Attached files
file | filename |
---|---|
EX-23.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-23a.htm |
EX-21.(A) - REX AMERICAN RESOURCES Corp | c65168_ex-21a.htm |
EX-23.(B) - REX AMERICAN RESOURCES Corp | c65168_ex-23b.htm |
EX-23.(D) - REX AMERICAN RESOURCES Corp | c65168_ex-23d.htm |
EX-23.(C) - REX AMERICAN RESOURCES Corp | c65168_ex-23c.htm |
EX-23.(E) - REX AMERICAN RESOURCES Corp | c65168_ex-23e.htm |
EX-32 - REX AMERICAN RESOURCES Corp | c65168_ex32.htm |
EX-99.(C) - REX AMERICAN RESOURCES Corp | c65168_ex-99c.htm |
EX-99.(B) - REX AMERICAN RESOURCES Corp | c65168_ex-99b.htm |
EX-99.(B)(1) - REX AMERICAN RESOURCES Corp | c65168_ex-99b1.htm |
10-K - REX AMERICAN RESOURCES Corp | c65168_10k.htm |
EX-31 - REX AMERICAN RESOURCES Corp | c65168_ex31.htm |
EX-4.(O) - REX AMERICAN RESOURCES Corp | c65168_ex-4o.htm |
EX-4.(P) - REX AMERICAN RESOURCES Corp | c65168_ex-4p.htm |
Exhibit 99(a)
BIG RIVER RESOURCES, LLC
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2010 and 2009
CHRISTIANSON & ASSOCIATES, PLLP
Certified Public Accountants and Consultants
Willmar, Minnesota
TABLE OF CONTENTS
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PAGE NO |
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INDEPENDENT AUDITORS REPORT |
1 |
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FINANCIAL STATEMENTS |
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Consolidated Balance Sheets |
2 |
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Consolidated Statements of Operations |
4 |
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Consolidated Statements of Members Equity |
5 |
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Consolidated Statements of Cash Flows |
6 |
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Notes to Consolidated Financial Statements |
7 |
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INDEPENDENT AUDITORS REPORT
To the Board of Directors
Big River Resources, LLC
West Burlington, Iowa
We have audited the accompanying consolidated balance sheets of Big River Resources, LLC (an Iowa limited liability company) as of December 31, 2010 and 2009 and the related consolidated statements of operations, members equity, and cash flows for the years then ended. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Big River Resources, LLC as of December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
CHRISTIANSON & ASSOCIATES, PLLP
Certified Public Accountants and Consultants
February 8, 2011
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
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ASSETS |
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2010 |
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2009 |
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||
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CURRENT ASSETS |
|
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Cash and cash equivalents |
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$ |
20,071,789 |
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$ |
40,271,218 |
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Receivables |
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|
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Trade |
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7,759,961 |
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24,881,446 |
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Other |
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|
567,255 |
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1,416,008 |
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Inventories |
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82,006,748 |
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32,446,083 |
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Prepaid expenses |
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1,684,999 |
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2,998,615 |
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Derivative instruments |
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37,599,399 |
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2,871,140 |
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TOTAL CURRENT ASSETS |
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149,690,151 |
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104,884,510 |
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PROPERTY AND EQUIPMENT |
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Land and land improvements |
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32,251,260 |
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31,916,240 |
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Building structure |
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64,759,061 |
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62,762,668 |
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Grain equipment |
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36,471,131 |
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30,901,632 |
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Process equipment |
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277,690,382 |
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273,491,957 |
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Other equipment |
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7,667,487 |
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6,221,051 |
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Construction in progress |
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143,292 |
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587,425 |
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418,982,613 |
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405,880,973 |
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Accumulated depreciation |
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(68,056,674 |
) |
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(40,617,012 |
) |
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|
|
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350,925,939 |
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365,263,961 |
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OTHER ASSETS |
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Investments |
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5,082,606 |
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4,208,902 |
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Deposit |
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200,000 |
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200,000 |
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Note receivables |
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311,979 |
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|
|
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Covenant not to compete, net of amortization |
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|
|
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33,333 |
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Financing costs, net of amortization |
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|
1,634,262 |
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1,963,163 |
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|
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|
|
|
|
|
|
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7,228,847 |
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6,405,398 |
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TOTAL ASSETS |
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$ |
507,844,937 |
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$ |
476,553,869 |
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See notes to consolidated financial statements.
- 2 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
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LIABILITIES AND MEMBERS EQUITY |
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2010 |
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2009 |
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CURRENT LIABILITIES |
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Payables |
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Trade |
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$ |
9,504,497 |
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$ |
8,539,833 |
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Grain |
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11,700,616 |
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|
7,969,243 |
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Construction |
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|
72,990 |
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|
243,382 |
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Deferred sales |
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1,610,851 |
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|
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Accrued expenses |
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5,036,097 |
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|
5,083,871 |
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Note payable - revolving line of credit |
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|
6,000,000 |
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Current maturities of long-term debt |
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|
44,769,030 |
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24,325,696 |
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TOTAL CURRENT LIABILITIES |
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78,694,081 |
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46,162,025 |
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LONG-TERM DEBT, less current maturities |
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129,936,180 |
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176,754,976 |
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MEMBERS EQUITY |
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Members capital |
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277,699,596 |
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241,744,791 |
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Noncontrolling interest |
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21,515,080 |
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11,892,077 |
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|
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299,214,676 |
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253,636,868 |
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TOTAL LIABILITIES AND MEMBERS EQUITY |
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$ |
507,844,937 |
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$ |
476,553,869 |
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See notes to consolidated financial statements.
- 3 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2010 and 2009
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2010 |
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2009 |
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SALES |
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$ |
742,162,967 |
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$ |
448,145,300 |
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COST OF SALES |
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658,492,388 |
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402,121,201 |
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GROSS PROFIT |
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83,670,579 |
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46,024,099 |
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OPERATING EXPENSES |
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12,624,744 |
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10,173,451 |
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INCOME FROM OPERATIONS |
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71,045,835 |
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35,850,648 |
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OTHER INCOME (EXPENSES) |
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Interest income |
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44,121 |
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|
109,158 |
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Interest expense |
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(7,739,203 |
) |
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(4,844,667 |
) |
Real estate investment expenses |
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(721,848 |
) |
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Miscellaneous income |
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|
971,041 |
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536,314 |
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|
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(7,445,889 |
) |
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(4,199,195 |
) |
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NET INCOME BEFORE NONCONTROLLING INTEREST |
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63,599,946 |
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31,651,453 |
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NONCONTROLLING INTEREST IN SUBSIDIARYS INCOME |
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(11,121,621 |
) |
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(4,081,131 |
) |
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NET INCOME |
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$ |
52,478,325 |
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$ |
27,570,322 |
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See notes to consolidated financial statements.
- 4 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
Years Ended December 31, 2010 and 2009
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Members |
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Noncontrolling |
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Balance - December 31, 2008, as previously reported |
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$ |
220,364,253 |
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$ |
810,946 |
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Cumulative effect of change in recording inventory |
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|
467,489 |
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|
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|
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Balance - December 31, 2008, as restated |
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220,831,742 |
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810,946 |
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Exercise of unit options, issuance of 84 membership units |
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355,013 |
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Issuance of employee unit options |
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216,754 |
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Distributions to members |
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(7,229,040 |
) |
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Capital Contributions |
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7,000,000 |
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Net income |
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27,570,322 |
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4,081,131 |
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Balance - December 31, 2009 |
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|
241,744,791 |
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11,892,077 |
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Distributions to members |
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(16,523,520 |
) |
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(1,498,618 |
) |
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|
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Net income |
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52,478,325 |
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|
11,121,621 |
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Balance - December 31, 2010 |
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$ |
277,699,596 |
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$ |
21,515,080 |
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See notes to consolidated financial statements.
