Attached files
file | filename |
---|---|
10-K - REX AMERICAN RESOURCES Corp | c61126_10k.htm |
EX-31 - REX AMERICAN RESOURCES Corp | c61126_ex31.htm |
EX-32 - REX AMERICAN RESOURCES Corp | c61126_ex32.htm |
EX-4.(K) - REX AMERICAN RESOURCES Corp | c61126_ex4-k.htm |
EX-4.(L) - REX AMERICAN RESOURCES Corp | c61126_ex4-l.htm |
EX-4.(J) - REX AMERICAN RESOURCES Corp | c61126_ex4-j.htm |
EX-99.(B) - REX AMERICAN RESOURCES Corp | c61126_ex99-b.htm |
EX-23.(D) - REX AMERICAN RESOURCES Corp | c61126_ex23-d.htm |
EX-21.(A) - REX AMERICAN RESOURCES Corp | c61126_ex21-a.htm |
EX-23.(C) - REX AMERICAN RESOURCES Corp | c61126_ex23-c.htm |
EX-23.(A) - REX AMERICAN RESOURCES Corp | c61126_ex23-a.htm |
EX-23.(B) - REX AMERICAN RESOURCES Corp | c61126_ex23-b.htm |
Exhibit 99(a)
BIG RIVER RESOURCES, LLC
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2009 and 2008
CHRISTIANSON & ASSOCIATES, PLLP
Certified Public Accountants and Consultants
Willmar, Minnesota
TABLE OF CONTENTS
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PAGE NO |
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1 |
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FINANCIAL STATEMENTS |
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2 |
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4 |
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5 |
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6 |
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7 |
To the Board of Directors
Big River Resources, LLC
West Burlington, Iowa
We have audited the accompanying consolidated balance sheets of Big River Resources, LLC (an Iowa limited liability company) as of December 31, 2009 and 2008 and the related consolidated statements of operations, members equity, and cash flows for the years then ended. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 Big River Resources, LLC as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Christianson & Associates, PLLP
Certified Public Accountants and Consultants
February 18, 2010
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
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ASSETS |
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2009 |
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2008 |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
40,271,218 |
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$ |
50,247,424 |
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Receivables |
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Trade |
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24,881,446 |
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7,950,981 |
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Other |
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1,416,008 |
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740,643 |
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Inventories |
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29,271,292 |
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16,860,159 |
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Prepaid expenses |
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2,998,615 |
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543,570 |
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Derivative instruments |
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2,871,140 |
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955,234 |
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TOTAL CURRENT ASSETS |
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101,709,719 |
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77,298,011 |
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PROPERTY AND EQUIPMENT |
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Land and land improvements |
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31,916,240 |
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11,843,686 |
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Building structure |
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62,762,668 |
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11,528,933 |
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Grain equipment |
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30,901,632 |
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18,830,022 |
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Process equipment |
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273,491,957 |
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99,510,783 |
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Other equipment |
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6,221,051 |
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1,389,133 |
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Construction in progress |
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587,425 |
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136,378,693 |
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405,880,973 |
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279,481,250 |
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Accumulated depreciation |
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(40,617,012 |
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(22,828,998 |
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365,263,961 |
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256,652,252 |
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OTHER ASSETS |
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Investments |
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4,208,902 |
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4,128,237 |
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Other assets |
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200,000 |
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Covenant not to compete, net of amortization |
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33,333 |
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83,333 |
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Financing costs, net of amortization |
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1,963,163 |
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1,888,714 |
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6,405,398 |
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6,100,284 |
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TOTAL ASSETS |
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$ |
473,379,078 |
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$ |
340,050,547 |
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See notes to consolidated financial statements.
- 2 -
BIG
RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
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LIABILITIES AND MEMBERS EQUITY |
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2009 |
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2008 |
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CURRENT LIABILITIES |
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Payables |
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Trade |
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$ |
8,539,833 |
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$ |
7,284,621 |
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Grain |
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7,969,243 |
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8,641,900 |
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Construction |
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243,382 |
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7,724,204 |
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Accrued loss on firm purchase commitments |
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4,941,011 |
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Accrued expenses |
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5,083,871 |
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1,366,886 |
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Current maturities of long-term debt |
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24,325,696 |
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11,679,384 |
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TOTAL CURRENT LIABILITIES |
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46,162,025 |
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41,638,006 |
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LONG-TERM DEBT, less current maturities |
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176,754,976 |
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77,237,342 |
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MEMBERS EQUITY |
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238,932,449 |
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220,364,253 |
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MINORITY INTEREST |
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11,529,628 |
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810,946 |
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250,462,077 |
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221,175,199 |
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TOTAL LIABILITIES AND MEMBERS EQUITY |
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$ |
473,379,078 |
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$ |
340,050,547 |
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See notes to consolidated financial statements.
- 3 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 2009 and 2008
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2009 |
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2008 |
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SALES |
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$ |
448,145,300 |
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$ |
343,697,815 |
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COST OF SALES |
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404,828,503 |
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308,962,871 |
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GROSS PROFIT |
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43,316,797 |
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34,734,944 |
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OPERATING EXPENSES |
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General and administrative |
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10,173,451 |
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7,059,826 |
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Long-lived asset impairment |
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5,778,081 |
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INCOME FROM OPERATIONS |
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33,143,346 |
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21,897,037 |
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OTHER INCOME (EXPENSES) |
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Gain on sale of construction time slot |
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500,000 |
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Interest income |
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109,158 |
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965,799 |
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Interest expense |
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(4,844,667 |
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(1,744,727 |
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Other income (expense) |
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536,314 |
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(40,957 |
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(4,199,195 |
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(319,885 |
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NET INCOME BEFORE MINORITY INTEREST |
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28,944,151 |
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21,577,152 |
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MINORITY INTEREST IN SUBSIDIARYS (INCOME) LOSS |
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(3,718,682 |
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2,963,008 |
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NET INCOME |
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$ |
25,225,469 |
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$ |
24,540,160 |
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See notes to consolidated financial statements.
- 4 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
December 31, 2009 and 2008
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Balance - December 31, 2007 |
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$ |
200,482,209 |
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Exercise of unit options, issuance of 67 membership units |
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335,000 |
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Issuance of employee unit options |
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149,484 |
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Distributions to members |
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(5,142,600 |
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Net income |
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24,540,160 |
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Balance - December 31, 2008 |
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220,364,253 |
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Exercise of unit options, issuance of 84 membership units |
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355,013 |
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Issuance of employee unit options |
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216,754 |
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Distributions to members |
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(7,229,040 |
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Net income |
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25,225,469 |
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Balance - December 31, 2009 |
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$ |
238,932,449 |
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See notes to consolidated financial statements.
- 5 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2009 and 2008
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2009 |
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2008 |
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OPERATING ACTIVITIES |
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Net income |
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$ |
25,225,469 |
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$ |
24,540,160 |
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Charges to net income not affecting cash |
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Depreciation and amortization |
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18,136,930 |
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8,760,436 |
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Long-lived asset impairment |
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5,778,081 |
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Loss on firm purchase commitments |
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(4,941,011 |
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4,941,011 |
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Compensation recognized from stock options |
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216,754 |
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149,484 |
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Loss (gain) on derivative instruments |
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6,307,451 |
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(26,555,953 |
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Deferred income |
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(500,000 |
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Investment earnings |
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(80,665 |
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(1,360 |
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Minority interest in subsidiaries gain (loss) |
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3,718,682 |
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(2,963,008 |
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(Increase) decrease in current assets |
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Receivables |
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(17,605,830 |
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(2,741,723 |
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Inventories |
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(10,887,207 |
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1,996,209 |
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Net cash (paid) refunded on derivative instruments |
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(8,223,357 |
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25,915,907 |
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Prepaid expenses |
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(2,455,045 |
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(63,991 |
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Increase (decrease) in current liabilities |
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Accounts payable |
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582,555 |
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8,796,168 |
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Accrued expenses |
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3,716,985 |
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878,155 |
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Distributions payable |
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(4,100,680 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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13,711,711 |
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44,828,896 |
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INVESTING ACTIVITIES |
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Payments for deposits |
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(200,000 |
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Purchase of property and equipment |
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(39,464,390 |
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(137,385,506 |
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Refund of investment |
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5,000,000 |
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NET CASH USED IN INVESTING ACTIVITIES |
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(39,664,390 |
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(132,385,506 |
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FINANCING ACTIVITIES |
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Proceeds from long-term debt borrowings |
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42,466,580 |
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95,401,005 |
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Net payments on long-term revolving loan |
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(7,000,000 |
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Principal payments on long-term debt borrowings |
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(19,302,634 |
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(7,081,279 |
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Payment for financing costs |
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(313,446 |
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(1,296,798 |
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Member contributions |
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355,013 |
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335,000 |
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Minority investment |
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7,000,000 |
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Distribution to member |
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(7,229,040 |
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(5,142,600 |
) |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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15,976,473 |
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82,215,328 |
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NET DECREASE IN CASH AND CASH EQUIVALENTS |
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(9,976,206 |
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(5,341,282 |
) |
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CASH AND CASH EQUIVALENTS - beginning of year |
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50,247,424 |
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55,588,706 |
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CASH AND CASH EQUIVALENTS - end of year |
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$ |
40,271,218 |
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$ |
50,247,424 |
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See notes to consolidated financial statements.
