Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - Advanced BioEnergy, LLC | Financial_Report.xls |
EX-32 - EX-32 - Advanced BioEnergy, LLC | c64714exv32.htm |
EX-31 - EX-31 - Advanced BioEnergy, LLC | c64714exv31.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended June 30, 2011 | ||
or
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission file number:
000-52421
ADVANCED BIOENERGY,
LLC
(Exact name of Registrant as
Specified in its Charter)
Delaware
|
20-2281511 | |
(State or Other Jurisdiction
of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
8000 Norman Center Drive, Suite 610
Bloomington, Minnesota 55437
(763) 226-2701
(Address, including zip code,
and telephone number, including area code, of Registrants
Principal Executive Offices)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files.) Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of August 12, 2011, the number of outstanding units was
24,714,180.
ADVANCED
BIOENERGY, LLC
FORM 10-Q
Index
2
Table of Contents
PART I.
FINANCIAL INFORMATION
Item 1. | Financial Statements |
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
June 30, |
September 30, |
|||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 20,036 | $ | 22,772 | ||||
Accounts receivable:
|
||||||||
Trade accounts receivable, net of allowance for doubtful
accounts of $255 at June 30, 2011 and September 30,
2010
|
16,686 | 13,519 | ||||||
Other receivables
|
898 | 1,543 | ||||||
Due from broker
|
369 | 252 | ||||||
Derivative financial instruments
|
| 314 | ||||||
Inventories
|
19,946 | 14,102 | ||||||
Prepaid expenses
|
1,998 | 2,666 | ||||||
Current portion of restricted cash
|
3,643 | 4,169 | ||||||
Total current assets
|
63,576 | 59,337 | ||||||
Property and equipment, net
|
168,798 | 181,701 | ||||||
Other assets:
|
||||||||
Restricted cash
|
2,127 | 3,145 | ||||||
Notes receivable-related party
|
490 | | ||||||
Other assets
|
1,916 | 2,014 | ||||||
Total assets
|
$ | 236,907 | $ | 246,197 | ||||
LIABILITIES AND MEMBERS EQUITY | ||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 8,080 | $ | 4,337 | ||||
Accrued expenses
|
6,592 | 5,818 | ||||||
Current portion of long-term debt (stated principal amount of
$14,215 and $19,199 at June 30, 2011 and September 30,
2010, respectively)
|
15,104 | 20,045 | ||||||
Total current liabilities
|
29,776 | 30,200 | ||||||
Other liabilities
|
374 | 628 | ||||||
Deferred income
|
4,376 | 4,881 | ||||||
Long-term debt (stated principal amount of $127,638 and $137,203
at June 30, 2011 and September 30, 2010, respectively)
|
136,417 | 146,670 | ||||||
Total liabilities
|
$ | 170,943 | $ | 182,379 | ||||
Members equity:
|
||||||||
Members capital, no par value, 24,714,180 units
issued and outstanding
|
171,234 | 171,200 | ||||||
Accumulated deficit
|
(105,270 | ) | (107,382 | ) | ||||
Total members equity
|
65,964 | 63,818 | ||||||
Total liabilities and members equity
|
$ | 236,907 | $ | 246,197 | ||||
See notes to consolidated financial statements.
3
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
Three Months Ended | Nine Months Ended | |||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands, except per unit data) | ||||||||||||||||
Net sales
|
||||||||||||||||
Ethanol and related products
|
$ | 154,848 | $ | 90,334 | $ | 423,818 | $ | 284,915 | ||||||||
Other
|
| 3 | 358 | 420 | ||||||||||||
Total net sales
|
154,848 | 90,337 | 424,176 | 285,335 | ||||||||||||
Cost of goods sold
|
153,370 | 86,193 | 411,783 | 258,520 | ||||||||||||
Gross profit
|
1,478 | 4,144 | 12,393 | 26,815 | ||||||||||||
Selling, general and administrative
|
2,669 | 2,080 | 8,400 | 5,265 | ||||||||||||
Operating income (loss)
|
(1,191 | ) | 2,064 | 3,993 | 21,550 | |||||||||||
Other income
|
164 | 8 | 774 | 273 | ||||||||||||
Gain on extinguishment of debt
|
| 17,660 | | 17,660 | ||||||||||||
Debt restructuring costs
|
| (898 | ) | | (2,027 | ) | ||||||||||
Interest income
|
27 | 19 | 64 | 77 | ||||||||||||
Interest expense
|
(764 | ) | (2,379 | ) | (2,692 | ) | (9,799 | ) | ||||||||
Net income (loss)
|
$ | (1,764 | ) | $ | 16,474 | $ | 2,139 | $ | 27,734 | |||||||
Weighed average units outstanding basic
|
24,705,180 | 18,785,894 | 24,705,180 | 18,077,727 | ||||||||||||
Weighed average units outstanding diluted
|
24,705,180 | 18,785,894 | 24,705,180 | 18,077,727 | ||||||||||||
Income (loss) per unit basic
|
$ | (0.07 | ) | $ | 0.88 | $ | 0.09 | $ | 1.53 | |||||||
Income (loss) per unit diluted
|
$ | (0.08 | ) | $ | 0.88 | $ | 0.08 | $ | 1.53 |
See notes to consolidated financial statements.
