Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - ONE EARTH ENERGY LLC | c14925exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - ONE EARTH ENERGY LLC | c14925exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - ONE EARTH ENERGY LLC | c14925exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - ONE EARTH ENERGY LLC | c14925exv31w1.htm |
EX-10.43 - EXHIBIT 10.43 - ONE EARTH ENERGY LLC | c14925exv10w43.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal year ended December 31, 2010
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Commission file number 333-135729
ONE EARTH ENERGY, LLC
(Exact name of registrant as specified in its charter)
Illinois | 20-3852246 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
202 N. Jordan Drive, Gibson City, IL | 60936 | |
(Address of principal executive offices) | (Zip Code) |
(217) 784-5321
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Membership Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. o Yes þ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 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). o Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller Reporting Company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
o Yes þ No |
As of June 30, 2010, the aggregate market value of the membership units held by non-affiliates
(computed by reference to the issuers offering price of such membership units in its initial
public offering, as no current market exists for such membership units) was $16,905,000.
As of March 31, 2011, there were 13,781 membership units outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
INDEX
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Exhibit 10.43 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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Table of Contents
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains historical information, as well as forward-looking statements that
involve known and unknown risks and relate to future events, our future financial performance, or
our expected future operations and actions. In some cases, you can identify forward-looking
statements by terminology such as may, will, should, expect, plan, anticipate,
believe, estimate, future, intend, could, hope, predict, target, potential, or
continue or the negative of these terms or other similar expressions. These forward-looking
statements are only our predictions based upon current information and involve numerous
assumptions, risks and uncertainties. Our actual results or actions may differ materially from
these forward-looking statements for many reasons, including the reasons described in this report.
While it is impossible to identify all such factors, factors that could cause actual results to
differ materially from those estimated by us include:
| Changes in the availability and price of corn and natural gas; |
|
| Our inability to secure credit we may require to continue our operations; |
|
| Decreases in the market prices of ethanol and distillers grains; |
|
| Ethanol supply exceeding demand; and corresponding ethanol price reductions; |
|
| Changes in the environmental regulations that apply to our plant operations; |
|
| Changes in our business strategy, capital improvements or development plans; |
|
| Changes in plant production capacity or technical difficulties in operating the plant; |
|
| Changes in general economic conditions or the occurrence of certain events causing an
economic impact in the agriculture, oil or automobile industries; |
|
| Lack of transport, storage and blending infrastructure preventing ethanol from
reaching high demand markets; |
|
| 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; |
|
| Additional ethanol plants built in close proximity to our ethanol facility; |
|
| Competition from alternative fuel additives; |
|
| Changes in interest rates and lending conditions; |
|
| Our ability to generate free cash flow to invest in our business and service our debt; |
|
| Our ability to retain key employees and maintain labor relations; and |
|
| Volatile commodity and financial markets. |
The cautionary statements referred to in this section also should be considered in connection
with any subsequent written or oral forward-looking statements that may be issued by us or persons
acting on our behalf. We undertake no duty to update these forward-looking statements, even though
our situation may change in the future. Furthermore, we cannot guarantee future results, events,
levels of activity, performance, or achievements. We caution you not to put undue reliance on any
forward-looking statements, which speak only as of the date of this report. You should read this
report and the documents that we reference in this report and have filed as exhibits, completely
and with the understanding that our actual future results may be materially different from what we
currently expect. We qualify all of our forward-looking statements by these cautionary statements.
3
Table of Contents
AVAILABLE INFORMATION
Our website address is www.oneearthenergy.com. Our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange
Act), are available, free of charge, on our website under the link SEC Filings, as soon as
reasonably practicable after we electronically file such materials with, or furnish such materials
to, the Securities and Exchange Commission. The contents of our website are not incorporated by
reference in this annual report on Form 10-K.
PART I
ITEM 1. | BUSINESS |
Business Development
One Earth Energy, LLC is an Illinois limited liability company organized on November 28, 2005,
for the purpose of raising capital to develop, construct, own and operate a 100 million gallon per
year ethanol plant in east central Illinois near Gibson City, Illinois. References to we, us,
our, One Earth and the Company refer to One Earth Energy, LLC. Since June 24, 2009, we have
been engaged in the production of ethanol and distillers grains at the plant.
We are subject to industry-wide factors that affect our operating and financial performance.
These factors include, but are not limited to the available supply and cost of corn from which our
ethanol and distillers grains are processed; the cost of natural gas, which we use in the
production process; dependence on our distillers grains marketer to market and distribute our
products; the competitive nature of the ethanol industry; possible legislation at the federal,
state and/or local level; changes in federal ethanol tax incentives and the cost of complying with
extensive environmental laws that regulate our industry.
We expect our ethanol plant to produce approximately 2.8 gallons of ethanol for each bushel of
corn processed in the production cycle. We refer to the difference between the price per gallon of
ethanol and the price per bushel of corn (divided by 2.8) as the crush spread. Should the crush
spread decline, it is possible that our ethanol plant will generate operating results that do not
provide adequate cash flows for sustained periods of time. In such cases, production at the
ethanol plant may be reduced or stopped altogether in order to minimize variable costs at the
plant.
We attempt to manage the risk related to the volatility of corn and ethanol prices by
utilizing forward corn purchase and forward ethanol and distillers grain sale contracts. We
attempt to match quantities of ethanol and distillers grains sale contracts with an appropriate
quantity of corn purchase contracts over a given period of time when we can obtain an adequate
gross margin resulting from the crush spread inherent in the contracts we have executed. However,
the market for future ethanol sales contracts is not a mature market. Consequently, we generally
execute contracts for no more than three months into the future at any given time. As a result of
the relatively short period of time our contracts cover, we generally cannot predict the future
movements in the crush spread for more than three months; thus, we are unable to predict the
likelihood or amounts of future income or loss from our ethanol plant.
The crush spread realized in 2010 was subject to significant volatility. For calendar year
2010, the average Chicago Board of Trade (CBOT) near-month corn price was approximately $4.30 per
bushel, with highs reaching over $7.00 per bushel in December 2010. We believe corn prices were
affected late in the year by global weather conditions, export demand, speculation, currency
valuation and global economic conditions. Ethanol prices also had significant fluctuations ranging
from approximately $1.50 per gallon in June to approximately $2.38 per gallon in December. Ethanol
and corn prices have tended to trade in the same direction but with narrowing spreads, particularly
late in the year. In 2010, the CBOT crush spread ranged from a low of approximately $0.05 per
gallon in December to a high of approximately $0.55 per gallon in June. We believe ethanol demand
late in 2010 was also impacted by the uncertainty of the extension of the VEETC Blender Credit.
Crush spreads have continued to
decline in 2011 and have at times, become negative (absent the consideration of distillers
grains). Prices for distillers grains we sell have generally trended with grain prices. In
addition, these prices have partially offset the decline in the crush spread.
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Table of Contents
The crush spread realized in 2009 was subject to significant volatility. For example, for
calendar year 2009, the average Chicago Board of Trade (CBOT) near-month corn price was
approximately $3.74 per bushel, with highs reaching nearly $4.20 per bushel and retreating to
approximately $3.20 per bushel in the fall. Ethanol prices were generally in a range of
approximately $1.50 to $1.70 per gallon for most of the year. Ethanol prices increased during the
last three months of 2009 reaching as high as $2.00 per gallon. We believe this market volatility
with respect to the crush spread was attributable to a number of factors, including but not limited
to export demand, speculation, currency valuation, global economic conditions, ethanol demand and
current production concerns. In 2009, the CBOT crush spread ranged from approximately $0.19 to
$0.63 per gallon of ethanol.
Principal Products and Markets
The principal products we are producing at the plant are fuel-grade ethanol and distillers
grains. Raw carbon dioxide gas is another co-product of the ethanol production process. We have no
current agreement to capture or market carbon dioxide gas, and are not exploring any options at
this time.
Ethanol
Our primary product is ethanol. Ethanol is ethyl alcohol, a fuel component made primarily from
corn and various other grains. According to the Renewable Fuels Association, approximately 85
percent of ethanol in the United States today is produced from corn, and approximately 90 percent
of ethanol is produced from a corn and other input mix. The ethanol we produce is manufactured from
corn. Although the ethanol industry continues to explore production technologies employing various
feedstocks, such as biomass, corn-based production technologies remain the most practical and
provide the lowest operating risks. Corn produces large quantities of carbohydrates, which convert
into glucose more easily than most other kinds of biomass. The Renewable Fuels Association
estimates current domestic annual ethanol production for operating refineries at approximately
13.67 billion gallons as of March 15, 2011.
An ethanol plant is essentially a fermentation plant. Ground corn and water are mixed with
enzymes and yeast to produce a substance called beer, which contains about 10% alcohol and 90%
water. The beer is boiled to separate the water, resulting in ethyl alcohol, which is then
dehydrated to increase the alcohol content. This product is then mixed with a certified denaturant
to make the product unfit for human consumption and commercially saleable.
Ethanol can be used as: (i) an octane enhancer in fuels; (ii) an oxygenated fuel additive for
the purpose of reducing ozone and carbon monoxide emissions; and (iii) a non-petroleum-based
gasoline substitute. Approximately 95% of all ethanol is used in its primary form for blending with
unleaded gasoline and other fuel products. Used as a fuel oxygenate, ethanol provides a means to
control carbon monoxide emissions in large metropolitan areas. The principal purchasers of ethanol
are generally the wholesale gasoline marketer or blender. The principal markets for our ethanol are
petroleum terminals in the southeastern and northeastern United States.
Approximately 83% and 85% of our revenue was derived from the sale of ethanol during our
fiscal years ended December 31, 2010 and 2009, respectively.
Distillers Grains
The principal co-product of the ethanol production process is distillers grains, a high
protein, high-energy animal feed supplement primarily marketed to the dairy, beef, poultry and
swine industries. Distillers grains contain by-pass protein that is superior to other protein
supplements such as cottonseed meal and soybean meal. By-pass proteins are more digestible to the
animal, thus generating greater lactation in milk cows and greater weight gain in beef cattle. Dry
mill ethanol processing creates three forms of distiller grains: Distillers Wet Grains with
Solubles (DWS), Distillers Modified Wet Grains with Solubles (DMWS) and Distillers Dried Grains
with Solubles (DDGS). DWS is processed corn mash that contains approximately 70% moisture. DWS
has a shelf life of
approximately three days and can be sold only to farms within the immediate vicinity of an ethanol
plant. DMWS is DWS that has been dried to approximately 50% moisture. DMWS have a slightly longer
shelf life of approximately ten days and are often sold to nearby markets. DDGS is DWS that has
been dried to 10% to 12% moisture. DDGS has an almost indefinite shelf life and may be sold and
shipped to any market regardless of its vicinity to an ethanol plant.
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Table of Contents
Approximately 17% and 15% of our revenue was derived from the sale of distillers grains
during our fiscal years ended December 31, 2010 and 2009, respectively.
Ethanol and Distillers Grains Markets
As described below in Distribution of Principal Products, we market our ethanol in-house,
and distillers grains through a third party. Whether or not distillers grains produced by our
ethanol plant are sold in local markets will depend on decisions made in cooperation with our
marketer. Local ethanol markets will be limited and must be evaluated on a case-by-case basis.
Although local markets will be the easiest to service, they may be oversold. Oversold markets
depress ethanol prices.
Our regional market is within a 450-mile radius of our plant and is serviced by rail. We are
connected to a short-line railroad that is connected to a Class I railroad, so that we may reach
regional and national markets with our products. Because ethanol use results in less air pollution
than regular gasoline, regional markets typically include large cities that are subject to
anti-smog measures such as either carbon monoxide or ozone non-attainment areas (e.g., Atlanta,
Birmingham, Baton Rouge and Washington D.C.).
While we believe that the nationally mandated usage of renewable fuels is currently driving
demand, we believe that an increase in voluntary usage will be necessary for the industry to
continue its growth trend. In addition, a higher renewable fuels standard (RFS) may be necessary to
encourage use by blenders. We expect that voluntary usage by blenders will occur only if the price
of ethanol makes increased blending economical. In addition, we believe that heightened consumer
awareness and consumer demand for ethanol-blended gasoline may play an important role in growing
overall ethanol demand and voluntary usage by blenders. If blenders do not voluntarily increase the
amount of ethanol blended into gasoline and consumer awareness does not increase, it is possible
that additional ethanol supply will outpace demand and further depress ethanol prices.
Distribution of Principal Products
Our ethanol plant is located near Gibson City, Illinois in Ford County. We selected the site
because of its location which is close to an abundant supply of corn and accessibility to road and
rail transportation. Our site is in close proximity to rail and a major highway that is connected
to Chicago, Illinois.
Ethanol Distribution
We have entered into a non-exclusive marketing agreement with Lansing Ethanol Services, LLC,
(Lansing) whereby Lansing will, from time to time, purchase ethanol from One Earth for a
merchandising fee per gallon of ethanol delivered. The term of the agreement is from June 5, 2009
until December 1, 2012. It will automatically renew for additional periods of one year after the
last day of the initial term, and after each renewal term, unless either party sends a written
notice of termination to the other. Effective December 1, 2010, the agreement was amended by
deleting the per gallon merchandising fee.
Distillers Grains Distribution
We have entered into a marketing agreement with United Bio Energy Ingredients, LLC (UBEI).
Under the terms of the agreement, UBEI will purchase all of our distillers grains production during
the term of the contract. The initial term of the agreement is for 36 months, commencing on the
date that our ethanol plant began operations to produce ethanol. The agreement will automatically
renew for successive one year terms thereafter unless either party gives written notice of its
election not to renew. Pursuant to the agreement, UBEI will provide comprehensive co-products
marketing services to us including an onsite merchandiser. However, it was found that the onsite
merchandiser arrangement would be better served by allowing the UBEI merchandiser to work from the
UBEI
offices, and UBEI would reimburse One Earth monthly as a credit. UBEI will pay us for all
distillers grains removed by them from our plant as follows: for dried distillers grains, a price
equal to a percentage of the F.O.B. facility price charged by UBEI to its customers; for wet
distillers grains, a price equal to a percentage of the F.O.B. Facility Price charged by UBEI to
its customers; for modified wet distillers grains, a price equal to a percentage of the F.O.B.
Facility Price charged by UBEI to its customers. Such percentages are subject to a minimum and
maximum price per ton as set forth in the agreement. On December 6, 2010, we amended the
agreement, which was effective with shipments on the first day of January 2011. The amendment
reduces the price UBEI will pay to One Earth for all DDGS shipped to its customers, with upper and
lower limits. UBEI shall no longer give One Earth the monthly credit, and UBEI shall not be
required to locate a merchandiser at One Earths facility. The termination date was extended to
July 1, 2014.
6
Table of Contents
Federal Ethanol Supports and Governmental Regulation
Federal Ethanol Supports
The overall effect of the renewable fuel standard (RFS) program contained in the Energy
Independence and Security Act signed into law on December 19, 2007 (the 2007 Act) is uncertain.
The mandated minimum level of use of renewable fuels in the RFS under the 2007 Act increased to
10-11 billion gallons per year in 2009 (from 5.4 billion gallons under the RFS enacted in 2005),
and is scheduled to increase to 36 billion gallons per year in 2022. However, the 2007 Act also
requires the increased use of advanced biofuels, which are alternative biofuels produced without
using corn starch such as cellulosic ethanol and biomass-based diesel, with 21 billion gallons of
the mandated 36 billion gallons of renewable fuel required to come from advanced biofuels by 2022,
which essentially caps the annual corn based ethanol volume at 15 billion gallons. Required RFS
volumes for both general and advanced renewable fuels in years to follow 2022 will be determined by
a governmental administrator, in coordination with the U.S. Department of Energy and U.S.
Department of Agriculture. The scheduled RFS for 2011 is approximately 12.6 billion gallons.
Undiffer- | ||||||||||||||||||||||||
Biomass- | entiated | |||||||||||||||||||||||
Renewable | Advanced | Cellulosic | based | Advanced | ||||||||||||||||||||
Year | Biofuel | Biofuel | Biofuel | Diesel | Biofuel | Total RFS | ||||||||||||||||||
2008 |
9.0 | 9.0 | ||||||||||||||||||||||
2009 |
10.5 | .6 | .5 | 0.1 | 11.1 | |||||||||||||||||||
2010 |
12 | .95 | .1 | .65 | 0.2 | 12.95 | ||||||||||||||||||
2011 |
12.6 | 1.35 | .25 | .8 | 0.3 | 13.95 | ||||||||||||||||||
2012 |
13.2 | 2 | .5 | 1 | 0.5 | 15.2 | ||||||||||||||||||
2013 |
13.8 | 2.75 | 1 | 1.75 | 16.55 | |||||||||||||||||||
2014 |
14.4 | 3.75 | 1.75 | 2 | 18.15 | |||||||||||||||||||
2015 |
15 | 5.5 | 3 | 2.5 | 20.5 | |||||||||||||||||||
2016 |
15 | 7.25 | 4.25 | 3.0 | 22.25 | |||||||||||||||||||
2017 |
15 | 9 | 5.5 | 3.5 | 24 | |||||||||||||||||||
2018 |
15 | 11 | 7 | 4.0 | 26 | |||||||||||||||||||
2019 |
15 | 13 | 8.5 | 4.5 | 28 | |||||||||||||||||||
2020 |
15 | 15 | 10.5 | 4.5 | 30 | |||||||||||||||||||
2021 |
15 | 18 | 13.5 | 4.5 | 33 | |||||||||||||||||||
2022 |
15 | 21 | 16 | 5 | 36 |
Source: Renewable Fuels Association
Waivers of the RFS minimum levels of renewable fuels included in gasoline could have a
material adverse effect on our results of operations. Under the RFS, as originally passed as part
of the Energy Policy Act of 2005, the U.S. Environmental Protection Agency, or EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may waive the renewable fuels
mandate with respect to one or more states if the Administrator of the EPA determines upon the
petition of one or more states that implementing the requirements would severely harm the economy
or the environment of a state, a region or the nation, or that there is inadequate supply to meet
the
requirement.
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Table of Contents
On June 18, 2008, the United States Congress overrode a presidential veto to approve the Food,
Conservation and Energy Act of 2008 (the 2008 Farm Bill) and to ensure that all parts of the 2008
Farm Bill are enacted into law. Passage of the 2008 Farm Bill reauthorized the 2002 farm bill and
added new provisions regarding energy, conservation, rural development, crop insurance as well as
other subjects. The energy title continues the energy programs contained in the 2002 farm bill but
refocuses certain provisions on the development of cellulosic ethanol technology. The legislation
provided assistance for the production, storage and transport of cellulosic feedstocks and provides
support for ethanol production from such feedstocks in the form of grants, loans and loan
guarantees. The 2008 Farm Bill also modified the ethanol fuels tax credit from 51 cents per gallon
to 45 cents per gallon since 2009. The 2008 Farm Bill is distinct from the Energy Independence and
Security Act of 2007, which contains the renewable fuels standards described above.
The Energy Independence and Security Act of 2007 and the 2008 Farm Bill offer a very strong
incentive to develop commercial scale cellulosic ethanol. The RFS requires that 16 billion gallons
per year of cellulosic bio-fuels be consumed in the United States by 2022. Additionally, state and
federal grants have been awarded to several companies who are seeking to develop commercial-scale
cellulosic ethanol plants. We expect this will encourage innovation that may lead to commercially
viable cellulosic ethanol plants in the near future. If an efficient method of producing ethanol
from cellulose-based biomass is developed, we may not be able to compete effectively.
There is currently some debate in the U.S. Senate about whether to repeal the 54 cent per
gallon tariff on imported ethanol. In December 2010, the tariff was extended to the end of 2011.
If the 54 cent per gallon tariff is allowed to expire at the end of 2011, the demand for
domestically produced ethanol may be offset by the supply of ethanol imported from Brazil or other
foreign countries.
Effect of Governmental Regulation
The ethanol industry and our business depend upon continuation of the federal ethanol supports
discussed above. These incentives have supported a market for ethanol that might disappear without
the incentives. Alternatively, the incentives may be continued at lower levels than at which they
currently exist. The elimination or reduction of such federal ethanol supports would make it more
costly for us to sell our ethanol and would likely reduce our net income and negatively impact our
future financial performance.
We are subject to various federal, state and local environmental laws and regulations,
including those relating to the discharge of materials into the air, water and ground, the
generation, storage, handling, use, transportation and disposal of hazardous materials, and the
health and safety of employees. In addition, some of these laws and regulations require our plant
to operate under permits that are subject to renewal or modification.
The governments regulation of the environment changes constantly. We are subject to extensive
air, water and other environmental regulations and we are required to obtain a number of
environmental permits to operate the plant. It is possible that more stringent federal or state
environmental rules or regulations could be adopted, which could increase our operating costs and
expenses. It also is possible that federal or state environmental rules or regulations could be
adopted that could have an adverse effect on the use of ethanol. For example, changes in the
environmental regulations regarding the required oxygen content of automobile emissions could have
an adverse effect on the ethanol industry. Furthermore, plant operations likely will be governed by
the Occupational Safety and Health Administration (OSHA). OSHA regulations may change such that
the costs of the operation of the plant may increase. Any of these regulatory factors may result in
higher costs or other materially adverse conditions effecting our operations, cash flows and
financial performance.
8
Table of Contents
Competition
We are in direct competition with numerous ethanol producers, many of whom have greater
resources than we do. Following the significant growth in the ethanol industry during 2005 and
2006, the industry has grown at a much slower pace. Management attributes the rapid growth during
2005 and 2006 with a very favorable spread between the price of ethanol and the cost of the raw
materials to produce ethanol during that time period. Management believes that currently ethanol
supply capacity exceeds ethanol demand. This has resulted in some
ethanol producers reducing production of ethanol or ceasing operations altogether. As of March 15,
2011, the Renewable Fuels Association estimates that approximately 3% of the ethanol production
capacity in the United States is currently idled. This is down from earlier in 2009 when the idled
capacity may have been as high as 20%. As a result of this overcapacity, the ethanol industry has
become increasingly competitive. Since ethanol is a commodity product, competition in the industry
is predominantly based on price. Larger ethanol producers may be able to realize economies of scale
that we are unable to realize. This could put us at a competitive disadvantage to other ethanol
producers. Management anticipates that without an increase in the amount of ethanol that can be
blended into gasoline for use in conventional automobiles, ethanol demand may not significantly
increase which may result in ethanol supply capacity exceeding ethanol demand for the foreseeable
future.