- 6 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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NATURE OF BUSINESS - Big River Resources, LLC, its wholly-owned subsidiaries, Big River Resources West Burlington, LLC (West Burlington), Big River Resources Galva, LLC (Galva), Big River Resources Quincy, LLC (Quincy), its 50% joint venture Big River Resources Grinnell, LLC (Grinnell) and its 50.5% ownership in Big River United Energy, LLC, (collectively, the company) are limited liability companies. |
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West Burlington owns and operates an ethanol plant located in West Burlington, Iowa with an annual production nameplate capacity of 92 million gallons that produces ethanol, non-food grade corn oil and distiller grains for commercial sales throughout the United States. West Burlington operates a grain elevator near Monmouth, Illinois (Monmouth) which buys corn and soybeans from farmers as a reserve corn supply to the ethanol operation in West Burlington, Iowa and for soybean sales throughout the United States. |
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Galva owns and operates an ethanol plant located near Galva, Illinois with an annual nameplate capacity of 100 million gallons that produces ethanol, non-food grade corn oil and distiller grains for commercial sales throughout the United States. As of December 31, 2008, the company was in the development stage with its efforts being principally devoted to grain merchandising and construction activities related to the ethanol plant. Construction was completed and the ethanol plant became operational in May 2009. |
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Grinnell is a development stage company that was organized to construct an ethanol plant near Grinnell, Iowa with a planned annual nameplate capacity of 100 million. As of December 31, 2009, the company has no formal plans to develop the plant. |
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Quincy was a development stage company with no operations. In November 2008, the Board of Directors approved a resolution to dissolve Quincy and distributed the net assets to Big River Resources, LLC. |
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Big River United Energy, LLC was formed on August 1, 2009 to acquire and operate an ethanol plant located in Dyersville, Iowa with an annual production nameplate capacity of 100 million gallons of denatured ethanol. The company began production of ethanol and distiller grains for commercial sales throughout the United States on September 16, 2009. |
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In September 2009, the company executed a purchase agreement with RBF Acquisition III, LLC to purchase substantially all of the assets of the Dyersville, Iowa ethanol plant which was formerly owned by VeraSun Energy Corporation for a price of $96,000,000. |
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The following shows the allocations of the purchase consideration at the closing: |
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Inventories |
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$ |
1,523,926 |
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Property and equipment |
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94,476,074 |
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Issuance of long-term debt |
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$ |
96,000,000 |
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- 7 -
BIG
RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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PRINCIPALS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Big River Resources, LLC, and its subsidiaries. All significant intercompany account balances and transactions have been eliminated. |
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The company accounts for its investment in Grinnell on a consolidated basis because it is a variable interest entity and the company is its primary beneficiary. |
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FISCAL REPORTING PERIOD - The company has adopted a fiscal year ending December 31 for reporting financial operations. |
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USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. |
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REVENUE RECOGNITION - Revenues from the production of ethanol, distillers grains, corn oil and grain merchandising are recorded at the time title to the goods and all risks of ownership transfers to customers. Ethanol, distillers grains and corn oil are generally shipped FOB shipping point. Shipping and handling charges to customers are included in revenues. |
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CASH AND CASH EQUIVALENTS - The company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. |
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TRADE RECEIVABLES - The company has engaged the services of a national marketer to sell substantially all of its ethanol production and the majority of the distillers produced at Big River United Energy, LLC. The marketer handles nearly all sales functions including billing, logistics, and sales pricing. Once product is shipped, the marketer assumes the risk of payment from the consumer and handles all delinquent payment issues. In 2008, the company terminated its distiller grain marketing agreement at West Burlington and began marketing its own local truck distiller grains. The company generally bills weekly with payments due within 10 days of the invoice date, and considers accounts older than 120 days to be delinquent and would generally initiate collection procedures. If the collection procedures have not provided collection within one year of the invoice date, management generally will write off the account as a bad debt. Trade receivables are recorded net of anticipated uncollectible amounts. As of December 31, 2009 and 2008, there was no allowance for uncollectible amounts. |
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INVENTORIES - The ethanol, ethanol production in process, parts, chemicals and ingredients, and corn inventories are valued at the lower of cost (average cost method) or market. Soybeans and corn held at the elevator are recorded at net realizable value. |
- 8 -
BIG
RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
CONCENTRATIONS OF CREDIT RISK - The company extends credit to its customers in the ordinary course of business. The company performs periodic credit evaluations of its customers and generally does not require collateral. The companys operations may vary with the volatility of the commodity and ethanol markets. The companys cash balances are maintained in bank depositories and periodically exceed federally insured limits. |
|
|
|
PROPERTY AND EQUIPMENT - Property and equipment are stated at the lower of cost or fair value. Significant additions and betterments are capitalized with expenditures for maintenance, repairs and minor renewals being charged to operations as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives: |
|
|
Land improvements |
1520 years |
Building structure |
1020 years |
Grain equipment |
515 years |
Process equipment |
520 years |
Other equipment |
515 years |
|
|
|
Construction in progress includes all expenditures directly related to the fermenters automated control system at the West Burlington plant, the distiller grains container loading system at the Galva plant and fermentation system at the Big River United Energy, LLC plant. These expenditures will be depreciated using the straight-line method over various estimated useful lives once the assets are placed into service. |
|
|
|
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 undiscounted 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. At December 31, 2008, fair value of the land asset at Grinnell was estimated using the sales comparison, cost and market approaches which were included in an asset appraisal performed in 2008. The resulting long-lived asset impairment expense of $5,778,081 is included in loss from operations on the statement of operations at December 31, 2008. |
|
|
|
DERIVATIVE INSTRUMENTS - The company recognizes its derivatives in the balance sheet and measures these instruments at fair value. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. |
- 9 -
BIG
RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
DERIVATIVE INSTRUMENTS (continued) - Additionally, the company evaluates its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted 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 of time in the normal course of business. |
|
|
|
Effective January 1, 2009, the company has elected to record its forward purchase and sales commitments at fair value as derivative instruments which the company believes to represent more accurate financial reporting. These contracts are marked to market as an asset or liability and a corresponding gain or loss is recognized for the change in market value. |
|
|
|
FINANCING COSTS - Financing costs are recorded at cost and include expenditures directly related to securing debt financing. Amortization is computed using the straight-line method over the loans terms from six to eight years. |
|
|
|
DEPOSITS - Deposits include monies deposited for a distilled spirits bond and is recorded at the scheduled recoverable value. |
|
|
|
INVESTMENTS - Investments include stock in a lending cooperative bank and membership units in an ethanol plant located in Mitchell County, Iowa. The stock in a lending cooperative bank is recorded under the equity method which records the companys share of the allocated earnings and distributions. The membership units in the ethanol plant are recorded at cost. |
|
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS - Effective January 1, 2009, the company adopted, Fair Value Measurements Topic and Fair Value Option for Financial Assets and Financial Liabilities Topic of the FASB Accounting Codification, as they apply to its financial instruments. Fair Value Measurements defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements. Fair Value Option for Financial Assets and Financial Liabilities permits companies to irrevocably choose to measure certain financial instruments and other items at fair value. Fair Value Option for Financial Assets and Financial Liabilities also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. |
- 10 -
BIG
RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) - Under Fair Value Measurements, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Fair Value Measurements establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Fair Value Measurements requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. |
|
|
|
Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in its balance sheets, the company has elected not to record any other assets or liabilities at fair value, as permitted by Fair Value Option for Financial Assets and Financial Liabilities. |
|
|
|
No events occurred during the year ended December 31, 2009 that would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis. The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximates fair value. It is not currently practicable to estimate the fair value of the debt financing. Because these agreements contain certain unique terms, covenants, and restrictions, as discussed in Note E, there are no readily determinable similar instruments on which to base an estimate of fair value. The company estimates that the fair value of all financial instruments at December 31, 2009 approximates their carrying values in the accompanying balance sheet. |
|
|
|
COVENANT NOT TO COMPETE - The company established a non-compete agreement with the former owners of the elevator at the acquisition date. The agreement requires annual payments of $50,000 for 5 years in exchange for the former owners compliance with the agreement. The intangible asset is being amortized over the 5 year term of the agreement using the straight-line method. |
|
|
|
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 members and are taxed at the member level. The company is required to pay taxes to the State of Illinois. |
|
|
|
STOCK-BASED COMPENSATION The company accounts for stock-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the company using a fair value based method. The company uses the Black-Scholes-Merton (BSM) option-pricing model to determine the fair value of stock-based awards. |
- 11 -
BIG
RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE B: INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Ethanol |
|
$ |
5,046,540 |
|
$ |
1,549,548 |
|
|
Ethanol in process |
|
|
4,837,774 |
|
|
1,718,150 |
|
|
Distiller grains |
|
|
947,668 |
|
|
165,889 |
|
|
Corn |
|
|
9,048,762 |
|
|
2,781,904 |
|
|
Corn Oil |
|
|
43,176 |
|
|
31,694 |
|
|
Repair parts |
|
|
1,901,817 |
|
|
1,377,200 |
|
|
Chemicals and ingredients |
|
|
1,199,794 |
|
|
394,209 |
|
|
Corn and soybeans held at elevators |
|
|
6,245,761 |
|
|