4
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
Consolidated Statements of Changes in Members Equity
For the Nine Months Ended June 30, 2011
Consolidated Statements of Changes in Members Equity
For the Nine Months Ended June 30, 2011
Member |
Member |
Accumulated |
||||||||||||||
Units | Capital | Deficit | Total | |||||||||||||
(Unaudited) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||
MEMBERS EQUITY September 30, 2010
|
24,714,180 | $ | 171,200 | $ | (107,382 | ) | $ | 63,818 | ||||||||
Unit compensation expense
|
| 34 | | 34 | ||||||||||||
Distribution to members
|
| (27 | ) | (27 | ) | |||||||||||
Net income
|
| | 2,139 | 2,139 | ||||||||||||
MEMBERS EQUITY June 30, 2011
|
24,714,180 | $ | 171,234 | $ | (105,270 | ) | $ | 65,964 | ||||||||
See notes to consolidated financial statements
5
Table of Contents
Nine Months Ended | ||||||||
June 30, |
June 30, |
|||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 2,139 | $ | 27,734 | ||||
Adjustments to reconcile net income to operating activities cash
flows:
|
||||||||
Depreciation
|
16,862 | 16,509 | ||||||
Gain on extinguishment of debt
|
| (17,660 | ) | |||||
Debt restructuring costs
|
| 2,027 | ||||||
Amortization of deferred financing costs
|
99 | 99 | ||||||
Amortization of deferred revenue and rent
|
(517 | ) | (505 | ) | ||||
Idle lease liability reduction
|
(154 | ) | (286 | ) | ||||
Amortization of debt discount
|
| 489 | ||||||
Amortization of additional carrying value
|
(645 | ) | | |||||
Unit compensation expense
|
34 | 35 | ||||||
(Gain) loss on disposal of assets
|
(8 | ) | 10 | |||||
Unrealized gain on derivative financial instruments
|
(241 | ) | (9 | ) | ||||
Change in risk management activities
|
314 | (99 | ) | |||||
Change in working capital components:
|
||||||||
Accounts receivable
|
(2,639 | ) | (1,604 | ) | ||||
Inventories
|
(5,844 | ) | (6,093 | ) | ||||
Prepaid expenses
|
668 | (899 | ) | |||||
Accounts payable and accrued expenses
|
4,515 | 5,029 | ||||||
Net cash provided by operating activities
|
14,583 | 24,777 | ||||||
Cash flows from investing activities:
|
||||||||
Purchase of property and equipment
|
(3,951 | ) | (940 | ) | ||||
Issuance of notes receivable
|
(490 | ) | | |||||
Change in other assets and liabilities
|
154 | | ||||||
Decrease in restricted cash
|
1,544 | 1,113 | ||||||
Net cash provided by (used in) investing activities
|
(2,743 | ) | 173 | |||||
Cash flows from financing activities:
|
||||||||
Payments on debt
|
(14,549 | ) | (38,844 | ) | ||||
Proceeds from issuance of membership units and subscribed units
|
| 11,253 | ||||||
Distribution to members
|
(27 | ) | | |||||
Repurchase of units
|
| (3 | ) | |||||
Payments for debt restructuring costs
|
| (2,027 | ) | |||||
Net cash used in financing activities
|
(14,576 | ) | (29,621 | ) | ||||
Net increase in cash and cash equivalents
|
(2,736 | ) | (4,671 | ) | ||||
Beginning cash and cash equivalents
|
22,772 | 26,367 | ||||||
Ending cash and cash equivalents
|
$ | 20,036 | $ | 21,696 | ||||
Supplemental disclosure of non cash transactions
|
||||||||
Accrued interest transferred to debt
|
$ | | $ | 5,323 | ||||
Other receivable offset against equipment
|
| 1,100 | ||||||
Warrant obligation recognized as a liability
|
| 489 | ||||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid for interest
|
$ | 3,401 | $ | 4,827 |
See notes to consolidated financial statements.
