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EX-32.2 - SECTION 906 CERTIFICATION/KROYMANN - SOUTHWEST IOWA RENEWABLE ENERGY, LLCexhibit322_020711.htm
EX-31.1 - SECTION 302 CERTIFICATION/CAHILL - SOUTHWEST IOWA RENEWABLE ENERGY, LLCexhibit311_020711.htm
EX-32.1 - SECTION 906 CERTIFICATION/CAHILL - SOUTHWEST IOWA RENEWABLE ENERGY, LLCexhibit321_020711.htm
EX-31.2 - SECTION 302 CERTIFICATION/KROYMANN - SOUTHWEST IOWA RENEWABLE ENERGY, LLCexhibit312_020711.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
(Mark one)
 
R
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended December 31, 2010
   
£
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from _________ to __________
   
 
Commission file number 000-53041
   
SOUTHWEST IOWA RENEWABLE ENERGY, LLC
(Exact name of registrant as specified in its charter)
   
Iowa
20-2735046
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
  10868 189th Street, Council Bluffs, Iowa 51503  
  Address of principal executive offices)  
 
  (712) 366-0392  
(Registrant’s telephone number, including area code)
 
 
     
  (Former name, former address and former fiscal year, of changed since last report)  
       
   
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes R    No £
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes £    No R
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
  Large accelerated filer   o Accelerated filer  o Non-accelerated filer   o Smaller reporting company    þ
         
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £    No R
 
As of December 31, 2010, the issuer had 8,805 Series A Units, 3,334 Series B Units, and 1,000 Series C Units issued and outstanding.

 
 

 


TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
       
Item Number
Item Matter
Page Number
 
       
Item 1.
Financial Statements.
  1  
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
16  
       
Item 3.
Quantitative and Qualitative Disclosure about Market Risk.
21  
       
Item 4.
Controls and Procedures.
22  
       
PART II—OTHER INFORMATION
 
       
Item 1.
Legal Proceedings.
23  
       
Item 1A.
Risk Factors.
23  
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
23  
       
Item 3.
Defaults Upon Senior Securities.
23  
       
Item 4.
(Removed and Reserved).
23  
       
Item 5.
Other Information.
23  
       
Item 6.
Exhibits.
23  
       
 
Signatures
28  
       
 
Certifications
See Exhibits 31 and 32
 


 
 

 


PART I—FINANCIAL INFORMATION

Item 1.                                Unaudited Financial Statements.

SOUTHWEST IOWA RENEWABLE ENERGY, LLC
 
 
Balance Sheets
 
ASSETS
December 31, 2010
September 30, 2010
 
 
(Unaudited)
   
Current Assets
         
Cash and cash equivalents
$
1,390,737
$
3,432,544
 
Restricted cash
 
175,000
 
0
 
Accounts receivable
 
85,528
 
0
 
Accounts receivable, related party
 
17,241,373
 
23,392,670
 
Due from broker
 
4,859,546
 
2,260,015
 
Inventory
 
14,651,723
 
8,013,153
 
Derivative financial instruments, related party
 
12,135,270
 
688,039
 
Prepaid expenses and other
 
1,225,177
 
533,513
 
           Total current assets
 
51,764,354
 
38,319,934
 
           
Property, Plant, and Equipment
         
Land
 
2,064,090
 
2,064,090
 
Plant, Building and Equipment
 
203,289,513
 
199,771,260
 
Office and Other Equipment
 
720,716
 
720,529
 
Total Cost
 
206,074,319
 
202,555,879
 
Accumulated Depreciation
 
(33,606,514)
 
(28,757,303)
 
              Net property and equipment
 
172,467,805
 
173,798,576
 
           
Other Assets
         
Other
 
125,000
 
1,142,388
 
Financing costs, net of amortization of $2,047,586 and $1,949,651
 
1,832,545
 
1,930,482
 
         Total other assets
 
1,957,545
 
3,072,870
 
Total Assets
$
226,189,704
  $
215,191,380
 
 
Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
 


 
1

 


SOUTHWEST IOWA RENEWABLE ENERGY, LLC
 
 
Balance Sheets
 
LIABILITIES AND MEMBERS’ EQUITY
December 31,
2010
September 30,
2010
 
 
(Unaudited)
   
Current Liabilities
         
Accounts payable
$
1,035,499
$
978,388
 
Accounts payable, related parties
 
3,171,062
 
2,542,055
 
Derivative financial instruments
 
3,769,750
 
75,125
 
Accrued expenses
 
2,345,012
 
2,624,916
 
Accrued expenses, related parties
 
5,098,267
 
2,913,206
 
Current maturities of notes payable
 
29,276,492
 
18,058,574
 
Total current liabilities
 
44,696,082
 
27,192,264
 
 
Long Term Liabilities
         
     Notes payable, less current maturities
 
129,783,911
 
135,868,087
 
     Other
 
675,007
 
700,006
 
            Total long term liabilities
 
130,458,918
 
136,568,093
 
 
Commitments and Contingencies
 
         
Members’ Equity
         
 Members’ capital, 13,139 Units issued and outstanding
 
76,474,111
 
76,474,111
 
  Accumulated (deficit)
 
(25,439,407)
 
(25,043,088)
 
Total members’ equity
 
51,034,704
 
51,431,023
 
Total Liabilities and Members’ Equity
$
226,189,704
  $
215,191,380
 
 
Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
 


 
2

 
 
 
  SOUTHWEST IOWA RENEWABLE ENERGY, LLC    
         
  Statements of Operations    
     
Three Months
Ended
 December 31, 2010
(Unaudited)
   
Three Months Ended
December 31, 2009
(Unaudited)
   
 
Revenues
   $ 62,265,743    $  
50,748,439
   
 
Cost of Goods Sold
               
 Cost of goods sold-non hedging     58,144,413     48,935,950    
 Realized & unrealized hedging (gains and losses)     887,819     (81,799 )  
Cost of Goods Sold     59,032,232     48,854,151    
                 
Gross Margin     3,233,511     1,894,288    
                 
Selling, General, and Administrative Expenses    
1,200,888
    1,138,298    
                 
Operating Income     2,032,623     755,990    
                 
 
Other Income (Expense)
               
Interest income     3,972     13,163    
Interest expense     (2,439,563 )    (2,330,384 )  
Miscellaneous income     6,650     5,974    
 Total     (2,428,941 )   (2,311,247 )  
                 
Net (Loss)      (396,318 )    (1,555,257 )  
                 
Weighted Average Units                
Outstanding—Basic & Diluted     13,139      13,139    
Net (loss) per unit –basic & diluted     (30.16 )    (118.37 )  


 
3

 

 
 
    SOUTHWEST IOWA RENEWABLE ENERGY, LLC      
 
    Condensed Statements of Cash Flows      
 
       
Three Months End
December 31, 2010
     
Three Months Ended
December 31, 2009
 
         (Unaudited)       (Unaudited)  
                   
Cash Flows from Operating Activities
                 
Net (loss)     $  (396,318 )   $  (1,555,257 )
Adjustments to reconcile net (loss) to net cash provided by (used in)
operating activities:
                 
Depreciation       4,849,211       4,762,765  
Amortization       7,937       119,585  
(Increase) decrease in current assets:                  
Accounts receivable       6,065,771       3,868,242  
Inventories       (6,638,570       (6,177,751 )
Prepaid expenses and other        (691,664 )     (593,627 )
Derivative financial instruments        (11,447,231 )     263,688  
Due from broker        (2,599,531 )      (705,676 )
(Increase) decrease in current assets:                  
Accounts and retainage payable       686,118        (1,471,914 )
Derivative financial instruments       3,694,625      
376,450
 
Accrued expenses       1,905,157       954,206  
Net cash (used in) operating activities        (4,474,497 )      (159,289 )
                   
 
Cash Flows from Investing Activities
                 
Purchase of property and equipment        (2,376,052 )      (1,482,004 )
Increase in restricted cash        (300,000 )    
-
 
Net cash (used in) investing activities        (2,676,052 )      (1,482,004 )
                   
Cash Flows from Financing Activities
                 
Payments for financing costs                (30,137 )
Proceeds from borrowings
      7,300,000       7,151,995  
Payments on borrowings        (2,191,258 )     (2,005,000 )
Net cash provided by financing activities      
5,108,742
      5,116,858  
Net increase (decrease)  in cash and cash equivalents
      (2,041,807 )     3,475,565  
                   
Cash and Equivalents—Beginning of Period      
3,432,544
     
7,455,084
 
Cash and Equivalents—End of Period
    $
1,390,737
    $
10,930,649
 
                   
Supplemental Disclosures of Noncash Investing                  
And Financing Activities                  
Property, plant and equipment included in accounts and retainage payable     $ 0     $
729,277
 
Interest capitalized and included in long term debt and accruals     $ 0     $
2,049,643
 
Accrued interest included in long term debt       810,249      
64,966
 
Cash Paid for Interest     $
1,517,572
    $
941,367
 
 

Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.



 
4

 


SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Notes to Condensed Financial Statements (unaudited)
December 31, 2010
Note 1:  Nature of Business
 
 
Southwest Iowa Renewable Energy, LLC (the “Company”), located in Council Bluffs, Iowa, was formed in March, 2005 to construct and operate a 110 million gallon capacity ethanol plant.  The Company began producing ethanol in February 2009.  In the current fiscal year which ends September 30, 2011 (“Fiscal Year 2011”) to date and the year ended September 30, 2010 (“Fiscal Year 2010”), the Company has operated at 100% of its 110 million gallon nameplate capacity.  The Company sells its ethanol, modified wet distillers grains with solubles, and corn syrup in the continental United States.  The Company sells its dried distillers grains with solubles in the continental United States, Mexico, and the Pacific Rim.
 