- 5 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2010 and 2009
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2010 |
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2009 |
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||
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OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
|
$ |
52,478,325 |
|
$ |
27,570,322 |
|
Charges to net income not affecting cash |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
27,810,317 |
|
|
18,136,930 |
|
Loss on firm purchase commitments |
|
|
|
|
|
(4,941,011 |
) |
Compensation recognized from stock options |
|
|
|
|
|
216,754 |
|
Loss on derivative instruments |
|
|
22,411,659 |
|
|
6,307,451 |
|
Investment earnings |
|
|
(377,704 |
) |
|
(80,665 |
) |
Noncontrolling interest in subsidiaries gain |
|
|
11,121,621 |
|
|
4,548,620 |
|
Decrease (increase) in current assets |
|
|
|
|
|
|
|
Receivables |
|
|
17,970,238 |
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|
(17,605,830 |
) |
Inventories |
|
|
(49,560,665 |
) |
|
(14,061,998 |
) |
Net paid on derivative instruments |
|
|
(57,139,918 |
) |
|
(8,223,357 |
) |
Prepaid expenses |
|
|
1,313,616 |
|
|
(2,455,045 |
) |
Increase (decrease) in current liabilities |
|
|
|
|
|
|
|
Accounts payable |
|
|
4,737,436 |
|
|
582,555 |
|
Accrued expenses |
|
|
(34,224 |
) |
|
3,716,985 |
|
Deferred sales |
|
|
1,610,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
32,341,552 |
|
|
13,711,711 |
|
|
|
|
|
|
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|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Payments for deposits |
|
|
|
|
|
(200,000 |
) |
Purchase of property and equipment |
|
|
(13,335,402 |
) |
|
(39,464,390 |
) |
Purchase of investments |
|
|
(807,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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NET CASH USED IN INVESTING ACTIVITIES |
|
|
(14,143,381 |
) |
|
(39,664,390 |
) |
|
|
|
|
|
|
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FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Principal payments on long-term debt borrowings |
|
|
(32,583,353 |
) |
|
(19,302,634 |
) |
Proceeds from long-term debt borrowings |
|
|
|
|
|
42,466,580 |
|
Net proceeds (payments) on long-term revolving loan |
|
|
6,207,891 |
|
|
(7,000,000 |
) |
Net borrowings on revolving line of credit |
|
|
6,000,000 |
|
|
|
|
Payment for financing costs |
|
|
|
|
|
(313,446 |
) |
Member contributions |
|
|
|
|
|
355,013 |
|
Noncontrolling investment |
|
|
|
|
|
7,000,000 |
|
Noncontrolling distributions |
|
|
(1,498,618 |
) |
|
|
|
Distribution to member |
|
|
(16,523,520 |
) |
|
(7,229,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
|
(38,397,600 |
) |
|
15,976,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(20,199,429 |
) |
|
(9,976,206 |
) |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - beginning of year |
|
|
40,271,218 |
|
|
50,247,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - end of year |
|
$ |
20,071,789 |
|
$ |
40,271,218 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
- 6 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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NATURE OF BUSINESS - Big River Resources, LLC, its wholly-owned subsidiaries, Big River Resources West Burlington, LLC (West Burlington), Big River Resources Galva, LLC (Galva), its 50% joint venture Big River Resources Grinnell, LLC (Grinnell) and its 50.5% ownership in Big River United Energy, LLC, (collectively, the company) are limited liability companies. |
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West Burlington owns and operates an ethanol plant located in West Burlington, Iowa with an annual production nameplate capacity of 92 million gallons of denatured ethanol. The West Burlington plant produces ethanol, non-food grade corn oil and distiller grains for commercial sales throughout the United States and exports which accounted for approximately 91 percent of West Burlingtons fiscal 2010 net sales. The company operates grain elevators near Monmouth and Edgington, Illinois which buys corn and soybeans from farmers as a corn supply to the ethanol operation in West Burlington, Iowa and for soybean sales throughout the United States. |
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In 2010, the West Burlington purchased the assets of Martins Aledo Addition, Inc. and Martins Grain, Inc., grain elevators which buy corn and soybeans from farmers near Aledo and Taylor Ridge, Illinois as a reserve corn supply to the companys ethanol operations and for soybean sales throughout the United States and exports. The assets were purchased for an aggregate cash purchase price of $2,700,000. In addition, the seller has signed a covenant not to compete for a five-year period and the seller has received a credit of $100,000 for future services to be provided to the seller, both of which are included in the purchase agreement consideration. |
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The company recorded these acquisitions using the purchase method of accounting in accordance with Accounting Standards Codification (ASC) 805 - Business Combinations. The purchase price equaled the estimated fair value of the identifiable net assets acquired less acquisition-related costs of the transaction. |
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|
Big River Resources Galva, LLC, an Illinois limited liability company, owns and operates a 100 million gallon annual production nameplate capacity ethanol plant near Galva, Illinois. The company produces ethanol, distiller grains and non-food grade corn oil for commercial sales throughout the United States and exports. Construction was completed and the ethanol plant became operational in May 2009. |
|
|
|
Big River United Energy, LLC was formed on August 1, 2009 to acquire and operate an ethanol plant located in Dyersville, Iowa with an annual production nameplate capacity of 100 million gallons of denatured ethanol. The company began production of ethanol and distiller grains for commercial sales throughout the United States and exports on September 16, 2009. |
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|
|
Grinnell is a development stage company that was organized to construct an ethanol plant near Grinnell, Iowa with a planned annual nameplate capacity of 100 million. As of December 31, 2010, the company has no formal plans to develop the plant. |
- 7 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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|
PRINCIPALS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Big River Resources, LLC, and its subsidiaries. All significant intercompany account balances and transactions have been eliminated. |
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|
|
The company accounts for its investment in Grinnell on a consolidated basis because it is a variable interest entity and the company is its primary beneficiary. |
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FISCAL REPORTING PERIOD - The company has adopted a fiscal year ending December 31 for reporting financial operations. |
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|
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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|
REVENUE RECOGNITION - Revenues from the production of ethanol, distillers grains, corn oil and grain merchandising are recorded at the time title to the goods and all risks of ownership transfers to customers and a settlement price is realizable. Ethanol, distillers grains, corn oil and grains are generally shipped FOB shipping point. Undenatured ethanol is generally shipped FOB destination. |
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|
|
CASH AND CASH EQUIVALENTS - The company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. |
|
|
|
TRADE RECEIVABLES - The company has engaged the services of a national marketer to sell substantially all of its ethanol production and the majority of the distillers production at Big River United Energy, LLC. The company has engaged the services of national marketers to sell substantially all of its ethanol and a portion distillers production at West Burlington and Galva. The marketers handle nearly all sales functions including billing, logistics, and sales pricing. Once product is shipped, the marketers assume the risk of payment from the consumer and handle all delinquent payment issues. |
|
|
|
The company markets a portion of its own local distiller grains and grain. The company generally bills weekly with payments due within 10 days of the invoice date, and considers accounts older than 120 days to be delinquent and would generally initiate collection procedures. If the collection procedures have not provided collection within one year of the invoice date, management generally will write off the account as a bad debt. Trade receivables are recorded net of anticipated uncollectible amounts. As of December 31, 2010 and 2009, there was no allowance for uncollectible amounts. |
- 8 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
INVENTORIES - For the year ended December 31, 2010, the company changed its method of accounting for ethanol, ethanol production in process, co-products and corn inventories from the lower of cost (average cost method) or market method (LCM) to net realizable value (NRV). Management believes the NRV method provides more meaningful financial reporting since this method better matches the fair value recording of the forward and futures positions that hedge the inventory. Comparative financial statements of prior years have been adjusted to apply the new method retrospectively. The following financial statement line items for 2010 and 2009 were affected by the change in accounting principle. |
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|||||||
|
|
|
|
|||||||
|
|
|||||||||
|
|
As Reported |
|
As Computed |
|
Effect of |
|
|||
|
|
|
|
|
|
|
|
|||
Inventories |
|
$ |
78,391,859 |
|
$ |
82,006,748 |
|
$ |
3,614,889 |
|
Total Assets |
|
|
502,769,174 |
|
|
506,384,063 |
|
|
3,614,889 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
674,869,655 |
|
|
671,254,766 |
|
|
(3,614,889 |
) |
Gross Profit |
|
|
66,957,160 |
|
|
70,572,049 |
|
|
3,614,889 |
|
Net Income |
|
|
60,517,403 |
|
|
64,132,292 |
|
|
3,614,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|||||||
|
|
|
|
|||||||
|
|
|||||||||
|
|
As Reported |
|
As Computed |
|
Effect of |
|
|||
|
|
|
|
|
|
|
|
|||
Inventories |
|
$ |
29,271,292 |
|
$ |
32,446,083 |
|
$ |
3,174,791 |
|
Total Assets |
|
|
469,756,357 |
|
|
472,931,148 |
|
|
3,174,791 |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
408,544,550 |
|
|
405,837,248 |
|
|
(2,707,302 |
) |
Gross Profit |
|
|
43,316,797 |
|
|
46,024,099 |
|
|
2,707,302 |
|
Net Income |
|
|
29,006,595 |
|
|
31,713,897 |
|
|
2,707,302 |
|
|
|
|
Retained earnings as of the beginning of 2009 has been increased by $467,489 for the effect of retrospective application of the new accounting method. The parts, chemicals and ingredients inventories are recorded at the lower of cost (average cost method) or market method (LCM). Soybeans and corn held at the elevators are recorded at net realizable value. |
|
|
|
CONCENTRATIONS OF CREDIT RISK - The company extends credit to its customers in the ordinary course of business. The company performs periodic credit evaluations of its customers and generally does not require collateral. The companys operations may vary with the volatility of the commodity and ethanol markets. The companys cash balances are maintained in bank depositories and periodically exceed federally insured limits. |
- 9 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
PROPERTY AND EQUIPMENT - Property and equipment are stated at the lower of cost or fair value. Significant additions and betterments are capitalized with expenditures for maintenance, repairs and minor renewals being charged to operations as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives: |
|
|
Land improvements |
1520 years |
Building structure |
520 years |
Grain equipment |
520 years |
Process equipment |
520 years |
Other equipment |
315 years |
|
|
|
Construction in progress will be depreciated using the straight-line method over various estimated useful lives once the assets are placed into service. |
|