6
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011 and 2010
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011 and 2010
(Unaudited)
1. | Organization and Significant Accounting Policies |
The consolidated financial statements include the accounts of
Advanced BioEnergy, LLC (ABE or the
Company) and its wholly owned subsidiaries, ABE
Fairmont, LLC (ABE Fairmont) and ABE South Dakota,
LLC (ABE South Dakota). All intercompany balances
and transactions have been eliminated in consolidation. The
interim financial statements should be read in conjunction with
the audited financial statements and notes thereto contained in
the Companys Annual Report on
Form 10-K
for the year ended September 30, 2010. The financial
information as of June 30, 2011 and the results of
operations for the nine months ended June 30, 2011 are not
necessarily indicative of the results for the fiscal year ending
September 30, 2011.
The Company currently operates three ethanol production
facilities in the U.S. with a combined production capacity
of 195 million gallons per year. The Company commenced
operations at the 110 million gallon facility in Fairmont,
Nebraska in October 2007. The Company acquired existing
facilities in Aberdeen, South Dakota (9 million gallons)
and Huron, South Dakota (32 million gallons) in November
2006 and commenced operations at the 44 million gallon
Aberdeen expansion facility in January 2008.
Cash,
Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. The Companys cash balances are maintained in
bank depositories and periodically exceed federally insured
limits. The Company has not experienced losses in these
accounts. The Companys restricted cash includes cash held
for debt service under the terms of its debt agreements.
Fair
Value Measurements
In determining fair value of its derivative financial
instruments and warrant liabilities, the Company uses various
methods including market, income and cost approaches. Based on
these approaches, the Company often uses certain assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs
can be readily observable, market-corroborated, or generally
unobservable inputs. Financial assets and liabilities carried at
fair value will be classified and disclosed in one of the
following three fair value hierarchy categories.
Level 1: Valuations for assets and
liabilities traded in active markets from readily available
pricing sources for market transactions involving identical
assets or liabilities.
Level 2: Valuations for assets and
liabilities traded in less active dealer or broker markets.
Valuations are obtained from third-party pricing services for
identical or similar assets or liabilities.
Level 3: Valuations incorporating certain
assumptions and projections in determining the fair value
assigned to such assets or liabilities.
Commodity futures and exchange-traded commodity options
contracts are reported at fair value using Level 1 inputs.
For these contracts, the Company obtains fair value measurements
from an independent pricing service. The fair value measurements
consider observable data that may include dealer quotes and live
trading levels from the CBOT and NYMEX markets.
7
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes financial assets and financial
liabilities measured at the approximate fair value used to
measure fair value (amounts in thousands):
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
At June 30, 2011
|
||||||||||||||||
Liabilities Warrant Derivative
|
$ | 231 | $ | | $ | | $ | 231 | ||||||||
Liabilities Derivative Financial Instruments
|
2 | 2 | | | ||||||||||||
At September 30, 2010
|
||||||||||||||||
Assets Derivative Financial Instruments
|
$ | 314 | $ | 314 | $ | | $ | | ||||||||
Liabilities Warrant Derivative
|
474 | | | 474 |
The unit warrants issued contain a strike price adjustment
feature. The Company calculated the fair value of the warrants
using the Black-Scholes valuation model. During the nine months
ended June 30, 2011 and 2010, the Company recognized an
unrealized gain of $243,000 and $9,000, respectively, related to
the change in the fair value of the warrant derivative liability.
The assumptions used in the Black-Scholes valuation model were
as follows:
June 30, |
September 30, |
|||||||
2011 | 2010 | |||||||
Market value(1)
|
$ | 1.50 | $ | 1.50 | ||||
Exercise price
|
$ | 1.50 | $ | 1.50 | ||||
Expected volatility
|
57.51 | % | 117.08 | % | ||||
Expected life (years)
|
1.63 | 2.00 | ||||||
Risk-free interest rate
|
0.450 | % | 0.375 | % | ||||
Forfeiture rate
|
| | ||||||
Dividend rate
|
| |
(1) | Market value based on recent unit transactions. |
The following table reflects the activity for the unit warrant,
the only liability measured at fair value using Level 3
inputs for the nine months ended June 30, 2011 and 2010
(amounts in thousands):
2011 | 2010 | |||||||
Beginning balance of warrant derivative
|
$ | 474 | $ | 489 | ||||
Unrealized gain related to the change in fair value
|
(243 | ) | (9 | ) | ||||
Ending balance
|
$ | 231 | $ | 480 | ||||
Receivables
Credit sales are made to a few customers with no collateral
required. Trade receivables are carried at original invoice
amount less an estimate made for doubtful receivables based on a
review of all outstanding amounts on a monthly basis. Management
determines the allowance for doubtful accounts by regularly
evaluating individual receivables and considering a
customers financial condition, credit history and current
economic conditions. Receivables are written off if deemed
uncollectible. Recoveries of receivables previously written off
are recorded when received.