Note 2:  Summary of Significant Accounting Policies
 
Basis of Presentation and Other Information
 
The balance sheet as of September 30, 2010 was derived from the Company’s audited balances as of that date.  The accompanying financial statements as of and for the three months ended December 31, 2010 and 2009 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods.  These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the year ended September 30, 2010 contained in the Company’s Annual Report on Form 10-K.  The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.
 
Cash & Cash Equivalents
 
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less when purchased to be cash equivalents.
 
Restricted Cash
 
The Company has restricted cash  that is used as collateral for the second Iowa Department of Economic Development (“IDED”) loan.
 
Financing Costs
 
Financing costs associated with the construction and revolving loans are recorded at cost and include expenditures directly related to securing debt financing.  The Company began amortizing these costs using the effective interest method over the terms of the agreements in March, 2008.  The interest expense amortization was capitalized during the development stage as construction in progress.
 
Concentration of Credit Risk
 
The Company’s cash balances are maintained in bank deposit accounts which at times may exceed federally insured limits.  The Company has not experienced any losses in such accounts.
 
Revenue Recognition
 
The Company sells ethanol and related products pursuant to marketing agreements.  Revenues are recognized when the marketing company (the “Customer”) has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.   The Company’s products are generally shipped FOB loading point.  The Company’s ethanol sales are handled through an ethanol agreement (the “Ethanol Agreement”) with Bunge North America, Inc. (“Bunge”).  Syrup, distillers grains and solubles, and modified wet distillers grains with solubles (co-products) are sold through a distillers grains agreement (the “DG Agreement”) with Bunge, which sets the price based on the market price to third parties.  Marketing fees, agency fees, and commissions due to the marketers are paid separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of goods sold.  Shipping and handling costs incurred by the Company for the sale of ethanol and co-products are included in cost of goods sold.
 

 
5

 


 
Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 2: Summary of Significant Accounting Policies (Continued)
 
 
Accounts Receivable
 
Trade accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis.  Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering customers’ financial condition, credit history and current economic conditions.  As of December 31, 2010, management has determined no allowance is necessary.  Receivables are written off when deemed uncollectible and recoveries of receivables written off are recorded when received.
 
Incentive Compensation Plan
 
The Company established an incentive compensation plan under which employees may be awarded equity appreciation units and equity participation units.  Fair value of the awards are amortized over the vesting period set for each award.  The units outstanding at this time vest three years from the grant date. 

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities
 
The Company is exposed to certain risks related to ongoing business operations.  The primary risks that the Company manages by using forward or derivative instruments are price risk on anticipated purchases of corn and sales of ethanol.
 
The Company is subject to market risk with respect to the price and availability of corn, the principal raw material used to produce ethanol and ethanol co-products.  In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions.  This is especially true when market conditions do not allow the Company to pass along increased corn costs to customers.  The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.
 
Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales.  Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.  Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.  Forward corn purchase contracts initiated after September 28, 2010 are not exempt from the accounting and reporting requirements of derivative accounting as the Company net settled its forward contracts.   As such, the Company no longer applies the normal purchase and sale exemption under derivative accounting for forward purchases of corn.  As of December 31, 2010, the Company is committed to purchasing 8,408,190 million bushels of corn on a forward contract basis resulting in a total commitment of approximately $36,259,733.  These forward contracts had a fair value of approximately $12,135,000 at December 31, 2010.  As of December 31, 2010, we are committed to selling 15,991,300 million gallons of ethanol and 35,750 tons of distillers grains and solubles.
 
In addition, the Company enters into short-term cash, options and futures contracts as a means of managing exposure to changes in commodity prices.  The Company enters into derivative contracts to hedge the exposure to price risk as it relates to ethanol sales.  The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market fluctuations.  The Company’s specific goal is to protect it from large moves in commodity costs.  All derivatives will be designated as non-hedge derivatives and the contracts will be accounted for at fair value.  Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
 
As part of its trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk and risk of loss in the market value of inventories.  To reduce that risk, the Company generally takes positions using cash and futures contracts and options.  The gains or losses are included in revenue if the contracts relate to ethanol and cost of goods sold if the contracts relate to corn. During the three months ended December 31, 2010 and 2009, the Company recorded a combined realized and unrealized (gain) loss of $887,819 and $81,799, respectively, as a component of cost of goods sold.
 

 
6

 


 
Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 2: Summary of Significant Accounting Policies (Continued)
 
The affect of derivatives the balance sheet was a decrease in gross margin of approximately $888,000 and an increase of approximately $82,000 of gross margin for the three months ended December 31, 2010 and 2009, respectively.
 
     
Balance Sheet
Classification
 
       
Number of
Bushels
       
December 31,
2010
   
September 30,
2010
                         
  Derivative asset, related party Current Asset        
8,408,190
     $  
12,135,270
$  
688,039
  Derivative liability Current Liability       3,540,000      $ 3,769,750  $ 75,125
                         
                         
    Statement of
Operations
Classification
 
      Three Months Ended December 31, 2010       Three Months Ended
 December 31, 2009
   
                         
  Realized losses Cost of Goods Sold      $ 4,075,180      $ 721,937    
  Unrealized gains Cost of Goods Sold       (3,187,361 )   $  (640,138 )  
 
Net realized and unrealized
(gains) losses
       $ 887,819      $  (81,799 )  
 
Inventory
 
Inventory is stated at the lower of cost or market value using the average cost method.  Market value is based on current replacement values, except that it does not exceed net realizable values and it is not less than the net realizable values reduced by an allowance for normal profit margin.
 
Property and Equipment
 
Property and equipment are stated at cost.  Depreciation is computed using the straight-line method over the following estimated useful lives:
 
  Buildings 40 Years  
       
  Process Equipment 10 Years  
       
  Office Equipment   3-7 Years  
                                                                   
Maintenance and repairs are charged to expense as incurred; major improvements and betterments are capitalized.
 
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.   An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group.  An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.  In accordance with Company policies, management has evaluated the plant for possible impairment based on projected future cash flows from operations.  Management has determined that its projected future undiscounted cash flows from operations exceed the carrying value of the plant and that no impairment existed at December 31, 2010.
 
 
7

 

Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 2: Summary of Significant Accounting Policies (Continued)
 
 
Income Taxes
 
The Company has elected to be treated as a partnership for federal and state income tax purposes and generally does not incur income taxes.  Instead, the Company’s earnings and losses are included in the income tax returns of the members.  Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.
 
Management has evaluated the Company’s tax positions under the Financial Accounting Standards Board (“FASB”) issued guidance on accounting for uncertainty in income taxes and concluded that the Company has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance.  With few exceptions, the Company is no longer subject to income tax examinations by the U.S. Federal, state or local authorities for the years before 2007.
 
Net (loss) per unit
 
(Loss) per unit has been computed on the basis of the weighted average number of units outstanding during each period presented.
 
Fair value of financial instruments
 
The carrying amounts of cash and cash equivalents, derivative financial instruments, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short term nature of these instruments.  The Company believes it is not practical to estimate the fair value of debt.
 
Adoption of new accounting standards

The Company adopted the following accounting standards during the first quarter of Fiscal 2011, none of which had a material impact on its consolidated results of operations or financial condition.

FASB ASU 2010-20 (“Disclosures about the Credit Quality of Financing Receivables and Allowance for Credit Losses”) – requires additional information for nonaccrual and past due accounts, the allowance for credit losses, impaired loans, credit quality, and account modifications.

FASB ASC 860 (“Accounting for Transfers of Financial Assets”) – requires additional disclosures regarding the transfer and derecognition of financial assets and eliminates the concept of qualifying special-purpose entities.

FASB ASC 810 (“Amendments to FASB Interpretation:  Consolidation of Variable Interest Entities”) – eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.

Note 3:  Inventory
 
Inventory is comprised of the following at:
 
 
 
 
 
 
December 31, 2010
 
 
       September 30, 2010
       
           
Raw materials - corn
$
5,414,202
 
$
3,796,261
Supplies and chemicals
 
2,249,927
   
1,716,922
Work in process
 
1,917,493
   
1,484,157
Finished goods
 
5,070,101
   
1,015,813
Total
$
14,651,723
 
$
8,013,153





 
8

 

Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 4:                      Members’ Equity

 
At December 31, 2010 and September 30, 2010 outstanding member units were:
 
A Units
8,805
 
B Units
3,334
 
C Units
1,000
 

The Series A, B and C unit holders all vote on certain matters with equal rights.  The Series C unit holder has a group has the right to elect one Board member.  The Series B unit holder has the right to elect the number of Board members which bears the same proportion to the total number of Directors in relation to Series B outstanding units to total outstanding units.  Series A unit holders as a group have the right to elect the remaining number of Directors not elected by the Series C and B unit holders.