|
|
The company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the undiscounted future cash flows is less than the carrying amount of the asset. The amount of the loss is determined by comparing the fair market values of the asset to the carrying amount of the asset. The company did not recognize any long-lived asset impairment loss for the years ended December 31, 2010 and 2009. |
|
|
|
DERIVATIVE INSTRUMENTS - The company recognizes its derivatives in the balance sheet and measures these instruments at fair value. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. |
|
|
|
Additionally, the company evaluates its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period of time in the normal course of business. |
- 10 -
|
|
|
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
|
|
|
DERIVATIVE INSTRUMENTS (continued) - The company has elected to record its forward purchase and sales commitments at fair value as derivative instruments which the company believes to represent more accurate financial reporting. These contracts are marked to market as an asset or liability and a corresponding gain or loss is recognized for the change in market value. |
|
|
|
INVESTMENTS - Investments include stock in a lending cooperative bank, in the companys national ethanol marketer and membership units in an ethanol plant located in Mitchell County, Iowa. The company records the investments in the lending cooperative bank and in the companys national ethanol marketer at cost which includes its share of the allocated patronage equities. The membership units in the ethanol plant are recorded at cost. Investments include real estate properties near Dyersville, Iowa which are held for re-sale. The company carries these investments on the balance sheet at fair market value. |
|
|
|
DEPOSITS - Deposits include monies deposited for a distilled spirits bond and is recorded at the scheduled recoverable value. |
|
|
|
NOTES RECEIVABLE - The company has sold real estate properties and provided long term financing to the purchasers in the form of notes which are carried as other non-current assets. The notes are for a term of 30 years, maturing in 2040 with an interest rate of 5.5%. The current portion of these notes as of December 31, 2010 is approximately $4,300 which is included in other receivables. |
|
|
|
COVENANT NOT TO COMPETE - The company established a non-compete agreement with the former owners of the elevator at the acquisition date. The agreement requires annual payments of $50,000 for 5 years in exchange for the former owners compliance with the agreement. The intangible asset is being amortized over the 5 year term of the agreement using the straight-line method. This agreement expired in September 2010. |
|
|
|
FINANCING COSTS - Financing costs are recorded at cost and include expenditures directly related to securing debt financing. Amortization is computed using the straight-line method over the loans terms. |
|
|
|
NONCONTROLLING INTEREST - Noncontrolling interests represent the minority partners shares of the equity and income of Big River Resources Grinnell, LLC and Big River United Energy, LLC. Noncontrolling interests are classified in the consolidated statements of operations as a part of net income and the accumulated amount of noncontrolling interests are classified in the consolidated balance sheets as a part of members equity. |
- 11 -
|
|
|
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
|
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The fair value of an asset or liability is determined based on a hierarchy. The fair value hierarchy has three levels of inputs, both observable and unobservable. Fair value is determined using the lowest possible level of input. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. |
|
|
|
Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in its balance sheets, the company has elected not to record any other assets or liabilities at fair value. No events occurred during the years ended December 31, 2010 and 2009 that would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis. |
|
|
|
The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximates fair value. It is not currently practicable to estimate the fair value of the debt financing. Because these agreements contain certain unique terms, covenants, and restrictions, as discussed in Note E, there are no readily determinable similar instruments on which to base an estimate of fair value. The company estimates that the fair value of all financial instruments at December 31, 2010 and 2009 approximates their carrying values in the accompanying balance sheets. |
|
|
|
DEFERRED SALES - The company receives advances for ethanol shipments (FOB destination) based on provisional pricing prior to the recognition of the sale. These advances are carried as current liabilities on the balance sheet until the criteria to recognize the revenue is met and the sale is recognized. As of December 31, 2010 and 2009, the company received $1,610,851 and $0 in advances for shipments which have not met the revenue recognition criteria. |
|
|
|
INCOME TAXES - The company is organized as a limited liability company under state law and is treated as a partnership for income tax purposes. Under this type of organization, the companys earnings pass through to the member and are taxed at the member level. The company files income tax returns in the U.S. federal jurisdiction and in the States of Iowa and Illinois. As of December 31, 2010, the company is no longer subject to U.S. federal and state income tax examinations by tax authorities for tax years before 2007. |
- 12 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
STOCK-BASED COMPENSATION - The company accounts for stock-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the company using a fair value based method. The company uses the Black-Scholes-Merton (BSM) option-pricing model to determine the fair value of stock-based awards. The company had no outstanding options as of December 31, 2010 and 2009. |
|
|
|
RECLASSIFICATIONS - Certain amounts in prior year financial statements have been reclassified to conform to 2010 classification. These reclassifications had no effect on the total assets or net income as previously reported. |
NOTE B: INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Ethanol |
|
$ |
28,503,119 |
|
$ |
6,257,797 |
|
Production in process |
|
|
7,826,334 |
|
|
6,111,904 |
|
Distiller grains |
|
|
1,880,214 |
|
|
1,071,937 |
|
Corn |
|
|
16,338,527 |
|
|
9,603,667 |
|
Corn Oil |
|
|
151,239 |
|
|
53,406 |
|
Repair parts |
|
|
2,460,020 |
|
|
1,901,817 |
|
Chemicals and ingredients |
|
|
1,293,971 |
|
|
1,199,794 |
|
Corn and soybeans held at elevators |
|
|
23,553,324 |
|
|
6,245,761 |
|
|
|
|
|
|
|
|
|
|
|
$ |
82,006,748 |
|
$ |
32,446,083 |
|
|
|
|
|
|
|
|
NOTE C: DERIVATIVE INSTRUMENTS
|
|
|
The company enters into derivative transactions to hedge its exposure to commodity price fluctuations. The company does not enter into derivative transactions for trading or speculative purposes. |
|
|
|
The company, as a holder of derivative instruments, is required to provide qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. |
|
|
|
During 2010 and 2009, the company entered into corn, distillers grains, corn oil, natural gas, and ethanol derivative instruments. The company is required to record derivative financial instruments as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Furthermore, the company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. |
- 13 -
NOTE C: DERIVATIVE INSTRUMENTS (continued)
|
|
|
Commodity Contracts |
|
|
|
The company hedges substantially all of its corn, ethanol and co-product inventories as well as its future purchase and sales contracts to the extent considered necessary for minimizing risk from market price fluctuations. In connection with the execution of forward contracts, the company normally elects to create a hedging relationship by executing an exchange traded futures contract as an offsetting position. In this situation, the forward contract is valued at market price until delivery is made against the contract. The amounts recorded on the balance sheet represent the current fair market value of the instruments as determined by the broker with adjustments made by management for local basis and cash margin deposits. |
|
|
|
These derivatives are not designated as hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Management expects all open positions outstanding as of December 31, 2010 to be realized within the next year. |
|
|
|
The open derivative instruments as of December 31, 2010 are as follows: |
|
|
|
|
|
Ethanol Plants |
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
|
|
Corn |
|
26,204,000 |
|
Bu |
|
|
|
|
|
Forward sales contracts |
|
|
|
|
Ethanol |
|
2,300,000 |
|
Gal |
Distillers grains |
|
133,000 |
|
Ton |
Corn Oil |
|
2,698,000 |
|
Pounds |
|
|
|
|
|
Positions on the Chicago Board of Trade |
|
|
|
|
Corn (short) |
|
28,415,000 |
|
Bu |
- 14 -
NOTE C: DERIVATIVE INSTRUMENTS (continued)
|
|
|
|
|
Grain Elevators |
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
|
|
Corn |
|
2,200,000 |
|
Bu |
Soybeans |
|
536,000 |
|
Bu |
|
|
|
|
|
Forward sales contracts |
|
|
|
|
Corn |
|
119,000 |
|
Bu |
Soybeans |
|
261,000 |
|
Bu |
|
|
|
|
|
Positions on the Chicago Board of Trade |
|
|
|
|
Corn (short) |
|
3,610,000 |
|
Bu |
Soybeans (short) |
|
890,000 |
|
Bu |
|
|
|
The following tables provide details regarding the companys derivative financial instruments at December 31, 2010 and 2009, none of which are designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
||||||||
|
|
|
|
||||||||
|
|||||||||||
|
|
Balance Sheet location |
|
|
Assets |
|
Liabilities |
|
|||
|
|
|
|
|
|
|
|
|
|||
Commodity contracts |
|
Derivative instruments |
|
|
$ |
37,599,399 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of |
|
|
Gain (loss) recognized for the year |
|
|||||
|
|
|
|
|
|
|
|||||
Commodity contracts |
|
Cost of sales |
|
|
$ |
(22,411,659 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|||||||||
|
|
|
|||||||||
|
|||||||||||
|
|
Balance Sheet location |
|
|
Assets |
|
Liabilities |
|
|||
|
|
|
|
|
|
|
|
|
|||
Commodity contracts |
|
Derivative instruments |
|
|
$ |
2,871,140 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of |
|
|
Gain (loss) recognized for the year |
|
|||||
|
|
|
|
|
|
|
|||||
Commodity contracts |
|
Cost of sales |
|
|
$ |
(6,307,451 |
) |
- 15 -
|
|
NOTE D: FAIR VALUE MEASUREMENTS |
|
|
|
|
The following table provides information on those assets measured at fair value on a recurring basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
||||||||||
|
|
|
|
||||||||||
|
|
Carrying Value |
|
Quoted |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
37,599,399 |
|
$ |
5,993,300 |
|
$ |
31,606,099 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
||||||||||
|
|
|
|
||||||||||
|
|
Carrying Value |
|
Quoted |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
2,871,140 |
|
$ |
3,325,063 |
|
$ |
(453,923 |
) |
$ |
|
|
|
|
|
The company determines the fair value of the derivative instruments shown in the table above by obtaining fair value measurements from an independent pricing service. The fair value measurements for Level 1 inputs consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade. The fair value measurements for Level 2 inputs consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade adjusted for basis. |
NOTE E: LONG-TERM DEBT
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
West Burlington |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan, further terms detailed below. |
|
$ |
27,005,222 |
|
$ |
38,936,061 |
|
|
|
|
|
|
|
|
|
Revolving term loan, further terms detailed below. |
|
|
6,601,059 |
|
|
|
|
- 16 -
NOTE E: LONG-TERM DEBT (continued)
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $4,167 per month beginning in January 2010 until January 2018 secured by letter of credit - Note M. |
|
$ |
350,000 |
|
$ |
400,000 |
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $3,704 per month until October 2014, secured by letter of credit - Note M. |
|
|
166,666 |
|
|
211,111 |
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Iowa Department of Economic Development payable at $1,750 per month until February 2010 when $106,750 is due, secured by substantially all assets of the company. |