Many of the current ethanol production incentives are designed to encourage the production of
renewable fuels using raw materials other than corn. One type of ethanol production feedstock that
is being explored is cellulose. Cellulose is the main component of plant cell walls and is the most
common organic compound on earth. Cellulose is found in wood chips, corn stalks, rice, straw,
amongst other common plants. Cellulosic ethanol is ethanol produced from cellulose. Currently,
cellulosic ethanol production technology is not sufficiently advanced to produce cellulosic ethanol
on a commercial scale, however, due to these new government incentives, we anticipate that
commercially viable cellulosic ethanol technology will be developed in the near future. Several
companies and researchers have commenced pilot projects to study the feasibility of commercially
producing cellulosic ethanol. If this technology can be profitably employed on a commercial scale,
it could potentially lead to ethanol that is less expensive to produce than corn based ethanol,
especially if corn prices remain high. Cellulosic ethanol may also capture more government
subsidies and assistance than corn based ethanol. This could decrease demand for our product or
result in competitive disadvantages for our ethanol production process.
According to the Renewable Fuels Association, as of March 15, 2011, the most recent data
available, the ethanol industry has grown to 204 production facilities in the United States. There
are eleven plants currently under construction or expansion. The Renewable Fuels Association
currently estimates that the United States ethanol industry has capacity to produce more than 14.14
billion gallons of ethanol per year. The new ethanol plants under construction along with the plant
expansions under construction could push United States production of fuel ethanol in the near
future to more than 14.66 billion gallons per year. The largest ethanol producers include Archer
Daniels Midland, Green Plains Renewable Energy, POET, and Valero Renewable Fuels, each of which is
capable of producing more ethanol than we produce.
Ethanol production is also expanding internationally. Ethanol produced or processed in certain
countries in Central America and the Caribbean region is eligible for tariff reduction or
elimination on importation to the United States under a program known as the Caribbean Basin
Initiative. Some ethanol producers, including Cargill, have started taking advantage of this
situation by building dehydration plants in participating Caribbean Basin countries, which convert
ethanol into fuel-grade ethanol for shipment to the United States. Ethanol imported from Caribbean
Basin countries may be a less expensive alternative to domestically produced ethanol and may affect
our ability to sell our ethanol profitably. Further, despite the fact that there is a significant
amount of ethanol produced in the United States, ethanol produced abroad and shipped by sea may be
a more favorable alternative to supply coastal cities that are located on international shipping
ports.
Our ethanol plant also competes with producers of other gasoline additives having similar
octane and oxygenate values as ethanol. Alternative fuels, gasoline oxygenates and alternative
ethanol production methods are also continually under development. The major oil companies have
significantly greater resources than we have to market other additives, to develop alternative
products, and to influence legislation and public perception of ethanol. These companies also have
sufficient resources to begin production of ethanol should they choose to do so.
A number of automotive, industrial and power generation manufacturers are developing
alternative clean power systems using fuel cells, plug-in hybrids or clean burning gaseous fuels.
Like ethanol, the emerging fuel cell industry offers a technological option to address worldwide
energy costs, the long-term availability of petroleum reserves and environmental concerns. Fuel
cells have emerged as a potential alternative to certain existing power sources because of their
higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently
targeting the transportation, stationary power and portable power markets in order to decrease fuel
costs, lessen dependence on crude oil and reduce harmful emissions. If the fuel cell industry
continues to expand and gain broad acceptance and becomes readily available to consumers for motor
vehicle use, we may not be able to compete
effectively. This additional competition could reduce the demand for ethanol, which would
negatively impact our profitability.
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Demand for ethanol may increase as a result of increased consumption of E85 fuel. E85 fuel is
a blend of 85% ethanol and 15% gasoline. The number of retail E85 suppliers increases significantly
each year, however, this remains a relatively small percentage of the total number of U.S. retail
gasoline stations. In order for E85 fuel to increase demand for ethanol, it must be available for
consumers to purchase it. As public awareness of ethanol and E85 increases along with E85s
increased availability, management anticipates some growth in demand for ethanol associated with
increased E85 consumption.
Many in the ethanol industry believe that while in the future higher percentage blends of
ethanol such as E85 for use in flexible fuel vehicles will positively impact demand for ethanol, in
the near term increasing the amount of ethanol that can be blended for use in conventional
automobiles will have a greater effect on ethanol demand. In October of 2010, the Environmental
Protection Agency approved the use of 15% ethanol (from 10%) for cars and light duty trucks in 2007
and later models. In January 2011, the EPA added cars, pickups, and SUVs made in 2001 through 2006
to the list of vehicles that are approved to use E15. Management believes that this could increase
annual ethanol demand by as much as 7 billion gallons per year.
Distillers Grains Competition
Ethanol plants in the Midwest produce the majority of distillers grains and primarily compete
with other ethanol producers in the production and sales of distillers grains. According to the
Renewable Fuels Associations Ethanol Industry Outlook 2011, ethanol plants produced nearly 32.5
million metric tons of distillers grains in 2010, and estimates 25 million metric tons were
produced in 2008/2009. The amount of distillers grains produced is expected to increase
significantly as the number of ethanol plants increases.
The primary consumers of distillers grains are dairy and beef cattle, according to the
Renewable Fuels Associations Ethanol Industry Outlook 2011. In recent years, an increasing amount
of distillers grains have been used in the swine and poultry markets. Numerous feeding trials show
advantages in milk production, growth, rumen health, and palatability over other dairy cattle
feeds. With the advancement of research into the feeding rations of poultry and swine, we expect
these markets to expand and create additional demand for distillers grains; however, no assurance
can be given that these markets will in fact expand, or if they do, that we will benefit from it.
The market for distillers grains is generally confined to locations where freight costs allow it to
be competitively priced against other feed ingredients. Distillers grains compete with three other
feed formulations: corn gluten feed, dry brewers grain and mill feeds. The primary value of these
products as animal feed is their protein content. Dry brewers grain and distillers grains have
about the same protein content, and corn gluten feed and mill feeds have slightly lower protein
contents.
Sources and Availability of Raw Materials
Corn Feedstock Supply
The major raw material required for our ethanol plant to produce ethanol and distillers grain
is corn. To produce 100 million gallons of ethanol per year, our ethanol plant needs approximately
36 million bushels of corn per year, or approximately 100,000 bushels per day, as the feedstock for
its dry milling process. We primarily purchase the corn supply for our plant from local markets,
but may be required to purchase some of the corn we need from other markets and transport it to our
plant via truck or rail in the future. Traditionally, corn grown in the area of the plant site has
been exported for feeding or processing and/or overseas export sales.
We have entered into a Grain Handling Agreement with Alliance Grain Co. (Alliance). The
purpose of the agreement is to set out the terms upon which Alliance has agreed to serve as our
exclusive third-party agent to procure corn to be used as feedstock at our ethanol production
facility. Pursuant to the agreement, Alliance provides one grain originator to work at the facility
to negotiate and execute contracts on our behalf and arrange the shipping and delivery of the corn
required for ethanol production. The initial term of the agreement is for two years from
the first grind date, to automatically renew for one additional year unless properly terminated by
either of the parties. The parties also
each have the right to terminate the agreement in certain circumstances, including, but not limited
to, default of either party by, bankruptcy or receivership of, the other party, or mutual agreement
to terminate the agreement.
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We are significantly dependent on the availability and price of corn. The price at which we
purchase corn will depend on prevailing market prices. There is no assurance that a shortage will
not develop, particularly if there are other ethanol plants competing for corn or an extended
drought or other production problem. We anticipate that corn prices will continue to be extremely
volatile.
On March 10, 2011, the United States Department of Agriculture (USDA) released its Crop
Production report, which estimated the 2010 grain corn crop at 12.45 billion bushels. The March 10,
2011 estimate of the 2010 corn crop was approximately 4% lower than the USDAs estimate of the 2009
corn crop of 12.9 billion bushels. Corn prices have come down from their historical highs of 2008,
but as previously idled plants came online in 2009 and 2010, and due to lower production estimates,
corn prices have increased sharply towards the end of 2010, and into 2011. Because of this
condition, our crush spreads declined towards the end of 2010 and into 2011.
The price and availability of corn are subject to significant fluctuations depending upon a
number of factors affecting grain commodity prices in general, including crop conditions, weather,
governmental programs and foreign purchases. Because the market price of ethanol is not directly
related to grain prices, ethanol producers are generally not able to compensate for increases in
the cost of grain feedstock through adjustments in prices charged for their ethanol. We therefore
anticipate that our plants profitability will be negatively impacted during periods of high grain
prices.
Utilities
We engaged U.S. Energy Services, Inc. to assist us in negotiating our utilities contracts and
to provide us with on-going energy management services. U.S. Energy manages the procurement and
delivery of energy to their clients locations. U.S. Energy Services manages energy costs through
obtaining, organizing and tracking cost information. Their major services include supply
management, price risk management and plant site development. The agreement continued twelve (12)
months after the plants completion date of June 2009. The agreement is month to month thereafter.
Natural Gas. Natural gas is also an important input commodity to our manufacturing
process. Our natural gas usage for our fiscal year ended December 31, 2010 was 3,064,373 MMBTU,
constituting approximately 7.3% of our total costs of goods sold. We are using natural gas to
produce process steam and to dry our distillers grain products to a moisture content at which they
can be stored for long periods of time, and can be transported greater distances, so that we can
market the product to overseas markets.
We entered into an agreement with Ameren Energy Generating Company (Ameren) on December 9,
2008, whereby we would receive an undivided 10% interest in a lateral natural gas pipeline owned by
Ameren which is connected to the interstate natural gas pipeline system owned and operated by
Natural Gas Pipeline of America. The term of the assignment is for 10 years, and the contract
price, is $4,380,000, paid over 120 months, with payments of $36,500 each, with the initial payment
made on February 1, 2009. Upon expiration of the agreement on January 31, 2019, the property will
revert back to Ameren. However, prior to the expiration of the initial seven years of the term,
Ameren will provide notice to us regarding their willingness to renew the agreement after the final
expiration. We will be allowed to install an additional pipeline contiguous to Amerens existing
pipeline, subject to certain easements and final approval by Ameren.
Electricity. We require a significant amount of electrical power to operate the plant.
On January 18, 2008, we entered into an agreement with AmerenCIPS for the construction of a
substation and ancillary equipment necessary to provide electric distribution service. The entire
cost of the construction was $1,394,000, of which $1,150,000 was required at the signing of the
agreement. The remaining balance is to be paid in 36 equal payments of no less than $6,800, which
will be included in the monthly invoice from AmerenCIPS as delivery service. The remaining balance
is secured by an irrevocable standby letter of credit, which may be reduced annually by the actual
or calculated delivery service revenues.
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Water. We require a significant supply of water. We obtain water from the Mahomet
Aquifer through our
two wells located approximately 13 miles east of the plant.
Much of the water used in our ethanol plant is recycled back into the process. There are,
however, certain areas of production where fresh water is needed. Those areas include boiler makeup
water and cooling tower water. Boiler makeup water is treated on-site to minimize all elements that
will harm the boiler and recycled water cannot be used for this process. Cooling tower water is
deemed non-contact water because it does not come in contact with the mash, and, therefore, can be
regenerated back into the cooling tower process. The makeup water requirements for the cooling
tower are primarily a result of evaporation. Much of the water can be recycled back into the
process, which minimizes the discharge water. Many new plants today are zero or near zero effluent
discharge facilities. Due to the boron level in our discharge water, we are required by the EPA to
dilute the discharge with water pumped from wells located on the plant site.
Employees
We currently have 50 full-time employees. We consider our relationship with our employees to
be good.
Research and Development
We do not conduct any research and development activities associated with the development of
new technologies for use in producing ethanol and distillers grains.
Patents, Trademarks, Licenses, Franchises and Concessions
We do not currently hold any patents, trademarks, franchises or concessions. We were granted a
license by ICM, Inc. (ICM) to use certain ethanol production technology necessary to operate our
ethanol plant. The cost of the license granted by ICM was included in the amount we paid to Fagen,
Inc. (Fagen) to design and build our ethanol plant.
Working Capital
We primarily use our working capital for purchases of raw materials necessary to operate the
ethanol plant. Our primary source of working capital has been cash flows from our operations along
with our two revolving lines of credit with our primary lender First National Bank of Omaha. One
line of credit is part of the $100,000,000 loan facility. The amount available under this loan is
reduced by $250,000 quarterly. At December 31, 2010 and 2009, we had $8,750,000 and $10,000,000,
respectively, available on this revolving line of credit. The other line of credit is in addition
to the $100,000,000 loan facility, and we may draw up to $10,000,000 or 75% of our borrowing base
at any time. At December 31, 2010 and 2009, we had $10,000,000 available on this revolving line of
credit. We have no outstanding drawings as of December 31, 2010 and 2009 on either line of credit.
We had issued letters of credit that total approximately $280,000 and $543,000 as of December 31,
2010 and 2009 respectively.
Dependence on Major Customers and Suppliers
As discussed above, we have entered into a marketing agreement with United Bio Energy for the
purpose of marketing and distributing our distillers grains. We rely on United Bio Energy for the
sale and distribution of our distillers grains. Therefore, although there are other marketers in
the industry, we are highly dependent on United Bio Energy for the successful marketing of our
product. Any loss of United Bio Energy as our marketing agent for our distillers grains could have
a significant negative impact on our revenues.
In addition, we rely on Alliance Grain for the acquisition of all of our corn for production.
As such, we are highly dependent upon Alliance Grain for the production of our ethanol. In the
event Alliance Grain could not provide us with adequate supplies of corn, or terminated its
relationship with us, this could have a significant negative impact on our revenues, especially
until we were able to establish procedures to acquire corn in-house or through another entity.
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Costs and Effects of Compliance with Environmental Laws
We are subject to extensive air, water and other environmental regulations and we require a
number of environmental permits to operate the plant. Fagen and RTP Environmental Engineering
Associates, Inc. advise us on general environmental compliance.
We are subject to oversight activities by the US EPA. There is always a risk that the US EPA
would enforce certain rules and regulations differently than Illinois environmental
administrators. Illinois and US EPA rules are also subject to change, and any such changes could
result in greater regulatory burdens on our future plant operations. We could also be subject to
environmental or nuisance claims from adjacent property owners or residents in the area arising
from possible foul smells or other air or water discharges from the plant. Such claims may result
in an adverse result in court if we are deemed to engage in a nuisance that substantially impairs
the fair use and enjoyment of real estate.
ITEM 1A. | RISK FACTORS |
You should carefully read and consider the risks and uncertainties below and the other
information contained in this report. Any of the events discussed in the risk factors below may
occur. If one or more of these events does occur, our results of operations, financial condition
or cash flows could be materially adversely affected.
Risks Relating to Our Business
We have a significant amount of debt, and our existing debt financing agreements contain, and
our future debt financing agreements may contain, restrictive covenants that limit distributions
and impose restrictions on the operation of our business. The use of debt financing makes it more
difficult for us to operate because we must make principal and interest payments on the
indebtedness and abide by covenants contained in our debt financing agreements. The level of our
debt may have important implications on our operations, including, among other things: (a) limiting
our ability to obtain additional debt or equity financing; (b) placing us at a competitive
disadvantage because we may be more leveraged than some of our competitors; (c) subjecting all or
substantially all of our assets to liens, which means that there may be no assets left for unit
holders in the event of a liquidation; and (d) limiting our ability to make business and
operational decisions regarding our business, including, among other things, limiting our ability
to pay distributions to our unit holders, make capital improvements, sell or purchase assets or
engage in transactions we deem to be appropriate and in our best interest.
Increases in the price of corn or natural gas would reduce our profitability. Our primary
source of revenue is from the sale of ethanol and distillers grains. Our results of operations and
financial condition are significantly affected by the cost and supply of corn and natural gas.
Changes in the price and supply of corn and natural gas are subject to and determined by market
forces over which we have no control including weather and general economic factors.
Ethanol production requires substantial amounts of corn. Generally, higher corn prices will
produce lower profit margins and, therefore, negatively affect our financial performance. While
corn prices have decreased from highs experienced during the middle of 2008 into the middle of
2010, corn prices could significantly increase in a short period of time. If a period of high corn
prices were to be sustained for some time, such pricing may reduce our ability to operate
profitably because of the higher cost of operating our plant. We may not be able to offset any
increase in the price of corn by increasing the price of our products. If we cannot offset
increases in the price of corn, our financial performance may be negatively affected.
The prices for and availability of natural gas are subject to volatile market conditions.
These market conditions often are affected by factors beyond our control such as higher prices as a
result of colder than average weather conditions or natural disasters, overall economic conditions
and foreign and domestic governmental regulations and relations. Significant disruptions in the
supply of natural gas could impair our ability to manufacture ethanol and more significantly,
distillers grains for our customers. Furthermore, increases in natural gas prices or changes in our
natural gas costs relative to natural gas costs paid by competitors may adversely affect our
results of operations and financial condition. If we were to experience relatively higher corn and
natural gas costs compared to the selling prices of our products for an extended period of time,
our financial performance may be negatively affected.
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Declines in the price of ethanol or distillers grain would significantly reduce our revenues.
The sales prices of ethanol and distillers grains can be volatile as a result of a number of
factors such as overall supply and demand, the price of gasoline and corn, levels of government
support, and the availability and price of competing products. We are dependent on a favorable
spread between the price we receive for our ethanol and distillers grains and the price we pay for
corn and natural gas. Any lowering of ethanol and distillers grains prices, especially if it is
associated with increases in corn and natural gas prices, may affect our ability to operate
profitably. We anticipate the price of ethanol and distillers grains to continue to be volatile in
our 2011 fiscal year as a result of the net effect of changes in the price of gasoline and corn and
increased ethanol supply offset by increased ethanol demand. Declines in the prices we receive for
our ethanol and distillers grains will lead to decreased revenues and may result in our inability
to operate the ethanol plant profitably for an extended period of time which could negatively
affect our financial performance.
We may violate the terms of our credit agreements and financial covenants which could result
in our lender demanding immediate repayment of our loans. Unforeseen circumstances may develop
which could result in us violating our loan covenants. If we violate the terms of our credit
agreement, our primary lender could deem us in default of our loans and require us to immediately
repay the entire outstanding balance of our loans. If we do not have the funds available to repay
the loans, or we cannot find another source of financing, or we cannot seek relief from our primary
lender with respect to any defaults, our financial performance could be negatively affected.
Our inability to secure credit facilities we may require in the future may negatively impact
our liquidity. Due to current conditions in the credit markets, it has been difficult for
businesses to secure financing. If we require financing in the future and we are unable to secure
such financing, or we are unable to secure the financing we require on reasonable terms, it may
have a negative impact on our liquidity.
The ethanol industry is an industry that is changing rapidly which can result in unexpected
developments that could negatively impact our operations and the value of our units. The ethanol
industry has grown significantly in the last decade. According to the Renewable Fuels Association,
the ethanol industry has grown from approximately 1.5 billion gallons of production per year in
1999 to nearly 13 billion gallons in 2010. This rapid growth has resulted in significant shifts in
supply and demand of ethanol over a very short period of time. As a result, past performance by the
ethanol plant or the ethanol industry generally might not be indicative of future performance. We
may experience a rapid shift in the economic conditions in the ethanol industry which may make it
difficult to operate the ethanol plant profitably. If changes occur in the ethanol industry that
make it difficult for us to operate the ethanol plant profitably, it could negatively affect our
financial performance.
We engage in transactions which involve risks that could harm our business. Exposure to
commodity price risk results from our dependence on corn and natural gas in the ethanol production
process. We seek to minimize the risks from fluctuations in the prices of corn, natural gas and
ethanol by establishing a crush margin, which is the difference between the ethanol net price and
the corn price per gallon of ethanol. Then we contract the sale of ethanol and the purchase of
corn simultaneously that will generate the targeted crush margin. Corn and ethanol prices may not
trend in the same direction, which will make it difficult for us to achieve the crush margin
required to generate profits.
Price movements in corn, natural gas and ethanol contracts are highly volatile and are
influenced by many factors that are beyond our control. There are several variables that could
affect the extent to which our strategy is impacted by price fluctuations in the cost of corn or
natural gas. However, it is likely that commodity cash prices will have the greatest impact on our
strategy.
We are currently conducting an odd-lot tender offer to purchase units from some of our smaller
unitholders, with the intended end result for us to be eligible to suspend our reporting
requirements with the Securities and Exchange Commission, which may not occur and if it occurs will
result in less public information being available about the Company. Our offer to purchase units
from some of our smaller unitholders will expire April 1, 2011. We have expended time and
resources on this offer with the intent that at the conclusion of the offer, we will have less than
300 members of record and will therefore be eligible to again suspend our reporting requirements
with the Securities and Exchange Commission. At this time, it is uncertain whether a sufficient
number of eligible unitholders will accept the offer in order for us to suspend our reporting
requirements. If we do
not have less than 300 members of record at the conclusion of the offering, we will likely explore
other possible avenues to achieve this result, but we will have to continue to incur the expenses
of reporting with the Securities and Exchange Commission until we are able to do so. If we do have
less than 300 members of record at the conclusion of the offering, we will suspend our reporting
obligations and less information about the Company will be readily available to you.
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Our business is not diversified. Our success depends largely on our ability to profitably
operate our ethanol plant. We do not have any other lines of business or other sources of revenue
if we are unable to operate our ethanol plant and manufacture ethanol and distillers grains. If
economic or political factors adversely affect the market for ethanol or distillers grains, we have
no other line of business to fall back on. Our business could also be significantly harmed if the
ethanol plant could not operate at full capacity for any extended period of time.
We depend on our management and key employees, and the loss of these relationships could
negatively impact our ability to operate profitably. We are highly dependent on our management
team to operate our ethanol plant. We may not be able to replace these individuals should they
decide to cease their employment with us, or if they become unavailable for any other reason. While
we seek to compensate our management and key employees in a manner that will encourage them to
continue their employment with us, they may choose to seek other employment. Any loss of these
officers and key employees may prevent us from operating the ethanol plant profitably and could
decrease the value of our units.
We depend on key suppliers and marketers, such as UBE and Alliance Grain, whose failure to
perform could force us to abandon business, hinder our ability to operate profitably or decrease
the value of our units. We are highly dependent upon UBE to market our products and Alliance Grain
to procure our corn for production. Should either UBE or Alliance Grain fail to perform in any
manner significant to our operations, we may encounter unforeseen costs or difficulties in the
operation of our plant which could affect our profitability negatively.
Changes and advances in ethanol production technology could require us to incur costs to
update our plant or could otherwise hinder our ability to compete in the ethanol industry or
operate profitably. Advances and changes in the technology of ethanol production are expected to
occur. Such advances and changes may make the ethanol production technology installed in our plant
less desirable or obsolete. These advances could also allow our competitors to produce ethanol at a
lower cost than we are able to. If we are unable to adopt or incorporate technological advances,
our ethanol production methods and processes could be less efficient than our competitors, which
could cause our plant to become uncompetitive or completely obsolete. If our competitors develop,
obtain or license technology that is superior to ours or that makes our technology obsolete, we may
be required to incur significant costs to enhance or acquire new technology so that our ethanol
production remains competitive. Alternatively, we may be required to seek third-party licenses,
which could also result in significant expenditures. These third-party licenses may not be
available or, once obtained, they may not continue to be available on commercially reasonable
terms. These costs could negatively impact our financial performance by increasing our operating
costs and reducing our net income.