On March 7, 2008, the Company obtained a bridge loan in the maximum principal amount of $36,000,000 (the “Bridge Loan”) from Commerce Bank, N.A. (the “Bridge Lender”).  In connection with the maturity of the Bridge Loan, the Company entered into a Loan Satisfaction Agreement (“Loan Satisfaction Agreement”) with the Bridge Lender and ICM, whereby ICM agreed to pay the Bridge Lender $8,773,300 in full satisfaction of all principal, accrued interest, and other fees and expenses under the Bridge Loan (the “Payoff Amount”).  On June 17, 2010, the Company issued a Negotiable Subordinated Term Loan Note to ICM (the “ICM Term Note”).  The ICM Term Note is convertible at the option of ICM into Series C Units at a conversion price of $3,000 per unit.  The initial principal amount of the ICM Term Note was approximately $9,970,000.

Additionally, to induce ICM to agree to the ICM Term Note, the Company entered into an equity matters agreement with ICM (the “ICM Equity Agreement”), whereby ICM (i) has preemptive rights to purchase new securities in the Company and (ii) receive twenty-four percent (24%) of the proceeds received by the Company from the issuance of other equity interests or debt securities during such time as ICM holds Series C Units acquired upon exercise of the conversion rights granted under the ICM Term Note.

Bunge N.A. Holdings Inc. (“Holdings”) extended to the Company a Subordinated Term Note (the “Term Note”) effective August 26, 2009 in the amount of approximately $27,107,000 and a Subordinated Revolving Credit Note (the “Revolving Note”) in the amount of $2,000,000.  Holdings, at its option, may convert the Term Note to Series U Units of the Company at a per unit price of $3,000 in satisfaction of any outstanding principal balance under the Term Note.
 
Additionally, on June 17, 2010, the Company amended that certain Bunge Agreement – Equity Matters Agreement with Holdings, dated August 26, 2009, by executing the First Amendment to Bunge Agreement -- Equity Matters (as amended, the “Bunge Equity Agreement”) in order to maintain consistency of terms taking into account the amendments to the Term Note and Loan Satisfaction Agreement.


 
9

 

Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 5:                      Revolving Loan/Credit Agreements
 
 
AgStar
 
The Company entered into a Credit Agreement (the “Credit Agreement”) with AgStar Financial Services, PCA (“AgStar”) for $126,000,000 senior secured debt, consisting of a $111,000,000 construction loan and a $15,000,000 revolving line of credit.  Borrowings under the loan include a variable interest rate based on LIBOR plus 3.65% for each advance under the Credit Agreement.  On August 1, 2009, the loan was segmented into an amortizing term facility of $101,000,000, a term revolver of $10,000,000 and a revolving working capital term facility of $15,000,000.  On September 1, 2009, the Company elected to convert 50% of the term note into a fixed rate loan at the lender’s bonds rate plus 3.25%, with a 5% floor.  The portion of the term loan not fixed and the term revolving line of credit accrues interest equal to LIBOR plus 3.45%, with a 5% floor.  The Credit Agreement requires the maintenance of certain financial and nonfinancial covenants.  Borrowings under the Credit Agreement are collateralized by substantially all of the Company’s assets.  The term credit facility of $101,000,000 requires monthly principal payments beginning on March 1, 2010.  The loan is amortized over 114 months and matures five years after the conversion date, August 1, 2014.  The term of the $15,000,000 revolving working capital facility agreement matures on March 31, 2011 and borrowings are subject to borrowing base restrictions as well as certain prepayment penalties.  The $10,000,000 term revolver is interest only until maturity on August 1, 2014.

Under the terms of the Credit Agreement, the Company may draw the lesser of $15,000,000 or 75 percent of eligible accounts receivable and eligible inventory.  As part of the revolving line of credit, the Company may request letters of credit to be issued up to a maximum of $5,000,000 in the aggregate.  It had one letter of credit outstanding under this provision as of December 31, 2010, in favor of MidAmerica Energy Company (“MidAm”), in the amount of $2,000,000.
 
As of December 31, 2010 and September 30, 2010, the outstanding balance under the Credit Agreement was approximately $115,705,468 and $118,425,241, respectively.  In addition to all the other payments due under the Credit Agreement, the Company also agreed to pay, beginning at the end of the Fiscal 2010, an amount equal to 65% of the Company’s Excess Cash Flow (as defined in the Credit Agreement), up to a total of $4,000,000 per year, and $16,000,000 over the term of the Credit Agreement.  The Company is currently in discussions with the Agent (as defined in the Credit Agreement) regarding the final Excess Cash Flow calculation based on the Fiscal 2010 year end audited financial statements of the Company.  Once the final Excess Cash Flow calculation is agreed upon, the amount due for December 31, 2010, March 31, 2011, June 30, 2011 and September 30, 2011, will be established and any amounts then due or past due – due  to the ongoing discussions with the Agent regarding Excess Cash Flow calculations and payments – will be paid by the Company.
 
 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
10

 

Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 6:                      Notes Payable
 
 
Notes payable consists of the following as December 31, 2010 and September 30, 2010:
 
     
December 31, 2010
   
September 30, 2010
 
S300,000 Note payable to IDED, a non-interest bearing obligation with monthly payments of $2,500 due through the maturity date of March 2016 on the non-forgivable portion. (A)
 
 
$
 
300,000
 
 
$
 
-
 
               
$200,000 Note payable to Iowa Department Economic Development (“IDED”) a non-interest bearing obligation with monthly payments of $1,667 due through the maturity date of March 2012 on the non-forgivable portion. (A)
   
 
 
23,333
   
 
 
28,333
 
               
Note payable to affiliate Holdings, bearing interest at LIBOR plus 7.50-10.5% with a floor of 3.00% (8.16% at December 31, 2010); maturity on August 31, 2014.
   
29,220,130
   
29,220,130
 
               
Note payable to affiliate ICM, bearing interest at LIBOR plus 7.50-10.5% with a floor of 3.00% (8.16% at December 31, 2010); maturity on August 31, 2014.
   
 
 
10,061,472
   
 
 
10,061,472
 
               
Term facility and term revolver payable to AgStar bearing interest at LIBOR plus 3.45% to 3.25%, with a 5.00% floor (5.00% at December 31, 2010); maturity on August 1, 2014.
   
93,205,468
10,000,000
   
95,366,726
10,000,000
 
               
$15 million revolving working capital term facility payable to AgStar bearing interest at LIBOR plus 3.65% with a 5.00% floor (5.00% at September 30, 2010), maturing March 31, 2011.
   
12,500,000
   
9,250,000
 
               
Revolving line of credit payable to affiliate Holdings bearing interest at LIBOR plus 7.50-10.5% with a floor of 3.00% (7.76% at December 31, 2010).
   
 
3,750,000
   
 
-
 
 
Less current maturities
   
159,060,403
(29,276,492
 
 
 
153,926,661
(18,058,574
 
 
Total  long term debt
 
 
$
 
129,783,911
 
 $
 
135,868,087
 

 
(A) The $300,000 IDED loan is comprised of two components under the Master Contract (the “Master Contract”) between the Company and IDED: i) a $150,000, non interest-bearing component that requires monthly payments of $2,500, which will begin in March, 2011 with a final payment of $2,500 due February, 2016; and ii) a $150,000 forgivable loan.  The Company has a $300,000 letter of credit with regard to the $300,000 loan (secured by a time deposit account in the same amount) to collateralize the loan.  The note under the Master Contract is collateralized by substantially all of the Company’s assets, subordinate to the Credit Agreement.
 

 

 

 

 
11

 

Southwest Iowa Renewable Energy, LLC
 

Notes to Condensed Financial Statements (unaudited)
 
Note 6: Notes Payable (continued)
 
Approximate aggregate maturities of notes payable as of December 31, 2010 are as follows:

 
Year Ended December 31,          
             
  2011    $  29,276,492    
             
  2012     9,275,642    
             
  2013       9,745,176    
             
  2014    
110,728,094
   
             
  2015     30,000    
             
  Total    $  159,060,403    
 
 
Note 7:  Fair Value Measurement
 
Fair value is 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 determining  fair value, the Company used various methods including market, income and cost approaches.  Based on these approaches, the Company often utilized certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable inputs.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  Based on the observable inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.
 
 The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
 
 
  Level 1 -
Valuations for assets and liabilities traded in active markets from readily available pricing sources for
market transactions involving identical assets or liabilities.
 
       
  Level 2 -
Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are
obtained from third-party pricing services for identical or similar assets or liabilities.
 
       
  Level 3-  Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.  
 
A description of the valuation methodologies used for instruments measured at fair value, including the general classifications of such instruments pursuant to the valuation hierarchy, is set below.

Derivative financial statements.  Commodity futures and exchange traded options are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Mercantile Exchange (“CME”) market.  Ethanol contracts are reported at fair value utilizing Level 2 inputs from third-party pricing services.  Forward purchase contracts are reported at fair value utilizing Level 2 inputs.   For these contracts, the Company obtains fair value measurements from local grain terminal values.  The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based off the CME market.
 
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and September 30, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
 

 
12

 


 
Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 7: Fair Value Measurement (continued)
 
 
 
            December 31, 2010            
     
Total
   
Level 1
   
Level 2
  Level 3
Derivative financial instruments
                               
 
Corn forward contracts
asset
 
$
12,135,270
   
$
---
   
$
12,135,270
   
$
 
---
                                   
 
Corn futures &
exchange traded options
liability
 
$
(3,769,750
)  
$
(3,769,750
)  
$
---
   
$
 
---
     
$
8,365,520
   
$
(3,769,750
)  
$
12,135,270
   
$
 
---
                                   
                                   
              September 30, 2010                  
    Total      Level 1     Level 2   Level 3
Derivative financial instruments                                
 
Corn forward contracts
asset
  $
688,039
    $
---
    $
688,039
       
---
                                   
 
Corn futures &
exchange traded options
liability
  $ (75,125 )   $
(75,125
 
)   $
---
 
       
---
 
      $
612,914
    $ (75,125 )   $
688,039
       
---

 
 
 

 
Certain financial assets and liabilities are measured at fair value on a non-recurring basis; that is the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.
 
