset purchase agreement and plan of merger with REG,
for the consolidation of the Companys commercial-scale biodiesel production facility with REG and
two other biodiesel producers. A new holding company (Newco), which was incorporated by REG,
would own and operate the Company and other acquired companies. The holding company was to be
owned by current REG investors and the current members of the Company as well as the members of the
two other consolidating companies.
On February 24, 2010 a vote was held by unitholders to approve the proposed transactions and merger
with REG. The Company failed to obtain the unitholder votes necessary to approve the transaction.
NOTE 17 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly results are as follows:
Year ended December 31, 2009:
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenues |
$ | 3,966,137 | $ | 10,899,985 | $ | 17,037,884 | $ | 18,134,816 | ||||||||
Gross profit (loss) |
(294,631 | ) | 369,129 | 1,606,965 | 1,882,243 | |||||||||||
Operating income (loss) |
(754,741 | ) | (175,824 | ) | 1,065,530 | 1,379,701 | ||||||||||
Net income (loss) |
(629,492 | ) | (259,934 | ) | 1,119,037 | 1,392,464 | ||||||||||
Basic and diluted
earnings (loss) per unit |
(23.80 | ) | (9.83 | ) | 42.31 | 52.65 |
Year ended December 31, 2008:
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenues |
$ | 18,029,542 | $ | 27,601,282 | $ | 26,238,615 | $ | 7,913,394 | ||||||||
Gross profit (loss) |
1,784,314 | 2,467,747 | 2,093,569 | (1,993,289 | ) | |||||||||||
Operating income (loss) |
1,246,255 | 1,896,946 | 1,515,203 | (2,222,738 | ) | |||||||||||
Net income (loss) |
1,127,993 | 1,675,218 | 1,377,779 | (2,338,281 | ) | |||||||||||
Basic and diluted
earnings (loss) per unit |
42.65 | 63.34 | 52.10 | (88.41 | ) |
Year ended December 31, 2007:
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Revenues |
$ | 14,254,980 | $ | 24,800,210 | $ | 21,262,859 | $ | 18,358,949 | ||||||||
Gross profit (loss) |
566,299 | 2,565,826 | (734,715 | ) | (1,974,232 | ) | ||||||||||
Operating income (loss) |
128,304 | 1,990,272 | (1,099,711 | ) | (2,346,573 | ) | ||||||||||
Net income (loss) |
(142,559 | ) | 1,629,537 | (1,436,064 | ) | (2,657,167 | ) | |||||||||
Basic and diluted
earnings (loss) per unit |
(5.39 | ) | 61.62 | (54.30 | ) | (100.48 | ) |
The above quarterly data is unaudited, but in the opinion of management, all adjustments necessary
for a fair presentation of the selected data for these periods presented have been included.
NOTE 18 SUBSEQUENT EVENTS
Management evaluated subsequent events through the date the financial statements were available to
be issued
F-17
Table of Contents
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
Eide Bailly LLP is our independent auditor at the present time. The Company has had no
disagreements with its auditors.
ITEM 9A. | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
Our management, including our principal executive officer, William J. Horan, along with our
principal financial and accounting officer, Joe Neppl, have reviewed and evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2009. Disclosure
controls and procedures are defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities
Exchange Act of 1934 as controls and other procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports that it files or submits under
the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized, and reported, within the time
periods specified in the Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Act is accumulated and
communicated to the issuers management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. Based on a review and evaluation, these officers believe that our
disclosure controls and procedures are effective as of December 31, 2009.
Managements Report on Internal Control over Financial Reporting
Our management, including our principal executive officer and our principal financial and
accounting officer, is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. Internal control over financial reporting is defined in Rule
13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed
by, or under the supervision of, the Companys principal executive and principal financial
officers, or persons performing similar functions, and effected by the Companys board of
directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with Generally Accepted Accounting Principles and includes those policies
and procedures that:
| Pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the Company; |
| Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with Generally Accepted Accounting
Principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and |
| Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements. |
Our management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009. In making this assessment, the Companys management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, our management concluded that, as of
December 31, 2009, our integrated controls over financial reporting is effective based on those
criteria.