Your investment may decline in value due to decisions made by our board of directors, and you
will not have the ability to remove or replace our directors. Under our operating agreement,
directors are all appointed by REX American Resources Corporation (REX) and other members, however, most members do not have the right to appoint a director and
no directors are elected. The appointed directors serve at the option of the members with such
appointment rights, and our other members have no right to remove or replace any directors. As a
result, your only recourse to replace a director would be through an amendment to our operating
agreement, which could be difficult to accomplish. Only members that own at least thirty percent
(30%) of our membership voting interests may propose an amendment to our operating agreement, and
such proposed amendments must also be approved by REX and the affirmative vote of the majority of
the membership voting interests present at a meeting where a quorum is in attendance. Therefore,
if the board of directors were to make a decision that would decrease the value of your units, you
would have very little ability to change this outcome.
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Risks Related to Ethanol Industry
Demand for ethanol may not continue to grow unless ethanol can be blended into gasoline in
higher percentage blends for conventional automobiles. Currently, ethanol is blended with
conventional gasoline for use in standard (non-flex fuel) vehicles to create a blend which is 10%
ethanol and 90% conventional gasoline. Estimates indicate that approximately 135 billion gallons of
gasoline are sold in the United States each year. Assuming that all gasoline in the United States
is blended at a rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5
billion gallons. This is commonly referred to as the blending wall, which represents a
theoretical limit where more ethanol cannot be blended into the national gasoline pool. Many in the
ethanol industry believe that the ethanol industry is currently on the edge of reaching this
blending wall. In order to expand demand for ethanol, higher percentage blends of ethanol must be
utilized in conventional automobiles. Such higher percentage blends of ethanol have recently become
a contentious issue. Automobile manufacturers and environmental groups have fought against higher
percentage ethanol blends. Currently, state and federal regulations prohibit the use of higher
percentage ethanol blends in conventional automobiles and vehicle manufacturers have stated that
using higher percentage ethanol blends in conventional vehicles would void the manufacturers
warranty. Recently, the EPA made a ruling on using higher percentage blends (15%) in cars, pickups,
and SUVs made in years 2001 and later; however, there have been lawsuits challenging this ruling.
This may delay the implementation of the ruling. Demand for ethanol may not continue to increase
which could decrease the selling price of ethanol and could result in our inability to operate the
ethanol plant profitably which could negatively impact our financial performance.
Technology advances in the commercialization of cellulosic ethanol may decrease demand for
corn based ethanol which may negatively affect our profitability. The current trend in ethanol
production research is to develop an efficient method of producing ethanol from cellulose-based
biomass, such as agricultural waste, forest residue, municipal solid waste, and energy crops. This
trend is driven by the fact that cellulose-based biomass is generally cheaper than corn, and
producing ethanol from cellulose-based biomass would create opportunities to produce ethanol in
areas which are unable to grow corn. The Energy Independence and Security Act of 2007 and the 2008
Farm Bill offer a very strong incentive to develop commercial scale cellulosic ethanol. The RFS
requires that 16 billion gallons per year of advanced bio-fuels be consumed in the United States by
2022. Additionally, state and federal grants have been awarded to several companies who are seeking
to develop commercial-scale cellulosic ethanol plants. We expect this will encourage innovation
that may lead to commercially viable cellulosic ethanol plants in the near future. If an efficient
method of producing ethanol from cellulose-based biomass is developed, we may not be able to
compete effectively. If we are unable to produce ethanol as cost-effectively as cellulose-based
producers, our ability to generate revenue and our financial condition will be negatively impacted.
New plants under construction or decreases in the demand for ethanol may result in excess
production capacity in our industry. The supply of domestically produced ethanol is at an all-time
high. According to the Renewable Fuels Association, as of March 15, 2011, there are 204 ethanol
plants in the United States with capacity to produce more than 14.14 billion gallons of ethanol per
year. In addition, there are eleven ethanol plants under construction or expansion underway which
together are estimated to increase ethanol production capacity by more than 550 million gallons per
year. Excess ethanol production capacity may have an adverse impact on our results of operations,
cash flows and general financial condition. According to the Renewable Fuels Association,
approximately 3% of the ethanol production capacity in the United States was idled as of March 15,
2011. Further, demand for ethanol may not increase past approximately 13 billion gallons of ethanol
due to the blending wall, unless the E15 blend approved by the EPA is implemented. If the demand
for ethanol does not grow at the same pace as increases in supply, we expect the selling price of
ethanol to decline. If excess capacity in the ethanol industry continues to occur, the market price
of ethanol may decline to a level that is inadequate to generate sufficient cash flow to cover our
costs. This could negatively affect our profitability.
Growth in the ethanol industry is dependent on growth in the fuel blending infrastructure to
accommodate ethanol, which may be slow and could result in decreased demand for ethanol. The
ethanol industry depends on the fuel blending industry to blend the ethanol that is produced with
gasoline so it may be sold to the end consumer. In many parts of the country, the blending
infrastructure cannot accommodate ethanol so no ethanol is used in those markets. Substantial
investments are required to expand this blending infrastructure and the fuel blending industry may
choose not to expand the blending infrastructure to accommodate ethanol. Should the ability to
blend ethanol not expand at the same rate as increases in ethanol supply, it may decrease the
demand for ethanol which may lead to a decrease in the selling price of ethanol which could impact
our ability to operate profitably.
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We operate in an intensely competitive industry and compete with larger, better financed
entities which could impact our ability to operate profitably. There is significant competition
among ethanol producers. There are numerous producer-owned and privately-owned ethanol plants
planned and operating throughout the Midwest and elsewhere in the United States. We also face
competition from outside of the United States. The passage of the Energy Policy Act of 2005
included a renewable fuels mandate. The RFS was increased in December 2007 to 36 billion gallons by
2022. Further, some states have passed renewable fuel mandates. All of these increases in ethanol
demand have encouraged companies to enter the ethanol industry. The largest ethanol producers
include Archer Daniels Midland, Green Plains Renewable Energy, POET, and Valero Renewable Fuels,
all of which are each capable of producing significantly more ethanol than we produce. Further,
many believe that there will be consolidation occurring in the ethanol industry in the near future
which will likely lead to a few companies who control a significant portion of the ethanol
production market. We may not be able to compete with these larger entities. These larger ethanol
producers may be able to affect the ethanol market in ways that are not beneficial to us which
could affect our financial performance.
Competition from the advancement of alternative fuels may lessen the demand for ethanol.
Alternative fuels, gasoline oxygenates and ethanol production methods are continually under
development. A number of automotive, industrial and power generation manufacturers are developing
alternative clean power systems using fuel cells, plug-in hybrids or clean burning gaseous fuels.
Like ethanol, these emerging technologies offer an option to address worldwide energy costs, the
long-term availability of petroleum reserves and environmental concerns. Fuel cells have emerged as
a potential alternative to certain existing power sources because of their higher efficiency,
reduced noise and lower emissions. Fuel cell industry participants are currently targeting the
transportation, stationary power and portable power markets in order to decrease fuel costs, lessen
dependence on crude oil and reduce harmful emissions. If these alternative technologies continue to
expand and gain broad acceptance and become readily available to consumers for motor vehicle use,
we may not be able to compete effectively. This additional competition could reduce the demand for
ethanol, resulting in lower ethanol prices that might adversely affect our results of operations
and financial condition.
Consumer resistance to the use of ethanol based on the belief that ethanol is expensive, adds
to air pollution, harms engines and/or takes more energy to produce than it contributes may affect
the demand for ethanol. Certain individuals believe that use of ethanol will have a negative
impact on gasoline prices at the pump. Many also believe that ethanol adds to air pollution and
harms car and truck engines. Still other consumers believe that the process of producing ethanol
actually uses more fossil energy, such as oil and natural gas, than the amount of energy that is
produced. These consumer beliefs could potentially be wide-spread and may be increasing as a result
of recent efforts to increase the allowable percentage of ethanol that may be blended for use in
conventional automobiles. If consumers choose not to buy ethanol based on these beliefs, it would
affect the demand for the ethanol we produce which could negatively affect our profitability and
financial condition.
Risks Related to Regulation and Governmental Action
Government incentives for ethanol production, including federal tax incentives, may be
eliminated in the future, which could hinder our ability to operate at a profit. The ethanol
industry is assisted by various federal ethanol production and tax incentives, including the RFS
set forth in the Energy Policy Act of 2005. The RFS helps support a market for ethanol that might
disappear without this incentive; as such, waiver of RFS minimum levels of renewable fuels required
in gasoline could negatively impact our results of operations.
In addition, the elimination or reduction of tax incentives to the ethanol industry, such as
the VEETC available to gasoline refiners and blenders, could also reduce the market demand for
ethanol, which could reduce prices and our revenues by making it more costly or difficult for us to
produce and sell ethanol. If the federal tax incentives are eliminated or sharply curtailed, we
believe that decreased demand for ethanol will result, which could negatively impact our ability to
operate profitably.
Also, elimination of the tariffs that protect the United States ethanol industry could lead to
the importation of ethanol produced in other countries, especially in areas of the United States
that are easily accessible by international shipping ports. While the 2008 Farm Bill extended the
tariff on imported ethanol through 2011, this tariff could be repealed earlier which could lead to
increased ethanol supplies and decreased ethanol prices.
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If the Federal Volumetric Ethanol Excise Tax Credit (VEETC) expires on December 31, 2011, it
could negatively impact our profitability. The ethanol industry is benefited by VEETC which is a
federal excise tax credit of 45 cents per gallon of ethanol blended with gasoline at a rate of at
least 10%. This excise tax credit is set to expire on December 31, 2011. We believe that VEETC
positively impacts the price of ethanol. If VEETC is allowed to expire at the end of 2011, or is
repealed earlier, it could negatively impact the price we receive for our ethanol and could
negatively impact our profitability.
Changes in environmental regulations or violations of these regulations could be expensive and
reduce our profitability. We are subject to extensive air, water and other environmental laws and
regulations. In addition, some of these laws require our plant to operate under a number of
environmental permits. These laws, regulations and permits can often require expensive pollution
control equipment or operational changes to limit actual or potential impacts to the environment. A
violation of these laws and regulations or permit conditions can result in substantial fines,
damages, criminal sanctions, permit revocations and/or plant shutdowns. In the future, we may be
subject to legal actions brought by environmental advocacy groups and other parties for actual or
alleged violations of environmental laws or our permits. Additionally, any changes in environmental
laws and regulations, both at the federal and state level, could require us to spend considerable
resources in order to comply with future environmental regulations. The expense of compliance could
be significant enough to reduce our profitability and negatively affect our financial condition.
Carbon dioxide may be regulated in the future by the EPA as an air pollutant requiring us to
obtain additional permits and install additional environmental mitigation equipment, which could
adversely affect our financial performance. In 2007, the Supreme Court decided a case in which it
ruled that carbon dioxide is an air pollutant under the Clean Air Act for the purposes of motor
vehicle emissions. The Supreme Court directed the EPA to regulate carbon dioxide from vehicle
emissions as a pollutant under the Clean Air Act. Similar lawsuits have been filed seeking to
require the EPA to regulate carbon dioxide emissions from stationary sources such as our ethanol
plant under the Clean Air Act. Our plant produces a significant amount of carbon dioxide that we
currently vent into the atmosphere. While there are currently no regulations applicable to us
concerning carbon dioxide, if the EPA or the State of Illinois were to regulate carbon dioxide
emissions by plants such as ours, we may have to apply for additional permits or we may be required
to install carbon dioxide mitigation equipment or take other as yet unknown steps to comply with
these potential regulations. Compliance with any future regulation of carbon dioxide, if it occurs,
could be costly and may prevent us from operating the ethanol plant profitably and negatively
affect our financial condition.
The California Low Carbon Fuels Standard may decrease demand for corn based ethanol which
could negatively impact our profitability. Recently, California passed a Low Carbon Fuels Standard
(LCFS). The California LCFS requires that renewable fuels used in California must accomplish
certain reductions in greenhouse gases which are measured using a lifecycle analysis. Management
believes that these new regulations could preclude corn based ethanol produced in the Midwest from
being used in California. California represents a significant ethanol demand market. If we are
unable to supply ethanol to California, it could significantly reduce demand for the ethanol we
produce. Any decrease in ethanol demand could negatively impact ethanol prices which could reduce
our revenues and negatively impact our ability to profitably operate the ethanol plant.
The price of distiller grains may decline as a result of Chinas antidumping investigation of
distiller grains originating in the United Sates. Estimates indicate that as much as 10 to 15
percent of the distiller grains produced in the United States will be exported to China in the
coming year. However, this export market may be jeopardized if the Chinese government imposes trade
barriers in response to the outcome of an antidumping investigation currently being conducted by
the Chinese Ministry of Commerce. If producers and exporters of distiller grains are subjected to
trade barriers when selling distiller grains to Chinese customers, there may be a reduction in the
price of distiller grains in the United States. Declines in the price we receive for our distiller
grains could lead to decreased revenues and may result in our inability to operate the ethanol
plant profitably.
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Risks Related to Conflicts of Interest
We are a majority-owned subsidiary of REX. REX may have relationships that present conflicts
of interest with us. We are highly dependent upon REX, and under our Operating Agreement, REX has
the right to appoint up to six directors (and a majority of our directors at a minimum) and has
other special rights that other members do not have under our Operating Agreement. REX also has
interests in several other ethanol plants with which we compete. REX may have relationships with
other individuals, companies or organizations with which we will do business or compete. REX and
its other subsidiaries may also become involved in other transactions, some of which may compete
with our business.
Our directors may have relationships with individuals, companies or organizations with which
we do business which may result in conflicts of interest. There may be business relationships
between our directors and other individuals, companies or organizations with which we do business
that may pose potential conflicts of interest with us. These relationships may result in conflicts
of interest with respect to transactions between us and the other individuals, companies or
organizations if our directors and officers put their interests in other companies or their own
personal relationships ahead of what is best for our company. A majority of our directors are
currently appointed by REX (although all six votes are held by one director, Zafar Rizvi), and the
remaining directors are appointed by other members. Our members do not have the right to elect
directors.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
The Company is not required to include this information due to its status as a non-accelerated
filer.
ITEM 2. | PROPERTIES |
Our plant site is made up of three adjacent parcels which together total approximately 183
acres in east central Illinois near Gibson City, Illinois. The address of our plant is 202 N.
Jordan Dr, Gibson City, Illinois 60936. In June 2009, the plant was substantially completed and
plant operations commenced. The plant consists of the following buildings:
| A grains area, fermentation area, distillation evaporation area; |
||
| A dryer/energy center area; |
||
| A tank farm; |
||
| An auxiliary area; |
||
| An administration building and; |
||
| A storage/maintenance building. |
Our plant is in excellent condition and is capable of functioning at 100% of its production
capacity.
All of our tangible and intangible property, real and personal, serves as the collateral for
the debt financing with First National Bank of Omaha, which is described below under Item 7
Managements Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 3. | LEGAL PROCEEDINGS |
None.
ITEM 4. REMOVED AND RESERVED.
19
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PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
As of December 31, 2010, we had approximately 13,781 membership units outstanding and
approximately
324 unit holders of record. There is no public trading market for our units and no transfers for
value have been completed as of December 31, 2010.
As a limited liability company, we are required to restrict the transfers of our membership
units in order to preserve our partnership tax status. Our membership units may not be traded on
any established securities market or readily traded on a secondary market (or the substantial
equivalent thereof). All transfers are subject to a determination that the transfer will not cause
One Earth Energy to be deemed a publicly traded partnership. We do not have any securities
authorized for issuance under any equity compensation plan.
We have not declared or paid any distributions on our units. Except for restrictions imposed
in our loan agreement, our board of directors has complete discretion over the timing and amount of
distributions to our unit holders. Provided that we are not in default on loan covenants, and with
the prior approval of our lender, which may not be unreasonably withheld, our loan agreement allows
us to make cash distributions at such times and in such amounts as will permit our unit holders to
satisfy their income tax liability in a timely fashion. Our expectations with respect to our
ability to make future distributions are discussed in greater detail in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations.
We, or any affiliate purchasers, have not completed any purchases of our units during our
fiscal year ended December 31, 2010. We do, however, anticipate re-purchasing units from members
that own four or less units and accept our offer to purchase, which has been distributed to our
members and was filed with the Securities and Exchange Commission.
ITEM 6. | SELECTED FINANCIAL DATA |
The following table presents selected financial and operating data as of the dates and for the
periods indicated. The selected balance sheet data and the selected statement of operations data
and other financial data have been derived from our audited financial statements. You should read
the following table in conjunction with Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements and the accompanying
notes included elsewhere in this Form 10-K. Among other things, those financial statements include
more detailed information regarding the basis of presentation for the following financial data.
Five Year Financial Summary
(Amounts In Thousands, Except Per Unit Amounts)
(Amounts In Thousands, Except Per Unit Amounts)
Transition | From | |||||||||||||||||||||||
Period, Two | Inception, | |||||||||||||||||||||||
Months | Year | (November | ||||||||||||||||||||||
Statement of | Year Ended | Year Ended | Year Ended | Ended | Ended | 28, 2005) to | ||||||||||||||||||
Operations | December 31, | December 31, | December 31, | December 31, | October 31, | October 31, | ||||||||||||||||||
Data: | 2010 | 2009 | 2008 | 2007 | 2007 | 2006 | ||||||||||||||||||
Revenues |
$ | 234,545 | $ | 98,190 | $ | | $ | | $ | | $ | | ||||||||||||
Cost of sales |
200,587 | 84,057 | | | | | ||||||||||||||||||
Gross profit |
33,958 | 14,133 | | | | |||||||||||||||||||
Operating income (loss) |
31,141 | 13,230 | (336 | ) | (87 | ) | (684 | ) | (592 | ) | ||||||||||||||
Losses on derivative
financial instruments |
3,018 | 219 | 4,704 | 859 | | | ||||||||||||||||||
Interest expense |
2,808 | 1,886 | | | 119 | | ||||||||||||||||||
Net income (loss) |
$ | 25,285 | $ | 11,230 | $ | (4,827 | ) | (608 | ) | $ | (694 | ) | $ | (540 | ) | |||||||||
Net income (loss) per unit |
$ | 1,834.77 | $ | 802.14 | $ | (344.79 | ) | $ | (43.43 | ) | $ | (694.00 | ) | $ | (540.00 | ) |
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Balance Sheet | December 31, | December 31, | December 31, | December 31, | October 31, | October 31, | ||||||||||||||||||
Data: | 2010 | 2009 | 2008 | 2007 | 2007 | 2006 | ||||||||||||||||||
Current assets |
$ | 38,346 | $ | 26,701 | $ | 70 | $ | 30,312 | $ | 37,634 | $ | 640 | ||||||||||||
Property and
equipment, net |
144,131 | 148,709 | 128,639 | 36,032 | 26,863 | 43 | ||||||||||||||||||
Total assets |
185,317 | 177,284 | 130,109 | 67,548 | 65,671 | 965 | ||||||||||||||||||
Current liabilities |
17,418 | 13,780 | 12,112 | 4,171 | 1,937 | 82 | ||||||||||||||||||
Long-term debt |
69,049 | 89,910 | 54,957 | | | | ||||||||||||||||||
Derivative
financial
instruments, Long
Term |
3,688 | 3,818 | 4,494 | | | | ||||||||||||||||||
Members equity |
$ | 95,061 | $ | 69,776 | $ | 58,546 | $ | 63,378 | $ | 63,734 | $ | 884 |
We were formed on November 28, 2005, thus there is no financial information prior to this
date. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, for information regarding our exit from the development stage into production and
operations.
Quarterly Financial Data (Unaudited)
(Amounts In Thousands, Except Per Unit Amounts)
(Amounts In Thousands, Except Per Unit Amounts)
Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||||
March 31, 2010 | June 30, 2010 | September 30, 2010 | December 31, 2010 | |||||||||||||
Revenues |
$ | 53,501 | $ | 50,758 | $ | 55,988 | $ | 74,298 | ||||||||
Cost of sales |
44,701 | 43,678 | 47,340 | 64,868 | ||||||||||||
Gross profit |
8,800 | 7,080 | 8,648 | 9,430 | ||||||||||||
Operating income |
8,281 | 6,389 | 8,015 | 8,456 | ||||||||||||
(Losses) gains on
derivative
financial
instruments |
(1,069 | ) | (1,304 | ) | (1,068 | ) | 423 | |||||||||
Interest expense |
721 | 703 | 708 | 676 | ||||||||||||
Income Taxes |
| | | 144 | ||||||||||||
Net income |
$ | 6,512 | $ | 4,411 | $ | 6,271 | $ | 8,091 | ||||||||
Net income per unit |
$ | 472.53 | $ | 320.08 | $ | 455.05 | $ | 587.11 |
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Quarterly Financial Data (Unaudited)
(Amounts In thousands, Except Per Unit Amounts)
(Amounts In thousands, Except Per Unit Amounts)
Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | |||||||||||||
March 31, 2009 | June 30, 2009 | September 30, 2009 | December 31, 2009 | |||||||||||||
Revenues |
$ | | $ | | $ | 45,607 | $ | 52,583 | ||||||||
Cost of sales |
134 | 472 | 40,775 | 42,676 | ||||||||||||
Gross profit (loss) |
(134 | ) | (472 | ) | 4,832 | 9,907 | ||||||||||
Operating (loss) income |
(241 | ) | (807 | ) | 4,637 | 9,641 | ||||||||||
(Losses) gains on
derivative financial
instruments |
(153 | ) | 1,214 | (1,278 | ) | (2 | ) | |||||||||
Interest expense |
| 150 | 921 | 815 | ||||||||||||
Net (loss) income |
$ | (354 | ) | $ | 285 | $ | 2,456 | $ | 8,843 | |||||||
Net (loss) income per unit |
$ | (25.29 | ) | $ | 20.36 | $ | 175.43 | $ | 631.54 |
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This report 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, will, 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 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
One Earth Energy, LLC was formed on November 28, 2005. We were formed for the purpose of
raising capital to develop, construct, own and operate a 100 million gallon per year ethanol plant
in east central Illinois near Gibson City, Illinois. We emerged from the development stage and
began producing ethanol and distillers grains at the plant in June 2009. Prior to this, our
efforts were focused primarily on raising capital and constructing our ethanol plant.
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Results of Operations
Comparison of Fiscal Years Ended December 31, 2010 and 2009
Revenues
During our fiscal year ended December 31, 2009, we transitioned from a development stage
company to an operational company, by beginning operations in June 2009. Accordingly, we did not
yet have a full year of comparable income, production and sales data for the year ended December
31, 2009.