|
|
|
|
|
108,500 |
|
|
|
|
|
|
|
|
|
Non-interest bearing non-compete agreement payable at $50,000 per year until September 2010, unsecured. |
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
Galva |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and term loan, further terms detailed below. |
|
|
55,233,088 |
|
|
67,375,000 |
|
|
|
|
|
|
|
|
|
Construction and revolving loan, further terms detailed below. |
|
|
712,538 |
|
|
5,000,000 |
|
|
|
|
|
|
|
|
|
Big River United Energy, LLC |
|||||||
Term loan, further terms detailed below. |
|
|
67,742,343 |
|
|
76,000,000 |
|
|
|
|
|
|
|
|
|
Revolving term loan, further terms detailed below. |
|
|
16,894,294 |
|
|
13,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,705,210 |
|
|
201,080,672 |
|
Current maturities |
|
|
(44,769,030 |
) |
|
(24,325,696) |
|
|
|
|
|
|
|
|
|
|
|
$ |
129,936,180 |
|
$ |
176,754,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt maturities are as follows: |
|
|
|
|
|
|
|
- 17 -
NOTE E: LONG-TERM DEBT (continued)
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
$ |
44,769,030 |
|
2012 |
|
|
|
28,037,301 |
|
2013 |
|
|
|
24,969,254 |
|
2014 |
|
|
|
19,912,192 |
|
2015 |
|
|
|
49,603,836 |
|
Thereafter |
|
|
7,413,597 |
|
|
|
|
|
|
|
|
|
|
|
$ |
174,705,210 |
|
|
|
|
|
|
|
|
|
|
West Burlington |
|
|
|
The company entered into a credit agreement with CoBank to partially finance the construction of the plant expansion. Under the credit agreement, the lender has provided a construction and term loan for $55,000,000 and a construction and revolving term loan of $20,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: a one-month fixed rate equal to 2.7% above the rate quoted by the British Bankers Association, an agent quoted fixed per annum rate or a fixed rate of LIBOR plus 2.7% (2.97% at December 31, 2010). The company shall select the applicable rate option at the time of each loan request. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2010 and 2009, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Term loan |
|
|
|
The company is required to make 24 quarterly principal installments of $2,250,000 beginning in August 2008 until May 2014 with a final installment in an amount equal to the remaining unpaid balance on August 2014. In addition to the required payments, the company, beginning with the fiscal year ending 2008 and ending with the fiscal year 2010, is required to make additional principal payments equal to 75% of the companys excess cash flow as defined in the loan agreement not to exceed an aggregate total of $9,000,000. Based on the operating results for the year ended December 31, 2010, the company is required to make an additional principal payment of $3,505,222 in 2011 which is included in current maturities of long-term debt. This years requirement meets the $9,000,000 aggregate total. |
- 18 -
NOTE E: LONG-TERM DEBT (continued)
|
|
|
Revolving term loan |
|
|
|
The company is required to make semi-annual principal payments beginning on March 2015 until March 2017 of a reducing commitment amount as follows |
|
|
|
|
|
|
|
|
Payment Date |
|
|
Commitment |
|
|
|
|
|
|
|
|
|
March 1, 2015 |
|
$ |
16,000,000 |
|
||
September 1, 2015 |
|
|
12,000,000 |
|
||
March 1, 2016 |
|
|
8,000,000 |
|
||
September 1, 2016 |
|
|
4,000,000 |
|
||
March 1, 2017 |
|
|
|
|
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment. |
|
|
|
Galva |
|
|
|
The company entered into a credit agreement with CoBank to partially finance the construction of the plant. Under the credit agreement, the lender has provided a term loan for $70,000,000 and a revolving term loan of $20,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: a one-month fixed rate equal to 2.95% above the rate quoted by the British Bankers Association, an agent quoted fixed per annum rate or a fixed rate of LIBOR plus 2.95% (3.22% of December 31, 2010). The company shall select the applicable rate option at the time of each loan request. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions and capital expenditures, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2010 and 2009, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Construction and term loan |
|
|
|
The company is required to make 25 quarterly principal installments of $2,625,000 which began in December 2009 until December 2015 with a final installment in an amount equal to the remaining unpaid balance in January 2016. |
- 19 -
NOTE E: LONG-TERM DEBT (continued)
|
|
|
In addition to the required payments, beginning with the year ending 2009, the company is required to make additional principal payments equal to 75% of the companys excess cash flow as defined in the loan agreement. Based on the operating results for the year ended December 31, 2010, the company is required to make an additional principal payment of $8,637,435 in 2011, which is included in current maturities of long-term debt. For the year ended December 31, 2009, the company was required to make an additional principal payment of $1,641,912. |
|
|
|
Construction and revolving term loan |
|
|
|
The company is required to repay the outstanding loan balance at the time the commitment expires on June 1, 2016. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment. |
|
|
|
Big River United Energy, LLC |
|
|
|
The company entered into a credit agreement with AgStar to finance the purchase of the plant. Under the credit agreement, the lender has provided a term loan for $76,000,000, a term revolving loan of $20,000,000 and a revolving line of credit of $12,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2010, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Term loan |
|
|
|
In June 2010, the company converted a portion of its term loan to a fixed rate term loan. |
|
|
|
The variable rate portion requires the company to make interest only payments beginning in January 2010 based on a variable interest rate of 3.0% plus the greater of the one month LIBOR Rate or 2.0% (5% at December 31, 2010) until March 2011. Monthly principal and interest payments begin in April 2011 with a final installment in an amount equal to the remaining unpaid balance on September 15, 2015. As of December 31, 2010, this variable rate portion balance was $39,224,916. |
- 20 -
NOTE E: LONG-TERM DEBT (continued)
|
|
|
The fixed rate portion requires the company to make monthly principal and interest payments until January 2013 when the rate will convert back to being based on a variable interest rate of 3.0% plus the greater of the one month LIBOR Rate or 2.0% until September 2015. As of December 31, 2010, this fixed rate portion balance was $28,517,427. |
|
|
|
Revolving term loan |
|
|
|
The company is required to make interest only payments beginning in January 2010 based on a variable interest rate of 3.0% plus the greater of the one month LIBOR Rate or 2.0% (5% at December 31, 2010) until maturity, September 15, 2015, when the amount of unpaid principal balance shall be payable in full. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment until September 15, 2015. |
|
|
|
Revolving Line of Credit |
|
|
|
The company is required to make interest only payments on any drawn funds beginning in January 2010 based on a variable interest rate of 4.0% plus the greater of the one month LIBOR Rate or 2.0% (6% at December 31, 2010) until maturity, September 15, 2015 when the amount of unpaid principal balance and all other amounts due shall be due. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment until September 15, 2015. As of December 31, 2010 and 2009, the company has $6,000,000 and $0 drawn under this line of credit. |
NOTE F: MEMBERS EQUITY
|
|
|
The company was formed on March 6, 2006 as an Iowa Limited Liability Company and has a perpetual life. The companys ownership is divided into four classes of units: Class A, B, C and D membership units. The profits and losses of the company will be allocated among the unit holders in proportion to the total units held. Distributions will be made to unit holders in proportion to the total units held. Each member is entitled to one vote for each unit held as to matters submitted to the membership. |
|
|
|
The Class A member appoints eleven directors, Class B members appoint eight directors and Class C members appoint two directors to the board of directors. The total number of directors appointed by the Class A members shall increase by one director for each additional Class B, Class C or Class D director appointed under the terms of the operating agreement. |
- 21 -
NOTE F: MEMBERS EQUITY (continued)
|
|
|
As of December 31, 2010, there are eleven Class A, eight Class B and two Class C directors. Transfer of the units is restricted pursuant to the operating agreement and to the applicable tax and securities laws and requires approval of the board of managers. |
|
|
|
As of December 31, 2010 and 2009, the company had 359 and 363 members and the following membership units issued, respectively: |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Class A |
|
|
5,033.40 |
|
|
5,033.40 |
|
Class B |
|
|
3,666.00 |
|
|
3,666.00 |
|
Class C |
|
|
3,500.00 |
|
|
3,500.00 |
|
Class D |
|
|
8,455.00 |
|
|
8,455.00 |
|
|
|
|
|
|
|
|
|
|
|
|
20,654.40 |
|
|
20,654.40 |
|
|
|
|
|
|
|
|
|
NOTE G: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
The following is a schedule of supplemental disclosure of cash flow information for the years ended December 31, 2010 and 2009: |
|
|
|
|
|
|
|
|
|
|
2010 |
|
2008 |
|
||
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid for interest (net of capitalized interest of $0 and $84,619 in 2010 and 2009, respectively) |
|
$ |
8,891,717 |
|
$ |
3,206,237 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable incurred for construction in progress |
|
$ |
18,041 |
|
$ |
243,382 |
|
|
|
|
|
|
|
|
|
Acquisition of net assets of RBF Acquisition III, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired |
|
|
|
|
|
|
|
Inventories |
|
$ |
|
|
$ |
1,523,926 |
|
Property and equipment |
|
|
|
|
|
94,476,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
$ |
|
|
$ |
96,000,000 |
|
|
|
|
|
|
|
|
|
- 22 -
NOTE H: CONCENTRATIONS
|
|
|
The company has an ethanol marketing agreement with an unrelated party which covers the entire ethanol marketing for the company. The agreement is renewed annually for one year terms, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement with a minimum and maximum cost per gallon. The ethanol could be marketed by other marketers without any significant effect on operations. |
|
|
|
In August 2009, the company entered into a co-products marketing agreement with an unrelated party which covers all of the distillers grain marketing for Big River United Energy, LLC. The initial term of the agreement ended August 2010 and was automatically extended for an additional one year term and shall automatically extend thereafter, unless with either party provides a 90 day written notice of termination. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement. |
NOTE I: EMPLOYEE BENEFIT PLAN
|
|
|
The company has a defined contribution plan which covers full-time employees who meet age and length of service eligibility requirements. The company matches the participants contribution up to a maximum of 4% of wages. For the years ended December 31, 2010 and 2009, company matching contributions to the plan were $290,314 and $162,231, respectively. |
NOTE J: EQUITY-BASED COMPENSATION
|
|
|
In 2009, the company approved an equity-based compensation plan which provides for the issuance of unit options to purchase an aggregate of 123 units of the company to members of the board of directors and management for the purpose of providing services to facilitate the completion of the construction of Galvas ethanol plant. The unit options were issued in August 2009 and were exercisable at purchase prices between $1 and $5,000 per unit until October 2009. |
|
|
|
The following assumptions were used to estimate the fair values of the options granted using the BSM option-pricing formula: The risk-free interest rate of 0.1% to 0.03% is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of 3 months and the expected volatility of 70.27% are based on the average reported lives and volatilities of a representative sample of a comparable company in the ethanol industry sector. The intrinsic value is calculated as the difference between the $5,000 per unit exercise price of the options and the $5,900 estimated current fair market value. |