Note 8:                      Incentive Compensation
 
The Company has a unit appreciation plan which provides that the Board of Directors may make awards of equity participation units (“EPUs”) to employees from time to time, subject to vesting provisions as determined for each award.   The EPUs are valued at book value. The Company had approximately five unvested EPUs outstanding under this plan as of December 31, 2010, which will be vested three years from the date of the award.  During the quarters ended December 31, 2010 and 2009, the Company recorded compensation expense related to this plan of approximately $556, and none, respectively.  As of December 31, 2010 and September 30, 2010, the Company had a liability of approximately $556 and none outstanding as deferred compensation and has approximately $20,000 to be recognized as future compensation expense over the weighted average vesting period of approximately three years. The amount to be recognized in future years as compensation expense is estimated based on book value of the Company.
 
Note 9:                       Related Party Transactions
 
Bunge

On November 1, 2006, in consideration of its agreement to invest $20,004,000 in the Company, Bunge purchased the only Series B Units under an arrangement whereby the Company would (i) enter into various agreements with Bunge or its affiliates discussed below for management, marketing and other services, and (ii) have the right to elect a number of Series B Directors which are proportionate to the number of Series B Units owned by Bunge, as compared to all Units.  Under the Company’s Third Amended

 
13

 

Southwest Iowa Renewable Energy, LLC

Notes to Condensed Financial Statements (unaudited)
 
Note 9:                       Related Party Transactions (continued)
 

and Restated Operating Agreement (the “Operating Agreement”), the Company may not, without Bunge’s approval (i) issue additional Series B Units, (ii) create any additional Series of Units with rights which are superior to the Series B Units, (iii) modify
 
the Operating Agreement to adversely impact the rights of Series B Unit holders, (iv) change its status from one which is managed by managers, or vise versa, (v) repurchase or redeem any Series B Units, (vi) take any action which would cause a bankruptcy, or (vii) approve a transfer of Units allowing the transferee to hold more than 17% of the Company’s Units or to a transferee which is a direct competitor of Bunge.

The Company entered into the Holdings Revolving Note dated August 26, 2009 with Holdings, providing for the extension of a maximum of $10,000,000 in revolving credit.  Holdings has a commitment, subject to certain conditions, to advance up to $3,750,000 at the Company’s request under the Revolving Note; amounts in excess of $3,750,000 may be advanced by Holdings in its discretion.  Interest will accrue at the rate of 7.5 percent over six-month LIBOR.  While repayment of the Revolving Note is subordinated to the Credit Agreement, the Company may make payments on the Revolving Note so long as it is in compliance with its borrowing base covenant and there is not a payment default under the Credit Agreement. As of  December 31, 2010 and September 30, 2010, the balance outstanding was $3,750,000 and $0 under the Revolving Note.
 
In December, 2008, the Company and Bunge entered into other various agreements. Under a Lease Agreement (the “Lease Agreement”), the Company leased from Bunge a grain elevator located in Council Bluffs, Iowa, for approximately $67,000 per month.  Expenses for the quarters ended December 31, 2010 and 2009 were $200,001 and $200,001 under the Lease Agreement.
 
Under the Ethanol Agreement, the Company sells Bunge all of the ethanol produced at its Facility, and Bunge purchases the same, up to the Facility’s nameplate capacity of 110,000,000 gallons a year.  We pay Bunge a per-gallon fee for ethanol sold by Bunge, subject to a minimum annual fee of $750,000 and adjusted according to specified indexes after three years.  The initial term of the agreement which commenced August 20, 2009, is three years and it will automatically renew for successive three-year terms unless one party provides the other with notice of their election to terminate 180 days prior to the end of the term.  The Company has incurred expenses of $253,960 and $113,207 during the quarters ended December 31, 2010 and 2009, respectively under the Ethanol Agreement.
 
Under a Risk Management Services Agreement effective January 1, 2009, Bunge agreed to provide the Company with assistance in managing its commodity price risks for a quarterly fee of $75,000.  The agreement has an initial term of three years and will automatically renew for successive three year terms, unless one party provides the other notice of their election to terminate 180 days prior to the end of the term.  Expenses under this agreement for the quarters ended December 31, 2010 and 2009 were $75,000 and $75,000, respectively.
 
On June 26, 2009, the Company executed a Railcar Agreement with Bunge for the lease of 325 ethanol cars and 300 hopper cars which are used for the delivery and marketing of ethanol and distillers grains.  Under the Railcar Agreement, the Company leases railcars for terms lasting 120 months and continuing on a month to month basis thereafter.  The Railcar Agreement will terminate upon the expiration of all railcar leases.  Expenses under this agreement for the quarters ended December 31, 2010 and 2009, were $1,208,690 and  $1,215,505. respectively.
 
On November 12, 2010, the Company entered into a Corn Oil Agency Agreement with Bunge to market its corn oil (the “Corn Oil Agency Agreement”).  The Corn Oil Agency Agreement has an initial term of three years and will automatically renew for successive three-year terms unless one party provides the other notice of their election to terminate 180 days prior to the end of the term.  Expenses under this agreement for the quarters ended December 31, 2010 and 2009 were $4,340 and $0, respectively.
 
 
ICM
 
On November 1, 2006, in consideration of its agreement to invest $6,000,000 in the Company, ICM became the sole Series C Member.  As part of ICM’s agreement to invest in Series C Units, the Operating Agreement provides that the Company will not, without ICM’s approval (i) issue additional Series C Units, (ii) create any additional Series of Units with rights senior to the Series
 

 
14

 

Southwest Iowa Renewable Energy, LLC
 
Notes to Condensed Financial Statements (unaudited)
 
Note 9:   Related Party Transactions (continued)
 
 
C Units, (iii) modify the Operating Agreement to adversely impact the rights of Series C Unit holders, or (iv) repurchase or redeem any Series C Units.  Additionally, ICM, as the sole Series C Unit owner, is afforded the right to elect one Series C Director to the Board so long as ICM remains a Series C Member.
 
On June 17, 2010, the Company issued the ICM Term Note in the amount of $9,970,000, which is convertible at the option of ICM into Series C Units at a conversion price of $3,000 per unit.  As of December 31, 2010 and September 30, 2010, there was approximately $10,061,000 outstanding under the ICM Term Note, respectively, and approximately $346,651 and $139,000 of accrued interest due to ICM as of December 31, 2010 and September 30, 2010, respectively.
 
Additionally, to induce ICM to agree to the ICM Term Note, the Company entered into the ICM Equity Agreement on June 17, 2010, whereby ICM (i) retains preemptive rights to purchase new securities in the Company, and (ii) receives 24% of the proceeds received by the Company from the issuance of equity or debt securities.
 
On July 13, 2010, the Company entered into a Joint Defense Agreement (the “Joint Defense Agreement”) with ICM, which contemplates that we may purchase from ICM one or more Tricanter centrifuges (the “Centrifuges”).  Because such equipment has been the subject of certain legal actions regarding potential patent infringement, the Joint Defense Agreement provides as follows: (i) that the parties may, but are not obligated to, share information and materials that are relevant to the common prosecution and/or defense of any such patent litigation regarding the Centrifuges (the “Joint Defense Materials”), (ii) that any such shared Joint Defense Materials will be and remain confidential, privileged and protected (unless such Joint Defense Materials cease to be privileged, protected or confidential through no violation of the Joint Defense Agreement), (iii) upon receipt of a request or demand for disclosure of Joint Defense Material to a third party, the party receiving such request or demand will consult with the party that provided the Joint Defense Materials and if the party that supplied the Joint Defense Materials does not consent to such disclosure then the other party will seek to protect any disclosure of such materials, (iv) that neither party will disclose Joint Defense Materials to a third party without a court order or the consent of the party who initially supplied the Joint Defense Materials, (v) that access to Joint Defense Materials will be restricted to each party’s outside attorneys, in-house counsel, and retained consultants, (vi) that Joint Defense Materials will be stored in secured areas and will be used only to assist in prosecution and defense of the patent litigation and (vii) if there is a dispute between us and ICM, then each party waives its right to claim that the other party’s legal counsel should be disqualified by reason of this the Joint Defense Agreement or receipt of Joint Defense Materials.  The Joint Defense Agreement will terminate the earlier to occur of (x) upon final resolution of all patent litigation and (y) a party providing ten (10) days advance written notice to the other party of its intent to withdraw from the Joint Defense Agreement.  No payments have been made by either party under the Joint Defense Agreement.
 
On August 25, 2010, the Compnay entered into a Tricanter Purchase and Installation Agreement (the “Tricanter Agreement”) with ICM, pursuant to which ICM is selling the Company a tricanter oil separation system (the “Tricanter Equipment”).  In addition, ICM installed the equipment at our ethanol plant in Council Bluffs, Iowa.  As of December 31, 2010 and September 30, 2010 the Company has paid $2,592,500 and $0, respectively, related to the Tricanter Agreement.
 