Derivative
Instruments/Due From Broker
On occasion, the Company has entered into derivative contracts
to hedge the Companys exposure to price risk related to
forecasted corn purchases and forecasted ethanol sales.
Accounting for derivative contracts requires that
8
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may
be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or
(c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm
commitment, an
available-for-sale
security, or a foreign-currency-denominated forecasted
transaction.
Although the Company believes its derivative positions are
economic hedges, it has not designated any derivative position
as a hedge for accounting purposes and it records derivative
positions on the balance sheet at their fair market value, with
changes in fair value recognized in current period earnings.
Inventories
Corn, chemicals, supplies, work in process, ethanol and
distillers grains inventories are stated at the lower of
weighted cost or market.
Revenue
Recognition
Ethanol revenue is recognized when product title and all risk of
ownership is transferred to the customer as specified in the
contractual agreements with the marketers. At all of the
Companys plants, revenue is recognized upon the release of
the product for shipment. Revenue from the sale of co-products
is recorded when title and all risk of ownership transfer to
customers, which generally occurs at the time of shipment.
Co-products and related products are generally shipped free on
board (FOB) shipping point. Interest income is
recognized as earned. In accordance with the Companys
agreements for the marketing and sale of ethanol and related
products, commissions due to the marketers are deducted from the
gross sale price at the time of payment.
Income
Per Unit
Basic and diluted income per unit is computed using the
weighted-average number of vested units outstanding during the
period. Unvested units are considered unit equivalents and are
considered in the diluted income per unit computation, but have
not been included in the computations of diluted income per unit
for the current periods because their effect would be
anti-dilutive. Basic earnings and diluted per unit data were
computed as follows (in thousands except per unit data):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator:
|
||||||||||||||||
Net income (loss) for basic earnings per share
|
$ | (1,764 | ) | $ | 16,474 | $ | 2,139 | $ | 27,734 | |||||||
Increase in fair value of warrant derivative liability
|
(179 | ) | | (243 | ) | (9 | ) | |||||||||
Net income (loss) for diluted earnings per share
|
(1,943 | ) | 16,474 | 1,896 | 27,725 | |||||||||||
Denominator:
|
||||||||||||||||
Basic and diluted common shares outstanding
|
24,705 | 18,786 | 24,705 | 18,078 | ||||||||||||
Earnings per share basic
|
$ | (0.07 | ) | $ | 0.88 | $ | 0.09 | $ | 1.53 | |||||||
Earnings per share diluted
|
$ | (0.08 | ) | $ | 0.88 | $ | 0.08 | $ | 1.53 | |||||||
Accounting
Estimates
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect
the reported amounts of assets
9
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual
results could differ from those estimates.
Risks
and Uncertainties
The ethanol industry is currently receiving an indirect benefit
of the Volumetric Ethanol Excise Tax Credit (VEETC)
provided to gasoline blenders, which is set to expire on
December 31, 2011, after a one-year extension was signed
into law on December 17, 2010. This credit provides for a
45-cent a gallon tax credit for gasoline blenders and a 54-cent
a gallon tariff on ethanol imports. Although the Renewable Fuels
Standard still exists to maintain the demand for ethanol in the
United States, the Company is uncertain of the potential impact
that the elimination or reduction in the VEETC credit would have
on the Company and the overall ethanol industry. In the fiscal
third quarter of 2011, several legislative bills were introduced
in both the US Senate and House of Representatives to
immediately repeal the VEETC. The bills were not part of the
debt-reduction package signed into law by President Obama on
August 2, 2011, so the credits and tariffs will expire on
December 31, 2011 unless additional legislation is passed
into law.