|
|
|
In October 2009, the members exercised 84 unit options and the company issued 84 Class D membership units for a total contribution of $355,013. |
- 23 -
NOTE J: EQUITY-BASED COMPENSATION (continued)
|
|
|
The following table summarizes the activity for outstanding options of the company: |
|
|
|
|
|
|
|
|
|
|
Issuable |
|
Average |
|
||
|
|
|
|
|
|
||
Balance at December 31, 2008 |
|
|
10 |
|
$ |
5,000 |
|
Granted |
|
|
123 |
|
|
4,472 |
|
Exercised |
|
|
(84 |
) |
|
4,226 |
|
Canceled/forfeited/expired |
|
|
(49 |
) |
|
5,000 |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Vested and exercisable as of December 31, 2010 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
NOTE K: LEASES
|
|
|
The company leases rail cars under a long-term operating lease agreement expiring at various dates through May 2014. The company is required to pay executory costs such as maintenance and insurance. Minimum fixed future lease payments consist of: |
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
||||
2011 |
|
$ |
4,871,213 |
|
2012 |
|
|
4,189,631 |
|
2013 |
|
|
2,457,345 |
|
2014 |
|
|
618,920 |
|
|
|
|
|
|
Total minimum future lease payments |
|
$ |
12,137,109 |
|
|
|
|
|
|
|
|
|
Total rent expense
of $4,522,014 and $3,420,803 was incurred in 2010 and 2009,
respectively. |
NOTE L: RELATED PARTY TRANSACTIONS
|
|
|
The company purchases corn from the patrons of one of the members of the company. The corn supply could be purchased from other suppliers without any significant effect on operations. The company also purchased corn totaling $536,896 from one of the non controlling interest members during the year ended December 31, 2010. |
- 24 -
NOTE M: COMMITMENTS AND CONTINGENCIES
|
|
|
Substantially all of the companies facilities are subject to federal, state, and local regulations relating to the discharge of materials into the environment. Compliance with these provisions has not had, nor does management expect to have, any material effect upon operations. Management believes that the current practices and procedures for the control and disposition of such wastes will comply with the applicable federal and state requirements. |
|
|
|
In September 2010, the company entered into a sponsorship agreement in which it made a $250,000 sponsorship payment in September 2010 for the 2011 race season. The agreement requires an initial term of six years and shall automatically renew for a single three year renewal term unless terminated by either party with a written notice of termination at least one hundred-eighty days before the end of the then-current term. The annual fee shall increase by $11,500 each subsequent year during the term of this agreement. |
|
|
|
BIG RIVER RESOURCES WEST BURLINGTON, LLC |
|
|
|
The company has issued unsecured promissory notes for the specific purpose of letter of credits totaling $577,778, which expire through September 2011, as security of certain debts. There is no amount drawn against these promissory notes as of December 31, 2010. |
|
|
|
In January 2010, GS Clean Tech Corp. filed a lawsuit against Big River Resources West Burlington, LLC in the U.S. District Court for infringement rights on its patent covering corn oil extraction technology. On July 1, 2009, Big River Resources Galva, LLC entered into a Corn Oil Tricanter Purchase and Installation Agreement with ICM, Inc. This agreement includes an indemnification clause that holds Big River Resources West Burlington, LLC and Big River Resources Galva, LLC harmless from all claims, liabilities, and costs including attorney fees arising out of the infringement of adversely owned patents. However, if GS Clean Tech Corp. were to prevail in this lawsuit and ICM, Inc. was not able to pay the claims, the company would be liable for any amounts not paid by ICM, Inc. under the indemnification clause. Due to this indemnification clause, the company does not expect to incur any costs related to the litigation and no liability has been recorded as of December 31, 2010. |
|
|
|
BIG RIVER RESOURCES GALVA, LLC |
|
|
|
In October 2006, the company entered into a development agreement with the City of Kewanee for the extension of the Enterprise Zone, to include land east of Galva upon which the company intends to construct the ethanol facility. The company was obligated to compensate the City of Kewanee an amount equal to 20% of the gross value of any retailers occupation tax exemption for which the company is eligible. Based on construction cost estimates at the time of execution of the agreement, an amount of $300,000 was estimated and paid within three months after the completion of construction. |
- 25 -
NOTE M: COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
BIG RIVER RESOURCES GALVA, LLC |
|
|
|
In addition, the company is obligated to pay an amount equal to 20% of the gross value of the state use tax exemption that results from the purchase of any utility product, commodity or resource that such tax may be exempted from under the regulations of the enterprise zone before an extension and as it may be amended. Based on the estimated usage of natural gas at the time of the execution of the agreement, an amount of $160 per year is estimated to be payable in quarterly installments. The term of the agreement commenced on the date of execution and shall expire December 31, 2017. For the years ended December 31, 2010 and 2009, the company made payments totaling $160,000 and $406,668, respectively under this agreement. |
|
|
|
BIG RIVER UNITED ENERGY, LLC |
|
|
|
In September 2010, the company entered into a sponsorship agreement in which it made a $125,000 sponsorship payment in September 2010 for the 2011 race season. The agreement requires an initial term of six years and shall automatically renew for a single three year renewal term unless terminated by either party with a written notice of termination at least one hundred-eighty days before the end of the then-current term. The annual fee shall increase by $6,000 each subsequent year during the term of this agreement. |
|
|
|
In addition to the forward contracts marked to market and identified as derivative instruments, the company has entered into unpriced forward ethanol sales contracts for delivery in 2011 of approximately 93,531,000 gallons. |
NOTE N: SUBSEQUENT EVENTS
|
|
|
In preparing these financial statements, the company has evaluated events and transactions for potential recognition or disclosure through February 8, 2011, the date the financial statements were available to be issued. |
- 26 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2009 and 2008
CHRISTIANSON & ASSOCIATES,
PLLP
Certified Public Accountants and Consultants
Willmar, Minnesota
TABLE OF CONTENTS
|
|
|
|
|
PAGE NO |
|
|
|
INDEPENDENT AUDITORS REPORT |
|
1 |
|
|
|
FINANCIAL STATEMENTS |
|
|
|
|
|
Consolidated Balance Sheets |
|
2 |
|
|
|
Consolidated Statements of Operations |
|
4 |
|
|
|
Consolidated Statements of Members Equity |
|
5 |
|
|
|
Consolidated Statements of Cash Flows |
|
6 |
|
|
|
Notes to the Consolidated Financial Statements |
|
7 |
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Big River Resources, LLC
West Burlington, Iowa
We have audited the accompanying consolidated balance sheets of Big River Resources, LLC (an Iowa limited liability company) as of December 31, 2009 and 2008 and the related consolidated statements of operations, members equity, and cash flows for the years then ended. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Big River Resources, LLC as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Christianson & Associates, PLLP
Certified Public Accountants and Consultants
February 18, 2010
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
40,271,218 |
|
$ |
50,247,424 |
|
Receivables |
|
|
|
|
|
|
|
Trade |
|
|
24,881,446 |
|
|
7,950,981 |
|
Other |
|
|
1,416,008 |
|
|
740,643 |
|
Inventories |
|
|
29,271,292 |
|
|
16,860,159 |
|
Prepaid expenses |
|
|
2,998,615 |
|
|
543,570 |
|
Derivative instruments |
|
|
2,871,140 |
|
|
955,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
101,709,719 |
|
|
77,298,011 |
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT |
|
|
|
|
|
|
|
Land and land improvements |
|
|
31,916,240 |
|
|
11,843,686 |
|
Building structure |
|
|
62,762,668 |
|
|
11,528,933 |
|
Grain equipment |
|
|
30,901,632 |
|
|
18,830,022 |
|
Process equipment |
|
|
273,491,957 |
|
|
99,510,783 |
|
Other equipment |
|
|
6,221,051 |
|
|
1,389,133 |
|
Construction in progress |
|
|
587,425 |
|
|
136,378,693 |
|
|
|
|
|
|
|
|
|
|
|
|
405,880,973 |
|
|
279,481,250 |
|
Accumulated depreciation |
|
|
(40,617,012 |
) |
|
(22,828,998 |
) |
|
|
|
|
|
|
|
|
|
|
|
365,263,961 |
|
|
256,652,252 |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
Investments |
|
|
4,208,902 |
|
|
4,128,237 |
|
Other assets |
|
|
200,000 |
|
|
|
|
Covenant not to compete, net of amortization |
|
|
33,333 |
|
|
83,333 |
|
Financing costs, net of amortization |
|
|
1,963,163 |
|
|
1,888,714 |
|
|
|
|
|
|
|
|
|
|
|
|
6,405,398 |
|
|
6,100,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
473,379,078 |
|
$ |
340,050,547 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
- 2 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
||
LIABILITIES AND MEMBERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Payables |
|
|
|
|
|
|
|
Trade |
|
$ |
8,539,833 |
|
$ |
7,284,621 |
|
Grain |
|
|
7,969,243 |
|
|
8,641,900 |
|
Construction |
|
|
243,382 |
|
|
7,724,204 |
|
Accrued loss on firm purchase commitments |
|
|
|
|
|
4,941,011 |
|
Accrued expenses |
|
|
5,083,871 |
|
|
1,366,886 |
|
Current maturities of long-term debt |
|
|
24,325,696 |
|
|
11,679,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
46,162,025 |
|
|
41,638,006 |
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, less current maturities |
|
|
176,754,976 |
|
|
77,237,342 |
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY |
|
|
238,932,449 |
|
|
220,364,253 |
|
MINORITY INTEREST |
|
|
11,529,628 |
|
|
810,946 |
|
|
|
|
|
|
|
|
|
|
|
|
250,462,077 |
|
|
221,175,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND MEMBERS EQUITY |
|
$ |
473,379,078 |
|
$ |
340,050,547 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
- 3 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
SALES |
|
$ |
448,145,300 |
|
$ |
343,697,815 |
|
|
|
|
|
|
|
|
|
COST OF SALES |
|
|
404,828,503 |
|
|
308,962,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
43,316,797 |
|
|
34,734,944 |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
General and administrative |
|
|
10,173,451 |
|
|
7,059,826 |
|
Long-lived asset impairment |
|
|
|
|
|
5,778,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS |
|
|
33,143,346 |
|
|
21,897,037 |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
Gain on sale of construction time slot |
|
|
|
|
|
500,000 |
|
Interest income |
|
|
109,158 |
|
|
965,799 |
|
Interest expense |
|
|
(4,844,667 |
) |
|
(1,744,727 |
) |
Other income (expense) |
|
|
536,314 |
|
|
(40,957 |
) |
|
|
|
|
|
|
|
|
|
|
|
(4,199,195 |
) |
|
(319,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE MINORITY INTEREST |
|
|
28,944,151 |
|
|
21,577,152 |
|
|
|
|
|
|
|
|
|
MINORITY INTEREST IN SUBSIDIARYS (INCOME) LOSS |
|
|
(3,718,682 |
) |
|
2,963,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
25,225,469 |
|
$ |
24,540,160 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
- 4 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF MEMBERS EQUITY
December 31, 2009 and 2008
|
|
|
|
|
Balance - December 31, 2007 |
|
$ |
200,482,209 |
|
|
|
|
|
|
Exercise of unit options, issuance of 67 membership units |
|
|
335,000 |
|
|
|
|
|
|
Issuance of employee unit options |
|
|
149,484 |
|
|
|
|
|
|
Distributions to members |
|
|
(5,142,600 |
) |
|
|
|
|
|
Net income |
|
|
24,540,160 |
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2008 |
|
|
220,364,253 |
|
|
|
|
|
|
Exercise of unit options, issuance of 84 membership units |
|
|
355,013 |
|
|
|
|
|
|
Issuance of employee unit options |
|
|
216,754 |
|
|
|
|
|
|
Distributions to members |
|
|
(7,229,040 |
) |
|
|
|
|
|
Net income |
|
|
25,225,469 |
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2009 |
|
$ |
238,932,449 |
|
|
|
|
|
|
See notes to consolidated financial statements.