Note 10:  Commitments
 
The Company entered into a steam contract with an unrelated party under which the vendor agreed to provide the steam required by the Company, up to 475,000 pounds per hour. The Company agreed to pay a net energy rate for all steam provided under the contract as well as a monthly demand charge. The net energy rate is set for the first three years then adjusted each year beginning on the third anniversary date.  The steam contract will remain in effect until January 1, 2019.  Expenses under this agreement during the quarters ended December 31, 2010 and 2009 were $2,344,289 and $2,615,532, respectively.
 
Note 11:  Major Customers
 
On August 20, 2009, the Company entered had an agreement with a related entity and major customer for marketing, selling, and distributing all of the ethanol and distillers grains with solubles produced by the Company.  The Company has expensed $586,238 and $339,400 in marketing fees under this agreement for the quarters ended December 31, 2010 and 2009, respectively.  Revenues with this customer were $62,066,267 and $50,748,439 for the quarters ended December 31, 2010 and 2009,  respectively.  Trade accounts receivable due from this customer were $17,241,373 and $10,357,853 at December 31, 2010 and September 30, 2010, respectively.
 

 
15

 

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This quarterly report on Form 10-Q by Southwest Iowa Renewable Energy, LLC (the “Company,” “we,” or “us”) contains forward-looking statements that involve future events, our future performance and our expected future operations and actions.  In some cases you can identify  forward-looking  statements  by the use of words such as “may,” “should,” “anticipate,” “believe,” “expect,” “plan,” “future,” “intend,” “could,” “estimate,” “predict,” “hope,” “potential,” “continue,” or the negative of these terms or other similar expressions.  These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties.  Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:

 
Overcapacity in the ethanol industry;
 
Fluctuations in the price and market for ethanol and distillers grains;
 
Availability and costs of products and raw materials, particularly corn, steam and natural gas;
 
Changes in our business strategy, capital improvements or development plans;
 
Changes in the environmental regulations that apply to our plant site and operations;
 
Our ability to hire and retain key employees for the operation of the plant;
 
Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agricultural, oil or automobile industries;
 
Changes in the weather and economic conditions impacting the availability and price of corn and natural gas;
 
Changes in federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives);
 
Changes and advances in ethanol production technology, and competition from alternative fuel additives;
 
Lack of transport, storage and blending infrastructure preventing ethanol from reaching high demand markets;
 
Changes in interest rates and lending conditions; and
 
Results of our hedging strategies.

Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this report.  We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  You should  read this  report and the  documents  that we reference  in this  report and have filed as  exhibits  completely  and with the understanding  that our actual future  results may be materially  different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview, Status and Recent Developments

The Company is an Iowa limited liability company, located in Council Bluffs, Iowa, formed in March, 2005 to construct and operate a 110 million gallon capacity ethanol plant.  We began producing ethanol in February, 2009 and sell our ethanol, modified wet distillers grains with solubles, and corn syrup in the continental United States.  We sell our dried distillers grains with solubles in the continental United States, Mexico, and the Pacific Rim.

Our production facility (the “Facility”) is located in Pottawattamie County in southwestern Iowa. It is near two major interstate highways, within a half a mile of the Missouri River and has access to five major rail carriers. This location is in close proximity to raw materials and product market access. The Facility receives corn and chemical deliveries primarily by truck but is able to utilize rail delivery if necessary.  Finished products are shipped by rail and truck.  The site has access to water from ground wells and from the Missouri river. In addition to close proximity to the Facility’s primary energy source, steam, there are two natural gas providers available, both with infrastructure immediately accessible.

 
 
 
16

 
 
Results of Operations

The following table shows our results of operations, stated as a percentage of revenue.
 

 
Three Months Ended December 31, 2010
(Unaudited)(1)
 
Three Months Ended December 31, 2009
(Unaudited)(1)
 
    Amounts
% of
Revenues
Gallons
 
Amounts
% of
Revenues
Gallons
Income Statement Data
Revenues
$
62,265,743
 
100%
$
2.36
 
$
50,748,439
 
100%
  $
1.84
Cost of Goods Sold
 
59,032,232
 
95%
 
2.24
   
48,854,151
 
96%
 
1.77
Gross Margin
 
3,233,511
 
5%
 
0.12
   
1,894,288
 
4%
 
.07
Selling, General and Administrative Expenses
 
1,200,888
 
2%
 
0.04
   
1,138,298
 
2%
 
0.05
Other (Expense)
 
(2,428,941)
 
(4%)
 
(0.09)
   
(2,311,247)
 
(5%)
 
(0.08)
Net Loss
$
(396,318)
 
(1%)
$
(0.01)
 
$
(1,555,257)
 
(3%)
  $
(0.06)


(1)                 Includes ethanol and distillers grains converted to gallons.

Revenues
 
Our revenue from operations is derived from two primary sources: sales of ethanol and distillers grains.  The following chart displays statistical information regarding our revenues. The increase in revenue in the first quarter, fiscal 2011 over the first  quarter, fiscal 2010 was due to the average price per gallon increasing by approximately $0.36 with 1.21 million less additional gallons being produced between the two quarters and included in the increase was a increase in the dry distiller’s grains (“DDG”) average price per ton of approximately $33.
 
 
 
Three Months Ended December 31, 2010
 (Unaudited)
 
Three Months Ended December 31, 2009
 (Unaudited)
     
Gallons/Tons Sold
 
% of
Revenues
Gallons/Tons
Average Price
 
Gallons/Tons
Sold
 
% of
Revenues
 
Gallons/Tons
Average Price
Statistical Revenue Information
Denatured Ethanol
26,333,450
 
82%
$
1.93
   
27,543,976
 
85%
 
$
1.57
                           
Dry Distiller’s Grains
80,360
 
18%
$
133.17
   
70,908
 
15%
 
$
100.10
                           

 
Cost of Goods Sold
 
Our cost of goods sold increased to $.45 per gallon produced in the first quarter of fiscal 2011 over the first quarter of fiscal 2010.  Our two primary costs of producing ethanol and distillers grains are corn and energy, with steam as our primary energy source and to a lesser extent, natural gas.  Our cash corn prices during the first quarter of fiscal 2011 and fiscal 2010 were an average price of $4.82 and $3.71 per bushel, respectively, and we generated an increase in fiscal 2011 and a decrease in fiscal 2010 in our corn costs due to realized and unrealized gains on our hedging activities during the quarters ended December 31, 2010 and 2009, respectively.  Our average price of corn ground was approximately $4.27 and $3.40 per bushel in the first quarter, 2011 and 2010, respectively.  Offsetting our corn cost increase was our average steam and natural gas energy cost of $4.83 and $5.85 per MMBTU in the first quarter fiscal 2011 and fiscal 2010, respectively.
 
General & Administrative Expense
 
Our general and administrative expenses as a percentage of revenues remained steady at 3% in comparing our first quarters of fiscal 2011 and fiscal 2010.  Operating expenses include salaries and benefits of administrative employees, professional fees and other general administrative costs.  We expect our operating expenses to remain flat to slightly decreasing during fiscal 2011.
 
Other (Expenses)
 
Our other expenses for the first quarter of fiscal 2011 and 2010 remained steady at 4% and 5% of our revenues, respectively.   Other expenses include interest expense, interest income, rental income and miscellaneous income.
 

 

 

 
17

 

Net (Loss)
 
Our net loss from operations for the quarters ended December 31, 2010 and 2009 as a percentage of income decreased from 3% for the quarter ended December 31, 2009 to 2% for the quarter ended December 31, 2010.  The reduction in the net loss generated during the two quarters resulted from impaired gross margins which offset increased interest expense.
 
Liquidity and Capital Resources
 
The Company entered into a Credit Agreement (the “Credit Agreement”) with AgStar Financial Services, PCA (“AgStar”) for $126,000,000 senior secured debt, consisting of a $111,000,000 construction loan and a $15,000,000 revolving line of credit.  As of December 31, 2010, we have drawn approximately $115,705,468 under our Credit Agreement.  We also agreed to pay, beginning at the end of the year ended September 30, 2010, an amount equal to 65% of our Excess Cash Flow (as defined in the Credit Agreement), up to a total of $4,000,000 per year, and $16,000,000 over the term of the Credit Agreement.  In addition to compliance with the borrowing base, we are subject to working capital and tangible net worth covenants under the Credit Agreement.
 
Under our $15 million revolving line of credit with AgStar (the “Revolving LOC”), we have borrowed $12,575,000 as of December 31, 2010, with an additional $425,000 available at December 31, 2010. A letter of credit issued in favor of our steam provider, MidAmerica Energy Company (“MidAm”), in the amount of $2,000,000 reduces capital availability under our Revolving LOC.  We are also relying on receipt of our accounts receivable to help fund operations.
 
In addition, we have entered into a Subordinate Revolving Credit Note (the “Revolving Note”) with Bunge N.A. Holdings Inc. (“Holdings”) effective August 26, 2009 providing for the extension of a maximum of $10,000,000 in revolving credit.  Holdings committed, subject to certain conditions, to advance up to $3,750,000 at our request under the Revolving Note, and amounts in excess of $3,750,000 may be advanced by Holdings at its discretion.  As of December 31, 2010, we had $3,750,000 outstanding under the Revolving Note.  Except as otherwise agreed, we are required to draw the maximum amount available under the Credit Agreement to pay any outstanding advances under the Revolving Note.
 