8,841,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,271,292 |
|
$ |
16,860,159 |
|
|
|
|
|
|
|
|
|
|
NOTE C: DERIVATIVE INSTRUMENTS
|
|
|
The company enters into derivative transactions to hedge its exposure to commodity price fluctuations. The company does not enter into derivative transactions for trading or speculative purposes. |
|
|
|
The company, as a holder of derivative instruments, is required to provide qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. |
|
|
|
During 2009 and 2008, the company entered into corn, distillers grains, corn oil, natural gas, and ethanol derivative instruments. The company is required to record derivative financial instruments as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Furthermore, the company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge, or a hedge against foreign currency exposure. |
|
|
|
Commodity Contracts |
|
|
|
The company hedges a portion of its future corn purchases and ethanol sales as well as its elevator corn and soybean purchases and sales to the extent considered necessary for minimizing risk from market price fluctuations. In connection with the execution of forward contracts at its ethanol plant and elevator operations, the company normally elects to create a hedging relationship by executing an exchange traded futures contract as an offsetting position. In this situation, the forward contract is valued at market price until delivery is made against the contract. The amounts recorded on the balance sheet represent the current fair market value of the instruments as determined by the broker with adjustments made by management for local basis. |
- 12 -
BIG
RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE C: DERIVATIVE INSTRUMENTS (continued)
|
|
|
These derivatives are not designated as hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Management expects all open positions outstanding as of December 31, 2009 to be realized within the next fiscal year. |
The open derivative instruments as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
Ethanol Plants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
|
|
|
|
|
|
Corn |
|
|
15,274,000 |
|
|
Bu |
|
|
|
|
|
|
|
|
|
|
|
Forward sales contracts |
|
|
|
|
|
|
|
|
Ethanol |
|
|
13,354,000 |
|
|
Gal |
|
|
Distillers grains |
|
|
83,000 |
|
|
Ton |
|
|
Corn Oil |
|
|
1,798,000 |
|
|
Pounds |
|
|
|
|
|
|
|
|
|
|
|
Positions on the Chicago Board of Trade |
|
|
|
|
|
|
|
|
Corn (short) |
|
|
7,985,000 |
|
|
Bu |
|
|
Ethanol (short) |
|
|
19,411,500 |
|
|
Gal |
|
|
|
|
|
|
|
|
|
|
|
Grain Elevator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
|
|
|
|
|
|
Corn |
|
|
330,000 |
|
|
Bu |
|
|
Soybeans |
|
|
50,000 |
|
|
Bu |
|
|
|
|
|
|
|
|
|
|
|
Forward sales contracts |
|
|
|
|
|
|
|
|
Corn |
|
|
550,000 |
|
|
Bu |
|
|
Soybeans |
|
|
30,000 |
|
|
Bu |
|
|
|
|
|
|
|
|
|
|
|
Positions on the Chicago Board of Trade |
|
|
|
|
|
|
|
|
Corn (short) |
|
|
1,180,000 |
|
|
Bu |
|
|
Soybeans (short) |
|
|
190,000 |
|
|
Bu |
|
|
|
|
The following tables provide details regarding the companys derivative financial instruments at December 31, 2009, none of which are designated as hedging instruments: |
- 13 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE C: DERIVATIVE INSTRUMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet location |
|
|
Assets |
|
Liabilities |
|
||
|
|
|
|
|
|
|
|
|
||
Commodity contracts |
|
Derivative instruments |
|
$ |
2,871,140 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Statement of |
|
Gain (loss) recognized for the year |
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Cost of sales |
|
|
$ (6,307,451) |
|
NOTE D: FAIR VALUE MEASUREMENTS
The following table provides information on those assets measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
Quoted |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
2,871,140 |
|
$ |
2,871,140 |
|
$ |
|
|
$ |
|
|
NOTE E: LONG-TERM DEBT
|
|
|
|
|
|
|
|
West Burlington |
|
|
|
|
|
|
|
Construction and term loan, further terms detailed below. |
|
$ |
38,936,061 |
|
$ |
50,500,000 |
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $4,146 per month until January 2018 secured by letter of credit Note L. |
|
|
400,000 |
|
|
400,000 |
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $3,704 per month until July 28, 2014, secured by letter of credit Note L. |
|
|
211,111 |
|
|
255,556 |
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Iowa Department of Economic Development payable at $1,750 per month until February 2010 when $106,750 is due, secured by substantially all assets of the company. |
|
|
108,500 |
|
|
127,750 |
|
- 14 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE E: LONG-TERM DEBT (continued)
|
|
|
|
|
|
|
|
West Burlington (continued) |
|
|
|
|
|
|
|
Non-interest bearing non-compete agreement payable at $50,000 per year until September 2010,unsecured. |
|
$ |
50,000 |
|
$ |
100,000 |
|
|
|||||||
Galva |
|
|
|
|
|
|
|
Construction and term loan, further terms detailed below. |
|
|
67,375,000 |
|
|
27,533,420 |
|
|
|
|
|
|
|
|
|
Construction and revolving loan, further terms detailed below. |
|
|
5,000,000 |
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
Big River United Energy, LLC |
|
|
|
|
|
|
|
Term loan, further terms detailed below. |
|
|
76,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Revolving term loan, further terms detailed below. |
|
|
13,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,080,672 |
|
|
88,916,726 |
|
Current maturities |
|
|
(24,325,696 |
) |
|
(11,679,384 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
176,754,976 |
|
$ |
77,237,342 |
|
|
|
|
|
|
|
|
|
Long-term debt maturities are as follows:
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
$ |
24,325,696 |
|
2011 |
|
|
|
25,626,191 |
|
2012 |
|
|
|
26,832,540 |
|
2013 |
|
|
|
26,832,540 |
|
2014 |
|
|
|
17,837,762 |
|
Thereafter |
|
|
|
79,625,943 |
|
|
|
|
|
|
|
|
|
|
$ |
201,080,672 |
|
|
|
|
|
|
|
West Burlington
The company entered into a credit agreement with CoBank to partially finance the construction of the plant expansion. Under the credit agreement, the lender has provided a construction and term loan for $55,000,000 and a construction and revolving term loan of $20,000,000. The loans are secured by substantially all assets and mortgage on real estate.
- 15 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE E: LONG-TERM DEBT (continued)
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: agent base variable rate, quoted fixed per annum rate or a fixed rate of LIBOR plus 3.00% (3.5% at December 31, 2009). The company shall select the applicable rate option at the time of each loan request. Once the company has shown profitable operations and completed the $9,000,000 in free cash flow payments, the interest rate parameters will be decreased from 0.0% to minus 0.25% for the agent base variable rate option and from plus 3.00% to plus 2.75% for the LIBOR fixed rate option. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2009 and 2008, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Construction and term loan |
|
|
|
The company is required to make 24 quarterly principal installments of $2,250,000 beginning in August 2008 until May 2014 with a final installment in an amount equal to the remaining unpaid balance on August 2014. In addition to the required payments, the company, beginning with the fiscal year ending 2008 and ending with the fiscal year 2010, is required to make additional principal payments equal to 75% of the Companys excess cash flow as defined in the loan agreement not to exceed an aggregate total of $9,000,000. Based on the operating results for the year ended December 31, 2009, the company is required to make an additional principal payment of $2,930,839 in 2010 which is included in current maturities of long-term debt. |
|
|
|
Construction and revolving term loan |
|
|
|
The company is required to make semi-annual principal payments beginning on March 2015 until March 2017 of a reducing commitment amount as follows: |
|
|
|
|
|
|
|
Commitment |
|
|
Payment Date |
|
Amount |
|
|
|
|
|
|
|
March 1, 2015 |
|
$ |
16,000,000 |
|
September 1, 2015 |
|
|
12,000,000 |
|
March 1, 2016 |
|
|
8,000,000 |
|
September 1, 2016 |
|
|
4,000,000 |
|
March 1, 2017 |
|
|
0 |
|
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment. As of December 31, 2009 and 2008, the company had no advances on this revolving term loan. |
- 16 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE E: LONG-TERM DEBT (continued)
|
|
|
Galva |
|
|
|
In January 2008, the company entered into a credit agreement with CoBank to partially finance the construction of the plant. Under the credit agreement, the lender has provided a construction and term loan for $70,000,000 and a construction and revolving term loan of $20,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: agent base variable rate, quoted fixed per annum rate or a fixed rate of LIBOR plus 3.25% (3.75% at December 31, 2009). The company shall select the applicable rate option at the time of each loan request. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions and capital expenditures, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2009 and 2008, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Construction and term loan |
|
|
|
The company is required to make 25 quarterly principal installments of $2,625,000 beginning in December 2009 until December 2015 with a final installment in an amount equal to the remaining unpaid balance in January 2016. In addition to the required payments, beginning with the fiscal year ending 2009, the company is required to make additional principal payments equal to 75% of the companys excess cash flow as defined in the loan agreement. Based on the operating results for the year ended December 31, 2009, the company is required to make an additional principal payment of $1,641,912 in 2010, which is included in current maturities of long-term debt. |
|
|
|
Construction and revolving term loan |
|
|
|
The company is required to repay the outstanding loan balance at the time the commitment expires on June 1, 2016. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment. |
- 17 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE E: LONG-TERM DEBT (continued)
|
|
|
Big River United Energy, LLC |
|
|
|
The company entered into a credit agreement with AgStar to finance the purchase of the plant. Under the credit agreement, the lender has provided a term loan for $76,000,000, a term revolving loan of $20,000,000 and a revolving line of credit of $12,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2009, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Term loan |
|
|
|
The company is required to make interest only payments beginning in January 2010 based on a variable interest rate of 3.0% plus the greater of the LIBOR Rate or 2.0% (5% at December 31, 2009) until March 2011. Monthly principal and interest installments begin in April 2011 with a final installment in an amount equal to the remaining unpaid balance on September 15, 2015. |
|
|
|
Revolving term loan |
|
|
|
The company is required to make interest only payments beginning in January 2010 based on a variable interest rate of 3.0% plus the greater of the LIBOR Rate or 2.0% (5% at December 31, 2009) until maturity, September 15, 2015, when the amount of unpaid principal balance shall be payable in full. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment until September 15, 2015. |
|
|
|
Revolving Line of Credit |
|
|
|
The company is required to make interest only payments on any drawn funds beginning in January 2010 based on a variable interest rate of 4.0% plus the greater of the LIBOR Rate or 2.0% (6% at December 31, 2009) until maturity, September 15, 2015 when the amount of unpaid principal balance and all other amounts due shall be due. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment until September 15, 2015. As of December 31, 2009, the company has no funds drawn under this line of credit. |
- 18 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE F: MEMBERS EQUITY
|
|
|
The company was formed on March 6, 2006 as an Iowa Limited Liability Company and has a perpetual life. The companys ownership is divided into four classes of units: Class A, B, C and D membership units. The profits and losses of the company will be allocated among the unit holders in proportion to the total units held. Distributions will be made to unit holders in proportion to the total units held. Each member is entitled to one vote for each unit held as to matters submitted to the membership. |
|
|
|
The Class A members appoint nine directors and Class B members appoint eight directors to the board of directors. Each member who holds 1,000 units is deemed to be a Class C unit holder and is entitled to appoint one director to the board of directors. The total number of directors appointed by the Class A members shall increase by one director for each additional Class C or Class D director appointed under the terms of the operating agreement. As of December 31, 2009, there are eleven Class A, eight Class B and two Class C directors. Transfer of the units is restricted pursuant to the operating agreement and to the applicable tax and securities laws and requires approval of the board of managers. |