- 5 -
BIG RIVER RESOURCES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
||
OPERATING ACTIVITIES |
|||||||
Net income |
|
$ |
25,225,469 |
|
$ |
24,540,160 |
|
Charges to net income not affecting cash |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
18,136,930 |
|
|
8,760,436 |
|
Long-lived asset impairment |
|
|
|
|
|
5,778,081 |
|
Loss on firm purchase commitments |
|
|
(4,941,011 |
) |
|
4,941,011 |
|
Compensation recognized from stock options |
|
|
216,754 |
|
|
149,484 |
|
Loss (gain) on derivative instruments |
|
|
6,307,451 |
|
|
(26,555,953 |
) |
Deferred income |
|
|
|
|
|
(500,000 |
) |
Investment earnings |
|
|
(80,665 |
) |
|
(1,360 |
) |
Minority interest in subsidiaries gain (loss) |
|
|
3,718,682 |
|
|
(2,963,008 |
) |
(Increase) decrease in current assets |
|||||||
Receivables |
|
|
(17,605,830 |
) |
|
(2,741,723 |
) |
Inventories |
|
|
(10,887,207 |
) |
|
1,996,209 |
|
Net cash (paid) refunded on derivative instruments |
|
|
(8,223,357 |
) |
|
25,915,907 |
|
Prepaid expenses |
|
|
(2,455,045 |
) |
|
(63,991 |
) |
Increase (decrease) in current liabilities |
|
|
|
|
|
|
|
Accounts payable |
|
|
582,555 |
|
|
8,796,168 |
|
Accrued expenses |
|
|
3,716,985 |
|
|
878,155 |
|
Distributions payable |
|
|
|
|
|
(4,100,680 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
13,711,711 |
|
|
44,828,896 |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Payments for deposits |
|
|
(200,000 |
) |
|
|
|
Purchase of property and equipment |
|
|
(39,464,390 |
) |
|
(137,385,506 |
) |
Refund of investment |
|
|
|
|
|
5,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(39,664,390 |
) |
|
(132,385,506 |
) |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from long-term debt borrowings |
|
|
42,466,580 |
|
|
95,401,005 |
|
Net payments on long-term revolving loan |
|
|
(7,000,000 |
) |
|
|
|
Principal payments on long-term debt borrowings |
|
|
(19,302,634 |
) |
|
(7,081,279 |
) |
Payment for financing costs |
|
|
(313,446 |
) |
|
(1,296,798 |
) |
Member contributions |
|
|
355,013 |
|
|
335,000 |
|
Minority investment |
|
|
7,000,000 |
|
|
|
|
Distribution to member |
|
|
(7,229,040 |
) |
|
(5,142,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
15,976,473 |
|
|
82,215,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(9,976,206 |
) |
|
(5,341,282 |
) |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - beginning of year |
|
|
50,247,424 |
|
|
55,588,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - end of year |
|
$ |
40,271,218 |
|
$ |
50,247,424 |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
- 6 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
NATURE OF BUSINESS - Big River Resources, LLC, its wholly-owned subsidiaries, Big River Resources West Burlington, LLC (West Burlington), Big River Resources Galva, LLC (Galva), Big River Resources Quincy, LLC (Quincy), its 50% joint venture Big River Resources Grinnell, LLC (Grinnell) and its 50.5% ownership in Big River United Energy, LLC, (collectively, the company) are limited liability companies. |
|
|
|
West Burlington owns and operates an ethanol plant located in West Burlington, Iowa with an annual production nameplate capacity of 92 million gallons that produces ethanol, non-food grade corn oil and distiller grains for commercial sales throughout the United States. West Burlington operates a grain elevator near Monmouth, Illinois (Monmouth) which buys corn and soybeans from farmers as a reserve corn supply to the ethanol operation in West Burlington, Iowa and for soybean sales throughout the United States. |
|
|
|
Galva owns and operates an ethanol plant located near Galva, Illinois with an annual nameplate capacity of 100 million gallons that produces ethanol, non-food grade corn oil and distiller grains for commercial sales throughout the United States. As of December 31, 2008, the company was in the development stage with its efforts being principally devoted to grain merchandising and construction activities related to the ethanol plant. Construction was completed and the ethanol plant became operational in May 2009. |
|
|
|
Grinnell is a development stage company that was organized to construct an ethanol plant near Grinnell, Iowa with a planned annual nameplate capacity of 100 million. As of December 31, 2009, the company has no formal plans to develop the plant. |
|
|
|
Quincy was a development stage company with no operations. In November 2008, the Board of Directors approved a resolution to dissolve Quincy and distributed the net assets to Big River Resources, LLC. |
|
|
|
Big River United Energy, LLC was formed on August 1, 2009 to acquire and operate an ethanol plant located in Dyersville, Iowa with an annual production nameplate capacity of 100 million gallons of denatured ethanol. The company began production of ethanol and distiller grains for commercial sales throughout the United States on September 16, 2009. |
|
|
|
In September 2009, the company executed a purchase agreement with RBF Acquisition III, LLC to purchase substantially all of the assets of the Dyersville, Iowa ethanol plant which was formerly owned by VeraSun Energy Corporation for a price of $96,000,000. |
|
|
|
The following shows the allocations of the purchase consideration at the closing: |
|
|
|
|
|
Inventories |
|
$ |
1,523,926 |
|
Property and equipment |
|
|
94,476,074 |
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
$ |
|
|
|
|
|
|
|
- 7 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
PRINCIPALS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Big River Resources, LLC, and its subsidiaries. All significant intercompany account balances and transactions have been eliminated. |
|
|
|
The company accounts for its investment in Grinnell on a consolidated basis because it is a variable interest entity and the company is its primary beneficiary. |
|
|
|
FISCAL REPORTING PERIOD - The company has adopted a fiscal year ending December 31 for reporting financial operations. |
|
|
|
USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. |
|
|
|
REVENUE RECOGNITION - Revenues from the production of ethanol, distillers grains, corn oil and grain merchandising are recorded at the time title to the goods and all risks of ownership transfers to customers. Ethanol, distillers grains and corn oil are generally shipped FOB shipping point. Shipping and handling charges to customers are included in revenues. |
|
|
|
CASH AND CASH EQUIVALENTS - The company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. |
|
|
|
TRADE RECEIVABLES - The company has engaged the services of a national marketer to sell substantially all of its ethanol production and the majority of the distillers produced at Big River United Energy, LLC. The marketer handles nearly all sales functions including billing, logistics, and sales pricing. Once product is shipped, the marketer assumes the risk of payment from the consumer and handles all delinquent payment issues. In 2008, the company terminated its distiller grain marketing agreement at West Burlington and began marketing its own local truck distiller grains. The company generally bills weekly with payments due within 10 days of the invoice date, and considers accounts older than 120 days to be delinquent and would generally initiate collection procedures. If the collection procedures have not provided collection within one year of the invoice date, management generally will write off the account as a bad debt. Trade receivables are recorded net of anticipated uncollectible amounts. As of December 31, 2009 and 2008, there was no allowance for uncollectible amounts. |
|
|
|
INVENTORIES - The ethanol, ethanol production in process, parts, chemicals and ingredients, and corn inventories are valued at the lower of cost (average cost method) or market. Soybeans and corn held at the elevator are recorded at net realizable value. |
- 8 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
CONCENTRATIONS OF CREDIT RISK - The company extends credit to its customers in the ordinary course of business. The company performs periodic credit evaluations of its customers and generally does not require collateral. The companys operations may vary with the volatility of the commodity and ethanol markets. The companys cash balances are maintained in bank depositories and periodically exceed federally insured limits. |
|
PROPERTY AND EQUIPMENT - Property and equipment are stated at the lower of cost or fair value. Significant additions and betterments are capitalized with expenditures for maintenance, repairs and minor renewals being charged to operations as incurred. Depreciation is computed using the straight-line method over the following estimated useful lives: |
|
|
|
|
Land improvements |
|
1520 years |
|
Building structure |
|
1020 years |
|
Grain equipment |
|
515 years |
|
Process equipment |
|
520 years |
|
Other equipment |
|
515 years |
|
|
Construction in progress includes all expenditures directly related to the fermenters automated control system at the West Burlington plant, the distiller grains container loading system at the Galva plant and fermentation system at the Big River United Energy, LLC plant. These expenditures will be depreciated using the straight-line method over various estimated useful lives once the assets are placed into service. |
|
The company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the undiscounted future cash flows is less than the carrying amount of the asset. The amount of the loss is determined by comparing the fair market values of the asset to the carrying amount of the asset. At December 31, 2008, fair value of the land asset at Grinnell was estimated using the sales comparison, cost and market approaches which were included in an asset appraisal performed in 2008. The resulting long-lived asset impairment expense of $5,778,081 is included in loss from operations on the statement of operations at December 31, 2008. |
|
DERIVATIVE INSTRUMENTS - The company recognizes its derivatives in the balance sheet and measures these instruments at fair value. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. |
- 9 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
DERIVATIVE INSTRUMENTS (continued) - Additionally, the company evaluates its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period of time in the normal course of business. |
|
Effective January 1, 2009, the company has elected to record its forward purchase and sales commitments at fair value as derivative instruments which the company believes to represent more accurate financial reporting. These contracts are marked to market as an asset or liability and a corresponding gain or loss is recognized for the change in market value. |
|
FINANCING COSTS - Financing costs are recorded at cost and include expenditures directly related to securing debt financing. Amortization is computed using the straight-line method over the loans terms from six to eight years. |
|
DEPOSITS - Deposits include monies deposited for a distilled spirits bond and is recorded at the scheduled recoverable value. |
|
INVESTMENTS - Investments include stock in a lending cooperative bank and membership units in an ethanol plant located in Mitchell County, Iowa. The stock in a lending cooperative bank is recorded under the equity method which records the companys share of the allocated earnings and distributions. The membership units in the ethanol plant are recorded at cost. |
|
FAIR VALUE OF FINANCIAL INSTRUMENTS - Effective January 1, 2009, the company adopted, Fair Value Measurements Topic and Fair Value Option for Financial Assets and Financial Liabilities Topic of the FASB Accounting Codification, as they apply to its financial instruments. Fair Value Measurements defines fair value, outlines a framework for measuring fair value, and details the required disclosures about fair value measurements. Fair Value Option for Financial Assets and Financial Liabilities permits companies to irrevocably choose to measure certain financial instruments and other items at fair value. Fair Value Option for Financial Assets and Financial Liabilities also establishes presentation and disclosure requirements designed to facilitate comparison between entities that choose different measurement attributes for similar types of assets and liabilities. |
- 10 -
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) - Under Fair Value Measurements, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. Fair Value Measurements establishes a hierarchy in determining the fair value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Fair Value Measurements requires the utilization of the lowest possible level of input to determine fair value. Level 1 inputs include quoted market prices in an active market for identical assets or liabilities. Level 2 inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data. Level 3 inputs are unobservable and corroborated by little or no market data. |
|
|
|
Except for those assets and liabilities which are required by authoritative accounting guidance to be recorded at fair value in its balance sheets, the company has elected not to record any other assets or liabilities at fair value, as permitted by Fair Value Option for Financial Assets and Financial Liabilities. |
|
|
|