2. | Inventories |
A summary of inventories is as follows (in thousands):
June 30, |
September 30, |
|||||||
2011 | 2010 | |||||||
Corn
|
$ | 7,867 | $ | 3,127 | ||||
Chemicals
|
1,507 | 1,107 | ||||||
Work in process
|
3,605 | 2,104 | ||||||
Ethanol
|
3,514 | 5,427 | ||||||
Distillers grain
|
1,182 | 419 | ||||||
Supplies and parts
|
2,271 | 1,918 | ||||||
Total
|
$ | 19,946 | $ | 14,102 | ||||
3. | Property and Equipment |
A summary of property and equipment is as follows (in thousands):
June 30, |
September 30, |
|||||||
2011 | 2010 | |||||||
Land
|
$ | 3,999 | $ | 3,962 | ||||
Buildings
|
21,341 | 21,341 | ||||||
Process equipment
|
216,660 | 215,962 | ||||||
Office equipment
|
1,658 | 1,356 | ||||||
Construction in process
|
3,091 | 234 | ||||||
246,749 | 242,855 | |||||||
Accumulated depreciation
|
$ | (77,951 | ) | $ | (61,154 | ) | ||
Property and equipment, net
|
$ | 168,798 | $ | 181,701 | ||||
4. | Notes Receivable-Related Party |
On June 30, 2011, the Company received a $490,000
promissory note from Ethanol Capital Partners,
LP-Series R,
Ethanol Capital Partners LP-Series T, Ethanol Capital
Partners LP-Series V, Ethanol Investment
10
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Partners, LLC and Tennessee Ethanol Partners, LP in connection
with payments the Company made in connection with the settlement
of arbitration brought by a former officer of the Company
against the Company and related litigation brought against a
director of the Company. The note is due on July 1, 2016
and accrues interest at the Prime Rate, adjusted annually. The
note is secured by a pledge of 4.4 million units of
membership in the Company owned by the entities listed above.
Any proceeds from the disposition of these units as well as
distributions from the Company to the owners of the units will
first go to pay down the promissory note and accrued interest.
5. | Debt |
A summary of debt is as follows (in thousands, except
percentages):
June 30, |
||||||||||||
2011 |
June 30, |
September 30, |
||||||||||
Interest Rate | 2011 | 2010 | ||||||||||
ABE Fairmont:
|
||||||||||||
Senior credit facility variable
|
3.59 | % | $ | 34,866 | $ | 45,050 | ||||||
Senior credit facility fixed
|
7.53 | % | 20,000 | 20,000 | ||||||||
Seasonal line
|
3.29 | % | | | ||||||||
Subordinate exempt facilities bonds fixed
|
6.75 | % | 6,185 | 7,000 | ||||||||
61,051 | 72,050 | |||||||||||
ABE South Dakota:
|
||||||||||||
Senior debt principal variable
|
1.77 | % | 77,802 | 81,352 | ||||||||
Restructuring fee
|
N/A | 3,000 | 3,000 | |||||||||
Additional carrying value of restructured debt
|
N/A | 9,668 | 10,313 | |||||||||
90,470 | 94,665 | |||||||||||
Total outstanding
|
$ | 151,521 | $ | 166,715 | ||||||||
Additional carrying value of restructured debt
|
N/A | (9,668 | ) | (10,313 | ) | |||||||
Stated principal
|
$ | 141,853 | $ | 156,402 | ||||||||
The estimated maturities of debt at June 30, are as follows
(in thousands):
Amortization of |
||||||||||||
Additional Carrying |
||||||||||||
Stated |
Value of |
|||||||||||
Principal | Restructured Debt | Total | ||||||||||
2012
|
$ | 14,215 | $ | 889 | $ | 15,104 | ||||||
2013
|
14,215 | 1,951 | 16,166 | |||||||||
2014
|
12,881 | 2,566 | 15,447 | |||||||||
2015
|
13,815 | 2,471 | 16,286 | |||||||||
2016
|
79,617 | 1,791 | 81,408 | |||||||||
Thereafter
|
7,110 | | 7,110 | |||||||||
Total debt
|
$ | 141,853 | $ | 9,668 | $ | 151,521 | ||||||
11
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Senior
Credit Facility for the Fairmont Plant
ABE Fairmont has a senior credit facility with Farm Credit
consisting of a term loan (term loan A), and a
revolving term loan, known as term loan B. At June 30,
2011, the Company also had a $4.0 million revolving credit
facility through Farm Credit for financing eligible grain
inventory and equity in Chicago Board of Trade
(CBOT) futures positions, which expires on
April 1, 2012. ABE Fairmont also has a revolving credit
facility with Farm Credit for financing third-party letters of
credit. ABE Fairmont has issued a letter of credit in connection
with a rail car lease, thereby fully utilizing the financing
available under the $911,000 revolving credit facility as of
June 30, 2011. This revolving credit facility expires in
February 2012.