|
|
|
As of December 31, 2009 and 2008, the company had the following membership units issued: |
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
||
Class A |
|
|
5,033.40 |
|
|
5,033.40 |
|
Class B |
|
|
3,666.00 |
|
|
3,666.00 |
|
Class C |
|
|
3,500.00 |
|
|
3,500.00 |
|
Class D |
|
|
8,455.00 |
|
|
8,371.00 |
|
|
|
|
|
|
|
|
|
|
|
|
20,654.40 |
|
|
20,570.40 |
|
|
|
|
|
|
|
|
|
- 19 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE G: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
The following is a schedule of supplemental disclosure of cash flow information for the years ended December 31, 2009 and 2008: |
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid for interest (net of capitalized interest of $84,619 and $128,519 in 2009 and 2008, respectively) |
|
$ |
3,206,237 |
|
$ |
1,581,351 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Accounts payable incurred for construction in progress |
|
$ |
243,382 |
|
$ |
7,724,204 |
|
|
|
|
|
|
|
|
|
Amortization of financing costs capitalized a construction in progress |
|
$ |
|
|
$ |
23,514 |
|
|
|
|
|
|
|
|
|
Acquisition of net assets of RBF Acquisition III, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired |
|
|
|
|
|
|
|
Inventories |
|
$ |
1,523,926 |
|
$ |
|
|
Property and equipment |
|
|
94,476,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
$ |
96,000,000 |
|
$ |
|
|
|
|
|
|
|
|
|
|
NOTE H: CONCENTRATIONS
|
|
|
The company has an ethanol marketing agreement with an unrelated party which covers the entire ethanol marketing for the company. The agreement is renewed annually for one year terms, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement with a minimum and maximum cost per gallon. The ethanol could be marketed by other marketers without any significant effect on operations. |
|
|
|
In August 2009, the company entered into a co-products marketing agreement with an unrelated party which covers a majority of the distillers grain marketing for BIG RIVER UNITED ENERGY, LLC. The initial term of the agreement ends August 2010 and shall be automatically extended for additional one year terms thereafter, unless with either party provides a 90 day written notice of termination. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement. |
- 20 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
NOTE I: EMPLOYEE BENEFIT PLAN |
|
|
|
|
The company has a defined contribution plan which covers full-time employees who meet age and length of service eligibility requirements. The company matches the participants contribution up to a maximum of 4% of wages. For the years ended December 31, 2009 and 2008, company matching contributions to the plan were $162,231 and $101,773, respectively. |
|
|
NOTE J: EQUITY-BASED COMPENSATION |
|
|
|
|
In 2009, the company approved an equity-based compensation plan which provides for the issuance of unit options to purchase an aggregate of 123 units of the company to members of the board of directors and management for the purpose of providing services to facilitate the completion of the construction of Galvas ethanol plant. The unit options were issued in August 2009 and were exercisable at purchase prices between $1 and $5,000 per unit until October 2009. |
|
|
|
The following assumptions were used to estimate the fair values of the options granted using the BSM option-pricing formula: The risk-free interest rate of 0.1% to 0.03% is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of 3 months and the expected volatility of 70.27% are based on the average reported lives and volatilities of a representative sample of a comparable company in the ethanol industry sector. The intrinsic value is calculated as the difference between the $5,000 per unit exercise price of the options and the $5,900 estimated current fair market value. |
|
|
|
In October 2009, the members exercised 84 unit options and the company issued 84 Class D membership units for a total contribution of $355,013. |
|
|
|
In 2008, the company approved an equity-based compensation plan which provides for the issuance of unit options to purchase an aggregate of 75 units of the company to members of the board of directors for the purpose of providing services to facilitate the expansion of the West Burlington facilities to 92 million gallons annual production. The unit options were issued in July 2008. The unit options were exercisable at a purchase price of $5,000 per unit until September 2008. |
|
|
|
The following assumptions were used to estimate the fair values of the options granted using the BSM option-pricing formula: The risk-free interest rate of 1.82% is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of 3 months and the expected volatility of 43% are based on the average reported lives and volatilities of a representative sample of two comparable companies in the ethanol industry sector. The intrinsic value is calculated as the difference between the $5,000 per unit exercise price of the options and the $7,300 estimated current fair market value. |
|
|
|
In September 2008, the members exercised 60 unit options and the company issued 60 Class D membership units for a total equity contribution of $300,000. |
- 21 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
NOTE J: EQUITY-BASED COMPENSATION (continued) |
|
|
|
|
The company recognized unit-based compensation expense of $216,754 and $149,484 for the years ended December 31, 2009 and 2008. |
|
|
|
The following table summarizes the activity for outstanding options of the company: |
|
|
|
|
|
|
|
|
|
|
Issuable |
|
Average |
|
||
|
|
|
|
|
|
||
Balance at December 31, 2007 |
|
|
10 |
|
$ |
5,000 |
|
Granted |
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
Canceled/forfeited/expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
10 |
|
|
5,000 |
|
Granted |
|
|
123 |
|
|
4,472 |
|
Exercised |
|
|
84 |
|
|
4,226 |
|
Canceled/forfeited/expired |
|
|
49 |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE K: LEASES
|
|
|
The company leases rail cars under a long-term operating lease agreement expiring at various dates through May 2014. The company is required to pay executory costs such as maintenance and insurance. Minimum fixed future lease payments consist of: |
|
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
$ |
5,477,063 |
|
|
2011 |
|
|
|
5,460,713 |
|
|
2012 |
|
|
|
4,393,006 |
|
|
2013 |
|
|
|
2,458,845 |
|
|
2014 |
|
|
|
358,920 |
|
|
|
|
|
|
|
|
|
Total minimum future lease payments |
|
$ |
18,148,547 |
|
|
|
|
|
|
|
|
|
|
|
Total rent expense of $3,420,803 and $1,821,423 was incurred in 2009 and 2008, respectively. |
- 22 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
NOTE L: COMMITMENTS AND CONTINGENCIES |
|
|
|
|
Substantially all of the companies facilities are subject to federal, state, and local regulations relating to the discharge of materials into the environment. Compliance with these provisions has not had, nor does management expect to have, any material effect upon operations. Management believes that the current practices and procedures for the control and disposition of such wastes will comply with the applicable federal and state requirements. |
|
|
|
BIG RIVER RESOURCES WEST BURLINGTON, LLC |
|
|
|
The company has construction in progress at December 31, 2009 for the fermenters automated control system at the West Burlington plant. At December 31, 2009, the company has outstanding commitments related to the construction in progress of approximately $438,000. |
|
|
|
The company has issued unsecured promissory notes for the specific purpose of letter of credits totaling $622,222, which expire through September 2010, as security of certain debts. There is no amount drawn against these promissory notes as of December 31, 2009. |
|
|
|
BIG RIVER RESOURCES GALVA, LLC |
|
|
|
In October 2006, the company entered into a development agreement with the City of Kewanee for the extension of the Enterprise Zone, to include land east of Galva upon which the company intends to construct the ethanol facility. The company was obligated to compensate the City of Kewanee an amount equal to 20% of the gross value of any retailers occupation tax exemption for which the company is eligible. Based on construction cost estimates at the time of execution of the agreement, an amount of $300,000 was estimated and paid within three months after the completion of construction. In addition, the company is obligated to pay an amount equal to 20% of the gross value of the state use tax exemption that results from the purchase of any utility product, commodity or resource that such tax may be exempted from under the regulations of the enterprise zone before an extension and as it may be amended. Based on the estimated usage of natural gas at the time of the execution of the agreement, an amount of $160 per year is estimated to be payable in quarterly installments. The term of the agreement commenced on the date of execution and shall expire December 31, 2017. For the years ended December 31, 2009 and 2008, the company made payments totaling $406,668 and $0, respectively under this agreement. |
- 23 -
BIG RIVER RESOURCES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
|
|
NOTE M: SUBSEQUENT EVENTS |
|
|
|
|
Subsequent to year end, GS Clean Tech Corp. has filed a lawsuit against Big River Resources West Burlington, LLC and Big River Resources Galva, LLC in the U.S. District Court for infringement rights on its patent covering corn oil extraction technology. On July 1, 2009, Big River Resources Galva, LLC entered into a Corn Oil Tricanter Purchase and Installation Agreement with ICM, Inc. This agreement includes an indemnification clause that holds Big River Resources West Burlington, LLC and Big River Resources Galva, LLC harmless from all claims, liabilities, and costs including attorney fees arising out of the infringement of adversely owned patents. Due to this indemnification clause, the company does not expect to incur any costs related to the litigation. As such, no liability has been recorded as of December 31, 2009. |
|
|
|
In preparing these financial statements, the company has evaluated events and transactions for potential recognition or disclosure through February 18, 2010, the date the financial statements were available to be issued. |
- 24 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2007 and
Four Month Period Ended December 31, 2006
CHRISTIANSON & ASSOCIATES, PLLP
Certified Public Accountants and Consultants
Willmar, Minnesota
TABLE OF CONTENTS
|
|
|
|
|
PAGE NO |
|
|
|
|
|
|
|
1 |
|
|
|
|
FINANCIAL STATEMENTS |
|
|
|
|
|
|
2 |
|
|
|
|
|
4 |
|
|
|
|
|
5 |
|
|
|
|
|
6 |
|
|
|
|
|
7 |
To
the Board of Directors
Big River Resources, LLC
West Burlington, Iowa
We have audited the accompanying consolidated balance sheets of Big River Resources, LLC (an Iowa limited liability company) as of December 31, 2007 and 2006 and the related consolidated statements of operations, members equity, and cash flows for the year ended December 31, 2007 and 2006. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 Big River Resources, LLC as of December 31, 2007 and 2006 and the results of its operations and its cash flows for the year ended December 31, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.
/s/
Christianson & Associates, PLLP
Certified Public Accountants and Consultants
February 6, 2008
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
55,588,706 |
|
$ |
16,469,036 |
|
Receivables |
|
|
|
|
|
|
|
Trade |
|
|
5,170,559 |
|
|
4,948,720 |
|
Other |
|
|
779,342 |
|
|
346,502 |
|
Inventories |
|
|
18,856,368 |
|
|
15,450,920 |
|
Prepaid expenses |
|
|
479,579 |
|
|
375,498 |
|
Commodity contracts and margin deposits |
|
|
315,188 |
|
|
1,027,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
81,189,742 |
|
|
38,617,739 |
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
|
Land and land improvements |
|
|
11,764,668 |
|
|
11,891,267 |
|
Building structure |
|
|
11,240,105 |
|
|
10,583,619 |
|
Grain equipment |
|
|
12,046,194 |
|
|
8,368,667 |
|
Process equipment |
|
|
94,459,277 |
|
|
38,777,057 |
|
Other equipment |
|
|
673,056 |
|
|
823,194 |
|
Construction in progress |
|
|
35,662,324 |
|
|
6,185,758 |
|
Construction slot |
|
|
|
|
|
2,156,154 |
|
|
|
|
|
|
|
|
|
|
|
|
165,845,624 |
|
|
78,785,716 |
|
Accumulated depreciation |
|
|
(14,304,573 |
) |
|
(9,625,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
151,541,051 |
|
|
69,160,359 |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
Investments |
|
|
9,126,877 |
|
|
4,106,779 |
|
Other assets |
|
|
90,000 |
|
|
90,000 |
|
Covenant not to compete, net of amortization |
|
|
133,333 |
|
|
183,333 |
|
Financing costs, net of amortization |
|
|
731,441 |
|
|
202,334 |
|
|
|
|
|
|
|
|
|
|
|
|
10,081,651 |
|
|
4,582,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
242,812,444 |
|
$ |
112,360,544 |
|
|
|
|
|
|
|
|
|
See notes to financial statements.