No events occurred during the year ended December 31, 2009 that would require adjustment to the recognized balances of assets or liabilities which are recorded at fair value on a nonrecurring basis. The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximates fair value. It is not currently practicable to estimate the fair value of the debt financing. Because these agreements contain certain unique terms, covenants, and restrictions, as discussed in Note E, there are no readily determinable similar instruments on which to base an estimate of fair value. The company estimates that the fair value of all financial instruments at December 31, 2009 approximates their carrying values in the accompanying balance sheet. |
|
|
|
COVENANT NOT TO COMPETE - The company established a non-compete agreement with the former owners of the elevator at the acquisition date. The agreement requires annual payments of $50,000 for 5 years in exchange for the former owners compliance with the agreement. The intangible asset is being amortized over the 5 year term of the agreement using the straight-line method. |
|
|
|
INCOME TAXES - The company is organized as a limited liability company under state law and is treated as a partnership for income tax purposes. Under this type of organization, the companys earnings pass through to the members and are taxed at the member level. The company is required to pay taxes to the State of Illinois. |
|
|
|
STOCK-BASED COMPENSATION The company accounts for stock-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the company using a fair value based method. The company uses the Black-Scholes-Merton (BSM) option-pricing model to determine the fair value of stock-based awards. |
- 11 -
|
|
|
|
|
|
|
|
|
|
NOTE B: INVENTORIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
2009 |
|
2008 |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Ethanol |
|
$ |
5,046,540 |
|
$ |
1,549,548 |
|
|
Ethanol in process |
|
|
4,837,774 |
|
|
1,718,150 |
|
|
Distiller grains |
|
|
947,668 |
|
|
165,889 |
|
|
Corn |
|
|
9,048,762 |
|
|
2,781,904 |
|
|
Corn Oil |
|
|
43,176 |
|
|
31,694 |
|
|
Repair parts |
|
|
1,901,817 |
|
|
1,377,200 |
|
|
Chemicals and ingredients |
|
|
1,199,794 |
|
|
394,209 |
|
|
Corn and soybeans held at elevators |
|
|
6,245,761 |
|
|
8,841,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29,271,292 |
|
$ |
16,860,159 |
|
|
|
|
|
|
|
|
|
|
|
|
NOTE C: DERIVATIVE INSTRUMENTS |
|
|
|
|
The company enters into derivative transactions to hedge its exposure to commodity price fluctuations. The company does not enter into derivative transactions for trading or speculative purposes. |
|
|
|
The company, as a holder of derivative instruments, is required to provide qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. |
|
|
|
During 2009 and 2008, the company entered into corn, distillers grains, corn oil, natural gas, and ethanol derivative instruments. The company is required to record derivative financial instruments as either assets or liabilities at fair value in the statement of financial position. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. Furthermore, the company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge, or a hedge against foreign currency exposure. |
|
|
|
Commodity Contracts |
|
|
|
The company hedges a portion of its future corn purchases and ethanol sales as well as its elevator corn and soybean purchases and sales to the extent considered necessary for minimizing risk from market price fluctuations. In connection with the execution of forward contracts at its ethanol plant and elevator operations, the company normally elects to create a hedging relationship by executing an exchange traded futures contract as an offsetting position. In this situation, the forward contract is valued at market price until delivery is made against the contract. The amounts recorded on the balance sheet represent the current fair market value of the instruments as determined by the broker with adjustments made by management for local basis. |
- 12 -
|
|
NOTE C: DERIVATIVE INSTRUMENTS (continued) |
|
|
|
|
These derivatives are not designated as hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Management expects all open positions outstanding as of December 31, 2009 to be realized within the next fiscal year. |
|
|
|
The open derivative instruments as of December 31, 2009 are as follows: |
|
|
|
|
|
|
Ethanol Plants |
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
|
|
|
Corn |
|
15,274,000 |
|
Bu |
|
|
|
|
|
|
|
Forward sales contracts |
|
|
|
|
|
Ethanol |
|
13,354,000 |
|
Gal |
|
Distillers grains |
|
83,000 |
|
Ton |
|
Corn Oil |
|
1,798,000 |
|
Pounds |
|
|
|
|
|
|
|
Positions on the Chicago Board of Trade |
|
|
|
|
|
Corn (short) |
|
7,985,000 |
|
Bu |
|
Ethanol (short) |
|
19,411,500 |
|
Gal |
|
|
|
|
|
|
|
Grain Elevator |
|
|
|
|
|
|
|
|
|
|
|
Forward purchase contracts |
|
|
|
|
|
Corn |
|
330,000 |
|
Bu |
|
Soybeans |
|
50,000 |
|
Bu |
|
|
|
|
|
|
|
Forward sales contracts |
|
|
|
|
|
Corn |
|
550,000 |
|
Bu |
|
Soybeans |
|
30,000 |
|
Bu |
|
|
|
|
|
|
|
Positions on the Chicago Board of Trade |
|
|
|
|
|
Corn (short) |
|
1,180,000 |
|
Bu |
|
Soybeans (short) |
|
190,000 |
|
Bu |
|
|
|
|
The following tables provide details regarding the companys derivative financial instruments at December 31, 2009, none of which are designated as hedging instruments: |
- 13 -
NOTE C: DERIVATIVE INSTRUMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet location |
|
Assets |
|
Liabilities |
|
||
|
|
|
|
|
|
|
|
|
||
|
Commodity contracts |
|
Derivative instruments |
|
$ |
2,871,140 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of |
|
Gain (loss) recognized for the year |
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
Cost of sales |
|
$ |
(6,307,451 |
) |
|
|
|
|
|
|
|
|
NOTE D: FAIR VALUE MEASUREMENTS |
|||||||
|
|
|
|
|
|
|
|
|
The following table provides information on those assets measured at fair value on a recurring basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value |
|
Quoted |
|
Significant |
|
Significant |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Financial Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
2,871,140 |
|
$ |
2,871,140 |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E: LONG-TERM DEBT |
|
|
|
|
|
|
|
|
|
|
West Burlington |
|
|
|
|
|
|
|
|
Construction and term loan, further terms detailed below. |
|
$ |
38,936,061 |
|
$ |
50,500,000 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $4,146 per month until January 2018 secured by letter of credit Note L. |
|
|
400,000 |
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Eastern Iowa Light and Power payable at $3,704 per month until July 28, 2014, secured by letter of credit Note L. |
|
|
211,111 |
|
|
255,556 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing note payable to Iowa Department of Economic Development payable at $1,750 per month until February 2010 when $106,750 is due, secured by substantially all assets of the company. |
|
|
108,500 |
|
|
127,750 |
|
- 14 -
NOTE E: LONG-TERM DEBT (continued)
|
|
|
|
|
|
|
|
|
|
West Burlington (continued) |
|
|
|
|
|
|
|
|
Non-interest bearing non-compete agreement payable at $50,000 per year until September 2010, unsecured. |
|
$ |
50,000 |
|
$ |
100,000 |
|
|
|
|
|
|
|
|
|
|
|
Galva |
|
|
|
|
|
|
|
|
Construction and term loan, further terms detailed below. |
|
|
67,375,000 |
|
|
27,533,420 |
|
|
|
|
|
|
|
|
|
|
|
Construction and revolving loan, further terms detailed below. |
|
|
5,000,000 |
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
Big River United Energy, LLC |
|
|
|
|
|
|
|
|
Term loan, further terms detailed below. |
|
|
76,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving term loan, further terms detailed below. |
|
|
13,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,080,672 |
|
|
88,916,726 |
|
|
Current maturities |
|
|
(24,325,696 |
) |
|
(11,679,384 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
176,754,976 |
|
$ |
77,237,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Long-term debt maturities are as follows: |
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
$ |
24,325,696 |
|
2011 |
|
|
|
25,626,191 |
|
2012 |
|
|
|
26,832,540 |
|
2013 |
|
|
|
26,832,540 |
|
2014 |
|
|
|
17,837,762 |
|
Thereafter |
|
|
79,625,943 |
|
|
|
|
|
|
|
|
|
|
|
$ |
201,080,672 |
|
|
|
|
|
|
|
|
|
|
West Burlington |
|
|
|
The company entered into a credit agreement with CoBank to partially finance the construction of the plant expansion. Under the credit agreement, the lender has provided a construction and term loan for $55,000,000 and a construction and revolving term loan of $20,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
- 15 -
|
|
NOTE E: LONG-TERM DEBT (continued) |
|
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: agent base variable rate, quoted fixed per annum rate or a fixed rate of LIBOR plus 3.00% (3.5% at December 31, 2009). The company shall select the applicable rate option at the time of each loan request. Once the company has shown profitable operations and completed the $9,000,000 in free cash flow payments, the interest rate parameters will be decreased from 0.0% to minus 0.25% for the agent base variable rate option and from plus 3.00% to plus 2.75% for the LIBOR fixed rate option. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2009 and 2008, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Construction and term loan |
|
|
|
The company is required to make 24 quarterly principal installments of $2,250,000 beginning in August 2008 until May 2014 with a final installment in an amount equal to the remaining unpaid balance on August 2014. In addition to the required payments, the company, beginning with the fiscal year ending 2008 and ending with the fiscal year 2010, is required to make additional principal payments equal to 75% of the Companys excess cash flow as defined in the loan agreement not to exceed an aggregate total of $9,000,000. Based on the operating results for the year ended December 31, 2009, the company is required to make an additional principal payment of $2,930,839 in 2010 which is included in current maturities of long-term debt. |
|
|
|
Construction and revolving term loan |
|
|
|
The company is required to make semi-annual principal payments beginning on March 2015 until March 2017 of a reducing commitment amount as follows: |
|
|
|
|
|
|
|
|
|
|
Payment Date |
|
Commitment |
|
|
|
|
|
|
|
March 1, 2015 |
|
$ |
16,000,000 |
|
September 1, 2015 |
|
|
12,000,000 |
|
March 1, 2016 |
|
|
8,000,000 |
|
September 1, 2016 |
|
|
4,000,000 |
|
March 1, 2017 |
|
|
0 |
|
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment. As of December 31, 2009 and 2008, the company had no advances on this revolving term loan. |
- 16 -
|
|
NOTE E: LONG-TERM DEBT (continued) |
|
|
|
|
Galva |
|
|
|
In January 2008, the company entered into a credit agreement with CoBank to partially finance the construction of the plant. Under the credit agreement, the lender has provided a construction and term loan for $70,000,000 and a construction and revolving term loan of $20,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
|
|
For each of the loans, the company is required to pay interest monthly on the unpaid balance in accordance with one or more of the following interest rate options: agent base variable rate, quoted fixed per annum rate or a fixed rate of LIBOR plus 3.25% (3.75% at December 31, 2009). The company shall select the applicable rate option at the time of each loan request. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions and capital expenditures, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2009 and 2008, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Construction and term loan |
|
|
|
The company is required to make 25 quarterly principal installments of $2,625,000 beginning in December 2009 until December 2015 with a final installment in an amount equal to the remaining unpaid balance in January 2016. In addition to the required payments, beginning with the fiscal year ending 2009, the company is required to make additional principal payments equal to 75% of the companys excess cash flow as defined in the loan agreement. Based on the operating results for the year ended December 31, 2009, the company is required to make an additional principal payment of $1,641,912 in 2010, which is included in current maturities of long-term debt. |
|
|
|
Construction and revolving term loan |
|
|
|
The company is required to repay the outstanding loan balance at the time the commitment expires on June 1, 2016. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment. |
- 17 -
|
|
NOTE E: LONG-TERM DEBT (continued) |
|
|
|
|
Big River United Energy, LLC |
|
|
|
The company entered into a credit agreement with AgStar to finance the purchase of the plant. Under the credit agreement, the lender has provided a term loan for $76,000,000, a term revolving loan of $20,000,000 and a revolving line of credit of $12,000,000. The loans are secured by substantially all assets and mortgage on real estate. |
|
|
|
The loans described above are subject to a common credit agreement with various financial and non-financial covenants that limit distributions, require minimum debt service coverage, net worth and working capital requirements. As of December 31, 2009, the company was in compliance with all financial and non-financial covenants. |
|
|
|
Specific terms for each loan are as follows: |
|
|
|
Term loan |
|
|
|