Our revenues are derived from the sale of our ethanol and distillers grains. For the fiscal
years ended December 31, 2010 and 2009, we received approximately 83% and 85%, respectively, of our
revenue from the sale of fuel ethanol, and approximately 17% and 15%, respectively, of our revenue
from the sale of distillers grains. During the early part of our 2009 fiscal year, the ethanol
industry was enduring unfavorable operating conditions. Thus, we postponed our grind date until
margins improved. Increased gasoline and ethanol prices towards the end of the second quarter of
2009 allowed the ethanol industry to realize more favorable margins. For the fiscal years ended
December 31, 2010 and 2009, the average selling price per gallon of ethanol was $1.80 and $1.66,
respectively. Our sales were based upon approximately 107.9 and 50.6 million gallons of ethanol for
2010 and 2009, respectively. For the fiscal years ended December 31, 2010 and 2009, the average
selling price per ton of distillers grains was $125.19 and $103.73 respectively. Our sales were
based upon approximately 314,956 and 143,000 tons of distillers grains for 2010 and 2009,
respectively.
Management anticipates that ethanol prices will continue to change in relation to changes in
corn and energy prices. These prices have been somewhat volatile due to the uncertainty that we are
experiencing in the overall economy which has been affecting commodities prices for the last year.
Further, dry weather conditions during the summer of 2010 have resulted in increased corn prices.
Management believes that there is currently a surplus of ethanol production capacity in the United
States. We believe this has resulted in some ethanol producers decreasing ethanol and distillers
grains production or halting operations altogether. The amount of this idled ethanol production
capacity has decreased throughout our 2010 fiscal year as a result of changes in the spread between
corn prices and ethanol prices.
A debate continues with respect to changes in the allowable percentage of ethanol blended with
gasoline for use in standard (non-flex fuel) vehicles. Currently, ethanol is blended with
conventional gasoline for use in standard vehicles to create a blend which is 10% ethanol and 90%
gasoline. Estimates indicate that approximately 135 billion gallons of gasoline are sold in the
United States each year. However, gasoline demand may be shrinking in the United States as a result
of the global economic slowdown. Assuming that all gasoline in the United States is blended at a
rate of 10% ethanol and 90% gasoline, the maximum demand for ethanol is 13.5 billion gallons per
year. This is commonly referred to as the blending wall, which represents a theoretical limit
where more ethanol cannot be blended into the national gasoline pool. This is a theoretical limit
because it is believed that it would not be possible to blend ethanol into every gallon of gasoline
that is used in the United States and it discounts the possibility of additional ethanol used in
higher percentage blends such as E85 used in flex fuel vehicles. Many in the ethanol industry
believe that the ethanol industry is currently on the ege of reaching this blending wall. The
Renewable Fuels Standard (RFS) mandate requires that 36 billion gallons of renewable fuels be
used each year by 2022 which equates to approximately 27% renewable fuels used per gallon of
gasoline sold. In order to meet the RFS mandate and expand demand for ethanol, management believes
higher percentage blends of ethanol must be utilized in conventional automobiles. Such higher
percentage blends of ethanol have continued to be a contentious issue. Automobile manufacturers and
environmental groups are lobbying against higher percentage ethanol blends. Recently, however, the
EPA made a ruling on using higher percentage blends (15%) in cars, pickups, and SUVs made in years
2001 and later; however, there have been lawsuits challenging this ruling.
Management believes that the market prices for distillers grains change in relation to the
prices of other animal feeds, such as corn and soybean meal. As a result of the most current USDA
grain estimates and increased demand for grains in Asian countries, there was a significant
increase in the market price of corn. This resulted in a significant increase in distillers grains
prices. We believe that the export market for distillers grains will continue to have a significant
impact on our overall profitability, with ethanol margins narrowing from their highs in 2010.
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We expect that revenues in future periods will be based upon production of approximately 100
million to
115 million gallons of ethanol per year. This expectation assumes that we will continue to operate
at or near nameplate capacity, which is dependent upon the crush spread realized and other market
conditions. In addition, as of December 31, 2010, our air permit allows us to produce up to 125
million gallons per year. While we currently can achieve only 115 million gallons in RINS (Renewable
Identification Number System), this may change in the future and our production may exceed
115 million gallons per year.
Cost of Sales
Our cost of goods sold as a percentage of revenues was 85.5% and 85.6% for the fiscal years
ended December 31, 2010 and 2009, respectively. See the table under Additional Information below.
Our two primary costs of producing ethanol and distillers grains are corn costs and natural gas
costs. Corn prices have increased approximately 73% from a low in September 2009 to December 2010,
and continued to rise into 2011. The cost of corn is the highest input to the plant, approximately
78% of production costs, and these uncertainties could dramatically affect our expected input cost.
We expect continued volatility in the price of corn, which could significantly impact our cost of
goods sold. We used approximately 38.7 million bushels of corn in 2010, and the average price we
paid for corn in 2010 was $4.05 per bushel. Natural gas prices have declined following a peak in
mid-2008, and our price per MMBTU was $4.64 and $3.84 in 2010 and 2009, respectively. We used
approximately 3.1 million MMBTUs of natural gas in 2010. Management expects short-term natural
gas prices to remain lower than historical levels. Other significant costs are chemical costs,
which have continued to increase since 2009. The average cost per gallon of ethanol produced for
chemicals in 2009 was approximately $.051, and by the end of 2010, these costs had increased to
approximately $.0642 per gallon of ethanol produced, a 26% increase.
Selling, General and Administrative Expense
Our selling, general and administrative expenses were $2.8 million for the fiscal year ended
December 31, 2010 compared to $0.9 million for the fiscal year ended December 31, 2009. We
experienced a significant increase in our operating expenses for the fiscal year ended December 31,
2010 compared to the same period of 2009 primarily due to our plant becoming fully operational.
Operating expenses include sales commissions, salaries and benefits of administrative employees,
taxes, professional fees and other general costs. We expect these expenses, on an annualized
basis, to be less than the fiscal year ended December 31, 2010 in future periods, as we intend to
pursue plans to qualify to suspend our SEC reporting requirements during this fiscal year.
Operating Income
As a result of the foregoing, our income from operations for the fiscal year ended December
31, 2010 was approximately $31.1 million compared to $13.2 million for the fiscal year ended
December 31, 2009.
Interest and Other Income
Interest and other income was approximately $115,000 for the fiscal year ended December 31,
2010, and $105,000 for the fiscal year ended December 31, 2009.
Interest Expense
Interest expense was $2.8 million for the fiscal year ended December 31, 2010, and $1.9
million for the fiscal year ended December 31, 2009. The increase was due primarily to the
capitalization of interest in the first half of 2009 while the plant was under construction. Based
on current interest rates and debt levels, we expect interest expense in 2011 to be in the range of
$2.5 million to $3.0 million.
Losses on derivative financial instruments
We recognized losses of approximately $3.0 million and $0.2 million during the fiscal years
ended December 31, 2010 and 2009, respectively, related to interest rate swap agreements. In
general, declining interest rates have a negative effect on our interest rate swaps as our swaps
fixed the interest rate of variable rate debt. Should interest rates continue to decline, we would
expect to experience continued losses on the interest rate swaps. We would expect to incur gains
on the interest rate swaps should interest rates increase. We cannot predict the
future movements in interest rates; thus, we are unable to predict the likelihood or amounts of
future gains or losses related to interest rate swaps.
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Net income/loss
As a result of the foregoing, net income for the fiscal year ended December 31, 2010 was $25.3
million, an increase of $14.1 million from $11.2 million for the fiscal year ended December 31,
2009.
Additional Information
The following table shows additional data regarding production and price levels for our
primary inputs and products for the fiscal years ended December 31, 2010 and 2009.
Fiscal Year Ended | Fiscal Year Ended | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Production: |
||||||||
Ethanol sold (gallons) |
107,950,514 | 50,560,316 | ||||||
Distillers grains sold (tons) |
314,956 | 143,095 | ||||||
Revenues: |
||||||||
Ethanol average price per gallon |
$ | 1.80 | $ | 1.66 | ||||
Distillers grains average price per ton |
$ | 125.19 | $ | 103.73 | ||||
Primary Inputs: |
||||||||
Corn ground (bushels) |
38,694,596 | 18,600,712 | ||||||
Natural gas purchased (MMBTU) |
3,064,373 | 1,483,285 | ||||||
Costs of Primary Inputs: |
||||||||
Corn average price per bushel ground |
$ | 4.052 | $ | 3.620 | ||||
Natural gas average price per MMBTU |
$ | 4.643 | $ | 3.844 |
During the fiscal year ended December 31, 2010, the market price of ethanol varied between
approximately $1.70 per gallon and approximately $2.30 per gallon. Our average, price per gallon of
ethanol sold was approximately $1.80. If our average price received per gallon of ethanol had been
10% lower, our net income for the fiscal year ended December 31, 2010 would have decreased by
approximately $19.4 million assuming our other revenues and costs remained unchanged.
During the fiscal year ended December 31, 2010, the market price of distillers grains varied
between approximately $125.00 per ton and approximately $188.00 per ton. Our average price per ton
of distillers grains sold was approximately $125.19. If our average price received per ton of
distillers grains had been 10% lower, our net income for the fiscal year ended December 31, 2010
would have decreased by approximately $4.0 million assuming our other revenues and costs remained
unchanged.
During the fiscal year ended December 31, 2010, the market price of corn varied between
approximately $3.25 per bushel and approximately $6.29 per bushel. Our average price per bushel of
corn ground was approximately $4.05. If our average price paid per bushel of corn had been 10%
higher, our net income for the fiscal year ended December 31, 2010 would have decreased by
approximately $15.9 million, assuming our other revenues and costs remained unchanged.
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During the fiscal year ended December 31, 2010, the market price of natural gas varied between
approximately $3.38 per MMBTU and approximately $7.43 per MMBTU. Our average price per MMBTU of
natural gas was approximately $4.64. If our average price paid per MMBTU of natural gas had been
10% higher, our net income for the fiscal year ended December 31, 2010 would have decreased by
approximately $1.4 million,
assuming our other revenues and costs remained unchanged.
We are currently operating at full, or nearly full, capacity. However, in the event that we
decrease our production of ethanol, our production of distillers grains would also decrease
accordingly. Such a decrease in our volume of production of ethanol and distillers grains would
result in lower revenues. However, if we decreased production, we would require a corresponding
decreased quantity of corn and natural gas, thereby lowering our costs of goods sold. Therefore,
the effect of a decrease in our product volume would be largely dependent on the market prices of
the products we produce and the inputs we use to produce our products at the time of such a
production decrease. We anticipate operating at less than full capacity only if operating margins
become unfavorable or we experience technical difficulties in operating the plant.
Comparison of Fiscal Years Ended December 31, 2009 and 2008
Revenues
During our fiscal year ended December 31, 2009, we transitioned from a development stage
company to an operational company by beginning operations in June of 2009. Accordingly, we did not
yet have comparable income, production and sales data for the year ended December 31, 2009 from our
previous fiscal year.
Our revenues are derived from the sale of our ethanol and distillers grains. For the fiscal
year ended December 31, 2009, we received approximately 85% of our revenue from the sale of fuel
ethanol and approximately 15% of our revenue from the sale of distillers grains. During the early
part of our 2009 fiscal year, the ethanol industry was enduring unfavorable operating conditions.
Thus, we postponed our grind date until margins improved. Increased gasoline and ethanol prices
towards the end of the second quarter of 2009 allowed the ethanol industry to realize more
favorable margins. For the fiscal year ended December 31, 2009, the average selling price per
gallon of ethanol was $1.65 and our sales were based upon approximately 50.6 million gallons of
ethanol. For the fiscal year ended December 31, 2009, the average selling price per ton of
distillers grains was $103.73 and our sales were based upon approximately 143,000 tons of
distillers grains.
Cost of Sales
Our cost of goods sold as a percentage of revenues was 85.6% for the fiscal year ended
December 31, 2009. Our two primary costs of producing ethanol and distillers grains are corn costs
and natural gas costs. Corn prices reached historical highs in June 2008, but have decreased since
that time as stronger than expected corn yields materialized and the global financial crisis
brought down the prices of most commodities generally. The cost of corn is the highest input to the
plant and these uncertainties could dramatically affect our expected input cost. We used
approximately 18.6 million bushels of corn in fiscal year 2009, and the average price we paid for
corn in 2009 was $3.62 per bushel. Natural gas prices have declined following a peak in mid-2008,
and our price per MMBTU was $3.84 in 2009. We used approximately 1.4 million MMBTUs of natural
gas in fiscal year 2009. Other significant costs are chemical costs, which have continued to
increase since 2009. The average cost per gallon of ethanol produced for chemicals in 2009 was
approximately $.051.
Selling, General and Administrative Expense
Our selling, general and administrative expenses were $0.9 million for the fiscal year ended
December 31, 2009 compared to $0.3 million for the fiscal year ended December 31, 2008. We
experienced a significant increase in our operating expenses for the fiscal year ended December 31,
2009 compared to the same period of 2008 primarily due to an increase in our employees as a result
of our plant becoming fully operational. Operating expenses include salaries and benefits of
administrative employees, taxes, professional fees and other general costs.
Operating Income
As a result of the foregoing, our income from operations for the fiscal year ended December
31, 2009 was approximately $13.2 million compared to a loss of $0.3 million for the fiscal year
ended December 31, 2008.
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Interest and Other Income
Interest and other income was $105,000 for the fiscal year ended December 31, 2009 and was
consistent with the 2008 results.
Interest Expense
Interest expense was $1.9 million for the fiscal year ended December 31, 2009. We reported no
interest expense for the fiscal year ended December 31, 2008. The increase was primarily
attributable to the higher amounts of average debt outstanding we had upon the completion of
construction of our ethanol plant. In addition, we did not capitalize interest during 2009 as we
did in 2008 while we were completing the construction of our ethanol plant.
Losses on derivative financial instruments
We recognized losses of approximately $0.2 million and $4.7 million during the fiscal years
ended December 31, 2009 and 2008, respectively, related to interest rate swap agreements. In
general, declining interest rates have a negative effect on our interest rate swaps as our swaps
fixed the interest rate of variable rate debt. Should interest rates continue to decline, we would
expect to experience continued losses on the interest rate swaps. We would expect to incur gains
on the interest rate swaps should interest rates increase.
Net income/loss
As a result of the foregoing, net income for the fiscal year ended December 31, 2009 was $11.2
million, an increase of $16.0 million from a loss of $4.8 million for the fiscal year ended
December 31, 2008.
Changes in Financial Condition for the Fiscal Year Ended December 31, 2010
We experienced an increase in our current assets at December 31, 2010 compared to December 31,
2009. We experienced an increase of approximately $1.5 million in inventory at December 31, 2010
compared to December 31, 2009, partially due to increased volumes in inventories, and primarily due
to increased corn prices. Additionally, at December 31, 2010, we had trade accounts receivable of
approximately $9.4 million compared to trade accounts receivable at December 31, 2009 of
approximately $5.4 million, an increase of $4.0 million. This is due primarily to increased ethanol
and DDGS prices from 2009 to 2010. We also had cash of $18.3 million at December 31, 2010, compared
to cash of $12.1 million at December 31, 2009 as we generated cash from operations of approximately
$30.3 million during the year ended December 31, 2010, offset by purchases of capital assets of
$4.8 million, and debt payments of $19.2 million. We had prepaid and other current assets of $2.8
million at December 31, 2010, compared to $2.9 million at December 31, 2009. At December 31, 2010,
included within prepaid expenses and other current assets were prepaid natural gas and other
prepaid manufacturing supplies of $0.9 million, compared to $1.1 million at December 31, 2009. We
also had other noncurrent assets of $1.8 million at December 31, 2010, compared to $0.6 million at
December 2009.
We experienced an increase in our total current liabilities at December 31, 2010 compared to
December 31, 2009. We experienced an increase of approximately $1.5 million in the current portion
of our long term debt at December 31, 2010 compared to December 31, 2009, which is in line with the
principal payment schedule incorporated into the loan agreement with First National Bank of Omaha.
We also experienced an increase of approximately $0.4 million for the current portion of the swap
derivative liability at December 31, 2010 compared to December 31, 2009; and an increase of
approximately $1.5 million in our accounts payable for corn purchases and other items at December
31, 2010 compared to December 31, 2009.
We experienced a decrease in our long-term liabilities as of December 31, 2010 compared to
December 31, 2009. At December 31, 2010, we had approximately $69.0 million outstanding in the form
of long-term loans, compared to approximately $89.9 million at December 31, 2009. This decrease is
attributed to payments made in addition to regularly scheduled payments per the loan agreement.
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Changes in Financial Condition for the Fiscal Year Ended December 31, 2009
We experienced an increase in our current assets at December 31, 2009 compared to December 31,
2008. We experienced an increase of approximately $6.3 million in the value of our inventory at
December 31, 2009 compared to December 31, 2008, as a result of the commencement of operations at
our plant. Additionally, at December 31, 2009 we had trade accounts receivable of approximately
$5.5 million compared to no trade accounts receivable at December 31, 2008; again, the result of
the commencement of operations at our plant. We also had cash of $12.1 million at December 31,
2009, compared to cash of $0.02 million at December 31, 2008 as we generated cash from operations
during the year ended December 31, 2009. We had prepaid and other current assets of $2.9 million
at December 31, 2009, compared to $0.1 million at December 31, 2008; the increase results from
activities associated with commencement of operations at our plant. At December 31, 2009, we had
prepaid natural gas and other prepaid manufacturing supplies of $1.1 million and we also had
property taxes refundable of $1.0 million.
We experienced an increase in our total current liabilities at December 31, 2009 compared to
December 31, 2008. We experienced an increase of approximately $7.0 million in the current portion
of our long term debt at December 31, 2009 compared to December 31, 2008 due to the conversion of
our construction loan to a term loan with principal and interest payments becoming due on a
quarterly basis commencing in July 2009. We also experienced an increase of approximately $3.1
million for accrued expenses at December 31, 2009 compared to December 31, 2008; and an increase of
approximately $1.0 million in our accounts payable for corn purchases and other items at December
31, 2009 compared to December 31, 2008. All of these increases relate primarily to the commencement
of operations at our plant. Such increases were partially offset by a decrease in our construction
payable of approximately $9.8 million at December 31, 2009 compared to December 31, 2008.
We experienced an increase in our long-term liabilities as of December 31, 2009 compared to
December 31, 2008. At December 31, 2009, we had approximately $89.9 million outstanding in the form
of long-term loans, compared to approximately $55.0 million at December 31, 2008. This increase is
attributed to cash we borrowed from our long-term loans to complete the construction of our
facility and commence operations.
Critical Accounting Policies
We believe the application of the following accounting policies, which are important to our
financial position and results of operations, require significant assumptions, judgments and
estimates on the part of management. We base our assumptions, judgments, and estimates on
historical experience, current trends and other factors that management believes to be relevant at
the time our financial statements are prepared. On a regular basis, management reviews the
accounting policies, assumptions, estimates and judgments to ensure that our financial statements
are presented in accordance with generally accepted accounting principles (GAAP). However, because
future events and their effects cannot be determined with certainty, actual results could differ
from our assumptions and estimates, and such differences could be material. Further, if different
assumptions, judgments and estimates had been used, the results could have been different and such
differences could be material. For a summary of all of our accounting policies, including the
accounting policies discussed below, see Note 1 of the Notes to the Financial Statements.
Management believes that the following accounting policies are the most critical to aid in fully
understanding and evaluating our reported financial results, and they require managements most
difficult, subjective or complex judgments, resulting from the need to make estimates about the
effect of matters that are inherently uncertain.
Inventory Reserves Inventory is recorded at the lower of cost or market. The market value
of inventory is often dependent upon fluctuating commodity prices. If these estimates are
inaccurate, we may be exposed to market conditions that require an additional reduction in the
value of certain inventories affected. We permanently write down inventory for items that have a
cost greater than net realizable value. There were no inventory reserves or write downs at
December 31, 2010 and December 31, 2009. Assumptions we use to estimate the necessary reserve or
write down have not significantly changed over the last two fiscal years. The assumptions we
currently use include our estimates of the selling prices of ethanol and distillers grains and the
cost of corn.
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Financial Instruments Forward grain purchase and ethanol and distillers grains sale
contracts are accounted for under the normal purchases and normal sales scope exemption of ASC
815, Derivatives and Hedging (ASC 815) because these arrangements are for purchases of corn and
sales of ethanol and distillers grains that will be delivered in quantities expected to be used by
us over a reasonable period of time in the normal
course of business. We use derivative financial instruments to manage our balance of fixed and
variable rate debt. We do not hold or issue derivative financial instruments for trading or
speculative purposes. Interest rate swap agreements involve the exchange of fixed and variable
rate interest payments and do not represent an actual exchange of the notional amounts between the
parties. Our swap agreements were not designated for hedge accounting pursuant to ASC 815. The
interest rate swaps are recorded at their fair values and the changes in fair values are recorded
as gain or loss on derivative financial instruments in the accompanying statements of operations.
Recoverability
of Long-Lived Assets We review long-lived assets for impairment whenever
events or changes in circumstances indicate that the related carrying amounts may not be
recoverable. Impairment testing for assets requires various estimates and assumptions, including an
allocation of cash flows to those assets and, if required, an estimate of the fair value of those
assets. Given the significant assumptions required and the possibility that actual conditions will
differ, we consider the assessment of the recoverability of long-lived assets of property and
equipment to be a critical accounting estimate. Any adverse change in the spread between ethanol
and corn prices could result in impairment charges. Factors that affect the spread between ethanol
and corn prices include overall market conditions for ethanol and corn, the availability and price
of locally supplied corn and our ability to sell ethanol to existing customers.
Trends and Uncertainties Impacting the Ethanol Industry and Our Operations
We are subject to industry-wide factors, trends and uncertainties that affect our operating
and financial performance. These factors include, but are not limited to, the available supply and
cost of corn from which our ethanol and distillers grains are processed; the cost of natural gas,
which we use in the production process; new technology developments in the industry; dependence on
our ethanol marketer and distillers grains marketer to market and distribute our products; the
intensely competitive nature of the ethanol industry; and possible changes in
legislation/regulations at the federal, state and/or local level. These factors as well as other
trends and uncertainties are described in more detail below.
Corn Prices
Our cost of goods sold consists primarily of costs relating to the corn necessary to produce
ethanol and distillers grains for sale. On March 10, 2011, the USDA released its Crop Production
report, which estimated the 2010 grain corn crop at approximately 12.45 billion bushels,
approximately 4% lower than the USDAs estimate of the 2009 corn crop of 12.9 billion bushels. Corn
prices have come down from their historical highs of 2008, but as previously idled plants came back
online in 2009 and 2010, and due to lower production estimates, corn prices have increased sharply
towards the end of 2010, and into 2011. We expect continued volatility in the price of corn, which
could significantly impact our cost of goods sold.