-2-
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Accounts payable - trade |
|
$ |
3,653,378 |
|
$ |
2,015,090 |
|
Accounts payable - grain |
|
|
3,476,975 |
|
|
4,096,303 |
|
Accounts payable - construction |
|
|
25,739,517 |
|
|
3,969,179 |
|
Distributions payable |
|
|
4,100,680 |
|
|
7,249,500 |
|
Deferred income |
|
|
500,000 |
|
|
1,500,000 |
|
Accrued expenses |
|
|
|
|
|
|
|
Compensation |
|
|
295,229 |
|
|
46,633 |
|
Interest |
|
|
|
|
|
6,002 |
|
State income tax |
|
|
50,000 |
|
|
97,614 |
|
Other |
|
|
143,502 |
|
|
1,291 |
|
Current maturities of long-term debt |
|
|
115,445 |
|
|
115,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
38,074,726 |
|
|
19,097,057 |
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, less current maturities |
|
|
481,555 |
|
|
598,750 |
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY |
|
|
200,482,209 |
|
|
92,664,737 |
|
MINORITY INTEREST |
|
|
3,773,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,256,163 |
|
|
92,664,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND MEMBERS EQUITY |
|
$ |
242,812,444 |
|
$ |
112,360,544 |
|
|
|
|
|
|
|
|
|
See notes to financial statements.
-3-
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2007 and Four Months Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
|
|||||||
SALES |
|
$ |
130,448,951 |
|
$ |
45,241,517 |
|
|
|
|
|
|
|
|
|
COST OF SALES |
|
|
104,032,549 |
|
|
29,157,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
26,416,402 |
|
|
16,083,623 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
5,542,350 |
|
|
1,819,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
|
20,874,052 |
|
|
14,263,935 |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
Gain on sale of construction time slot |
|
|
8,843,846 |
|
|
500,000 |
|
Interest income |
|
|
1,687,929 |
|
|
284,845 |
|
Interest expense |
|
|
|
|
|
(105,168 |
) |
State income tax expense |
|
|
(50,000 |
) |
|
(97,614 |
) |
Other income |
|
|
403,335 |
|
|
50,535 |
|
|
|
|
|
|
|
|
|
|
|
|
10,885,110 |
|
|
632,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE MINORITY INTEREST |
|
|
31,759,162 |
|
|
14,896,533 |
|
|
|
|
|
|
|
|
|
MINORITY INTEREST IN SUBSIDIARYS LOSS |
|
|
124,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
31,883,331 |
|
$ |
14,896,533 |
|
|
|
|
|
|
|
|
|
See notes to financial statements.
-4-
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
Years ended December 31, 2007 and Four Months Ended December 31, 2006
|
|
|
|
|
Balance - August 31, 2006 |
|
$ |
47,912,431 |
|
|
|
|
|
|
Issuance of 2,749.93 membership units |
|
|
27,544,349 |
|
|
|
|
|
|
Costs of raising capital |
|
|
(175,791 |
) |
|
|
|
|
|
Issuance of 267.28 membership units |
|
|
2,672,954 |
|
|
|
|
|
|
Distribution to member |
|
|
(185,739 |
) |
|
|
|
|
|
Net income |
|
|
14,896,533 |
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2006 |
|
|
92,664,737 |
|
|
|
|
|
|
Issuance of 17,486.19 membership units |
|
|
87,622,698 |
|
|
|
|
|
|
Issuance of employee stock options |
|
|
77,760 |
|
|
|
|
|
|
Distributions to members |
|
|
(11,766,317 |
) |
|
|
|
|
|
Net income |
|
|
31,883,331 |
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2007 |
|
$ |
200,482,209 |
|
|
|
|
|
|
See notes to financial statements.
-5-
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2007 and Four Months Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
|
$ |
31,883,331 |
|
$ |
14,896,533 |
|
Charges to net income not affecting cash |
|
|
|
|
|
|
|
Depreciation |
|
|
4,521,636 |
|
|
1,366,437 |
|
Compensation recognized from stock options |
|
|
77,760 |
|
|
|
|
Amortization |
|
|
252,334 |
|
|
28,665 |
|
Loss on hedging activities |
|
|
(162,575 |
) |
|
1,245,746 |
|
Deferred income |
|
|
(1,000,000 |
) |
|
1,500,000 |
|
Investment earnings |
|
|
(20,098 |
) |
|
|
|
Minority interest in subsidiarys loss |
|
|
(124,169 |
) |
|
|
|
(Increase) decrease in current assets |
|
|
|
|
|
|
|
Receivables |
|
|
(654,679 |
) |
|
989,596 |
|
Inventories |
|
|
(3,405,448 |
) |
|
(8,232,743 |
) |
Net cash paid on hedging activities |
|
|
874,450 |
|
|
(2,267,506 |
) |
Prepaid expenses |
|
|
(104,081 |
) |
|
(207,688 |
) |
Increase (decrease) in current liabilities |
|
|
|
|
|
|
|
Accounts payable |
|
|
1,018,960 |
|
|
628,292 |
|
Accrued expenses |
|
|
337,191 |
|
|
(314,618 |
) |
Distributions payable |
|
|
(3,148,820 |
) |
|
(7,094,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
30,345,792 |
|
|
2,538,163 |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(65,131,990 |
) |
|
(8,103,071 |
) |
Purchase of investment |
|
|
(5,000,000 |
) |
|
|
|
Payment from other assets |
|
|
|
|
|
31,998 |
|
Proceeds from the sale of real estate |
|
|
|
|
|
161,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(70,131,990 |
) |
|
(7,909,811 |
) |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Principal payments on long-term debt borrowings |
|
|
(117,195 |
) |
|
(7,471,815 |
) |
Net payments on revolving long-term debt |
|
|
|
|
|
(13,936,000 |
) |
Payment for financing costs |
|
|
(731,441 |
) |
|
|
|
Member contributions |
|
|
87,622,698 |
|
|
30,217,303 |
|
Costs of raising capital |
|
|
|
|
|
(175,791 |
) |
Distribution to member |
|
|
(11,766,317 |
) |
|
(185,739 |
) |
Minority investment |
|
|
3,898,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
78,905,868 |
|
|
8,447,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
39,119,670 |
|
|
3,076,310 |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - beginning of year |
|
|
16,469,036 |
|
|
13,392,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - end of year |
|
$ |
55,588,706 |
|
$ |
16,469,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid for interest (net of capitalized interest of $165,987 and $38,453 in 2007 and 2006, respectively) |
|
$ |
|
|
$ |
178,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Accounts payable incurred for construction in progress |
|
$ |
25,739,517 |
|
$ |
3,969,179 |
|
|
|
|
|
|
|
|
|
See notes to financial statements.
-6-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
NATURE OF BUSINESS - Big River Resources, LLC, its wholly-owned subsidiaries, Big River Resources West Burlington, LLC (West Burlington), Big River Resources Galva, LLC (Galva), Big River Resources Quincy, LLC (Quincy), and its 50% joint venture Big River Resources Grinnell, LLC (Grinnell), (collectively, the company) are limited liability companies. |
|
|
|
West Burlington owns and operates an ethanol plant located in West Burlington, Iowa with an annual capacity of 92 million gallons that produces ethanol and distiller grains for commercial sales throughout the United States. West Burlington operates a grain elevator near Monmouth, Illinois (Monmouth) which buys corn and soybeans from farmers as a reserve corn supply to the ethanol operation in West Burlington, Iowa and for soybean sales throughout the United States. |
|
|
|
Galva is a development stage company that is constructing an ethanol plant near Galva, Illinois with a planned annual capacity of 100 million gallons with its efforts being principally devoted to organizational and construction activities. |
|
|
|
Grinnell is a development stage company that is constructing an ethanol plant near Grinnell, Illinois with a planned annual capacity of 100 million gallons with its efforts being principally devoted to organizational and construction activities. |
|
|
|
Quincy is a development stage companies with no operations. |
|
|
|
PRINCIPALS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Big River Resources, LLC, and its subsidiaries. All significant intercompany account balances and transactions have been eliminated. |
|
|
|
The company accounts for its investment in Grinnell on a consolidated basis because it is a variable interest entity and the company is its primary beneficiary. |
|
|
|
FISCAL REPORTING PERIOD - The company has adopted a fiscal year ending December 31 for reporting financial operations. |
|
|
|
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. |
|
|
|
REVENUE RECOGNITION - Revenues from the production of ethanol and distillers grains are recorded when title transfers to customers. Ethanol and distillers grains are generally shipped FOB shipping point. Shipping and handling charges to customers are included in revenues. |
-7-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
In accordance with the companys agreements for the marketing and sale of ethanol and distillers grains, commissions due to the marketers are deducted from the gross sales price at the time payment is remitted to the company. |
|
|
|
CASH AND CASH EQUIVALENTS - The company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. |
|
|
|
TRADE RECEIVABLES - The company has engaged the services of a national marketer to sell substantially all of its ethanol and distiller grain production. The marketer handles nearly all sales functions including billing, logistics, and sales pricing. Once product is shipped, the marketer assumes the risk of payment from the consumer and handles all delinquent payment issues. The company considers accounts older than 120 days to be delinquent and would generally initiate collection procedures. If the collection procedures have not provided collection within one year of the invoice date, management generally will write off the account as a bad debt. Trade receivables are recorded net of anticipated uncollectible amounts. As of December 31, 2007 and 2006, there was no allowance for uncollectible amounts. |
|
|
|
INVENTORIES - The ethanol, ethanol production in process, parts, chemicals and ingredients, and corn inventories are valued at the lower of cost (average cost method) or market. Soybeans and corn held at the elevator are recorded at net realizable value. |
|
|
|
CONCENTRATIONS OF CREDIT RISK - The company extends credit to its customers in the ordinary course of business. The company performs periodic credit evaluations of its customers and generally does not require collateral. The companys operations may vary with the volatility of the commodity and ethanol markets. The companys cash balances are maintained in bank depositories and periodically exceed federally insured limits. |
|
|
|
PROPERTY AND EQUIPMENT - Property and equipment are stated at the lower of cost or fair value. Significant additions and betterments are capitalized with expenditures for maintenance, repairs and minor renewals being charged to operations as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives: |
|
|
|
|
|
Land and land improvements |
1520 years |
|
|
Building structure |
1020 years |
|
|
Grain equipment |
515 years |
|
|
Process equipment |
520 years |
|
|
Other equipment |
515 years |
|
-8-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
Construction in progress includes all expenditures directly related to the construction of the Galva and Grinnell ethanol plants and the expansion of the rail yard at the West Burlington plant. These expenditures will be depreciated using the straight-line method over various estimated useful lives once the assets are placed into service. |
|
|
|
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. As of December 31, 2007, no impairment loss is recorded. |
|
|
|
COMMODITY HEDGE ACCOUNT - The company hedges a portion of its forward corn and soybean purchase contracts and corn and natural gas costs and ethanol sales to the extent considered necessary for minimizing risk from market price fluctuations. |
|
|
|
The hedge account recorded on the balance sheet includes the unrealized market gains and losses on the forward and futures contracts as well as the current fair market value of the hedges as determined by the broker. When a market value adjustment is necessary, the company records the adjustment directly to current earnings through cost of sales. For the year ended December 31, 2007 and the four month period ended December 31, 2006, the company incurred a net gain of $162,575 and a net loss of $1,384,650, respectively, including an unrealized gain of $79,712 and an unrealized loss of $476,850, respectively, on these hedging activities. |