The company is required to make interest only payments beginning in January 2010 based on a variable interest rate of 3.0% plus the greater of the LIBOR Rate or 2.0% (5% at December 31, 2009) until March 2011. Monthly principal and interest installments begin in April 2011 with a final installment in an amount equal to the remaining unpaid balance on September 15, 2015. |
|
|
|
Revolving term loan |
|
|
|
The company is required to make interest only payments beginning in January 2010 based on a variable interest rate of 3.0% plus the greater of the LIBOR Rate or 2.0% (5% at December 31, 2009) until maturity, September 15, 2015, when the amount of unpaid principal balance shall be payable in full. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment until September 15, 2015. |
|
|
|
Revolving Line of Credit |
|
|
|
The company is required to make interest only payments on any drawn funds beginning in January 2010 based on a variable interest rate of 4.0% plus the greater of the LIBOR Rate or 2.0% (6% at December 31, 2009) until maturity, September 15, 2015 when the amount of unpaid principal balance and all other amounts due shall be due. |
|
|
|
In addition, the company agrees to pay a monthly commitment fee at a rate of 0.5% of the average daily unused portion of the commitment until September 15, 2015. As of December 31, 2009, the company has no funds drawn under this line of credit. |
- 18 -
|
|
NOTE F: MEMBERS EQUITY |
|
|
|
|
The company was formed on March 6, 2006 as an Iowa Limited Liability Company and has a perpetual life. The companys ownership is divided into four classes of units: Class A, B, C and D membership units. The profits and losses of the company will be allocated among the unit holders in proportion to the total units held. Distributions will be made to unit holders in proportion to the total units held. Each member is entitled to one vote for each unit held as to matters submitted to the membership. |
|
|
|
The Class A members appoint nine directors and Class B members appoint eight directors to the board of directors. Each member who holds 1,000 units is deemed to be a Class C unit holder and is entitled to appoint one director to the board of directors. The total number of directors appointed by the Class A members shall increase by one director for each additional Class C or Class D director appointed under the terms of the operating agreement. As of December 31, 2009, there are eleven Class A, eight Class B and two Class C directors. Transfer of the units is restricted pursuant to the operating agreement and to the applicable tax and securities laws and requires approval of the board of managers. |
|
|
|
As of December 31, 2009 and 2008, the company had the following membership units issued: |
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
Class A |
|
5,033.40 |
|
5,033.40 |
|
Class B |
|
3,666.00 |
|
3,666.00 |
|
Class C |
|
3,500.00 |
|
3,500.00 |
|
Class D |
|
8,455.00 |
|
8,371.00 |
|
|
|
|
|
|
|
|
|
20,654.40 |
|
20,570.40 |
|
|
|
|
|
|
|
- 19 -
NOTE G: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
The following is a schedule of supplemental disclosure of cash flow information for the years ended December 31, 2009 and 2008: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
||
|
|
|
|
|
|
||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash paid for interest (net of capitalized interest of $84,619 and $128,519 in 2009 and 2008, respectively) |
|
$ |
3,206,237 |
|
$ |
1,581,351 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Accounts payable incurred for construction in progress |
|
$ |
243,382 |
|
$ |
7,724,204 |
|
|
|
|
|
|
|
|
|
Amortization of financing costs capitalized a construction in progress |
|
$ |
|
|
$ |
23,514 |
|
|
|
|
|
|
|
|
|
Acquisition of net assets of RBF Acquisition III, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired |
|
|
|
|
|
|
|
Inventories |
|
$ |
1,523,926 |
|
$ |
|
|
Property and equipment |
|
|
94,476,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt |
|
$ |
96,000,000 |
|
$ |
|
|
|
|
|
|
|
|
|
NOTE H: CONCENTRATIONS
|
|
|
The company has an ethanol marketing agreement with an unrelated party which covers the entire ethanol marketing for the company. The agreement is renewed annually for one year terms, unless either party provides notice of non-renewal ninety days prior to the end of the then-current term. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement with a minimum and maximum cost per gallon. The ethanol could be marketed by other marketers without any significant effect on operations. |
|
|
|
In August 2009, the company entered into a co-products marketing agreement with an unrelated party which covers a majority of the distillers grain marketing for BIG RIVER UNITED ENERGY, LLC. The initial term of the agreement ends August 2010 and shall be automatically extended for additional one year terms thereafter, unless with either party provides a 90 day written notice of termination. The agreement requires payment of an agreed upon percentage of the net sales price as defined in the agreement. |
- 20 -
|
|
NOTE I: EMPLOYEE BENEFIT PLAN |
|
|
|
|
The company has a defined contribution plan which covers full-time employees who meet age and length of service eligibility requirements. The company matches the participants contribution up to a maximum of 4% of wages. For the years ended December 31, 2009 and 2008, company matching contributions to the plan were $162,231 and $101,773, respectively. |
|
|
NOTE J: EQUITY-BASED COMPENSATION |
|
|
|
|
In 2009, the company approved an equity-based compensation plan which provides for the issuance of unit options to purchase an aggregate of 123 units of the company to members of the board of directors and management for the purpose of providing services to facilitate the completion of the construction of Galvas ethanol plant. The unit options were issued in August 2009 and were exercisable at purchase prices between $1 and $5,000 per unit until October 2009. |
|
|
|
The following assumptions were used to estimate the fair values of the options granted using the BSM option-pricing formula: The risk-free interest rate of 0.1% to 0.03% is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of 3 months and the expected volatility of 70.27% are based on the average reported lives and volatilities of a representative sample of a comparable company in the ethanol industry sector. The intrinsic value is calculated as the difference between the $5,000 per unit exercise price of the options and the $5,900 estimated current fair market value. |
|
|
|
In October 2009, the members exercised 84 unit options and the company issued 84 Class D membership units for a total contribution of $355,013. |
|
|
|
In 2008, the company approved an equity-based compensation plan which provides for the issuance of unit options to purchase an aggregate of 75 units of the company to members of the board of directors for the purpose of providing services to facilitate the expansion of the West Burlington facilities to 92 million gallons annual production. The unit options were issued in July 2008. The unit options were exercisable at a purchase price of $5,000 per unit until September 2008. |
|
|
|
The following assumptions were used to estimate the fair values of the options granted using the BSM option-pricing formula: The risk-free interest rate of 1.82% is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of 3 months and the expected volatility of 43% are based on the average reported lives and volatilities of a representative sample of two comparable companies in the ethanol industry sector. The intrinsic value is calculated as the difference between the $5,000 per unit exercise price of the options and the $7,300 estimated current fair market value. |
|
|
|
In September 2008, the members exercised 60 unit options and the company issued 60 Class D membership units for a total equity contribution of $300,000. |
- 21 -
NOTE J: EQUITY-BASED COMPENSATION (continued)
|
|
|
The company recognized unit-based compensation expense of $216,754 and $149,484 for the years ended December 31, 2009 and 2008. |
|
|
|
The following table summarizes the activity for outstanding options of the company: |
|
|
|
|
|
|
|
|
|
|
Issuable |
|
Average |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
10 |
|
$ |
5,000 |
|
Granted |
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
Canceled/forfeited/expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
10 |
|
|
5,000 |
|
Granted |
|
123 |
|
|
4,472 |
|
Exercised |
|
84 |
|
|
4,226 |
|
Canceled/forfeited/expired |
|
49 |
|
|
5,000 |
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Vested and exercisable as of December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
NOTE K: LEASES
|
|
|
The company leases rail cars under a long-term operating lease agreement expiring at various dates through May 2014. The company is required to pay executory costs such as maintenance and insurance. Minimum fixed future lease payments consist of: |
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
|
2010 |
|
$ |
5,477,063 |
2011 |
|
|
5,460,713 |
2012 |
|
|
4,393,006 |
2013 |
|
|
2,458,845 |
2014 |
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|
358,920 |
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Total minimum future lease payments |
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$ |
18,148,547 |
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Total rent expense of $3,420,803 and $1,821,423 was incurred in 2009 and 2008, respectively. |
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NOTE L: COMMITMENTS AND CONTINGENCIES
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Substantially all of the companies facilities are subject to federal, state, and local regulations relating to the discharge of materials into the environment. Compliance with these provisions has not had, nor does management expect to have, any material effect upon operations. Management believes that the current practices and procedures for the control and disposition of such wastes will comply with the applicable federal and state requirements. |
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BIG RIVER RESOURCES WEST BURLINGTON, LLC |
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The company has construction in progress at December 31, 2009 for the fermenters automated control system at the West Burlington plant. At December 31, 2009, the company has outstanding commitments related to the construction in progress of approximately $438,000. |
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The company has issued unsecured promissory notes for the specific purpose of letter of credits totaling $622,222, which expire through September 2010, as security of certain debts. There is no amount drawn against these promissory notes as of December 31, 2009. |
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BIG RIVER RESOURCES GALVA, LLC |
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In October 2006, the company entered into a development agreement with the City of Kewanee for the extension of the Enterprise Zone, to include land east of Galva upon which the company intends to construct the ethanol facility. The company was obligated to compensate the City of Kewanee an amount equal to 20% of the gross value of any retailers occupation tax exemption for which the company is eligible. Based on construction cost estimates at the time of execution of the agreement, an amount of $300,000 was estimated and paid within three months after the completion of construction. In addition, the company is obligated to pay an amount equal to 20% of the gross value of the state use tax exemption that results from the purchase of any utility product, commodity or resource that such tax may be exempted from under the regulations of the enterprise zone before an extension and as it may be amended. Based on the estimated usage of natural gas at the time of the execution of the agreement, an amount of $160 per year is estimated to be payable in quarterly installments. The term of the agreement commenced on the date of execution and shall expire December 31, 2017. For the years ended December 31, 2009 and 2008, the company made payments totaling $406,668 and $0, respectively under this agreement. |
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NOTE M: SUBSEQUENT EVENTS |
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Subsequent to year end, GS Clean Tech Corp. has filed a lawsuit against Big River Resources West Burlington, LLC and Big River Resources Galva, LLC in the U.S. District Court for infringement rights on its patent covering corn oil extraction technology. On July 1, 2009, Big River Resources Galva, LLC entered into a Corn Oil Tricanter Purchase and Installation Agreement with ICM, Inc. This agreement includes an indemnification clause that holds Big River Resources West Burlington, LLC and Big River Resources Galva, LLC harmless from all claims, liabilities, and costs including attorney fees arising out of the infringement of adversely owned patents. Due to this indemnification clause, the company does not expect to incur any costs related to the litigation. As such, no liability has been recorded as of December 31, 2009. |
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In preparing these financial statements, the company has evaluated events and transactions for potential recognition or disclosure through February 18, 2010, the date the financial statements were available to be issued. |
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