Attestation Report of Registered Public Accounting Firm
This annual report does not include an attestation report of the companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the companys registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
managements report in this annual report.
49
Table of Contents
Changes in Internal Control Over Financial Reporting
Our management, consisting of our principal executive officer and our chief financial officer,
have reviewed and evaluated any changes in our internal control over financial reporting that
occurred as of December 31, 2009 and there has been no change that has materially affected or is
reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION. |
None.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT. |
The information required by Item 10 is incorporated by reference from our definitive proxy
statement relating to our 2010 annual meeting of members. In accordance with Regulation 14A, we
intend to file that proxy statement no later than 120 days after the end of the last fiscal year.
ITEM 11. | EXECUTIVE COMPENSATION. |
The information required by Item 11 is incorporated by reference from our definitive proxy
statement relating to our 2010 annual meeting of members. In accordance with Regulation 14A, we
intend to file that proxy statement no later than 120 days after the end of the last fiscal year.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER
MATTERS. |
The information required by Item 12 is incorporated by reference from our definitive proxy
statement relating to our 2010 annual meeting of members. In accordance with Regulation 14A, we
intend to file that proxy statement no later than 120 days after the end of the last fiscal year.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. |
The information required by Item 13 is incorporated by reference from our definitive proxy
statement relating to our 2010 annual meeting of members. In accordance with Regulation 14A, we
intend to file that proxy statement no later than 120 days after the end of the last fiscal year.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
The information required by Item 14 is incorporated by reference from our definitive proxy
statement relating to our 2010 annual meeting of members. In accordance with Regulation 14A, we
intend to file that proxy statement no later than 120 days after the end of the last fiscal year.
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ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
The following exhibits are filed as part of, or are incorporated by reference into, this
report:
Exhibit | Method of | |||||||
No. | Description | Filing | ||||||
3.1 | Articles of Organization of Western Iowa Energy, LLC.
|
1 | ||||||
3.2 | Amended and Restated Operating Agreement of Western Iowa Energy, LLC
|
1 | ||||||
3.3 | First Amendment to Amended and Restated Operating Agreement of
Western Iowa Energy, LLC
|
6 | ||||||
10.1 | Water Supply and Storage Agreement between the Incorporated City of
Wall Lake, Iowa and Western Iowa Energy, LLC.
|
1 | ||||||
10.2 | Master Loan Agreement between Farm Credit Services of America and
Western Iowa Energy, LLC.
|
1 | ||||||
10.3 | Construction and Term Loan Supplement between Farm Credit Services
of America and Western Iowa Energy, LLC.
|
1 | ||||||
10.4 | Construction and Revolving Term Loan Supplement between Farm Credit
Services of America and Western Iowa Energy, LLC.
|
1 | ||||||
10.5 | Administrative Agency Agreement between Farm Credit Services of
America and Western Iowa Energy, LLC.
|
1 | ||||||
10.6 | Design/Build Agreement between Renewable Energy Group and Western
Iowa Energy.
|
1 | ||||||
10.7 | Management and Operational Services Agreement between West Central
Cooperative and Western Iowa Energy, LLC.
|
1 | ||||||
10.8 | Letter from CoBank regarding term extension for the Construction
and Term Loan Supplement (exhibit 10.3) between Farm Credit
Services of America and Western Iowa Energy, LLC.
|
1 | ||||||
10.9 | Iowa Department of Economic Development VAAPFAP Loan/Forgivable
Loan Agreement and Promissory Note.
|
1 | ||||||
10.10 | Statused Revolving Credit Supplement Agreement between Farm Credit
Services, FLCA and Western Iowa Energy, LLC dated August 3, 2006.
|
2 | ||||||
10.11 | Industry Track Agreement between Chicago Central and Pacific
Railroad Company and Western Iowa Energy, LLC dated June 5, 2006.