|
|
|
The company has categorized the cash flows related to the hedging activities in the same category as the product being hedged. Management expects all positions outstanding as of December 31, 2007 to be realized within the next fiscal year. |
|
|
|
FINANCING COSTS Financing costs are recorded at cost and include expenditures directly related to securing debt financing. Amortization is computed using the straight-line method over the loans terms of eight years. |
|
|
|
INVESTMENTS Investments include stock in a lending cooperative bank and membership units in a development stage ethanol plant to be located in Mitchell County, Iowa. The stock in a lending cooperative bank is recorded under the equity method which records the companys share of the allocated earnings and distributions. The membership units in development stage ethanol plants are recorded at cost. |
|
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts for cash and cash equivalents, receivables, and accounts payable approximate fair value. Management believes the fair value of its long-term debt obligations exceeds the carrying value. However, the company does not consider it practicable to estimate the fair value of its long-term debt due to the unique nature of the obligations. |
-9-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
COVENANT NOT TO COMPETE The company established a non-compete agreement with the former owners of the elevator at the acquisition date. The agreement requires annual payments of $50,000 for 5 years in exchange for the former owners compliance with the agreement. The intangible asset is being amortized over the 5 year term of the agreement. |
|
|
|
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 members and are taxed at the member level. The company is required to pay a replacement tax to the State of Illinois. |
|
|
|
DEFERRED INCOME Deferred income represents a refundable cash deposit received under the terms of a proposed sales agreement for a construction time slot. The non-refundable portion of the payment received under the agreement was recognized as other income. The cash deposit will be recognized as income when the sale is completed, or, if the sale does not occur, the cash deposit will be returned. |
|
|
|
STOCK-BASED COMPENSATION The company accounts for stock-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the company using a fair-value-based method. The company uses the Black-Scholes-Merton (BSM) option-pricing model to determine the fair-value of stock-based awards. |
|
|
|
RECLASSIFICATION - Certain reclassifications were made to the 2006 financial statements to conform to 2007 financial statement presentation. Such reclassifications had no effect on reported income. |
NOTE B: INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
|
||
|
Ethanol |
|
$ |
2,546,131 |
|
$ |
1,030,791 |
|
|
Ethanol in process |
|
|
2,010,112 |
|
|
804,535 |
|
|
Distiller grains |
|
|
300,791 |
|
|
155,322 |
|
|
Corn |
|
|
2,526,865 |
|
|
2,192,720 |
|
|
Repair parts |
|
|
1,078,686 |
|
|
1,005,335 |
|
|
Chemicals and ingredients |
|
|
256,444 |
|
|
264,044 |
|
|
Corn and soybeans held at elevator |
|
|
10,137,339 |
|
|
9,998,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,856,368 |
|
$ |
15,450,920 |
|
|
|
|
|
|
|
|
|
|
-10-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE C: LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
|
||
|
Non-interest bearing note payable to Iowa Department of Economic Development payable at $1,750 per month until February 2010 when $106,750 is due, secured by substantially all assets of the company. |
|
$ |
147,000 |
|
$ |
169,750 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $3,704 per month until July 28, 2014, secured by letter of credit Note I. |
|
|
300,000 |
|
|
344,445 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing non-compete agreement payable at $50,000 per year until September 2009, unsecured |
|
|
150,000 |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
597,000 |
|
|
714,195 |
|
|
Current maturities |
|
|
(115,445 |
) |
|
(115,445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
481,555 |
|
$ |
598,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In October 2007, the company entered into a credit agreement with a financial institution to partially finance the construction of the plant expansion at West Burlington. Under the credit agreement, the lender has provided a construction and term loan for $55,000,000 and a construction and revolving term loan of $20,000,000. The loans are secured by substantially all assets. |
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: agent base variable rate, quoted fixed per annum rate or a fixed rate of LIBOR plus 3.00%. The company shall select the applicable rate option at the time of each loan request. Once the company has shown profitable operations and completed the $9,000,000 in free cash flow payments, the interest rate parameters will be decreased from 0.0% to minus 0.25% for the agent base variable rate option and from plus 3.00% to plus 2.75% for the LIBOR fixed rate option. |
|
|
|
The construction term loan and revolving construction term loan described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. Specific terms for each loan are as follows: |
-11-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
|
|
|
Construction and term loan |
|
|
|
The company is required to make 24 quarterly principal installments of $2,250,000 beginning in August 2008 until May 2014 with a final installment in an amount equal to the remaining unpaid balance on August 2014. In addition to the required payments, the company, beginning with the fiscal year ending 2008 and ending with the fiscal year 2010, is required to make additional principal payments equal to 75% of the Companys excess cash flow as defined in the loan agreement not to exceed an aggregate total of $9,000,000. |
|
|
|
Construction and revolving term loan |
|
|
|
The company is required to make semi-annual principal payments beginning on March 2015 until March 2017 of a reducing commitment amount as follows: |
|
|
|
|
|
Payment Date |
|
Commitment |
|
|
|
|
|
|
|
March 1, 2015 |
|
$ |
16,000,000 |
|
September 1, 2015 |
|
|
12,000,000 |
|
March 1, 2016 |
|
|
8,000,000 |
|
September 1, 2016 |
|
|
4,000,000 |
|
March 1, 2017 |
|
|
0 |
|
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 1.5% of the average daily unused portion of the commitment until June 1, 2008 when the rate shall be reduced to 0.5%. |
|
|
|
Long-term debt maturities are as follows: |
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
$ |
115,445 |
|
2009 |
|
|
115,445 |
|
2010 |
|
|
115,445 |
|
2011 |
|
|
65,445 |
|
2012 |
|
|
65,445 |
|
Thereafter |
|
|
119,775 |
|
|
|
|
|
|
|
|
$ |
597,000 |
|
|
|
|
|
|
|
|
NOTE D: MEMBERS EQUITY |
|
|
|
|
The company was formed on March 6, 2006 as an Iowa Limited Liability Company and has a perpetual life. The companys ownership is divided into four classes of units: Class A, B, C and D membership units. The profits and losses of the company will be allocated among the unit holders in proportion to the total units held. Distributions will be made to unit holders in proportion to the total units held. Each member is entitled to one vote for each unit held as to matters submitted to the membership. |
-12-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE D: MEMBERS EQUITY (continued)
|
|
|
Class A members appoint nine directors and Class B members appoint eight directors to the board of directors. Each member who holds 1,000 units is deemed to be a Class C unit holder and is entitled to appoint one director to the board of directors. The total number of directors appointed by the Class A members shall increase by one director for each additional Class C or Class D director appointed under the terms of the operating agreement. Transfer of the units is restricted pursuant to the operating agreement and to the applicable tax and securities laws and requires approval of the board of managers. |
|
|
|
In June 2006, the members of West Burlington voted to approve the reorganization into a holding company structure by merging West Burlington with Big River Resources Holding Company, LLC effective July 1, 2006. The reorganization was consummated through the adoption of a merger agreement and plan of merger between the holding company and West Burlington, where Big River Acquisition, LLC, a separate subsidiary of the holding company, was merged into West Burlington, with West Burlington being the surviving entity of the merger and becoming a wholly-owned subsidiary of the holding company. As a result of the merger 5,036.4 Class A and 3,666 Class B membership units were issued to the former members of West Burlington. |
|
|
|
In April 2006, the company purchased 100% of the outstanding units of Galva pursuant to the Purchase Agreement for a total of $310,000. The former members of Galva could elect to receive payment under the agreement in cash or in membership units of the company. As a result of the purchase agreement, 20 Class D membership units of the company were issued along with cash payments totaling $110,000. |
|
|
|
In May 2006, the company entered into a nonbinding letter of intent with a party related through common ownership for a joint venture with Grinnell for the development and construction of a 100 million gallon plant near Grinnell, Iowa with each entity owning 50% of the project. |
|
|
|
In October 2006, the company purchased 100% of the outstanding units of Quincy pursuant to the Merger Agreement for a total of $3,088,000. The former members of Quincy could elect to receive payment under the agreement in cash or in membership units of the company. As a result of the merger agreement, 267.28 Class D membership units of the company were issued along with cash payments totaling $415,200. |
|
|
|
The company raised additional equity in a Private Placement Memorandum. The Offering was for a maximum of 10,500 Class C and Class D membership units for sale at $10,000 per unit for a maximum of $105,000,000 and reserving the right to accept subscriptions up to 10% over the maximum offering amount. The offering was closed on October 1, 2006 receiving subscriptions for approximately 3,500 Class C and 8,304.00 Class D membership units for a total of $109,997,200. The Private Placement Memorandum required that 25% of the purchase price be paid at the time of subscription with the remainder due in installments as determined by the board of directors with the membership units being issued as payment is made. |
-13-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE D: MEMBERS EQUITY (continued)
|
|
|
As of December 31, 2007 and 2006, the company had the following membership units issued: |
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
||
Class A |
|
|
5,033.40 |
|
|
5,033.40 |
|
Class B |
|
|
3,666.00 |
|
|
3,666.00 |
|
Class C |
|
|
3,500.00 |
|
|
875.00 |
|
Class D |
|
|
8,304.00 |
|
|
2,162.21 |
|
|
|
|
|
|
|
|
|
|
|
|
20,503.40 |
|
|
11,736.61 |
|
|
|
|
|
|
|
|
|
|
|
|
On October 18, 2006, the board of directors of West Burlington approved an increase in the distribution to one of its pre-merger members of $185,739 to correct for a previous underpayment of distribution. |
NOTE E: RELATED PARTY TRANSACTIONS AND CONCENTRATIONS
|
|
|
The company had a management agreement with a party related through common ownership which required payment of $250,000 a year plus an incentive bonus. The incentive bonus was two percent of the defined annual bonus net income between $2,000,001 and $5,000,000 and four percent of the bonus net income between $5,000,000 and $10,000,000. The term of the agreement was for three years expiring on January 21, 2007. On that date, the contract was allowed to expire and was not renewed. |
|
|
|