The price at which we will purchase corn depends on prevailing market prices. There is no
assurance that a corn shortage will not develop, particularly if there is an extended drought or
other production problems in the 2011 crop year. We anticipate that our plants profitability could
be negatively impacted during periods of high corn prices that are not offset by increased ethanol
prices. Although we expect the negative impact on profitability resulting from high corn prices to
be mitigated, in part, by the increased value of the distillers grains we intend to market (as the
price of corn and the price of distillers grains tend to fluctuate in tandem), we still may be
unable to operate profitably if high corn prices are sustained for a significant period of time.
Ethanol Industry Competition
We operate in a competitive industry and compete with a number of larger ethanol producers.
The ethanol industry is starting to emerge from the difficult collapse that has occurred since the
commencement of our operations in June 2009, and as ethanol margins continue to narrow, ethanol
producers are looking to other revenue streams, such as oil extraction, and sales of carbon
dioxide, which we have not invested in.
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Distillers Grains Markets
With the advancement of research into the feeding of distillers grains based rations to
poultry, swine and beef, we anticipate these markets will continue to expand, creating additional
demand for distillers grains.
Technology Developments
One current trend in ethanol production research is to develop an efficient method of
producing ethanol from cellulose-based biomass, such as agricultural waste, forest residue,
municipal solid waste, and energy crops. This trend is driven by the fact that cellulose-based
biomass is generally cheaper than corn, and producing ethanol from cellulose-based biomass would
create opportunities to produce ethanol in areas which are unable to grow corn. Although current
technology is not sufficiently efficient to be competitive, the United States Congress is
consistently increasing the availability of incentives to promote the development of commercially
viable cellulose based ethanol production technology.
Advances and changes in the technology used to produce ethanol may make our technology less
desirable or obsolete. As of this date there are no known technologies that would cause our plant
to become uncompetitive or completely obsolete.
Government Legislation and Regulations
The ethanol industry and our business are assisted by various federal ethanol supports and tax
incentives, including those included in the Energy Policy Act of 2005 and the Energy Independence
and Security Act of 2007. Government incentives for ethanol production, including federal tax
incentives, may be reduced or eliminated in the future, which could hinder our ability to operate
at a profit. Federal ethanol supports, such as the renewable fuels standard (RFS), help support a
market for ethanol that might disappear without this incentive; as such, a waiver of minimum levels
of renewable fuels included in gasoline could have a material adverse effect on our results of
operations. The elimination or reduction of tax incentives to the ethanol industry, such as the
VEETC available to gasoline refiners and blenders, could reduce the market for ethanol, causing
prices, revenues, and profitability to decrease. Although VEETC was set to expire on December 31,
2010, it was extended retroactively, through December 31, 2011.
The USDA recently announced that it will provide financial assistance to implement more
blender pumps in the United States in order to increase demand for ethanol and to help offset the
cost of introducing mid-level ethanol blends into the United States retail gasoline market.
Blender pumps typically can dispense E10, E20, E30, E40, E 50 and E85. These blender pumps
accomplish the different ethanol/gasoline blends by internally mixing ethanol and gasoline which
are held in separate tanks at the retail gas stations. Many in the ethanol industry believe that
increased use of blender pumps will increase demand for ethanol by allowing gasoline retailers to
provide various mid-level ethanol blends in a cost effective manner and allowing consumers with
flex-fuel vehicles to purchase more ethanol through these mid-level blends. However, blender pumps
cost approximately $25,000 each, so it may take time before they become widely available in the
retail gasoline market.
Liquidity and Capital Resources
Based on financial forecasts performed by our management, we anticipate that we will have
sufficient cash from our current credit facilities and cash from our operations to continue to
operate the ethanol plant for the next 12 months. We do not anticipate seeking additional equity or
debt financing during our 2011 fiscal year. However, should we experience unfavorable operating
conditions in the future, we may have to secure additional debt or equity sources for working
capital or other purposes.
As a result of current favorable conditions in the ethanol market, we have not drawn on
borrowings from our revolving line of credit since we began production in June 2009. However,
should we experience unfavorable operating conditions in the ethanol industry that prevent us from
profitably operating the ethanol plant, we could have difficulty maintaining our liquidity.
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Cash Flows Provided By/ Used in Operating Activities
Net cash provided by operating activities was approximately $30.4 million for the fiscal year
ended December 31, 2010 compared to cash provided of approximately $4.8 million for the fiscal year
ended December 31, 2009. For the fiscal year ended December 31, 2010, cash was provided by net
income of $25.3 million, adjusted for non-cash items of $10.1 million, which consisted of
depreciation and amortization and changes in the fair value of derivative financial instruments.
Increases in accounts receivable, inventory and other assets used cash of approximately $4.0
million, $1.5 million and $1.3 million, respectively. In addition, an increase in accounts payable
provided cash of approximately $1.4 million.
Net cash provided by operating activities was approximately $4.8 million for the fiscal year
ended December 31, 2009 compared to cash used of approximately $0.1 million for the fiscal year
ended December 31, 2008. For the fiscal year ended December 31, 2009, cash was provided by net
income of $11.2 million, adjusted for non-cash items of $4.6 million, which consisted of
depreciation and amortization and changes in the fair value of derivative financial instruments.
Increases in accounts receivable, inventory and prepaid expenses and other assets used cash of $5.5
million, $6.3 million and $3.4 million, respectively, a result of the plant becoming operational
during the current year. In addition, increases in accounts payable, accrued and other liabilities
provided cash of $1.0 million and $3.0 million, respectively, a result of the plant becoming
operational during the current year.
Cash Flows From Investing Activities
Net cash used in investing activities was approximately $4.9 million for the fiscal year ended
December 31, 2010 compared to approximately $24.9 million for the fiscal year ended December 31,
2009. The majority of the 2009 cash flows related to the construction of our ethanol plant during
2008 and 2009, and the 2010 cash flows are related to the construction of additional corn storage
bins.
Net cash used in investing activities was approximately $24.9 million for the fiscal year
ended December 31, 2009 compared to approximately $86.2 million for the fiscal year ended December
31, 2008. The majority of these cash flows related to the construction of our ethanol plant during
2008 and 2009.
Cash Flows From Financing Activities
Net cash from financing activities was approximately $19.3 million for the fiscal year ended
December 31, 2010, representing principal payments on the bank loan, and no borrowings. This is
compared to approximately $32.2 million for the fiscal year ended December 31, 2009. Borrowings on
our construction loan were $39.2 million during the fiscal year ended December 31, 2009. As we
converted the construction loan into a term loan during the fiscal year ended December 31, 2009, we
made principal payments of $7.0 million on the term loan.
Net cash provided by financing activities was approximately $32.2 million for the fiscal year
ended December 31, 2009 compared to approximately $56.0 million for the fiscal year ended December
31, 2008. Borrowings on our construction loan were $39.2 million during the fiscal year ended
December 31, 2009. As we converted the construction loan into a term loan during the fiscal year
ended December 31, 2009, we made principal payments of $7.0 million on the term loan. Cash
provided by financing activities in 2008 related to borrowings on the construction loan.
Credit Facilities
On September 20, 2007, we entered into a loan agreement with First National Bank of Omaha
establishing a senior credit facility for the construction of our plant. The credit facility was in
the amount of $111,000,000 consisting of a $100,000,000 construction note, a $10,000,000 revolving
line of credit and a $1,000,000 letter of credit. In September 2008, we extended the $10,000,000
revolving line of credit to expire in September 2009, subject to certain borrowing base
limitations. In September 2009, we extended this revolving line of credit to expire in September
2010. In June 2010, we extended this revolving line of credit to expire on May 31, 2011. At
December 31, 2010, there were no outstanding borrowings on the revolving line of credit. We are
subject to certain financial covenants under the loan agreement. The most restrictive of which are
debt service coverage ratio requirements, net worth requirements and working capital requirements.
We are required to maintain a fixed charge coverage ratio of no less than 1.25:1.0 for all periods
after July 31, 2009. For the first fiscal quarter after July 31, 2009 our fixed charge coverage
ratio was measured on a rolling one quarter basis, for the second fiscal quarter after
July 31, 2009, our fixed charge coverage ratio was measured on a rolling two quarter basis, and for
the third fiscal quarter after July 31, 2009 our fixed charge coverage ratio is measured on a
rolling three quarter basis. Thereafter, our fixed charge coverage ratio is measured on a rolling
four quarter basis. Our fixed charge coverage ratio is calculated by comparing our adjusted
EBITDA, meaning EBITDA less taxes, capital expenditures and allowable distributions, to our
scheduled payments of the principal and interest on our obligations to our lender, other than
principal repaid on our revolving loan and long term revolving note. For the periods ended
December 31, 2010 and 2009, our fixed charge coverage ratios were 2.52:1.0 and 3.67:1.0
respectively.
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We are also required to maintain a minimum net worth of approximately $56.3 million. It shall
be measured annually at the end of each fiscal year. In subsequent years, our minimum net worth
requirement will increase by the greater of $500,000 or the amount of undistributed earnings
accumulated during the prior fiscal year. Accordingly, our minimum net worth requirement for 2010
was $67.5 million. At December 31, 2010 and 2009, our net worth was approximately $93.0 and $69.8
million, respectively.
We are also required to maintain a minimum amount of working capital, which is calculated as
our current assets plus the amount available for drawing under our Long Term Revolving Note, less
current liabilities and prepaid expenses. From November 1, 2009 through February 28, 2010, our minimum working capital
requirement was $4,000,000. Beginning March 1, 2010 through July 31, 2010, our minimum working
capital requirement was $7,000,000. After August 1, 2010, our minimum working capital is
$10,000,000. At December 31, 2010 and 2009, our working capital was approximately $29.7 and $22.7
million, respectively.
The Company also has access to a secondary line of credit of up to $10,000,000 with the Bank,
established as part of the original $100,000,000 term loan and made accessible as a revolving line
of credit as term loan payments were made. The amount available is reduced by $250,000 on a
quarterly basis. At December 31, 2010 and 2009, the Company had $8,750,000 and $10,000,000 on the
secondary line of credit, respectively, available on this revolving line of credit. The Company
has no outstanding borrowings as of December 31, 2010 and 2009.
Outlook
We believe we have sufficient working capital and credit availability to fund our commitments
and to maintain our operations at their current levels for the next twelve months and foreseeable
future. We have been constructing two corn silos at our plant during 2010, and have used cash from
operations to pay for these capital expenditures, which have cost approximately $4.8 million as of
December 31, 2010. These silos will become operational in the second quarter of 2011.
Off-Balance Sheet Arrangements
None
Tabular Disclosure of Contractual Obligations
In the ordinary course of business, we enter into agreements under which we are obligated to
make legally enforceable future cash payments. These agreements include obligations related to
purchasing inventory, incurring indebtedness, interest rate management and utility agreements.
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The following table summarizes by category expected future cash outflows associated with
contractual obligations in effect as of December 31, 2010 (amounts in thousands):
Payment due by period | ||||||||||||||||||||
Less | ||||||||||||||||||||
than 1 | 1-3 | 3-5 | More than | |||||||||||||||||
Contractual Obligations | Total | Year | Years | Years | 5 Years | |||||||||||||||
Lease obligations (a) |
$ | 39 | $ | 20 | $ | 19 | $ | | $ | | ||||||||||
Long-term debt obligations |
78,721 | 9,672 | 69,049 | | ||||||||||||||||
Interest on
variable rate debt (b) |
8,037 | 2,537 | 5,500 | | ||||||||||||||||
Corn contracts |
30,064 | 30,064 | ||||||||||||||||||
Other (c) |
4,297 | 1,186 | 3,112 | | | |||||||||||||||
Total (d) |
$ | 121,158 | $ | 43,479 | $ | 77,680 | $ | | $ | | ||||||||||
(a) | Amounts include rentals of $20,000 per year for the lease of our well site. |
|
(b) | The interest rates effective as of December 31, 2010 for variable rate loans were used
to calculate future payments of interest on variable rate debt. |
|
(c) | Amounts represent primarily payments due related to railcar agreements. |
|
(d) | We are not able to determine the likely settlement period, if any, for interest rate
swaps, accordingly, $5,522,700 of liabilities for derivative financial instruments have
been excluded from the table above. |
Seasonality of Ethanol Sales
We experience some seasonality of demand for our ethanol. Since ethanol is predominantly
blended with conventional gasoline for use in automobiles, ethanol demand tends to shift in
relation to gasoline demand. As a result, we experience some seasonality of demand for ethanol in
the summer months related to increased driving. In addition, we experience some increased ethanol
demand during holiday seasons related to increased gasoline demand.
Impact of Inflation
The impact of inflation has not been material to our results of operations for the past three
fiscal years.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to the impact of market fluctuations associated with interest rates and
commodity prices as discussed below.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. Exposure to interest rate risk
results primarily from holding term and revolving loans that bear variable interest rates.
Specifically, we have approximately $78.7 million outstanding in debt as of December 31, 2010, all
of which is variable-rate. Interest rates on our variable-rate debt are determined based upon the
market interest rate of LIBOR plus 300 to 310 basis points. A 10% adverse change (for example from
4.0% to 4.4%) in market interest rates would affect our interest cost on such debt by approximately
$0.3 million per year in the aggregate.
We entered into two forward interest rate swaps in the notional amounts of $50.0 million and $25.0
million with the First national Bank of Omaha during the fiscal years ended December 31, 2008 and
2007. The $50.0 million swap fixed the variable interest rate of a portion of our term loan at
7.9%, while the $25.0 million swap fixed the variable interest rate of a portion of our term loan
at 5.49%. The swap settlements commenced on July 31, 2009; the $50.0
million swap terminates on July 8, 2014 and the $25.0 million swap terminates on July 31, 2011. A
hypothetical 10% change (for example, from 4.0% to 3.6%) in market interest rates at December 31,
2010 would change the fair value of the interest rate swaps by approximately $0.5 million.
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Commodity Price Risk
We do not employ derivative instruments such as futures and options to hedge our commodity
price risk. Our strategy is to flat price a portion of our electricity and natural gas
requirements, and to purchase the remainder on a floating index. We purchase all of our corn
through Alliance Grain.
A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural
gas price risk. Market risk related to these factors is estimated as the potential change in income
resulting from a hypothetical 10% adverse change in the fair value of our corn and natural gas
prices and average ethanol price as of December 31, 2010. The volumes are based on our actual use
and sale of these commodities for the year ended December 31, 2010. The results of this analysis
are as follows:
Hypothetical | Approximate | |||||||||||||||
Volume for the year ended | Adverse Change in | Adverse Change to | ||||||||||||||
December 31. 2010 | Unit of Measure | Price | Income | |||||||||||||
Natural Gas |
3,064,373 | MMBtu | 10 | % | $ | 1,413,902 | ||||||||||
Ethanol |
107,950,227 | Gallons | 10 | % | $ | 19,485,016 | ||||||||||
Corn |
38,694,596 | Bushels | 10 | % | $ | 15,916,635 | ||||||||||
Distillers Grains |
314,956 | Tons | 10 | % | $ | 3,942,934 |
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Members of One Earth Energy, LLC
Gibson City, Illinois
Gibson City, Illinois
We have audited the accompanying balance sheets of One Earth Energy, LLC (the Company) as of
December 31, 2010 and 2009, and the related statements of operations, changes in members equity,
and cash flows for each of the three years in the period ended December 31, 2010. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial
position of One Earth Energy, LLC at December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2010
in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
|
||
March 31, 2011 |
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ONE EARTH ENERGY, LLC
BALANCE SHEETS
(Amounts in Thousands)
(Amounts in Thousands)
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 18,343 | $ | 12,099 | ||||
Accounts receivable |
9,415 | 5,457 | ||||||
Inventory |
7,819 | 6,290 | ||||||
Prepaid expenses |
1,335 | 1,579 | ||||||
Other current assets |
1,434 | 1,276 | ||||||
Total current assets |
38,346 | 26,701 | ||||||
Property and equipment, net |
144,131 | 148,709 | ||||||
Deferred financing costs, net |
979 | 1,259 | ||||||
Restricted cash |
20 | 20 | ||||||
Other assets |
1,841 | 595 | ||||||
Total assets |
$ | 185,317 | $ | 177,284 | ||||
Liabilities and equity: |
||||||||
Current liabilities: |
||||||||
Accounts payable, trade |
2,476 | $ | 1,016 | |||||
Current portion of long-term debt |
9,672 | 8,089 | ||||||
Accrued real estate taxes |
1,934 | 1,930 | ||||||
Derivative financial instruments |
1,835 | 1,413 | ||||||
Other current liabilities |
1,501 | 1,332 | ||||||
Total current liabilities |
17,418 | 13,780 | ||||||
Long-term liabilities: |
||||||||
Deferred income taxes |
101 | |||||||
Long-term debt |
69,049 | 89,910 | ||||||
Derivative financial instruments |
3,688 | 3,818 | ||||||
Total long-term liabilities |
72,838 | 93,728 | ||||||
Commitments and contingencies |
||||||||
Members equity: |
||||||||
Members capital (13,781 units issued and
outstanding in
2010 and 2009 ) |
65,215 | 65,215 | ||||||
Retained earnings |
29,846 | 4,561 | ||||||
Total members equity |
95,061 | 69,776 | ||||||
Total liabilities and equity |
$ | 185,317 | $ | 177,284 | ||||
See notes to financial statements.
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ONE EARTH ENERGY, LLC
STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Unit Amounts)
(Amounts in Thousands, Except Per Unit Amounts)
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Revenues |
$ | 234,545 | $ | 98,190 | $ | | ||||||
Cost of sales |
200,587 | 84,057 | | |||||||||
Gross profit |
33,958 | 14,133 | | |||||||||
Selling, general and administrative expenses |
(2,817 | ) | (903 | ) | (336 | ) | ||||||
Operating income (loss) |
31,141 | 13,230 | ( 336 | ) | ||||||||
Interest and other income |
114 | 105 | 213 | |||||||||
Interest expense |
(2,808 | ) | (1,886 | ) | | |||||||
Losses on derivative financial instruments |
(3,018 | ) | (219 | ) | (4,704 | ) | ||||||
Income before provision for income taxes |
25,429 | 11,230 | (4,827 | ) | ||||||||
Provision for income taxes |
144 | | | |||||||||
Net income (loss) |
$ | 25,285 | $ | 11,230 | $ | (4,827 | ) | |||||
Weighted average units outstanding basic and diluted |
14 | 14 | 14 | |||||||||
Basic and diluted net income (loss) per unit |
$ | 1,834.77 | $ | 802.14 | $ | (344.79 | ) |
See notes to financial statements.
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ONE EARTH ENERGY, LLC
STATEMENTS OF CHANGES IN MEMBERS EQUITY
(Amounts in thousands)
STATEMENTS OF CHANGES IN MEMBERS EQUITY
(Amounts in thousands)
Members | Accumulated | |||||||||||
Capital | Earnings (Deficit) | Total | ||||||||||
Balance, December 31, 2007 |
$ | 65,215 | $ | (1,842 | ) | $ | 63,373 | |||||
Net loss |
| (4,827 | ) | (4,827 | ) | |||||||
Offering costs |
| | | |||||||||
Balance, December 31, 2008 |
65,215 | (6,669 | ) | 58,546 | ||||||||
Net income |
| 11,230 | 11,230 | |||||||||
Balance, December 31, 2009 |
65,215 | 4,561 | 69,776 | |||||||||
Net income |
| 25,285 | 25,285 | |||||||||
Balance, December 31, 2010 |
$ | 65,215 | $ | 29,846 | $ | 95,061 | ||||||
See notes to financial statements.
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ONE EARTH ENERGY, LLC
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income (loss) |
$ | 25,285 | $ | 11,230 | $ | (4,827 | ) | |||||
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities: |
||||||||||||
Depreciation and amortization |
9,816 | 4,949 | 18 | |||||||||
Derivative financial instruments |
292 | (332 | ) | 4,704 | ||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(3,958 | ) | (5,457 | ) | (4 | ) | ||||||
Inventory |
(1,529 | ) | (6,290 | ) | | |||||||
Prepaid expenses |
244 | (1,525 | ) | 11 | ||||||||
Accounts payable, trade |
1,358 | 1,009 | (12 | ) | ||||||||
Other current assets |
(158 | ) | (1,276 | ) | | |||||||
Other assets |
(1,246 | ) | (580 | ) | | |||||||
Deferred taxes |
101 | | | |||||||||
Accrued and other current liabilities |
173 | 3,061 | (4 | ) | ||||||||
Net cash provided by (used in) operating activities |
30,378 | 4,789 | (114 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Restricted cash |
| | (20 | ) | ||||||||
Capital expenditures |
(4,856 | ) | (24,879 | ) | (86,143 | ) | ||||||
Net cash used in investing activities |
(4,856 | ) | (24,879 | ) | (86,163 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Payments for financing costs |
| (35 | ) | | ||||||||
Proceeds from long-term debt |
| 39,208 | 56,042 | |||||||||
Payments of long-term debt |
(19,278 | ) | (7,000 | ) | | |||||||
Net cash (used in) provided by financing activities |
(19,278 | ) | 32,173 | 56,042 | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
6,244 | 12,083 | (30,235 | ) | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
12,099 | 16 | 30,251 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 18,343 | $ | 12,099 | $ | 16 | ||||||
Non cash activities Accrued capital expenditures |
$ | 102 | $ | 3 | $ | | ||||||
Non cash activities Payable related to plant
construction refinanced to long-term debt |
$ | | $ | | $ | 9,750 | ||||||
SUPPLEMENTAL INFORMATION: |
||||||||||||
Cash paid during the year for interest |
$ | 2,987 | $ | 3,082 | $ | 892 |
See notes to financial statements.
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
One Earth Energy, LLC (the Company), was organized on November 28, 2005, as an Illinois limited
liability company. The Company is a majority-owned subsidiary of Farmers Energy One Earth, LLC
(Farmers Energy), which is an indirect, wholly owned, subsidiary of REX American Resources
Corporation. The Company was formed to construct, own, and operate a 100 million gallon design
capacity ethanol production facility located near Gibson City, Illinois. The Company financed
construction of the facility through member equity contributions and from bank financing. The
Company exited the development stage and began production of fuel ethanol and other ethanol
co-products in late June 2009. The Company operates in one reportable segment, alternative energy.
Accounting 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 at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Concentration of Credit Risk
The Company maintains cash and cash equivalents in accounts with financial institutions, which, at
times, exceed federally insured limits. The Company has not experienced any losses in such
accounts. The Company does not believe there is significant credit risk associated with its cash
and cash equivalents.