|
2 | ||||||
10.12 | Assignment and Pledge Agreement
|
2 | ||||||
10.13 | Letter Agreement between Renewable Energy Group, LLC and Western
Iowa Energy, LC regarding the issuance of 1,000 membership units to
Renewable Energy Group, LLC
|
2 | ||||||
10.14 | Rural Development Loan Agreement between Glidden Rural Electric
Cooperative and Western Iowa Energy, LLC.
|
3 | ||||||
10.15 | Amendment to Management and Operations Agreement between Renewable
Energy Group, Inc. and Western Iowa Energy, LLC.
|
4 | ||||||
10.16 | Amendment to Master Loan Agreement between Farm Credit Services of
America, FLCA and Western Iowa Energy, LLC, dated June 21, 2007.
|
5 |
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Exhibit | Method of | |||||||
No. | Description | Filing | ||||||
10.17 | Amendment to Construction and Term Loan Supplement between Farm
Credit Services of America, FLCA and Western Iowa Energy, LLC,
dated June 21, 2007.
|
5 | ||||||
10.18 | Statused Revolving Credit Supplement between Farm Credit Services
of America, FLCA and Western Iowa Energy, LLC, dated June 21, 2007.
|
5 | ||||||
10.19 | Amendment to Master Loan Agreement between Farm Credit Services of
America and Western Iowa Energy, LLC dated June 5, 2008.
|
7 | ||||||
10.20 | Extension and Second Amendment to Management and Operational
Services Agreement between Western Iowa Energy, LLC and Renewable
Energy Group, Inc., dated March 16, 2010.
|
* | ||||||
14.1 | Code of Ethics
|
4 | ||||||
31.1 | Certificate Pursuant to 17 CFR 240 15d-14(a)
|
* | ||||||
31.2 | Certificate Pursuant to 17 CFR 240 15d-14(a)
|
* | ||||||
32.1 | Certificate Pursuant to 18 U.S.C. Section 1350
|
* | ||||||
32.2 | Certificate Pursuant to 18 U.S.C. Section 1350
|
* |
(1) | Incorporated by reference as filed on our Registration Statement on Form 10-SB, No.
000-51965, originally filed on May 2, 2006. |
|
(2) | Incorporated by reference as filed on our Quarterly Report on Form 10-QSB filed on August 18,
2006. |
|
(3) | Incorporated by reference as filed on our Quarterly Report on Form 10-QSB filed on November 14,
2006. |
|
(4) | Incorporated by reference as filed on our Annual Report on Form 10-KSB filed on March 9, 2007. |
|
(5) | Incorporated by reference as filed on our Quarterly Report on Form 10-QSB filed on August 14,
2007. |
|
(6) | Incorporated by reference as filed on our Quarterly Report on Form 10-Q filed on May 15,
2008. |
|
(7) | Incorporated by reference as filed on our Form 8-K filed on February 12, 2009. |
|
(*) | Filed herewith. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
WESTERN IOWA ENERGY, LLC |
||||
Date: March 31, 2010 | /s/ William J. Horan | |||
William J. Horan | ||||
Chairman, President and Director (Principal Executive Officer) |
||||
Date: March 31, 2010 | /s/ Joe Neppl | |||
Joe Neppl | ||||
Chief Financial Officer (Principal Financial and Accounting Officer) |
In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 31, 2010 | /s/ William J. Horan | |||
William J. Horan, Chairman, President, | ||||
Director (Principal Executive Officer) | ||||
Date: March 31, 2010 | /s/ Kevin J. Ross | |||
Kevin J. Ross, Secretary and Director | ||||
Date: March 31, 2010 | /s/ John Geake | |||
John Geake, Vice-Chairman and Director | ||||
Date: March 31, 2010 | /s/ Warren L. Bush | |||
Warren L. Bush, Director | ||||
Date: March 31, 2010 | /s/ Wayne Seaman | |||
Wayne Seaman, Director | ||||
Date: March 31, 2010 | /s/ Nile Ramsbottom | |||
Nile Ramsbottom, Director | ||||
53