Because corn oil prices have increased and ethanol spot prices have increased approximately $0.45 a gallon since mid 2010, we believe operating margins will be break-even to slightly positive over the next two to three quarters.  We anticipate margins will remain under pressure for the foreseeable future as ethanol production increases as a result of acquisitions of troubled plants by profitable and larger entities, the commencement of operations of a few remaining projects that are under construction, and the current undersupply of corn in the market.  In addition, cash flow from operations may not allow us to continue to make our principal payments under the Credit Agreement.  We may be dependent upon our lines of credit to make these payments.  We may similarly use our line of credit to hedge corn, natural gas and ethanol.  The volatility in the commodities markets has resulted in wide swings in margins for ethanol production.  A result of these factors, we expect our liquidity to be constrained for the foreseeable future.
 
Primary Working Capital Needs
 
Cash (used in) operations for the three months ended December 31, 2010 and 2009 was $(4,474,497) and $(159,289), respectively.  Cash has been used primarily to fund cyclical inventory buildup in the first quarter of fiscal 2011 and fiscal 2010.  For the three months ended December 31, 2011 and 2010, net cash (used in) investing activities was $2,676,052 and $1,482,004, respectively, primarily related to additional equipment purchases.  For the quarters ending December 31, 2010 and 2009, cash (used in) financing activities was $5,108,742 and $5,116,858, respectively.  This cash was received from additional borrowings.
 
During the quarter which will end March 31, 2011, we estimate that we will require approximately $40,000,000 or more per quarter for our primary input of corn and $4,500,000 for our energy sources of steam and natural gas.  We have up to $6,675,000 in revolving credit available under our revolving credit to support our working capital needs.  We cannot estimate the availability of funds for hedging in the future.
 
Trends and Uncertainties Impacting Ethanol Industry and Our Future Operations
 
Our profitability is highly dependent on commodity prices, especially prices for corn, ethanol and distillers grains. As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. We may experience increasing costs for corn and natural gas and decreasing prices for ethanol and distillers grains which could significantly impact our operating results. Because the market price of ethanol is not directly related to corn prices, ethanol producers are generally not able to compensate for increases in the cost of corn feedstock through adjustments in prices charged for ethanol.  We continue to monitor corn and ethanol prices and their effect on our long-term profitability.
 

 
18

 

The price of corn has been volatile the past two years. Since September, 2009, the Chicago Mercantile Exchange (“CME”) near-month corn price has increased $2.88 per bushel. As of January13, 2011 the CME near-month corn price for January, 2011 was $6.42 per bushel. We believe the increase in corn prices was primarily due to short supply and the United States Department of Agriculture (“USDA”) corn acreage report that came out on January 12, 2011.  Increasing corn prices will negatively affect our costs of production, however, we also believe that higher corn prices may, depending on the prices of alternative crops, encourage farmers to plant more acres of corn in the coming years and possibly divert land in the Conservation Reserve Program to corn production. We believe an increase in land devoted to corn production could reduce the price of corn to some extent in the future.
 
On January 12, 2011, the USDA increased in its original forecast of the amount of corn to be used for ethanol production during the current marketing year (2010-11), to a total of 4.9 billion bushels. The forecast is 471 million bushels more than used last year.  The USDA cited record ethanol use in December, 2010, continuing recovery in the production of gasoline blends with ethanol, and more favorable blender margins as reasons for the increase. In the January, 2011 update, the USDA increased the projection of U.S. corn exports for the current marketing year by 65 million bushels, to 2.05 billion bushels.  This projection is 66 million bushels greater than the projection of last fall and 386 million less than the record exports of 2007-08.
 
 The USDA report for crop year 2010 (the period of September, 2010 through August, 2011) has projected the season-average farm price of corn at $4.50 to $6.50 per bushel.  This compares with the 2007-08 season-average record of $4.20 per bushel.  We feel that there will continue to be volatility in the corn market.
 
In the past, ethanol prices have tended to track the wholesale price of gasoline. Ethanol prices can vary from state to state at any given time.  For the past two years as of October, 2010 according to ProExporter, the average U.S. ethanol price was $1.65 per gallon.  For the same time period, the average U.S. wholesale gasoline price was $1.96 per gallon.  During the first ten months of 2010, the average U.S. ethanol price was $1.46 per gallon.  For the same time period, U.S. wholesale gasoline prices have averaged $2.14 per gallon, or approximately $.68 per gallon above ethanol prices.
 
The Renewable Fuels Standard
 
The American Jobs Creation Act of 2004 created the volumetric ethanol excise tax credit (“VEETC”), which is currently set to expire on December 31, 2011.  Referred to as the blender’s credit, VEETC provides companies with a tax credit to blend ethanol with gasoline.  The Food, Conservation and Energy Act of 2008 (the “2008 Farm Bill”) amended the amount of tax credit provided under VEETC to 45 cents per gallon of pure ethanol and 38 cents per gallon for E85, a blended motor fuel containing 85% ethanol and 15% gasoline.  The elimination or further reduction of VEETC or other federal tax incentives to the ethanol industry would likely have a material adverse impact on our business by reducing demand and price for the ethanol we produce.
 
The Energy Improvement & Extension Act of 2008 (the “2008 Act”) included cellulosic ethanol supports applicable to corn-based ethanol and bolsters those contained in 2007.  Theses supports have impacted the ethanol industry by enhancing both the production and use of ethanol.  The 2008 Act modified the provisions of the act that created the Renewable Fuel Standard (“RFS”).  The U.S. Environmental Protection Agency (the "EPA") is responsible for revising and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel.  On February 3, 2010, the EPA implemented a regulation that requires 12.95 billion gallons of renewable fuel be sold or dispensed in 2010, increasing to 36 billion gallons by 2022.  This requirement does not apply just to corn-based ethanol, but includes all forms of fuel created from feedstocks that qualify as "renewable biomass".  The EPA regulation also expanded the RFS program beyond gasoline to generally cover all transportation fuel.  We cannot assure that this program’s mandates will continue in the future.  We believe that any reversal in federal policy could have a profound impact on the ethanol industry.
 
The domestic market for ethanol is largely dictated by federal mandates for blending ethanol with gasoline.  The RFS mandate level for 2011 of 12.6 billion gallons approximates current domestic production levels.  Future demand will be largely dependent upon the economic incentives to blend based upon the relative value of gasoline versus ethanol, taking into consideration the blender’s credit and the RFS.  Any significant increase in production capacity beyond the RFS level might have an adverse impact on ethanol prices.  Additionally, the RFS mandate with respect to ethanol derived from grain could be reduced or waived entirely.  A reduction or waiver of the RFS mandate could adversely affect the prices of ethanol and our future performance.
 
Federal law mandates the use of oxygenated gasoline. If these mandates are repealed, the market for domestic ethanol would be diminished significantly.  Additionally, flexible-fuel vehicles receive preferential treatment in meeting corporate average fuel economy, or CAFE, standards.  However, high blend ethanol fuels such as E85 result in lower fuel efficiencies.  Absent the CAFE preferences, it may be unlikely that auto manufacturers would build flexible-fuel vehicles.  Any change in these CAFE preferences could reduce the growth of E85 markets and result in lower ethanol prices.
 

 
19

 
 
Market Risks
 
We are exposed to market risk from changes in commodity prices and, to the extent we have working capital available, we engage in hedging transactions which involve risks that could harm our business.  Exposure to commodity price risk results from our dependence on corn and, to the extent our steam source is not available, natural gas in the ethanol production process.  We seek to minimize the risks from fluctuations in the price of corn through the use of hedging instruments when working capital is available.  The effectiveness of our hedging strategies is dependent upon the cost of commodities and our ability to sell sufficient products to use all of the commodities for which we have futures contracts. There is no assurance that our hedging activities will successfully reduce the risk caused by price fluctuation which may leave us vulnerable to high prices. Alternatively, we may choose not to engage in hedging transactions in the future. As a result, our future results of operations and financial conditions may also be adversely affected during periods in which corn prices increase. We do not designate these contracts as hedges for accounting purposes.
 
Competition
 
We believe that the competition in the ethanol market will continue to increase in the near term due to the refitting of plants, reopening of idled plants, and the competitive dynamics of the fuel industry.  Consolidation and recapitalization continue to occur within the ethanol industry; and companies are now emerging with more liquidity and less debt.  We believe the increased capacity, and current competitive dynamics of the fuels market; we believe, will help ethanol prices remain steady to slightly higher in the near term.
 
Summary of Critical Accounting Policies and Estimates
 
Note 2 to our financial statements contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions.  Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment.  We used our knowledge and experience about past events and certain future assumptions to make estimates and judgments involving matters that are inherently uncertain and that affect the carrying value of our assets and liabilities.  We believe that of our significant accounting policies, the following are noteworthy because changes in these estimates or assumptions could materially affect our financial position and results of operations:
 
 
Revenue Recognition
 
We sell ethanol and related products pursuant to marketing agreements.  Revenues are recognized when the marketing company has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.  Our products are generally shipped FOB loading point.  Our ethanol sales are handled through our ethanol agreement with Bunge.  Syrup, distillers grains and solubles, and modified wet distillers grains with solubles are sold through our agreement with Bunge, which sets the price based on the market price to third parties.  Marketing fees and commissions due to the marketers are paid separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of goods sold.  Shipping and handling costs incurred by us for the sale of ethanol and co-products are included in cost of goods sold.
 
 
Incentive Compensation Plan
 
We established an equity incentive compensation plan under which employees may be awarded equity appreciation units and equity participation units.  Costs of the plan are amortized over the vesting period set for each award.  The units outstanding at this time vest three years from the grant date.  The liability under the plan is recorded at fair market value on the balance sheet based on the market price of our equity units as of September 30, 2010.