Four customers accounted for approximately 84% of the Companys sales during 2010. At December 31,
2010, four customers comprised approximately 91% of the Companys accounts receivable balance.
Three customers accounted for approximately 86% of the Companys sales during 2009. At December 31,
2009, three customers comprised approximately 83% of the Companys accounts receivable balance.
Cash Equivalents
All highly liquid investments with a maturity of three months or less at the time of purchase are
considered to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using the straight-line method for financial reporting purposes over the
estimated useful lives of the assets ranging from five to 40 years. The Company capitalizes
interest on its construction in progress activities. The Company capitalized $1,530,126 of interest
during the year ended December 31, 2009. The Company did not capitalize any interest during 2010.
The Company evaluates the recoverability of the carrying amount of long-lived assets (including
property and equipment) whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Company evaluates events or changes in
circumstances based on historical operating results, business plans, general and industry trends
and forecasted cash flows. Impairment is assessed when the undiscounted expected future cash flows
derived from an asset are less than its carrying amount. Impairment losses are measured as the
amount by which the carrying value of an asset exceeds its fair value. No long-lived asset
impairment charges were recorded during 2010, 2009 or 2008.
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Interest Rate Swap
The interest rate swaps are recorded at fair value and are included in the accompanying balance
sheets as Derivative financial instruments. Changes in the fair value of the interest rate swap
(net of settlements) are reported in current period earnings since the interest rate swap was not
designated as a cash flow hedge (see Note 5).
Deferred Financing Costs
Costs incurred in connection with the acquisition of financing for the facility were deferred and
amortized over the term of the respective financing using the effective interest method.
Accumulated amortization was approximately $419,000 and $139,000 at December 31, 2010 and 2009,
respectively. Future amortization of deferred financing costs is as follows (amounts in
thousands):
Years Ended December 31, | Amortization | |||
2011 |
$ | 309 | ||
2012 |
277 | |||
2013 |
239 | |||
2014 |
154 | |||
Total |
$ | 979 | ||
Inventory
Inventories are stated at the lower of cost or market using the first-in, first-out method.
Inventory includes direct production costs and certain overhead costs, such as depreciation,
property taxes, and utilities related to producing ethanol and related by-products. Reserves are
established, if necessary, for obsolescence and estimated net realizable value based upon recent
commodity prices. No reserves were recorded at December 31, 2010 and 2009. The components of
inventory are as follows (amounts in thousands):
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Ethanol and other finished goods |
$ | 2,347 | $ | 1,558 | ||||
Work in process |
1,705 | 1,235 | ||||||
Grain and other raw materials |
3,767 | 3,497 | ||||||
Total |
$ | 7,819 | $ | 6,290 | ||||
Revenue Recognition
The Company recognizes sales from the production of ethanol and distillers grains when title
transfers to customers, upon shipment from the Companys plant. Shipping and handling charges to
ethanol customers are included in revenues. Revenues by product are as follows (amounts in
thousands):
Year Ended December 31, | Year Ended December 31, | |||||||
2010 | 2009 | |||||||
Ethanol |
$ | 194,860 | $ | 83,402 | ||||
Dried distillers grains |
39,429 | 14,705 | ||||||
Other |
256 | 83 | ||||||
Total |
$ | 234,545 | $ | 98,190 | ||||
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Cost of Sales
Cost of sales includes depreciation, costs of raw materials, inbound freight charges, purchasing
and receiving costs, inspection costs, shipping costs, other distribution expenses, warehousing
costs, plant management, certain compensations costs and general facility overhead charges.
Selling, General and Administrative Expenses
The Company includes non-production related costs such as professional fees and certain payroll in
selling, general and administrative expenses.
Income Taxes
The Company is organized as a limited liability company. This provides that in lieu of corporation
income taxes, the members are to account separately for their proportionate share of the Companys
items of income, deductions, losses, and credits. Therefore, these financial statements do not
include a provision for federal income taxes.
The Company is required to file and pay Illinois taxes at a rate of 1.5% of adjusted taxable
income, which approximates federal taxable income. This tax is not passed on to members. No income
taxes were paid during 2010, 2009 or 2008.
Impact of New Accounting Pronouncements
Effective July 1, 2009, the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) became the single official source of authoritative, nongovernmental accounting
principles generally accepted in the United States of America (GAAP). The historical GAAP hierarchy
was eliminated and the ASC became the only level of authoritative GAAP. The Companys accounting
policies were not affected by the conversion to ASC.
In September 2006, the FASB issued a new accounting standard regarding the accounting for fair
value measurements and disclosures. This standard defines the fair value of financial and
nonfinancial assets and liabilities, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. This standard applies to fair value measurements
that are already required or permitted by existing standards except for measurements of share-based
payments and measurements that are similar to, but not intended to be, fair value and eliminates
the Emerging Issues Task Force guidance that prohibited recognition of gains or losses at the
inception of derivative financial instrument transactions whose fair value is estimated by applying
a model. This standard clarifies that fair value is the amount that would be exchanged to sell an
asset or transfer a liability, in an orderly transaction between market participants. This standard
is effective for the Companys year ended December 31, 2008. On November 14, 2007, the FASB
approved to defer the effective date for all nonfinancial assets and liabilities until fiscal years
beginning after November 15, 2008. The Company adopted this guidance, as it relates to nonfinancial
assets and liabilities as of January 1, 2009 (see Note 6).
In March 2008, the FASB issued a new accounting standard regarding the accounting for derivatives
and hedging. This standard requires, among other things, enhanced disclosure about the volume and
nature of derivative and hedging activities and a tabular summary showing the fair value of
derivative instruments included in the statement of financial position and statement of operations.
This standard also requires expanded disclosure of contingencies included in derivative instruments
related to credit risk. This guidance is effective for the Companys year ended December 31, 2009.
The adoption of this standard did not have a material effect on the Companys financial statements
other than providing certain enhanced disclosures (see Note 5).
Net Income or Loss per Unit
Basic net income or loss per unit is computed by dividing net income or loss by the weighted
average number of members units outstanding during the period. Diluted net income or loss per unit
is computed by dividing net income or loss by the weighted average number of members units and
members unit equivalents outstanding
during the period. There were no member unit equivalents outstanding during the periods presented;
accordingly, the Companys basic and diluted net income or loss per unit are the same.
42
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Comprehensive Income (Loss)
For all periods presented, net income (loss) equals comprehensive income (loss) as the Company had
no income or expense items that were not reported on the statements of operations.
2. PROPERTY AND EQUIPMENT
In May 2007, the Company entered into an agreement with Fagen, Inc. (Fagen), the designer/builder
of the Companys fuel ethanol plant (the Plant). Fagen was responsible for all engineering,
labor, materials, and equipment to design, construct, startup, and achieve guaranteed performance
criteria of the Plant. The contract price was $120 million, subject to adjustments as provided by
the general conditions of the agreement. Construction of the plant began in October 2007, and was
substantially completed in July 2009. See Note 7 for a discussion of related-party transactions. A
summary of property and equipment at December 31, 2010 and 2009, is as follows (amounts in
thousands):
2010 | 2009 | |||||||
Land and land improvements |
$ | 14,502 | $ | 14,317 | ||||
Plant and equipment |
117,631 | 117,442 | ||||||
Buildings |
21,251 | 21,237 | ||||||
Office equipment |
593 | 519 | ||||||
Construction in process |
4,520 | 24 | ||||||
Gross property and equipment |
158,497 | 153,539 | ||||||
Less: accumulated depreciation |
(14,366 | ) | (4,830 | ) | ||||
Net property and equipment |
$ | 144,131 | $ | 148,709 | ||||
3. MEMBERS EQUITY
The Company has one class of membership units, which include certain transfer restrictions as
specified in the operating agreement and pursuant to applicable tax and securities laws. Income and
losses are allocated to all members based upon their respective percentage of units held. In
February 2006, the Company raised $1,425,000 from five seed capital investors in exchange for 855
Class A units. The Company filed a Form SB-2 Registration Statement with the Securities and
Exchange Commission (SEC). The original offering was for a minimum of 6,020 Class B units and up
to 12,020 Class B units at $5,000 per unit for minimum offering proceeds of $30,100,000 and maximum
offering proceeds of $60,100,000, before any costs of raising capital. The registration became
effective November 7, 2006.
In June 2007, the Company filed an amendment to its Form SB-2 Registration Statement with the SEC.
The new offering was for a minimum of 12,891 units and up to 14,000 units at $5,000 per unit for
minimum offering proceeds of $64,455,000 and maximum offering proceeds of $70,000,000, before any
costs of raising capital. As a result of the amendments to the amended and restated operating
agreement as required by the Farmers Energy agreement (discussed below), the separate classes of
units were eliminated and the Company now has one class of units.
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
In May 2007, the Company entered into an agreement with Farmers Energy, a subsidiary of REX
American Resources Corporation, whereby Farmers Energy agreed to purchase a minimum of 7,011 units
for a minimum purchase price of $35,055,000 and a maximum of 12,491 units for a maximum purchase
price of $62,455,000. The actual number of units purchased by Farmers Energy was dependent upon
the number and amount of rescissions resulting from a rescission offer, as described below, and the
total number of new subscribers. Farmers Energy has the right to appoint a majority of the board
members of the Company and has the majority vote regardless of the number of board members.
In July 2007, The Company conducted a rescission offer with the current subscribers due to the
Company changing the terms of the initial public offering. A total of 171 subscribers with 2,602
units chose to withdraw their subscriptions and have their deposits returned totaling $1,330,500,
plus interest. On October 31, 2007, after meeting the terms of the escrow agreement, the Company
terminated its escrow account and the offering proceeds were released to the Company. The Company
closed the public offering on November 7, 2007. As of December 31, 2010 and 2009, the Company had
issued 13,781 units totaling $66,055,000 ($65,214,000 net of issuance costs). Through December 31,
2010, the Company had not made any distributions to members for income tax payments or other
purposes.
4. LONG-TERM DEBT
In September 2007, the Company entered into an $111,000,000 financing agreement consisting of a
construction loan agreement for $100,000,000 together with a $10,000,000 revolving loan and a
$1,000,000 letter of credit with First National Bank of Omaha (the Bank). The construction loan
was converted into a term loan on July 31, 2009, and bears interest at rates ranging from London
InterBank Offered Rate (LIBOR), plus 300 basis points to LIBOR, plus 310 basis points. The term
loan is secured by all of the Companys assets. Pursuant to the terms of the loan agreement with
the Bank, the Company has certain restrictions on its distributions to members based upon taxable
income and net income in a given period. The Companys restricted net assets total approximately
$81.2 million and $66.0 million at December 31, 2010 and 2009, respectively. Such net assets may
not be paid in the form of dividends or advances to members per the terms of the loan agreement
with the Bank.
Beginning with the first quarterly payment on October 8, 2009, payments are due in 19 equal
quarterly payments of principal and accrued interest, with the principal portion calculated based
on a 120-month amortization schedule. One final installment will be required on the maturity date,
July 8, 2014, for the remaining unpaid principal balance with accrued interest.
The term loan is secured by all property of the Company, regardless of date acquired. As of
December 31, 2010 and 2009, approximately $78,700,000 and $98,000,000, respectively, was
outstanding on the term loan. The Company is also subject to certain financial covenants under the
loan agreement, including required levels of Earnings Before Interest, Taxes, Depreciation, and
Amortization, debt service coverage ratio requirements, net worth requirements, and other common
covenants. The Company was in compliance with all covenants at December 31, 2010 and 2009.
The Company paid approximately $1,398,717 to the Bank and other parties since inception for various
fees associated with the construction and term loan commitment. These amounts were recorded as
deferred financing costs by the Company in the accompanying balance sheets; such amounts are
amortized using the effective interest method, beginning with the first payment on the term loan
and ending with the term loan maturity date. The carrying values of the construction loan and term
loan approximate fair value at December 31, 2010 and 2009. In accordance with the agreement, the
Company entered into an interest rate swap contract to minimize its interest risk exposure (see
Note 5).
Annual expected maturities on notes payable at December 31, 2010, are as follows (amounts in
thousands):
Years Ended December 31, | Maturities | |||
2011 |
$ | 9,672 | ||
2012 |
10,847 | |||
2013 |
11,312 | |||
2014 |
46,890 | |||
Total |
$ | 78,721 | ||
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The Company has no outstanding borrowings on the $10,000,000 revolving loan as of December 31, 2010
and 2009.
The Company has issued letters of credit that total approximately $280,000 and $543,000 as of
December 31, 2010 and 2009, respectively. The maximum amount borrowed under the revolving loan in
2009 was $2,000,000. The Company did not borrow any funds under the revolving loan in 2010.
The Company also has access to a secondary line of credit of up to $10,000,000 with the Bank,
established as part of the original $100,000,000 term loan and made accessible as a revolving line
of credit as term loan payments were made. The amount available is reduced by $250,000 on a
quarterly basis. At December 31, 2010 and 2009, the Company had $8,750,000 and $10,000,000,
respectively, available on this revolving line of credit. The Company has no outstanding
borrowings on the secondary line of credit as of December 31, 2010 and 2009.
5. FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage the balance of fixed- and variable-rate
debt. The Company does not hold or issue derivative financial instruments for trading or
speculative purposes. Interest rate swap agreements involve the exchange of fixed- and
variable-rate interest payments and do not represent an actual exchange of the notional amounts
between the parties. The swap agreements were not designated for hedge accounting pursuant to
accounting standards.
The Company entered into a forward interest rate swap with First National Bank of Omaha in the
notional amount of $50 million during 2007 and in the notional amount of $25 million during 2008.
The swaps fixed the interest rate on $50 million and $25 million of the term loan at 7.9% and
5.49%, respectively. The 2007 swap was effective as of December 11, 2007, swap settlements
commenced as of July 31, 2009, and the termination date is July 8, 2014. The 2008 swap was
effective as of December 11, 2008, swap settlements commenced as of July 31, 2009, and the
termination date is July 31, 2011. During 2010 and 2009, swap settlement payments to the
counterparty totaled approximately $2,726,000 and $551,000, respectively.
At December 31, 2010 and 2009, the Company recorded a liability of approximately $5.5 million and
approximately $5.2 million, respectively, related to the fair value of the swaps. The Company
believes the risk of nonperformance by the counterparty with this agreement is not material to the
financial statements.
The notional amounts and fair values of derivatives, all of which are not designated as cash flow
hedges at December 31, 2010 and 2009 are summarized in the table below (amounts in thousands):
Notional Amount | Fair Value Liability | |||||||
Interest rate swaps - 2010 |
$ | 68,138 | $ | 5,523 | ||||
Interest rate swaps - 2009 |
$ | 73,649 | $ | 5,231 |
As the interest rate swaps are not designated as cash flow hedges, the unrealized gain and loss on
the derivatives is reported in current earnings and is included in gains or losses on derivative
financial instruments. The Company reported losses of approximately $3,018,000, $219,000, and
$4,704,000 in 2010, 2009, and 2008, respectively.
6. FAIR VALUE
The Company applies the accounting standard which defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date.
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The Company determines the fair market values of its financial instruments based on the fair value
hierarchy
established in the accounting standards which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The standards
describe three levels of inputs that may be used to measure fair values which are provided below.
The Company carries derivative liabilities at fair value.
Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 assets and
liabilities include debt and equity securities and derivative contracts that are traded in an
active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are
actively traded in over-the-counter markets.
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or
liabilities. Level 2 assets and liabilities include derivative contracts whose value is determined
using a pricing model with inputs that are observable in the market or can be derived principally
or corroborated by observable market data.
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include
financial instruments whose value is determined using pricing models, discounted cash flow methods,
or similar techniques, as well as instruments for which the determination of fair value requires
significant management judgment or estimation. Unobservable inputs shall be developed based on the
best information available, which may include the Companys own data.
The fair values of derivative assets and liabilities traded in the over-the-counter market are
determined using quantitative models that require the use of multiple market inputs, including
interest rates, prices, and indices to generate pricing and volatility factors, which are used to
value the position. The predominance of market inputs are actively quoted and can be validated
through external sources, including brokers, market transactions, and third-party pricing services.
Estimation risk is greater for derivative asset and liability positions that are either option
based or have longer maturity dates where observable market inputs are less readily available or
are unobservable, in which case interest rate, price, or index scenarios are extrapolated in order
to determine the fair value. The fair values of derivative assets and liabilities include
adjustments for market liquidity, counterparty credit quality, the Companys own credit standing,
and other specific factors, where appropriate. Financial liabilities measured at fair value at
December 31, 2010, on a recurring basis are summarized below (amounts in thousands):
Total Fair | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Value | |||||||||||||
Derivative liabilities |
$ | | $ | 5,523 | $ | | $ | 5,523 |
Financial liabilities measured at fair value on a recurring basis at December 31, 2009 are
summarized below (amounts in thousands):
Total Fair | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Value | |||||||||||||
Derivative liabilities |
$ | | $ | 5,231 | $ | | $ | 5,231 |
No other financial instruments or non-financial assets or liabilities were measured at fair value
in accordance with the accounting standards.
7. RELATED-PARTY TRANSACTIONS
The Company entered into a design-build contract with Fagen, an equity investor in the Company, for
the design and construction of the ethanol plant. The Company paid approximately $120.2 million
through December 31, 2009, to Fagen for the design-build contract. Additionally, the Company paid
Fagen approximately $7.9 million for the year ended December 31, 2009, for additional projects
related to the construction of the plant.
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
During 2010 and 2009, the Company purchased approximately $157.4 and $69.2 million, respectively,
of corn from the Alliance Grain Elevator (Alliance Grain), an equity investor.
The Company leases land from a related party on which it has constructed water wells. The lease
allows the Company to use the land for 99 years. Annual payments of $20,000 are due the first day
of each calendar year through January 1, 2011. One final payment of $19,000 is due January 1, 2012.
During 2010 and 2009, the Company used the services of the Bloomer Line to move railcars to ship
ethanol. An officer of the Company is the acting general manager of the Bloomer Line. The Company
paid the Bloomer Line approximately $340,000 and approximately $104,000 for such services in 2010
and 2009, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company has forward purchase contracts for 4.9 million bushels of corn, the principal raw
material for its ethanol plant. The Company expects to take delivery of the corn by March and April
2011.
The Company has sales commitments for 6,282,000 gallons of ethanol and 29,186 tons of distillers
grains. The Company expects to deliver the ethanol and the distillers grains by March 2011.
Forward grain purchase, ethanol and distillers grains sale contracts are accounted for under the
normal purchases and normal sales scope exemption of the accounting standards because these
arrangements are for purchases of grain and sales of ethanol and distillers grains that will be
delivered in quantities expected to be used by the Company over a reasonable period of time in the
normal course of business.
The Company entered into an agreement with an unrelated party for the construction of a substation
and ancillary equipment necessary to provide electric distribution service. The Company paid
$1,150,000 at the signing of the agreement on January 18, 2008, and pays monthly payments of no
less than $6,800 which are included in the invoice as delivery service. The agreement is secured
by an irrevocable standby letter of credit, which may be reduced annually by the actual or
calculated delivery service payments.
The Company has entered into an agreement with an unrelated party for the use of a portion of the
partys natural gas pipeline. The term of the agreement is 10 years, and the amount is $4,380,000,
which is spread over 120 equal payments of $36,500. Payments began in February 2009.
The Company has entered into an agreement with an unrelated party for the lease of railcars that
will be used to ship ethanol. The lease is set to expire on May 31, 2012, with an automatic
36-month extension, unless either party notifies the other in writing 60 days prior to the initial
expiration date. The Company pays a monthly lease amount per railcar. The Company paid
approximately $662,000 and $344,000 pursuant to the lease in 2010 and 2009, respectively.
The Company has a nonexclusive contract with an unrelated party (Ethanol Marketer) for ethanol
marketing services. Under the terms of the contract, the Ethanol Marketer will purchase some of the
Companys ethanol production during the term of the contract. Additionally, the Ethanol Marketer is
also required to share with the Company the additional profits derived from the Ethanol Marketers
gains on swaps and exchanges. The contract initial term ends December 1, 2012, with automatic
renewals for one year, unless the Company provides written notice of at least 90 days prior to the
end of the initial term.
The Company has a contract with an unrelated party (Distillers Grains Marketer) for distillers
grains marketing services. Under the terms of the contract, the Distillers Grains Marketer will
purchase all of the Companys distillers grain production during the term of the contract. The
contract called for the Company to pay a fee per ton of distillers grains for the Distillers Grains
Marketers services. The contract was amended on December 6, 2010, to reduce the fee for dried
distillers grains, and the termination date was extended to July 1, 2014. The Company paid
approximately $905,000 and $408,000 in 2010 and 2009, respectively, for these marketing services.
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ONE EARTH ENERGY, LLC
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTES TO AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The Company has a grain origination agreement with Alliance Grain, under which it purchased 100% of
its grain during 2010. The Company pays to Alliance Grain a certain amount per bushel for
procurement fees. The term of the agreement is for two years from the first grind date, and shall
renew automatically for additional one year terms, unless either party sends notice to the other
party of its intent to terminate the agreement at least sixty days prior to the expiration of the
then current term of the agreement.
The Company is involved in various legal actions arising in the normal course of business. After
taking into consideration legal counsels evaluation of such actions, management is of the opinion
that their outcome will not have a material effect on the Companys financial statements.
9. SUBSEQUENT EVENTS
On February 8, 2011, the Company filed a Schedule 13E-3 pursuant to which, the Company offered to
purchase from certain of its members up to 86 units of its common equity for a price of $5,525 per
unit. As of March 30, 2011, we received acceptances for the purchase of 30 units from members
under the offering.
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Management of One Earth Energy is responsible for maintaining disclosure controls and
procedures that are designed to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 (the Exchange Act) is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. In addition, the disclosure controls and procedures must
ensure that such information is accumulated and communicated to the Companys management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required financial and other required disclosures.
At the end of the period covered by this report, an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the
Securities Exchange Act of 1934 (the Exchange Act)) was carried out under the supervision and
with the participation of our Principal Executive Officer, Steve Kelly, and our Chief Financial
Officer, Larry Brees. Based on their evaluation of our disclosure controls and procedures, they
have concluded that during the period covered by this report, such disclosure controls and
procedures were effective.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
our financial reporting. Internal control over financial reporting is a process designed to provide
reasonable assurance to our management and board of directors regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance
that transactions are recorded as necessary for preparation of our financial statements; (iii)
provide reasonable assurance that receipts and expenditures of company assets are made in
accordance with management authorization; and (iv) provide reasonable assurance that unauthorized
acquisition, use or disposition of company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because changes in conditions may occur or
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2010. This assessment is based on the criteria for effective internal control
described in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on its assessment, management concluded that our
internal control procedures over financial reporting as of December 31, 2010 were effective.