The company has a risk management agreement with a party related through common ownership which requires payment of $10,000 per month. The term of the agreement is for the period ending August 31, 2008, and shall be automatically extended for additional one year terms thereafter, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. |
|
|
|
The company has a grain procurement agreement with a party related through common ownership to act as the grain merchandiser to originate all grains required for ethanol production at the West Burlington facility as well as the Grinnell facility. The agreements expire in August 2007 for West Burlington and June 2008 for Grinnell. The agreements shall be automatically extended for additional one year terms thereafter, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. The agreements requires payment on an agreed upon amount per bushel for this service. |
-14-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE E: RELATED PARTY TRANSACTIONS AND CONCENTRATIONS (continued)
|
|
|
The company has an ethanol sales and marketing agreement with a party related through common ownership which covers the entire ethanol marketing for the West Burlington facility as well as future output from the Galva and Grinnell facilities once construction is completed and ethanol production begins. The term of the agreement expires in December 31, 2007 for the West Burlington and Galva facilities. The term for the Grinnell facility is for three years commencing when production begins. Each of the agreements shall be automatically extended for additional one year terms thereafter, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreements with a minimum and maximum cost per gallon. |
|
|
|
The company has a co-products marketing agreement which covers the entire distillers grains marketing for the West Burlington facility as well as future output from the Galva and Grinnell facilities once construction is completed and production begins. The term of the agreement expires in December 31, 2009 for the West Burlington facility and three years from the start of operations at the Galva and Grinnell facilities. The agreements shall be automatically extended for additional one year terms thereafter, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement with a minimum and maximum cost per ton. In January 2008, the company gave written notice of its intention to terminate the co-products marketing agreement for the West Burlington and Galva facilities effective March 1, 2008. |
|
|
|
The company has a plant management agreement with a party related through common ownership to manage the affairs of the Grinnell facility including providing a general manager and risk management services for the company. The agreement requires payment of $445,000 a year plus an incentive bonus. The incentive bonus is four percent of the defined annual bonus net income in excess of $10,000,000 not to exceed $500,000 per year. The term of the agreement is for three years commencing when a general manager is retained and is automatically extended for additional one year terms thereafter, unless either party provides prior ninety day written notice. Operational expenses shall not exceed the expenses budgeted for that quarter without board approval. |
|
|
|
The company has a project management agreement with a party related through common ownership in connection with the development and construction of the Grinnell facility. The agreement requires payment of $15,000 per month. The company incurred $60,000 under this contract for services received during the period the company was involved with pre-construction activities, however, the agreement has been suspended until such time the company is able to continue with the project. Upon such time, the term of the agreement shall continue until the date on which ethanol and co-products are produced on a commercial scale at the plant. |
-15-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE E: RELATED PARTY TRANSACTIONS AND CONCENTRATIONS (continued)
|
|
|
In November 2007, the party related through common ownership divested its ownership in the companies which provide risk management, grain procurement and co-products marketing for the West Burlington facility and the co-products marketing Galva facilities. |
|
|
|
Transactions and balances with related parties are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
||
|
|
|
|
|
|
|
||
|
Sales |
|
|
|
|
|
||
|
Ethanol |
|
$ |
107,466,876 |
|
$ |
38,680,839 |
|
|
Distiller grains |
|
|
17,439,756 |
|
|
5,083,479 |
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
|
|
|
|
|
|
|
Ethanol and distiller grains |
|
|
5,170,560 |
|
|
4,946,355 |
|
|
|
|
|
|
|
|
|
|
|
Purchases |
|
|
|
|
|
|
|
|
Corn |
|
|
66,747,991 |
|
|
17,555,753 |
|
|
|
|
|
|
|
|
|
|
|
Accounts Payable |
|
|
|
|
|
|
|
|
Corn |
|
|
1,467,381 |
|
|
1,942,394 |
|
|
Denaturant |
|
|
180,471 |
|
|
114,769 |
|
|
Freight |
|
|
114,892 |
|
|
99,412 |
|
|
Railcar lease |
|
|
16,712 |
|
|
20,000 |
|
|
Marketing and management fees |
|
|
22,555 |
|
|
132,510 |
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Denaturant |
|
|
3,671,322 |
|
|
1,631,578 |
|
|
Freight |
|
|
7,059,174 |
|
|
2,649,260 |
|
|
Railcar lease |
|
|
1,258,103 |
|
|
80,019 |
|
|
Ethanol marketing fees |
|
|
853,387 |
|
|
249,585 |
|
|
Distiller grain marketing fees |
|
|
469,584 |
|
|
146,182 |
|
|
Management fees |
|
|
144,650 |
|
|
184,132 |
|
|
Corn procurement fees |
|
|
563,626 |
|
|
202,447 |
|
|
|
NOTE F: EMPLOYEE BENEFIT PLAN |
|
|
|
|
The company has a defined contribution plan which covers full-time employees who meet age and length of service eligibility requirements. The company matches the participants contribution up to a maximum of 4% of wages. For the year and period ended December 31, 2007 and 2006, contributions of $89,216 and $29,607, respectively, were made by the company. |
|
|
NOTE G: EQUITY-BASED COMPENSATION |
|
|
|
|
The company has an equity-based compensation plan which provides for the issuance of stock options to two members of management for the purpose of providing services to facilitate the planned future operations of the company. Under the plan, each of the |
-16-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
|
|
|
members were issued five options that will be exercisable upon completion of the West Burlington plant expansion with additional options to be exercisable upon starting production of Galva and three additional ethanol plants. |
|
|
|
The following assumptions were used to estimate the fair values of the options granted using the BSM option-pricing formula: The risk-free interest rate of 4.70% to 4.88% is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of 1.5 to 3 years and the expected volatility of 44% are based on the average reported lives and volatilities of a representative sample of two comparable companies in the ethanol industry sector. The intrinsic value is calculated as the difference between the $5,000 per unit exercise price of the options and the $10,000 estimated current fair market value. |
|
|
|
The company recognized stock-based compensation expense of $77,760 for the year ended December 31, 2007. Approximately $27,333 of total unrecognized compensation cost related to stock options is expected to be recognized over a period of 1.5 years. To the extent the forfeiture rate is different than anticipated; stock-based compensation related to these awards will be different from our expectations. |
|
|
NOTE H: LEASES |
|
|
|
|
The company leases rail cars under a long-term operating lease agreement expiring in March 2013. The company is required to pay executory costs such as maintenance and insurance. Minimum fixed future lease payments consist of: |
|
|
|
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
$ |
960,260 |
|
|
|
2009 |
|
|
|
960,260 |
|
|
|
2010 |
|
|
|
960,260 |
|
|
|
2011 |
|
|
|
960,260 |
|
|
|
2012 |
|
|
|
960,260 |
|
|
|
Thereafter |
|
|
|
240,065 |
|
|
|
|
|
|
|
|
|
|
|
Total minimum future lease payments |
|
$ |
5,041,365 |
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense of $1,262,236 and $159,264 was incurred in 2007 and 2006, respectively. |
|
|
NOTE I: COMMITMENTS AND CONTINGENCIES |
|
|
|
|
Substantially all of the companies facilities are subject to federal, state, and local regulations relating to the discharge of materials into the environment. Compliance with these provisions has not had, nor does management expect to have, any material effect upon operations. Management believes that the current practices and procedures for the |
-17-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
|
|
|
control and disposition of such wastes will comply with the applicable federal and state requirements. |
|
|
|
BIG RIVER RESOURCES WEST BURLINGTON, LLC |
|
|
|
The company has construction in progress at December 31, 2007 for the expansion of the rail yard at the West Burlington plant and upgrades to the grain receiving at the Monmouth facility. At December 31, 2007, the company has outstanding commitments related to the construction in progress of approximately $1,323,000. |
|
|
|
The company has forward purchase and sales commitment contracts as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
Average |
|
Final |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
Forward purchase contracts |
|
|
|
|
|
|
|
|
|
|
|
|
Corn |
|
|
9,887,024 |
|
Bu |
$ |
3.36 |
|
|
December 2009 |
|
|
Soybeans |
|
|
301,403 |
|
Bu |
|
9.71 |
|
|
January 2009 |
|
|
Natural gas |
|
|
375,251 |
|
Dth |
|
7.36 |
|
|
March 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward sales contracts |
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol |
|
|
11,177,501 |
|
Gal |
|
1.84 |
|
|
June 2008 |
|
|
Distillers grains |
|
|
29,492 |
|
Ton |
|
105.69 |
|
|
August 2008 |
|
|
Soybeans |
|
|
350,037 |
|
Bu |
|
10.38 |
|
|
March 2008 |
|
|
|
|
The company has issued an unsecured letter of credit as security of certain debt in the amount of $355,555 which expires October 2008. There is no amount drawn against this letter of credit as of December 31, 2007. |
|
|
|
BIG RIVER RESOURCES GALVA, LLC |
|
|
|
Project Construction |
|
|
|
The total cost of the project, including construction of the ethanol plant, working capital and start-up expenses, is expected to approximate $187,600,000. In August 2007, the company executed a lump sum design-build contract with a contractor, a party related through common ownership, to design and build the ethanol plant to be located near Galva, Illinois at a total contract price of approximately $118,462,000. As part of the contract, the company paid a mobilization fee of $8,000,000, subject to retainage. Monthly applications will be submitted for work performed in the previous period. Final payment will be due when final completion has been achieved. |
-18-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE I: COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
The design-build agreement includes a provision whereby the general contractor receives an early completion bonus of $10,000 per day for each day the construction is complete prior to 545 days from the date construction began. However, the total amount paid for the early completion bonus shall not exceed $1,000,000. The contract may be terminated by the company upon a ten day written notice subject to payment for work completed, termination fees, and any applicable costs and retainage. As of December 31, 2007, the company has incurred approximately $17,490,000 for these services with approximately $8,540,000 included in construction payable. |
|
|
|
Construction Contracts |
|
|
|
In December 2006, the company entered into an agreement with an affiliate of the general contractor, a related party through common ownership, for Phase I and Phase II engineering services for a fee of $92,500, which shall be included in and credited to the design-build agreements contract price. In addition to this fee, the company will reimburse the contractor for agreed upon subcontractors fees and other reimbursable expenses. Either party may terminate this agreement upon twenty days written notice if the non-terminating party has defaulted through no fault of the terminating party or if the company abandons development of the plant. In such event, the company would be obligated for any services rendered and any reimbursable expenses. As of December 31, 2007, the company has incurred approximately $74,000 under this agreement. |