 
 
Investment in Commodities Contracts, Derivative Instruments and Hedging Activities
 
When we have sufficient working capital available, we enter into derivative contracts to hedge our exposure to price risk related to forecasted corn needs and forward corn purchase contracts.  We use cash, futures and options contracts to hedge changes to the commodity prices of corn and ethanol.  The Company adopted new disclosure requirements requiring entities to provide greater transparency in interim and annual financial statements about how and why the entity uses derivative instruments, how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect the financial position, results of operations, and cash flows of the entity.
 

 
20

 

We are exposed to certain risks related to ongoing business operations.  The primary risks that we manage by using forward or derivative instruments are price risk on anticipated purchases of corn and sales of ethanol.
 
We are subject to market risk with respect to the price and availability of corn, the principal raw material used to produce ethanol and ethanol by-products.  In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions.  This is especially true when market conditions do not allow us to pass along increased corn costs to customers.  The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.
 
Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales.  Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.  Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.
 
We enter into short-term cash, options and futures contracts as a means of securing corn for the ethanol plant and managing exposure to changes in commodity prices.  In addition, from time to time, we enter into derivative contracts to hedge the exposure to price risk as it relates to ethanol sales.  We maintain a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market fluctuations.  Our specific goal is to protect the Company from large moves in commodity costs.  All derivatives will be designated as non-hedge derivatives and the contracts will be accounted for as mark to market.  Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
 
As part of our trading activity, we use futures and option contracts offered through regulated commodity exchanges to reduce risk and risk of loss in the market value of inventories.  To reduce that risk, we generally take positions using cash and futures contracts and options.  Accordingly, any realized or unrealized gain or loss related to these derivative instruments was recorded in the statement of operations as a component of non-operating income (expense) until the plant was operational.  Once operational, the gains or losses are included in revenue if the contracts relate to ethanol and cost of goods sold if the contracts relate to corn.
 
 
Inventory
 
Inventory is stated at the lower of cost or market value using the first-in, first-out method.  Market value is based on current replacement values, except that it does not exceed net realizable values and it is not less than the net realizable values reduced by an allowance for normal profit margin.
 
 
Property and Equipment
 
Property and equipment is stated at cost. Construction in progress is comprised of costs related to constructing the plant and is depreciated upon completion of the plant.  Depreciation is computed using the straight-line method over the following estimated useful lives:
 
  Buildings   40 Years
       
  Process Equipment    10 Years
       
  Office Equipment   3-7 Years
                                                                                       
Maintenance and repairs are charged to expense as incurred; major improvements are capitalized.
 
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  An impairment loss would be recognized when estimated undiscounted future cash flows from operations are less than the carrying value of the asset group.  An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.  In accordance with our policies, management has evaluated the plants for possible impairment based on projected future cash flows from operations.  Management has determined that its projected future cash flows from operations exceed the carrying value of the plant and that no impairment existed at June 30, 2010.

Item 3.  Qualitative and Quantitative Disclosure About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.



 
21

 

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Items 4.  Controls and Procedures.
 
Our management, including our President (our principal executive officer), Brian T. Cahill, along with our Controller (principal financial officer), Karen Kroymann, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 15d-15 under the under the Securities Exchange Act of 1934), as of December 31, 2010.  Based upon this review and evaluation, these officers believe that our disclosure controls and procedures are presently effective in ensuring that material information related to us is recorded, processed, summarized and reported for the quarterly period ended December 31, 2010.
 
Changes in Internal Control Over Financial Reporting
 
Our management has evaluated, with the participation of our President, any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the period covered by this Quarterly Report on Form 10-Q. There was no change in our internal control over financial reporting identified in that evaluation that occurred during the fiscal period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 

 
22

 

PART II

Item 1.  Legal Proceedings.

None.

Item 1A.  Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  (Removed and Reserved).

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits.

2
Omitted – Inapplicable.
3(i)
Articles of Organization, as filed with the Iowa Secretary of State on March 28, 2005 (incorporated by reference to Exhibit 3(i) of Registration Statement on Form 10 filed by the Company on January 28, 2008).
4(i)
Third Amended and Restated Operating Agreement dated July 17, 2009 (incorporated by reference to Exhibit 3.1 of Form 8-K filed by the Company on August 21, 2009).
10.1
Agreement dated October 13, 2006 with Bunge North America, Inc. (incorporated by reference to Exhibit 10.1 of Registration Statement on Form 10/A filed by the Company on October 23, 2008).  Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
10.2
Executed Steam Service Contract dated January 22, 2007 with MidAmerican Energy Company (incorporated by reference to Exhibit 10.4 of Registration Statement on Form 10/A filed by the Company on October 23, 2008).   Portions of the Contract have been omitted pursuant to a request for confidential treatment.
10.3
Assignment of Steam Service Contract dated May 2, 2007 in favor of AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.5 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.4
Electric Service Contract dated December 15, 2006 with MidAmerican Energy Company (incorporated by reference to Exhibit 10.6 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.5
Assignment of Electric Service Contract dated May 2, 2007 in favor of AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.7 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.6
Distillers Grain Purchase Agreement dated October 13, 2006 with Bunge North America, Inc. (incorporated by reference to Exhibit 10.8 of Registration Statement on Form 10 filed by the Company on January 28, 2008).  Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
10.7
Assignment of Distillers Grain Purchase Agreement dated May 2, 2007 in favor of AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.9 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.8
Grain Feedstock Agency Agreement dated October 13, 2006 with AGRI-Bunge, LLC (incorporated by reference to Exhibit 10.10 of Registration Statement on Form 10 filed by the Company on October 23, 2008).  Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
10.9
Assignment of Grain Feedstock Agency Agreement dated May 2, 2007 with AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.11 of Registration Statement on Form 10 filed by the Company on January 28, 2008).

 
23

 

10.10
Agreement between Owner and Design/Builder Based on The Basis of a Stipulated Price dated September 25, 2006 with ICM, Inc. (incorporated by reference to Exhibit 10.12 of Registration Statement on Form 10/A filed by the Company on October 23, 2008).  Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
10.11
Security Agreement dated May 2, 2007 with AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.15 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.12
Mortgage, Security Agreement Assignment of Rents and Leases and Fixture Filing dated May 2, 2007 in favor of AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.16 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.13
Environmental Indemnity Agreement dated May 2, 2007 with AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.17 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.14
Convertible Note dated May 2, 2007 in favor of Monumental Life Insurance Company (incorporated by reference to Exhibit 10.18 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.15
Convertible Note dated May 2, 2007 in favor of Metlife Bank, N.A. (incorporated by reference to Exhibit 10.19 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.16
Convertible Note dated May 2, 2007 in favor of Cooperative Centrale Raiffeisen-Boerenleenbank, B.A. (incorporated by reference to Exhibit 10.20 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.17
Convertible Note dated May 2, 2007 in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.21 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.18
Convertible Note dated May 2, 2007 in favor of First National Bank of Omaha (incorporated by reference to Exhibit 10.22 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.19
Revolving Line of Credit Note in favor of Cooperative Centrale Raiffeisen-Boerenleenbank, B.A. (incorporated by reference to Exhibit 10.23 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.20
Revolving Line of Credit Note in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.24 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.21
Revolving Line of Credit Note in favor of First National Bank of Omaha (incorporated by reference to Exhibit 10.25 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.22
Term Revolving Note in favor of Metlife Bank, N.A. (incorporated by reference to Exhibit 10.26 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.23
Term Revolving Note in favor of Cooperative Centrale Raiffeisen-Boerenleenbank, B.A. (incorporated by reference to Exhibit 10.27 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.24
Term Revolving Note in favor of Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.28 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.25
Term Revolving Note in favor of First National Bank of Omaha (incorporated by reference to Exhibit 10.29 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.26
Lien Subordination Agreement dated May 2, 2007 among Southwest Iowa Renewable Energy, LLC, AgStar Financial Services, PCA and Iowa Department of Economic Development (incorporated by reference to Exhibit 10.30 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.27
Value Added Agricultural Product Marketing Development Grant Agreement dated November 3, 2006 with the United States of America (incorporated by reference to Exhibit 10.31 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.28
Fee Letter dated May 2, 2007 with AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.33 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.29
Master Contract dated November 21, 2006 with Iowa Department of Economic Development (incorporated by reference to Exhibit 10.35 of Registration Statement on Form 10 filed by the Company on January 28, 2008).
10.30
Amended and Restated Disbursing Agreement dated March 7, 2008 with AgStar Financial Services, PCA (incorporated by reference to Exhibit 10.39 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.31
Allonge to Revolving Line of Credit Note in favor of First National Bank of Omaha dated March 7, 2008 (incorporated by reference to Exhibit 10.43 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.32
Allonge to Revolving Line of Credit Note in favor of Cooperative Centrale Raiffeisen-Boerenleenbank, B.A., dated March 7, 2008 (incorporated by reference to Exhibit 10.44 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.33
Allonge to Revolving Line of Credit Note in favor of Metropolitan Life Insurance Company, dated March 7, 2008 (incorporated by reference to Exhibit 10.45 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.34
Allonge to Convertible Note in favor of First National Bank of Omaha, dated March 7, 2008 (incorporated by reference to Exhibit 10.46 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).