This annual report does not include an attestation report of our registered public accounting
firm regarding internal control over financial reporting. As we are a non-accelerated filer,
managements report is not subject to attestation by our registered public accounting firm pursuant
to Section 404(c) of the Sarbanes-Oxley Act of 2002 that permits us to provide only managements
report in this annual report.
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Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2010, we made changes in our internal control over
financial reporting that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. These changes have allowed us to remediate the
previously disclosed material weakness described within our 2009 Form 10-K. Therein, we concluded
that a material weakness existed due to the lack of a proper and timely review and reconciliation
of transfers of member (investor) shares by the appropriate level of management. The Company
exceeded the maximum number of investors allowable in order to continue suspension of its reporting
requirements with the Securities and Exchange Commission (SEC). Consequently, we have
implemented procedures to maintain complete and accurate documentation of the number of outstanding
units owned by the Companys investors, to perform appropriate reconciliations of all member unit
activity, and to file timely periodic reports with the SEC. No other change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
occurred during the quarter ended December 31, 2010.
ITEM 9B. | OTHER INFORMATION |
On
December 6, 2010, we amended our distillers grain marketing agreement with UBEI, which was
effective with shipments on the first day of January 2011. The amendment reduces the price UBEI
will pay to One Earth for all DDGS shipped to its customers, with upper and lower limits. UBEI
shall no longer give One Earth a monthly credit, and UBEI shall not be required to locate a
merchandiser at One Earths facility. The termination date of the agreement was extended to July
1, 2014.
PART III
ITEM 10. | DIRECTORS; EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Identification of Directors, Executive Officers and Significant Employees
The following table shows the directors and officers of One Earth Energy, as of December 31,
2010:
Name | Age | Position | Address | |||||
Scott Docherty
|
48 | Chairman/ Director | 9 Fir Court Monticello, IL 61856 |
|||||
Joseph Thompson
|
51 | Vice President/ Director |
49 Deer Run Place Monticello, IL 61856 |
|||||
Jack Murray
|
54 | Secretary / Treasurer / Director |
2607 County Rd 1000E Champaign, IL 61822 |
|||||
Bruce Bastert
|
53 | Director | 110 Mohican Lane Loda, IL 60948 |
|||||
Roger Miller
|
57 | Director | 804 East Boone Street Tolono, IL 61880 |
|||||
Zafar Rizvi
|
61 | Director | 2875 Needmore Road Dayton, Ohio 45414 |
|||||
Steve Kelly
|
54 | President/General Manager |
225 E. 700 N. Road Gibson City, IL 60936 |
Business Experience of Directors and Officers
The following is a brief description of the business experience and background of our officers
and directors, as of December 31, 2010.
Scott Docherty, Chairman and Director, Age 48. Mr. Docherty is the general manager of
Topflight Grain Coop and has been since June 2004. Topflight Grain Coop is farmer-owned, with 10
facilities in 4 counties. Prior
to accepting the general manager position, he was a merchandiser for Topflight Grain Coop. from
1998 until May 2004. Mr. Docherty has served as a director since our inception in 2006. Mr.
Dochertys experience as the general manager provides him with unique insights into strategic
planning and the ability to identify opportunities for organizational growth.
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Joseph Thompson, Vice President and Director, Age 51. Mr. Thompson has been the general
manager of Alliance Grain Company, a 13 facility grain cooperative with annual net sales of
approximately $260 million, since September 1, 2007. As general manager, Mr. Thompson supervises
the day-to-day operations of the cooperative facilities. From June 1999 to September 1, 2007, Mr.
Thompson served as Alliances controller and was responsible for monthly management financial
statements presentations, reconciliation of general ledger accounts and implementation of general
financial recording practices. He was the Ag Finance Manager for Piatt Service from May 1995 to
June 1999. Mr. Thompsons experience with Alliance provides invaluable insight into the grain
industry and guidance for the boards understanding and implementation of sound financial reporting
and practices. Mr. Thompson has also served as a director of Bloomer Shipper Railway Redevelopment
League from September 2007 to the present. Mr. Thompson received his bachelor of science in
accounting from Illinois College in Jacksonville, Illinois. Mr. Thompson has served as a Company
director since January 2008.
Jack Murray, Secretary / Treasurer and Director, Age 54. Mr. Murray has run Murray Farms,
Inc., a farming operation in Champaign, IL, and has done so since May of 1976, serving as the
companys president. Since August 2009, Mr. Murray has served as Premier Cooperative, Inc.s
president. He previously served as president of the Fisher Farmers Grain & Coal Co., having served
on that board for a total of nineteen years. Mr. Murray has served as a Company director since our
inception. Mr. Murrays knowledge of the local agricultural economy and experience as an
entrepreneur brings a valuable perspective to the Board.
Bruce Bastert, Director, Age 53. Mr. Bastert is the general manager of Ludlow Cooperative
Elevator Company, a cooperative grain company with 11 facilities in Buckley, Clarence, Danforth,
Del Rey, Gilman, La Hogue, Loda, Ludlow, Paxton, Purdueville, and Piper City, Illinois. Before his
appointment as Ludlows general manager in March 2006, Mr. Bastert was general manager of
Williamsville Farmers Cooperative from May 1999 through February 2006. In both positions, Mr.
Bastert performed chief executive functions associated with grain handling operations and hedging
functions for customer accounts. Previously he has worked in the grain industry as general
manager, commodity risk management consultant, terminal manager, merchandiser and in corn
origination, risk management, logistics, and co-product sales. His knowledge of commodity risk and
merchandising make him a valuable addition to the Board. Mr. Bastert is an Agricultural
Industries graduate of the University of Illinois. Mr. Bastert has been a director since March
2006.
Roger Miller, Director, Age 57. Mr. Miller has served as general manager of Premier
Cooperative, Inc. since 1993. This agricultural business is a licensed grain dealer and warehouse
that handles corn, soybeans and wheat in East-Central Illinois. Premier has twenty locations in
Champaign and Piatt Counties. At Premier, Mr. Miller is responsible for the operational direction
of Premiers twenty facilities and supervision of 72 full-time employees. His knowledge of the
local agricultural community combined with his experience in managing multiple locations adds much
value to the Board. Mr. Miller has served as a director of the Company since February 2006.
Zafar Rizvi, Director, Age 61. Zafar Rizvi has served as Vice President of REX American
Resources Corporation (NYSE: REX), our parent company, and President of Farmers Energy
Incorporated, REXs alternative energy investment subsidiary, since 2006. From 1991 through 2006,
Mr. Rizvi served as REXs Vice President of Loss Prevention. Prior to such dates, Mr. Rizvi was
employed in the video retailing industry in a variety of management positions. Mr. Rizvi also
serves on the board of directors of several developmental stage, non-reporting ethanol companies.
Mr. Rizvi holds a B.A. in Economics from Punjab University in Pakistan, an H.N.D. in Business
Studies from City of London Polytechnic in England and an M.B.A. from the University of Phoenix.
His executive experience combined with his knowledge of the ethanol industry make Mr. Rizvi a
valuable addition to the Board. Mr. Rizvi has been a director of One Earth Energy, LLC since June
2007.
Business Experience of Significant Employees
Steven Kelly, President/General Manager, Age 54. Mr. Kelly has been employed as our General
Manager and President since September 2007. In such capacity, Mr. Kelly is responsible for
overseeing and managing the
day-to-day operations of the Companys facility. Mr. Kelly also currently serves as acting general
manager of Bloomer Connecting Shippers Railroad Co. Before assuming the Companys general manager
position, Mr. Kelly was the general manager of Alliance Grain Company from January 1988 to
September 2007. Alliance is a locally-owned cooperative that has 13 elevators in 12 East-Central
Illinois communities. Mr. Kelly served as a director of One Earth Energy from our inception until
September 2007 when he was employed by the Company.
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Larry Brees, Chief Financial Officer, Age 54. Larry Brees began serving as the Companys
Controller in November 2007. On September 13, 2010, the Board of Directors appointed Larry Brees
to the position of Chief Financial Officer of the Registrant. As Chief Financial Officer, Mr. Brees
directs the Companys financial affairs including assumption of accounting and treasury functions
alongside our treasurer, Jack Murray. Mr. Brees will continue his duties as Controller in addition
to the Chief Financial Officer responsibilities. Previously, Mr. Brees served as the Chief
Financial Officer for E Energy Adams and interim Controller for HON Company during 2007, as well as
the Controller of Big River Resources from February 2004 through March 2007.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act of 1934 (the Exchange Act) requires our directors,
executive officers and certain beneficial owners holding 10% or more of the Companys membership
units to file reports of ownership and changes of ownership with the Securities and Exchange
Commission (the SEC). To our knowledge, and based solely on a review of the copies of such
reports furnished to us and written representations from our officers and directors, all Section
16(a) filing requirements were complied with during 2010.
Code of Ethics
Our board of directors has adopted a Code of Ethics that sets forth standards regarding
matters such as honest and ethical conduct, compliance with the law, and full, fair, accurate and
timely disclosure in reports and documents that we file with the SEC and in other public
communications. The Code of Ethics applies to all of our employees, officers and directors,
including our President and General Manager, Steve Kelly, and Chief Financial Officer, Larry Brees.
The Code of Ethics is available free of charge upon written request to One Earth Energy, LLC, 202
N. Jordan Dr., Gibson City, IL 60936.
Identification of Audit Committee
In January 2008, the board of directors appointed an Audit Committee consisting of our
directors Joe Thompson, Jack Murray, Zafar Rizvi and Roger Miller. Joe Thompson is serving as the
chairman of the Audit Committee. During our fiscal year ended December 31, 2010, we appointed our
remaining directors to the audit committee, such that our entire board now also serves on our audit
committee.
The Audit Committee met three times in 2010, in March, August, and September. All of the
audit committee members attended at least 75% of the audit committee meetings held during the
fiscal year ended December 31, 2010.
Audit Committee Report
The following report of the audit committee shall not be deemed to be incorporated by
reference in any previous or future documents filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates by reference in any such document.
The audit committee (the Committee) reviews the Companys financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for the financial
statements and the reporting process. The Companys independent registered public accounting firm
reports directly to the Committee. The Committee reviewed and discussed with management the
Companys audited financial statements as of and for the fiscal year ended December 31, 2010. The
Committee has discussed with Deloitte & Touche LLP, its independent registered accounting firm, the
matters required to be discussed by Statement on Auditing Standards No. 141, as amended, by the
Auditing Standards Board of the American Institute of Certified Public Accountants and as adopted
by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Committee has
received and reviewed the written disclosures and the letter from Deloitte & Touche LLP as required
by the PCAOB, and has discussed with the independent registered public accounting firm their
independence. The Committee has considered whether any provision of services by Deloitte & Touche
LLP not related to the audit of the financial statements and to the reviews of the interim
financial statements included in the Companys Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q are compatible with maintaining Deloitte & Touche LLPs independence.
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Based on the reviews and discussions referred to above, the Committee determined that the
audited financial statements referred to above be included in the Form 10-K for the fiscal year
ended December 31, 2010.
Audit Committee Financial Expert
Our board of directors has determined that Joe Thompson, who serves as Chairman of the Audit
Committee, is an audit committee financial expert by reason of his experience in public accounting
and as a controller of Alliance Grain Company. Mr. Thompson is not an independent director, as
defined in NASDAQ Rule 5605(a), as discussed further in Item 13 below.
ITEM 11. | EXECUTIVE COMPENSATION |
Compensation Discussion and Analysis
Overview
The Compensation Committee has responsibility for establishing, implementing and regularly
monitoring adherence to the Companys compensation philosophy and objectives. The Compensation
Committee ensures that the total compensation paid to Mr. Kelly, our principal executive officer,
and Mr. Brees, our current chief financial officer, is fair, reasonable and competitive. Mr.
Thompson, our previous Chief Financial Officer, did not receive any compensation in addition to his
director compensation for serving in this position, discussed below in Compensation of Named
Executive Officers and Directors.
The Compensation Committee:
(1) | establishes and administers a compensation policy for all of our employees; and |
||
(2) | reviews and monitors our financial performance as it affects our compensation policies
or the administration of those policies. |
All of the Committees actions are reported to the board of directors and, where appropriate,
submitted to the board of directors for ratification. In determining Mr. Brees and Mr. Kellys
compensation, the Committee considers evaluations prepared by the directors. From time to time,
the Compensation Committee may delegate to Mr. Kelly the authority to implement certain decisions
of the Committee, to set compensation for lower officers and management employees or to fulfill
administrative duties.
Compensation Philosophy and Objectives
Our compensation programs are designed to achieve the following objectives:
(1) | Attract, retain and motivate highly qualified and talented employees who will
contribute to the Companys success by reason of their ability, ingenuity and industry; |
||
(2) | Link compensation realized to the achievement of the Companys short and
long-term financial and strategic goals; |
||
(3) | Align management and member interests by encouraging long-term member value
creation; |
||
(4) | Maximize the financial efficiency of the compensation program from tax,
accounting, cash flow and dilution perspectives; and |
||
(5) | Support important corporate governance principles and comply with best
practices. |
To achieve these objectives, the Compensation Committee implements and maintains compensation
plans that tie a portion of Mr. Kellys and Mr. Breess overall compensation to the Companys
financial performance.
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Compensation Committee Procedures
The Compensation Committee is responsible for determining the nature and amount of
compensation for the Companys executive officers. Our entire board of directors serves as our
Compensation Committee.
The Compensation Committee receives input from Mr. Kelly on the personal performance
achievements of other officers and management employees who report to him. This individual
performance assessment determines a portion of the annual compensation for each officer and
employee. In addition, Mr. Kelly provides input on salary increases, incentive compensation
opportunities and long-term incentive grants for the officers and management employees who report
to him, which the Committee considers when making compensation decisions.
The Compensation Committee annually evaluates Mr. Kellys and Mr. Breess performance in light
of the goals and objectives of the Companys compensation plans and determines and approves Mr.
Kellys and Mr. Breess compensation level based on this evaluation. In determining the long-term
incentive components of Mr. Kellys and Mr. Breess compensation, the Compensation Committee will
consider all relevant factors, including the Companys performance, the value of similar awards to
similar officers of comparable companies and the awards given to Mr. Kelly and Mr. Brees in past
years. Mr. Kelly and Mr. Brees are not present at Compensation Committee or board-level
deliberations concerning their compensation.
Compensation Components
Base Salary
Base salaries for our executive officers and employees are established based on the scope of
their roles, responsibilities, experience levels and performance, and taking into account
competitive market compensation paid by comparable companies for similar positions. Base salaries
are reviewed approximately annually, and may be adjusted from time to time to realign salaries with
market levels after taking into account individual performance and experience. Following the end
of our 2009 fiscal year, due to conditions in the ethanol industry and the United States economy
generally, the board of directors increased Mr. Kellys and Mr. Breess base salaries to $175,000
and $81,000 respectively.
Cash Bonus
In addition to the base salaries, our Committee and board of directors approved bonuses
payable to Mr. Kelly and Mr. Brees for the 2010 fiscal year. The total amount of the cash bonus
for Mr. Kelly was $81,579. This was composed of the regular monthly performance bonus of $31,579,
and a one-time bonus of $50,000. For our 2009 fiscal year, the total cash bonus paid to Mr. Kelly
was $6,427. The increase paid in 2010 relates to the Companys increased production and stronger
financial performance. The maximum bonus amount for 2009 and 2010 was 12% and, if approved by the
board, was awarded based on the number of points earned, out of a total 100 points, during any
given month of operation. The number of points earned is based on the achievement of certain
production/plant thresholds. The monthly points earned are then multiplied by an employees base
wage/salary pool, with each employee earning an amount equal to the ratio of his salary to total
salaries paid by the Company. Mr. Kelly is also eligible for an additional bonus of .5% to 1% of
the Companys monthly net income, as determined by our unaudited, monthly financial statements,
prorated based on the ratio of his pay to total management payroll.
The total amount of the cash bonus for Mr. Brees for 2010 was $39,484, composed of the regular
monthly performance bonus of $14,484, and a one-time bonus of $25,000.
All bonuses are presented to the board of directors for approval before being paid. The
Company believes that the above bonuses are reasonable as they tie the bonus paid to the Companys
financial success and are easily quantified by the Company. Specifically, the cash bonuses align
the goals of the members and the management employees and executive officers, as each group
benefits from the Companys financial success. Further, the net
income bonus aligns the goals of management with the long- and short-term financial goals of the
Company, namely to maximize net income.
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Other Compensation
In addition to his salary and cash bonus for the fiscal year ending December 31, 2010, Mr.
Kelly received additional compensation and perquisites which include expense reimbursement for
travel, office supplies and plant equipment as well as the payment of $8,181.42 in health insurance
benefits. Mr. Brees also received additional compensation and perquisites, as well as $8,181.42 in
health insurance benefits.
No Pension Benefit Plan, Deferred Compensation Plan or Change of Control or Severance Agreements
We offer no pension benefit or deferred compensation plans to Mr. Kelly or Mr. Brees. Mr.
Kelly and Mr. Brees do not have change of control or severance agreements, which means our board of
directors retains discretion over severance arrangements if it decides to terminate Mr. Brees or
Mr. Kelly.
Accounting and Tax Treatment of Awards
Neither Mr. Kelly, Mr. Brees, nor any of our officers, directors or employees receives
compensation in excess of $1,000,000. Therefore the entire amount of their compensation is
deductible by the Company as a business expense. Certain large executive compensation awards are
not tax deductible by companies making such awards. None of our compensation arrangements are
likely to reach this cap in the foreseeable future.
Executive Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis
with management. Based upon this review and discussion, the Compensation Committee recommended to
the board of directors that the Compensation Discussion and Analysis be included in this annual
report.
Compensation Committee
Scott Docherty, Chairman
Jack Murray
Joe Thompson
Bruce Bastert
Roger Miller
Zafar Rizvi
Scott Docherty, Chairman
Jack Murray
Joe Thompson
Bruce Bastert
Roger Miller
Zafar Rizvi
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been an employee of the Company.
There are no interlocking relationships between our Company and other entities that might affect
the determination of the compensation of our executive officers.
Compensation of Named Executive Officers and Directors
Scott Docherty is currently serving as our chairman. Joe Thompson is serving as our Vice
President and Jack Murray is our Treasurer and Secretary. Mr. Kelly is serving as our
President/General Manager on a full-time basis. On September 1, 2007, we entered into an
employment arrangement with Mr. Kelly related to his services as our President/General Manager.
As of December 31, 2010, we paid Mr. Kelly a total of $264,337 for such services.
Mr. Brees is serving as our Chief Financial Officer on a full-time basis. As of December 31, 2010,
we paid Mr. Brees a total of $129,194 for such services. As of December 31, 2010, none of our
directors or any officer received any stock awards, options, warrants, or other similar rights to
purchase securities of the Company. No other officers received a salary or operated under an
employment agreement or other compensation arrangement.
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Summary Compensation Table. The following table sets forth all compensation paid or
payable by the Company during the last two fiscal years to Mr. Kelly, our president and general
manager, and to Larry Brees, who was appointed our chief financial officer in 2010.
Name and | All Other | |||||||||||||||||||
Principal Position | Year | Salary | Bonus | Compensation | Total | |||||||||||||||
Steve Kelly, President and General Manager |
2010 | $ | 174,577 | $ | 81,579 | $ | 8,181 | $ | 264,337 | |||||||||||
Steve Kelly |
2009 | $ | 172,907 | $ | 6,427 | $ | 11,456 | $ | 190,790 | |||||||||||
Larry Brees, Chief Financial Officer |
2010 | $ | 79,154 | $ | 39,484 | $ | 10,556 | $ | 129,194 |
The following table sets forth all compensation paid or payable by the Company during the
last fiscal year to our directors.
Fees Earned or Paid | All Other | ||||||||||
Name | in Cash | Compensation | Total | ||||||||
Scott Docherty |
$ | 1,300 | (1) | $ | 0 | $ | 1,300 | ||||
Joe Thompson |
$ | 1,400 | (2) | $ | 0 | $ | 1,400 | ||||
Jack Murray |
$ | 1,000 | $ | 0 | $ | 1,000 | |||||
Bruce Bastert |
$ | 1,200 | (3) | $ | 0 | $ | 1,200 | ||||
Roger Miller |
$ | 1,300 | (4) | $ | 0 | $ | 1,300 | ||||
Zafar Rizvi |
$ | 1,400 | (5) | $ | 0 | $ | 1,400 |
(1) | Compensation earned by Mr. Dochertys attendance at board meetings is made payable to
Topflight Grain Cooperative. |
|
(2) | Compensation earned by Mr. Thompsons attendance at board meetings is made payable to
Alliance Grain Company. |
|
(3) | Compensation earned by Mr. Basterts attendance at board meetings is made payable to
Ludlow Cooperative Elevator Co. |
|
(4) | Compensation earned by Mr. Millers attendance at board meetings is made payable to
Premiere Cooperative Co. |
|
(5) | Compensation earned by Mr. Rizvis attendance at board meetings is made payable to
Farmers Energy One Earth, LLC. |
Director Compensation Arrangements
We compensate our directors $100 per regular monthly and special board meetings they attend.
We will not pay the fee if the director does not attend the regular monthly or special meeting,
committee meeting or pre-approved industry and other meetings and conferences. We will also pay
for mileage to and from such board functions at the standard mileage rate established from time to
time by the IRS. We will continue to reimburse our officers and directors for reasonable
out-of-pocket expenses incurred relating to services rendered on our behalf.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER
MATTERS. |
Security Ownership of Certain Beneficial Owners
As of December 31, 2010 we had the following persons or entities known by us to be the
beneficial owners of more than 5% of the outstanding units:
Amount and Nature of | ||||||||||||
Title of Class | Name (1) | Beneficial Owner | Percent of Class | |||||||||
Membership Units |
Farmers Energy Incorporated | 10,153 units | 73.67 | % |
(1) | Farmers Energy Incorporateds (FEI) address is 2875 Needmore Rd., Dayton, Ohio 45414. FEI
is a wholly owned subsidiary of REX American Resources Corporation. |
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Security Ownership of Management
As of December 31, 2010, our directors and officers owned membership units as follows:
Amount and | |||||||
Nature of | |||||||
Name and Address of | Beneficial | Percent of | |||||
Title of Class | Beneficial Owner(1) | Ownership | Class | ||||
Membership Units |
Steve Kelly(2) | 10 units | 0.07 | % | |||
Membership Units |
Jack Murray(3) | 226 units | 1.64 | % | |||
Membership Units |
Bruce Bastert | 6 units | 1.28 | % | |||
Membership Units |
Roger Miller | 5 units | 0.04 | % | |||
Membership Units |
Zafar Rizvi(4) | 10,153 units | 73.67 | % | |||
All Directors and Officers as a Group: | 10,400 Units | 76.70 | % |
(1) | The address of the beneficial owner is deemed to be the same address indicated above in Item
10. |
|
(2) | Mr. Kellys units are owned jointly with his wife, Kathleen Kelly. |
|
(3) | 171 units are owned by Fisher Farmers, 20 units are owned by Keith Farms, 5 units are owned
by JN & JM Farms and 20 units are owned by Murray Farms. Our director, Jack Murray is a
principal of Fisher Farmers, Keith Farms, JN & JM Farms and Murray Farms. Mr. Murrays
remaining 10 units are owned jointly with his wife Patricia Murray. |
|
(4) | Units are owned by Farmers Energy Incorporated. Zafar Rizvi, our director, is the President
of Farmers Energy Incorporated. |
We do not have any securities authorized for issuance under equity compensation plans.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. |
Certain Relationships and Related Transactions
The Companys board of directors reviews all transactions with related parties, as that term
is defined in Item 404 of SEC Regulation S-K, or any transaction in which related persons have an
indirect interest. The Companys Second Amended and Restated Operating Agreement (the or our
Operating Agreement) includes a written policy that requires that any such related party
transaction be made on terms and conditions which are no less favorable to the Company than if the
transaction had been made with an independent third party. Further, our Operating Agreement
requires our directors to disclose any potential financial interest in any transaction being
considered by the board of directors prior to voting on such matter. Since our inception, we have
engaged in transactions with seven related parties. Should we engage in any such transactions in
the future, all such arrangements will be analyzed and approved in accordance with the
above-referenced written policies.