|
|
|
In July 2007, the company entered into an agreement with an unrelated party, for phase I dirt work for an original contract price of approximately $3,486,000. As a result of approved change orders, the contract price has decreased by approximately $699,000, resulting in a current contract price of approximately $2,787,000. The company may terminate the contract upon 3 days written notice to the contractor. In such event, the company would owe the contractor any fees incurred prior to the termination, plus actual direct costs resulting from the termination. As of December 31, 2007, the company has incurred approximately $2,554,000 under this agreement, with approximately $927,000 included in construction payable. |
|
|
|
In August 2007, the company entered into an agreement with an unrelated party for the design, fabrication, furnishing and construction of a complete drilled caisson system to support the concrete dried distillers grains storage. The fee for these services is a lump sum price of $528,400. Services are expected to commence as soon as weather permits. |
-19-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE I: COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
In September 2007, the company entered into an agreement with an unrelated party for the installation of stone columns for deep soil stabilization. The original fee for these services was a lump sum price of approximately $552,100. As a result of approved change orders, the contract price has increased by approximately $193,700, resulting in a current contract price of approximately $745,800. As of December 31, 2007, the company has incurred approximately $533,500 with approximately $26,700 included in construction payable. |
|
|
|
Property Contract |
|
|
|
In July 2006, the company entered into an option to purchase approximately 198 acres in Henry County, Illinois, and related buildings, equipment and other assets for a purchase price of $6,985,000. The company paid a non-refundable option deposit of $69,850, which was applied to the purchase price of the property. The company had the option to extend the option period on a monthly basis by providing a written notice and payment of an additional $30,000 per month. The company extended the option period through December 31, 2006 and paid an additional $150,000, all of which was applied toward the purchase price of the property. In January 2007, the company exercised the option and closed on the purchase of the property and paid a total of $6,985,000, including application of all previous payments. |
|
|
|
Development Agreement |
|
|
|
In October 2006, the company entered into a development agreement with the City of Kewanee for the extension of the Enterprise Zone, pending approval from the state of Illinois, to include land east of Galva upon which the company intends to construct the ethanol facility. Management anticipates obtaining the approval from the State of Illinois in 2008, however, the State of Illinois is under no obligation to approve the extension. The company will be obligated to compensate the City of Kewanee an amount equal to 20% of the gross value of any retailers occupation tax exemption for which the company is eligible. Based on construction cost estimates at the time of execution of the agreement, an amount of $300,000 is estimated to be payable within three months after the completion of construction. In addition, the company is obligated to pay an amount equal to 20% of the gross value of the state use tax exemption that results from the purchase of any utility product, commodity or resource that such tax may be exempted from under the regulations of the enterprise zone before an extension and as it may be amended. Based on the estimated usage of natural gas at the time of execution of the agreement, an amount of $160,000 per year is estimated to be payable in quarterly installments, with the initial payment being due within three months of the start of operations. The term of the agreement commenced on the date of execution and shall expire December 31, 2017. |
-20-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE I: COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
BIG RIVER RESOURCES GRINNELL, LLC |
|
|
|
Going concern |
|
|
|
Site work commenced on December 1, 2006, however due to pending litigation relating to zoning issues at the facility, the companys debt financing has been delayed. As a result, no date has been set to mobilize the design-builder, to start the next phase of construction for the facility. A majority of the contested issues were favorably decided for the company on summary judgment, with the company prevailing on the remaining issues at trial in September 2007. The plaintiff requested a reconsideration of the decision which was subsequently denied. The plaintiff has filed a Notice of Appeal. |
|
|
|
Because it is unclear whether the company will be successful in resolving the lawsuits, there is uncertainty about the companys ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should the company be unsuccessful in its efforts to continue as a going concern. |
|
|
|
Project Construction |
|
|
|
The total cost of the project, including the construction of the ethanol plant and start-up expenses, is expected to approximate $172,000,000. The company obtained a build slot under a master design-build agreement with a general contractor through US BioEnergy Corporation, a member of the company. The cost to design and build the ethanol plant under the current design-build agreement is approximately $123,000,000, however, the design-builder may require an amendment to the contracted price, should the company continue with the construction of the ethanol facility. |
|
|
|
Construction Contracts |
|
|
|
In July 2006, the company entered into an agreement with an unrelated party for construction of water wells for the proposed ethanol plant. The cost of these wells was estimated to be $1,563,960. In August 2006, the company made a deposit of $300,000 for three wells to be constructed. As of December 31, 2007, only one well was completed and $100,000 of the original deposit was applied toward the fees. The terms of the agreement indicate that in the event of a plant cancellation due to legal reasons, there would be a refund of any deposit remaining. Because of the uncertainty of the project, an amount of $200,000 has been recorded in accounts receivable. |
-21-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE I: COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
In November 2006, the company entered into an agreement with an unrelated party to construct new electric facilities and to remove other electric facilities located on the proposed ethanol plant property. The estimated price for these services is $677,220. The company was required to pay 50% of the estimated amount within 45 days of execution of the agreement and will pay the remaining 50% of the estimated amount at least 30 days prior to commencement of the work. Within 90 days of completion of the work, the actual costs will be reconciled against the amount paid, and either a refund or an additional invoice will be issued to the company. Either party may terminate the agreement upon the prior written agreement of both parties. As of December 31, 2007, the company has incurred approximately $111,300 under this contract. |
|
|
|
Development Agreement |
|
|
|
In December 2006, the company entered into a private development agreement with Poweshiek County, Iowa and the City of Grinnell, whereas the parties intend to enter into a contract under the High Quality Jobs Creation Act, but desire to provide for additional consideration between themselves. The company agreed to pay one-half of the remaining cost after application of all grant funds for construction of turn lanes. The company agrees to make annual payments to the City of Grinnell based on the following schedule, which may be extended as a result of unavoidable delays as defined under the agreement: |
|
|
|
$60,000 from year 2010 2014 |
|
$65,000 from year 2015 2019 |
|
$70,000 from year 2020 2024 |
|
$75,000 from year 2025 2029 |
|
|
|
The County of Poweshiek agrees to provide an exemption from taxation to the company for the years 2010 through 2030 or until the aggregate amount of exempted taxes equals $12,000,000. The exemption does not include taxation from debt service or for the physical plant and equipment levy of the schools. In addition, the County of Poweshiek and the company will share equally in the cost of the construction of certain roadway leading onto the property where the ethanol facility will be located. |
|
|
|
Buy-sell Provision |
|
|
|
On February 1, 2007, The company and US BioEnergy Corporation (US BioEnergy) entered into an Operating agreement related to Grinnell. The operating agreement contained terms and conditions related to the operation and governance of the company. The company and US BioEnergy each own 50% of Grinnell. |
|
|
|
In the event of a change in control of a member of Grinnell, as defined in the operating agreement, the other member shall have the right to either purchase the units held by the changed member or to sell the units held by the other member. |
-22-
BIG RIVER RESOURCES, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE I: COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
On November 29, 2007, VeraSun Energy Corporation, Host Acquisition Corporation, a direct, wholly owned subsidiary of VeraSun, and US BioEnergy entered into an Agreement and Plan of Merger whereby Host Acquisition Corporation will merge with and into US BioEnergy, with US BioEnergy continuing as the surviving corporation following the merger. |
|
|
|
The merger is subject to a number of closing conditions, including the approval of the merger by the shareholders of US BioEnergy, the approval of the issuance of VeraSun Common Stock in the merger by the shareholders of VeraSun and clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. |
|
|
|
BIG RIVER RESOURCES QUINCY, LLC |
|
|
|
Assignment of Construction Time Slot |
|
|
|
In December 2006, the company entered into an agreement to assign its rights to a construction build-date to an unrelated entity in exchange for $12 million which was to be paid in cash of $2 million in December 2006, $4 million in February 2007 and $6 million on the earlier of April 1, 2007 or the receipt by the purchaser of project financing proceeds. The company received $2,000,000 as of December 31, 2006. If the purchaser and the design builder failed to enter into a design-build agreement, the company was required to refund $1,500,000. This amount was recorded as deferred revenue as of December 31, 2006. The company recognized other income of $500,000 in 2006 for the amount that was not refundable. |
|
|
|
The company received $12 million under the agreement as of December 31, 2007. Other income of $8,843,846 was recognized for the year ended December 31, 2007, which represents the amount that is not refundable under the agreement. In February 2007, the company entered into a non-interest bearing contingent promissory note with the assignee whereby the company agrees to reimburse assignee at the rate of $20,000 per day up to $1,000,000 if substantial completion under the design-build agreement does not occur before November 25, 2008. The contractor has agreed to reimburse the company for one-half of any amount owed under the contingent promissory note agreement. The potential obligation under the promissory note of $500,000 is recorded as deferred revenue on the balance sheet as of December 31, 2007. |
-23-