 
24

 

10.35
Allonge to Convertible Note in favor of Metlife Bank, N.A., dated March 7, 2008 (incorporated by reference to Exhibit 10.47 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.36
Allonge to Convertible Note in favor of Metropolitan Life Insurance Company, dated March 7, 2008 (incorporated by reference to Exhibit 10.48 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.37
Allonge to Convertible Note in favor of Cooperative Centrale Raiffeisen-Boerenleenbank, B.A., dated March 7, 2008 (incorporated by reference to Exhibit 10.49 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.38
Allonge to Term Revolving Note in favor of First National Bank of Omaha, dated March 7, 2008 (incorporated by reference to Exhibit 10.50 of Amendment No. 1 to Registration Statement on Form 10  filed by the Company on March 21, 2008).
10.39
Allonge to Term Revolving Note in favor of Cooperative Centrale Raiffeisen-Boerenleenbank, B.A., dated March 7, 2008 (incorporated by reference to Exhibit 10.51 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.40
Allonge to Term Revolving Note in favor of Metlife Bank, N.A., dated March 7, 2008 (incorporated by reference to Exhibit 10.52 of Amendment No. 1 to Registration Statement on Form 10  filed by the Company on March 21, 2008).
10.41
Allonge to Term Revolving Note in favor of Metropolitan Life Insurance Company, dated March 7, 2008 (incorporated by reference to Exhibit 10.53 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.42
Allonge to Convertible Note in favor of Monumental Life Insurance Company, dated March 7, 2008 (incorporated by reference to Exhibit 10.54 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.43
Term Revolving Note in favor of Amarillo National Bank (incorporated by reference to Exhibit 10.55 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.44
Allonge to Term Revolving Note in favor of Amarillo National Bank, dated March 7, 2008 (incorporated by reference to Exhibit 10.56 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.45
Convertible Note dated May 2, 2007, in favor of Amarillo National Bank (incorporated by reference to Exhibit 10.57 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.46
Allonge to Convertible Note in favor of Amarillo National Bank, dated March 7, 2008 (incorporated by reference to Exhibit 10.58 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.47
Revolving Line of Credit Note in favor of Amarillo National Bank (incorporated by reference to Exhibit 10.59 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.48
Allonge to Revolving Line of Credit Note in favor of Amarillo National Bank, dated March 7, 2008 (incorporated by reference to Exhibit 10.60 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.50
Support Services Agreement dated January 30, 2008 with Bunge North America, Inc. (incorporated by reference to Exhibit 10.63 of Amendment No. 1 to Registration Statement on Form 10 filed by the Company on March 21, 2008).
10.51
Amendment No. 01 dated March 9, 2007 with Iowa Department of Economic Development (incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Company on June 10, 2006).
10.52
Amendment No. 02 dated May 30, 2008 with Iowa Department of Economic Development (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on June 10, 2006).
10.53
Industrial Track Agreement dated as of June 18, 2008 with CBEC Railway, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on June 25, 2006).
10.54
Base Agreement dated August 27, 2008 between Southwest Iowa Renewable Energy, LLC and Cornerstone Energy, LLC (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on September 2, 2008).
10.55
Lease Agreement dated December 15, 2008 with Bunge North America, Inc. (incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Company on December 22, 2008).
10.56
Ethanol Purchase Agreement dated December 15, 2008 with Bunge North America, Inc.  Portions of the Agreement have been omitted pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.3 of Form 8-K filed by the Company on December 22, 2008).
10.57
Risk Management Services Agreement dated December 15, 2008 with Bunge North America, Inc. (incorporated by reference to Exhibit 10.4 of Form 8-K filed by the Company on December 22, 2008).
10.58
Grain Feedstock Supply Agreement dated December 15, 2008 with AGRI-Bunge, LLC.  Portions of the Agreement have been omitted pursuant to a request for confidential treatment (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on December 22, 2008).
10.59
Subordinated Revolving Credit Note made by Southwest Iowa Renewable Energy, LLC in favor of Bunge N.A. Holdings, Inc. dated effective August 26, 2009 (incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Company on September 2, 2009).

 
25

 

10.60
Employment Agreement dated August 27, 2009 between Southwest Iowa Renewable Energy, LLC and Mr. Brian T. Cahill (incorporated by reference to Exhibit 10.3 of Form 8-K filed by the Company on September 2, 2009).
10.61
Amendment to Steam Service Contract by and between Southwest Iowa Renewable Energy, LLC and MidAmerican Energy Company dated effective October 3, 2008. Portions of the Agreement have been omitted pursuant to a request for confidential treatment. (1)
10.62
Second Amendment to Steam Service Contract by and between Southwest Iowa Renewable Energy, LLC and MidAmerican Energy Company dated effective January 1, 2009. Portions of the Agreement have been omitted pursuant to a request for confidential treatment. (1)
10.63
Third Amendment to Steam Service Contract by and between Southwest Iowa Renewable Energy, LLC and MidAmerican Energy Company dated effective January 1, 2009. Portions of the Agreement have been omitted pursuant to a request for confidential treatment. (1)
10.64
Fourth Amendment to Steam Service Contract by and between Southwest Iowa Renewable Energy, LLC and MidAmerican Energy Company dated effective December 1, 2009. Portions of the Agreement have been omitted pursuant to a request for confidential treatment. (1)
10.65
Separation Agreement and Release of All Claims Agreement between Southwest Iowa Renewable Energy, LLC and Cindy Patterson (incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Company on July 2, 2009).
10.66
Amended and Restated Railcar Sublease Agreement dated March 25, 2009 with Bunge North America, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on August 14, 2009).  Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
10.67
Amended and Restated Credit Agreement by and among Southwest Iowa Renewable Energy, LLC and AgStar Financial Services, PCA, the Banks named therein, dated as of March 31, 2010 (incorporated by reference to Exhibit 99.1 of Form 8-K filed by the Company on April 5, 2010).
10.68
Loan Satisfaction Agreement, by and among Southwest Iowa Renewable Energy, LLC, ICM, Inc., and Commerce Bank, N.A., dated June 17, 2010 (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on June 23, 2010).
10.69
Negotiable Subordinated Term Loan Note issued by Southwest Iowa Renewable Energy, LLC in favor of ICM, Inc., dated June 17, 2010 (incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Company on June 23, 2010).
10.70
ICM, Inc. Agreement – Equity Matters, by and between ICM, Inc. and Southwest Iowa Renewable Energy, LLC, dated as of June 17, 2010 (incorporated by reference to Exhibit 10.3 of Form 8-K filed by the Company on June 23, 2010).
10.71
Subordinated Term Loan Note issued by Southwest Iowa Renewable Energy, LLC in favor of Bunge N.A. Holdings, Inc., dated June 17, 2010 (incorporated by reference to Exhibit 10.4 of Form 8-K filed by the Company on June 23, 2010).
10.72
Bunge Agreement - Equity Matters by and between Southwest Iowa Renewable Energy, LLC and Bunge N.A. Holdings, Inc. date effective August 26, 2009. (1)
10.73
First Amendment to Bunge Agreement – Equity Matters, by and between Bunge N.A. Holdings, Inc. and Southwest Iowa Renewable Energy, LLC, dated as of June 17, 2010 (incorporated by reference to Exhibit 10.5 of Form 8-K filed by the Company on June 23, 2010).
10.74
Subordination Agreement, by and among Bunge N.A. Holdings, Inc., ICM, Inc., and AgStar Financial Services, PCA and acknowledged by Southwest Iowa Renewable Energy, LLC, dated as of June 17, 2010 (incorporated by reference to Exhibit 10.6 of Form 8-K filed by the Company on June 23, 2010).
10.75
Intercreditor Agreement, by and between Bunge N.A. Holdings, Inc. and ICM, Inc. and acknowledged by Southwest Iowa Renewable Energy, LLC, dated as of June 17, 2010. (incorporated by reference to Exhibit 10.7 of Form 8-K filed by the Company on June 23, 2010).
10.76
Southwest Iowa Renewable Energy Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on July 6, 2010).
10.77
Joint Defense Agreement between ICM, Inc. and Southwest Iowa Renewable Energy, LLC dated July 13, 2010 (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on July 16, 2010).
10.78
Tricanter Purchase and Installation Agreement by and between ICM, Inc. and Southwest Iowa Renewable Energy, LLC dated August 25, 2010 (incorporated by reference to Exhibit 10.1 of Form 8-K/A filed by the Company on January 12, 2011). Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
10.79
Corn Oil Agency Agreement by and between ICM, Inc. and Southwest Iowa Renewable Energy, LLC effective as of November 12, 2010 (incorporated by reference to Exhibit 10.1 of Form 8-K filed by the Company on November 30, 2010).  Portions of the Agreement have been omitted pursuant to a request for confidential treatment.
11
Omitted – Inapplicable.
12
Omitted – Inapplicable.
13
Omitted – Inapplicable.
14
Omitted – Inapplicable.
16
Omitted – Inapplicable.
18
Omitted – Inapplicable.

 
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21 Omitted – Inapplicable.    
22 Omitted – Inapplicable    
31.1 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.
32.1 Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.
32.2 Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.
 
 

 

 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
SOUTHWEST IOWA RENEWABLE ENERGY, LLC
 
     
Date: February 9, 2011
/s/ Brian T. Cahill
 
 
President and Chief Executive Officer
 
     
Date: February 9, 2011
/s/ Karen L. Kroymann
 
 
Controller and Principal Financial Officer
 





 
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