Alliance Grain Company
Alliance Grain Company is one of our seed capital members and pursuant to our Operating
Agreement has the right to appoint one member of our board of directors. On June 27, 2007, we
entered into an exchange agreement with Alliance Grain Company. Pursuant to this agreement, we
exchanged approximately $2,000 and 5.0 acres of real estate located in Ford County, Illinois, for
approximately 5.4 acres of real estate owned by Alliance Grain Company valued at approximately
$34,000 located near our site in Ford County, Illinois.
In addition, we entered into a Grain Handling Agreement with Alliance Grain Company on
February 15, 2008. Under this Agreement, Alliance has agreed to provide the Company with its
annual corn requirements for the term of the Agreement. Alliance will acquire corn on the
Companys behalf on pricing terms, as determined in separate written contracts customary in the
grain industry, including, without limitation, cash forward pricing arrangements. The initial term
of the Agreement expired two (2) years from the effective date of the Agreement. The Agreement,
however, automatically renews for one (1) year terms until (i) the Company or Alliance provides
written notice to the other stating its intent to terminate (such written notice to be received no
less than 60 days before the expiration of the current term); (ii) either party remains in default
following its receipt of a written notice of default and the expiration of a 10-day cure period;
(iii) the bankruptcy of or appointment of receivership for either party; or (iv) the mutual
agreement of the parties to terminate.
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If Alliance fails to deliver the corn required by the Agreement, the Company may purchase
substitute corn, seek an injunction or specific enforcement, offset amounts owed to Alliance
against the additional cost of substituted corn requirements and/or terminate the Agreement.
Alliance may recover payments, cease delivery of corn requirements, seek an injunction or specific
enforcement and/or terminate the Agreement if the Company fails to perform as required. The
parties have agreed to alternative resolution of all disputes arising under the Agreement,
specifically submitting to arbitration with the National Grain and Food Association, or if
unavailable, the American Arbitration Association.
Farmers Energy Incorporated (FEI)
FEI is our majority member. In addition, FEI has the right to appoint up to six (6) members
of our board of directors. However, regardless of the number of directors actually appointed by
it, FEI has the right to a majority of the available director votes so long as it holds a majority
of our membership units. FEI currently has appointed Zafar Rizvi to our board, and he has six
votes as a director.
Topflight Grain Cooperative, Inc., Premier Cooperative, and Ludlow Cooperative Elevator Company.
Jack Murray, our director is a principal of Premiere Cooperative, which is a merger of the
former Fisher Farmers Grain & Coal Company and Grand Prairie Coop, Inc. Additionally, our director
Bruce Bastert is an owner in Topflight Grain Cooperative, Inc. and general manager of Ludlow
Cooperative Elevator Company. We purchase corn from these cooperatives through our agreement with Alliances as discussed above.
Bloomer Connecting Shippers Railroad Co.
Our general manager/president, Steve Kelly, is acting general manager for Bloomer Connecting
Shippers Railroad Co. On January 15, 2008, we entered into a Switching Agreement with Bloomer,
granting it the non-exclusive right to perform switching services for railcars entering and exiting
our Facility on the Norfolk Southern Railway and the Bloomer Shippers Railway Redevelopment League
industry lead tracks. Bloomer has agreed to provide the workforce and locomotives necessary for
the switching services. In consideration of these services, we have agreed to pay a fee based on a
per car amount set in the Agreement and based on industry practice. We have also agreed to pay
Bloomer an additional fee, to be later agreed on by the parties, for services incidental to the
switching services and related to the storing of railcars at Bloomers Gibson City Yard for a
period exceeding two weeks. Each party has agreed to indemnify the other for losses or injuries
related to its own negligence and to share in any loss arising from the negligence of both parties.
The Agreement has an indefinite term, commencing on January 15, 2008 and ending upon
termination, which can occur no earlier than the one (1) year anniversary of Facility operations.
Thereafter, either party may terminate the Agreement with ninety (90) days written notice if (i)
either party is in default and continues in default after thirty (30) days from the receipt of a
notice of default; or (ii) Norfolk Southern Railway notifies us that Bloomers charges are
detrimental to Norfolks haul business. All disputes arising under the Agreement must be submitted
to the American Arbitration Association, subject to the Commercial Arbitration Rules, with the
arbitrators decision to be final and conclusive on the parties. The expense of the arbitrator is
to be shared equally
by the parties, with the parties otherwise responsible for their own related costs and expenses.
Under this Agreement, the Company expended approximately $340,000 during the 2010 fiscal year.
Mr. Kelly does not receive any direct financial interest from the Companys and/or Bloomers
participation in the Switching Agreement. However, any money paid to Bloomer under the Agreement
would directly affect Bloomers net income and may indirectly affect Mr. Kellys compensation for
his services as Bloomers general manager.
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Director Independence
Our independent directors are Bruce Bastert and Roger Miller. Our directors that are not
independent are Joe Thompson, Scott Docherty, Jack Murray and Zafar Rizvi. The determination of
independence is made by reference to NASDAQ Rule 5605(a)(2). Under such Rule, a director is not
independent if he is an executive officer or employee of the Company or otherwise has a
relationship, which in the board of directors opinion, would interfere with the ability to
independently conduct his corporate responsibilities. Joe Thompson, Scott Docherty and Jack Murray
are not considered independent because they are serving as our executive officers. Zafar Rizvi is
not considered independent because he is a principal of our majority member FEI. While a majority
of our board of directors is not independent, thereby failing the majority independence requirement
of NASDAQ Rule 5605(b), the Company is not required to comply with such requirement, and instead
only references these NASDAQ Rules for the sole purpose of defining independence. In making these
determinations of independence, and the related determinations set forth below, the board of
directors considered the related-party transactions discussed above.
Audit Committee
Our board of directors appointed an Audit Committee consisting of
Bruce Bastert, Scott Docherty, Joe Thompson, Jack Murray,
Zafar Rizvi and Roger Miller. The Audit Committee is exempt from independence listing standards
because our securities are not listed on a national securities exchange or listed in an automated
inter-dealer quotation system of a national securities association or to issuers of such
securities. Nevertheless, Roger Miller and Bruce Bastert are independent within the definition of independence
provided by NASDAQ Rule 5605(c)(2), which adopts the Rule 5605(a)(2) definition of independence and
further requires a member to meet the criteria of independence under Exchange Act Rule 10A-3(b)(1).
Roger Miller is independent under NASDAQ Rule 5605(a)(2). Further, because Roger Miller and Bruce
Bastert have not
accepted any consulting, advisory or other compensatory fee from the Company, or any of its
subsidiaries, and is not an affiliate, he is also independent under the heightened standards of
Exchange Act Rule 10A-3(b)(1). For the reasons set forth above, Jack Murray, Joe Thompson and
Zafar Rizvi are not considered independent.
Compensation Committee
Jack Murray, Bruce Bastert, Roger Miller, Zafar Rizvi, Scott Docherty and Joe Thompson serve
as our Compensation Committee. Bruce Bastert and Roger Miller are considered independent within
the definition of independence provided by NASDAQ Rule 5605(a)(2). For the reasons set forth
above, Jack Murray, Joe Thompson, Scott Docherty and Zafar Rizvi are not considered independent.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Independent Registered Public Accounting Firm
Deloitte & Touche LLP serves as our independent registered public accounting firm.
Our board of directors annually appoints the independent registered public accounting firm for
the Company after receiving the Audit Committees recommendations, typically following the Annual
Meeting. The Audit Committee has again appointed Deloitte & Touche LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2011.
Audit Fees
The aggregate fees billed by the independent registered public accounting firm to the Company
for the last two fiscal years are as follows:
Category | Fiscal Year | Fees | ||||||
Audit Fees(1) |
2010 | $ | 115,000 | |||||
2009 | $ | 90,000 | ||||||
Tax Fees |
2010 | $ | 0 | |||||
2009 | $ | 0 |
(1) | Audit Fees consist of fees billed for professional services rendered for the audit of
our annual financial statements and review of the interim financial statements included in
our quarterly reports and services that are normally provided by Deloitte & Touche LLP in
connection with statutory and regulatory filings. |
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Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services
The Audit Committees policy is to pre-approve all audit and non-audit services provided by
our independent registered public accounting firm, and related services, in accordance with Section
10A of the Exchange Act and 17 C.F.R. § 210.2-01(c)(7)(i)(B). The Audit Committee will generally
pre-approve a list of specific services and categories of services, including audit, audit-related,
tax and other services, for the upcoming or current fiscal year, subject to a specified dollar
limit. Any material service not included in the approved list of services, and all services in
excess of the pre-approved dollar limit, must be separately pre-approved by the Audit Committee.
Our independent registered public accounting firm and management are required to periodically
report to the Audit Committee all services performed and fees charged to date by the firm pursuant
to the pre-approval policy. One hundred percent (100%) of all audit services, audit-related
services and tax-related services were pre-approved by our Audit Committee and no such fees were
rendered pursuant to the de minimus exception under SEC rules.
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
The following exhibits are filed as part of, or are incorporated by reference into, this report:
Exhibit | Filed | |||||||
No. | Description | Herewith | Incorporated by Reference | |||||
3.1 | Articles of Organization of One Earth
Energy, LLC.
|
Exhibit 3.1 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
3.2 | Amended and Restated Operating Agreement of
the registrant.
|
Exhibit 3.2 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
3.3 | First Amendment to Amended and Restated
Operating Agreement of One Earth Energy,
LLC filed as part of the registrants
Registration Statement filed on Form SB-2
and incorporated by reference.
|
Exhibit 3.3 to registrants Registration Statement on Form SB-2. | ||||||
3.4 | Second Amended and Restated Operating
Agreement of the registrant.
|
Exhibit 3.2 to the registrants Form 10-QSB filed with the Commission on June 14, 2007. | ||||||
4.1 | Form of Membership Unit Certificate.
|
Exhibit 4.1 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.1 | Letter of Intent dated December 2, 2005
between One Earth Energy, LLC and Fagen,
Inc.
|
Exhibit 10.1 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.2 | Phase I and II Engineering Services
Agreement between One Earth Energy, LLC and
Fagen Engineering, LLC dated July 20, 2006.
|
Exhibit 10.2 to registrants Registration Statement on Form SB-2 as filed with the commission on July 3, 2007. | ||||||
10.3 | Option Agreement between One Earth Energy,
LLC and Edward E. Tucker and Cynthia J.
Tucker dated February 28, 2006.
|
Exhibit 10.3 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.4 | Option Agreement between One Earth Energy,
LLC and Don Maxwell dated March 13, 2006.
|
Exhibit 10.4 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. |
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Exhibit | Filed | |||||||
No. | Description | Herewith | Incorporated by Reference | |||||
10.5 | Consulting Agreement between One Earth
Energy, LLC and Mitch Dawson dated March
23, 2006.
|
Exhibit 10.5 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.5 | Option Agreement between One Earth Energy,
LLC and Lisa Foster dated April 17, 2006.
|
Exhibit 10.6 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.7 | Option Agreement between One Earth Energy,
LLC and City of Gibson, Illinois dated
April 18, 2006.
|
Exhibit 10.7 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.8 | Consulting Agreement between One Earth
Energy, LLC and Above Zero Media, LLC dated
May 22, 2006.
|
Exhibit 10.8 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.9 | Letter Agreement between One Earth Energy,
LLC and Farmers Energy Incorporated (a
wholly owned subsidiary of REX Stores
Corporation) dated May 26, 2006.
|
Exhibit 10.9 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.10 | Registration Agreement between One Earth
Energy, LLC and Farmers Energy One Earth,
LLC dated July 11, 2006.
|
Exhibit 10.10 to registrants Registration Statement on Form SB-2 as filed with the commission on July 12, 2006. | ||||||
10.11 | Ethanol Marketing Agreement between One
Earth Energy, LLC and Eco-Energy, Inc.
dated September 15, 2006.
|
Exhibit 10.11 to registrants Amendment No. 1 to the Registration Statement on Form SB-2 as filed with the commission on September 20, 2006. | ||||||
10.12 | Lock-Up Agreement between One Earth Energy,
LLC, Alliance Grain Co., Fisher Farmers
Grain & Coal Company, Grand Prairie Co-op,
Inc., Ludlow Cooperative Elevator Company
and Topflight Grain Cooperative, Inc dated
November 1, 2006.
|
Exhibit 10.12 to registrants Amendment No. 2 to the Registration Statement on Form SB-2 as filed with the commission on November 2, 2006. | ||||||
10.13 | Distillers Grain Marketing Agreement
between One Earth Energy, LLC and United
Bio Energy Ingredients, LLC.
|
Exhibit 10.13 to the registrants Form 10-QSB filed with the Commission on March 19, 2007. | ||||||
10.14 | Mortgage, Assignment of Leases and Rents,
Security Agreement and Financing Statement
between One Earth Energy, LLC and Farmers
Energy One Earth, LLC dated June 13, 2007.
|
Exhibit 10.1 to the registrants Form 10-QSB filed with the Commission on June 14, 2007. | ||||||
10.15 | Mortgage, Assignment of Leases and Rents,
Security Agreement and Financing Statement
between One Earth Energy, LLC and Farmers
Energy One Earth, LLC dated June 13, 2007.
|
Exhibit 10.2 to the registrants Form 10-QSB filed with the Commission on June 14, 2007. | ||||||
10.16 | Secured Promissory Note between One Earth
Energy, LLC and Farmers Energy One Earth,
LLC dated June 13, 2007.
|
Exhibit 10.3 to the registrants Form 10-QSB filed with the Commission on June 14, 2007. | ||||||
10.17 | Settlement Statement and Warranty Deed
between Edward E. Tucker and One Earth
Energy, LLC dated April 30, 2007.
|
Exhibit 10.3 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. |
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Exhibit | Filed | |||||||
No. | Description | Herewith | Incorporated by Reference | |||||
10.18 | Rescission Waiver Letter between One Earth
Energy, LLC and Fagen, Inc. dated May 24,
2007.
|
Exhibit 10.4 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.19 | Settlement Statement and Warranty Deed
between One Earth Energy, LLC and City of
Gibson City dated May 31, 2007.
|
Exhibit 10.5 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.20 | Consulting Agreement between One Earth
Energy, LLC and Above Zero Media, LLC dated
May 22, 2006.
|
Exhibit 10.8 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.21 | Security Agreement between One Earth
Energy, LLC and Farmers Energy One Earth,
LLC dated June 13, 2007.
|
Exhibit 10.15 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.22 | Lump Sum Design-Build Agreement between One
Earth Energy, LLC and Fagen, Inc. dated May
17, 2007.+
|
Exhibit 10.16 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.23 | Agreement between One Earth Energy and Lisa
Foster dated June 15, 2007.
|
Exhibit 10.17 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.24 | Mortgage, Assignment of Leases and Rents,
Security Agreement and Financing Statement
between One Earth Energy, LLC and Farmers
Energy One Earth, LLC dated June 18, 2007.
|
Exhibit 10.18 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.25 | Exchange Agreement between One Earth
Energy, LLC and Alliance Grain Co., dated
June 26, 2007.
|
Exhibit 10.19 to the registrants Post-Effective Amendment No. 2 to the Registrant Statement on Form SB-2 filed with the Commission on July 3, 2007. | ||||||
10.26 | Agreement between One Earth Energy, LLC and
Ameritrack Railroad Contractors, Inc. dated
July 25, 2007.
|
Exhibit 10.5 to the registrants Form 10-QSB filed with the Commission on September 14, 2007. | ||||||
10.27 | Foundation Services Corp. Contract
Agreement dated August 23, 2007.
|
Exhibit 10.6 to the registrants Form 10-QSB filed with the Commission on September 14, 2007. | ||||||
10.28 | Amended Secured Promissory Note between
Farmers Energy One Earth, LLC and One Earth
Energy, LLC dated October 16, 2007.
|
Exhibit 99.1 to the registrants Form 8-K filed with the Commission on October 19, 2007. | ||||||
10.29 | Construction Loan Agreement dated September
20, 2007 between One Earth Energy, LLC and
First National Bank of Omaha.
|
Exhibit 10.1 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. |
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Exhibit | Filed | |||||||
No. | Description | Herewith | Incorporated by Reference | |||||
10.30 | Construction Notes dated September 20, 2007
between One Earth Energy, LLC and First
National Bank of Omaha; Deere Credit, Inc.;
Farm Credit Services of America; Quad City
Bank and Trust; Citizens First National
Bank; CoBank; Capital Farm Credit; Busey
Bank; Farm Credit Services; Transamerica
Occidental Life Insurance Company; and,
First Indiana Bank.
|
Exhibit 10.2 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. | ||||||
10.31 | Revolving Promissory Notes dated September
20, 2007 between One Earth Energy, LLC and
First National Bank of Omaha; First Indiana
Bank; Citizens First National Bank; Deere
Credit, Inc.; and, CoBank.
|
Exhibit 10.3 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. | ||||||
10.32 | Promissory Note and Continuing Letter of
Credit Agreement dated September 20, 2007
between One Earth Energy, LLC and First
National Bank of Omaha.
|
Exhibit 10.4 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. | ||||||
10.33 | Construction Loan Mortgage, Security
Agreement, Assignment of Leases and Rents
and Fixture Financing Statement dated
September 20, 2007 between One Earth
Energy, LLC and First National Bank of
Omaha.
|
Exhibit 10.5 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. | ||||||
10.34 | Security Agreement dated September 20, 2007
between One Earth Energy, LLC and First
National Bank of Omaha.
|
Exhibit 10.6 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. | ||||||
10.35 | Design/Build Construction Contract dated
December 26, 2007 between One Earth Energy,
LLC and Hogenson Construction Company.
|
Exhibit 10.7 to the registrants Form 10-KSB filed with the Commission on January 29, 2008. | ||||||
10.36 | Ethanol Merchandising Agreement dated June
5, 2009 between One Earth Energy, LLC and
Lansing Ethanol Services, LLC.+
|
Exhibit 10.1 to the registrants Form 10-K filed with the Commission on November 8, 2010. | ||||||
10.37 | Natural Gas Pipeline Company of America LLC
(Natural) Transportation Rate Schedule Its
dated June 29, 2009 between One Earth
Energy, LLC and Natural Gas Pipeline
Company of America LLC.
|
Exhibit 10.2 to the registrants Form 10-K filed with the Commission on November 8, 2010. | ||||||
10.38 | Grain Handling Agreement dated February 15,
2008 between One Earth Energy, LLC and
Alliance Grain Co.+
|
Exhibit 10.3 to the registrants Form 10-K filed with the Commission on November 8, 2010. | ||||||
10.39 | Mutual Release and Termination of Ethanol
Marketing Contract Agreement dated May 14,
2009 between One Earth Energy, LLC and
Eco-Energy Inc.
|
Exhibit 10.4 to the registrants Form 10-K filed with the Commission on November 8, 2010. | ||||||
10.40 | Agreement for Assignment of an Undivided
Interest in Real Property and Its
Appurtenances dated December 9, 2008
between One Earth Energy, LLC and Ameren
Energy Generating Company.+
|
Exhibit 10.5 to the registrants Form 10-K filed with the Commission on November 8, 2010. |
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Exhibit | Filed | |||||||
No. | Description | Herewith | Incorporated by Reference | |||||
10.41 | System Extension or Modification Guarantee
Agreement dated January 18, 2008 between
One Earth Energy, LLC and Central Illinois
Public Service Company d/b/a AmerenCIPS.
|
Exhibit 10.6 to the registrants Form 10-K filed with the Commission on November 8, 2010. | ||||||
10.42 | First Amendment of Construction Loan
Agreement dated September 19, 2008 between
One Earth Energy, LLC and First National
Bank of Omaha.
|
Exhibit 10.7 to the registrants Form 10-K filed with the Commission on November 8, 2010. | ||||||
10.43 | Amendment to Distillers Grains Marketing
Agreement between United Bio Energy
Ingredients and One Earth Energy, LLC dated
December 31, 2010.
|
X | ||||||
14.1 | Code of Ethics
|
Exhibit 14.1 to the registrants Form 10-K filed with the Commission on January 29, 2008. | ||||||
31.1 | Certificate Pursuant to 17 CFR 240.13a-14(a)
|
X | ||||||
31.2 | Certificate Pursuant to 17 CFR 240.13a-14(a)
|
X | ||||||
32.1 | Certificate Pursuant to 18 U.S.C. § 1350
|
X | ||||||
32.2 | Certificate Pursuant to 18 U.S.C. § 1350.
|
X |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ONE EARTH ENERGY, LLC | ||||
Date: March 31, 2011
|
/s/ Steve Kelly
|
|||
President (Principal Executive Officer) | ||||
Date: March 31, 2011
|
/s/ Larry Brees
|
|||
Chief Financial Officer (Principal Financial and Accounting Officer) |
||||
Date: March 31, 2011
|
/s/ Joe Thompson
|
|||
Vice President and Director | ||||
Date: March 31, 2011
|
/s/ Scott Docherty
|
|||
Chairman and Director | ||||
Date: March 31, 2011
|
/s/ Jack Murray
|
|||
Treasurer/Secretary and Director | ||||
Date: March 31, 2011
|
/s/ Bruce Bastert
|
|||
Director | ||||
Date: March 31, 2011
|
/s/ Roger Miller
|
|||
Date: March 31, 2011
|
/s/ Zafar Rizvi
|
64