At June 30, 2011, ABE Fairmont had $29.9 million
outstanding on term loan A. Under the term loan A agreement, ABE
Fairmont was originally required make quarterly principal
installments of $2.6 million through November 2013,
followed by a final installment in an amount equal to the
remaining unpaid term loan A principal balance in February 2014.
In April 2011, ABE Fairmont and Farm Credit amended the term
loan A agreement to allow ABE Fairmont to defer the May 2011
payment in order to finance a capital project. The final
$2.6 million quarterly principal installment is now due in
February 2014, with the remaining unpaid term loan A principal
balance due in May 2014. In addition, under the term loan A
agreement, for each fiscal year ending through
September 30, 2013, ABE Fairmont is required to pay an
additional amount equal to the lesser of $8.0 million or
75% of its free cash flow as defined in the agreement. The
outstanding loan balance at June 30, 2011 reflects a
$5.0 million cash sweep payment made to Farm Credit in
December 2010, pursuant to this provision of the agreement.
At June 30, 2011, ABE Fairmont had $25.0 million
outstanding on the revolving term loan B (term loan
B). On the earlier of December 1, 2014 or six months
following complete repayment of term loan A, ABE Fairmont is
required to begin repayment of revolving term loan B in
$5.0 million semi-annual principal payments.
ABE Fairmont pays interest monthly at an annualized interest
rate of 7.53% on $20.0 million and a variable rate
comprised of the
30-day LIBOR
plus a fixed rate of 3.40% on the remaining outstanding senior
credit facility.
ABE Fairmonts senior credit facility is secured by a first
mortgage on all of ABE Fairmonts real property and a lien
on all of ABE Fairmonts personal property. The agreement
contains financial and restrictive covenants, including
limitations on additional indebtedness, restricted payments, and
the incurrence of liens and transactions with affiliates and
sales of assets. In addition, the senior secured credit facility
requires ABE Fairmont to comply with certain financial
covenants, including maintaining monthly minimum working
capital, monthly minimum net worth, annual debt service coverage
ratios and capital expenditure limitations.
Fillmore
County Subordinate Exempt Facilities Revenue Bonds for the
Fairmont plant
ABE Fairmont has $6.2 million of subordinate exempt
facilities revenue bonds outstanding under a subordinated loan
and trust agreement with the County of Fillmore, Nebraska and
Wells Fargo, N.A. The loan agreement is collateralized by the
Fairmont plant assets. ABE Fairmonts repayment of the loan
and the security for the loan are subordinate to its senior
credit facility. The loan requires semi-annual interest
payments. The Company made its first principal payment of
$815,000 in December 2010, and will continue to make this
payment annually through December 2016, with the remainder due
in December 2017.
Senior
Credit Agreement for the South Dakota Plants
ABE South Dakota entered into an Amended and Restated Senior
Credit Agreement (the Senior Credit Agreement)
effective as of June 18, 2010, which was accounted for
under troubled debt restructuring rules. The Senior Credit
Agreement was executed among ABE South Dakota, the lenders from
time to time party thereto, and WestLB AG, New York Branch, as
Administrative Agent and Collateral Agent. The Senior Credit
Agreement converted the outstanding principal amount of the
loans and certain other amounts under interest rate protection
agreements to a senior term loan in an aggregate principal
amount equal to $84.4 million. The interest accrued on
12
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding term and working capital loans under the existing
credit agreement was reduced to zero. ABE South Dakota has
agreed to pay a $3.0 million restructuring fee to the
lenders due at the earlier of March 31, 2016 or the date on
which the loans are repaid in full. ABE South Dakota recorded
the restructuring fee as a long-term, non-interest bearing debt
on its consolidated balance sheets.
The principal amount of the term loan facility is payable in
equal quarterly payments of $750,000, with the remaining
principal amount fully due and payable on March 31, 2016.
ABE South Dakota has the option to select the interest rate on
the senior term loan between base rate and
euro-dollar
loans. Base rate loans bear interest at the administrative
agents base rate, plus an applicable margin of 0.50%
increasing to 3.0% on June 16, 2013. Euro-dollar loans bear
interest at LIBOR plus the applicable margin of 1.5% increasing
to 3.0% on June 16, 2012, and 4.0% beginning on
June 16, 2013 and thereafter. Each loan can be entered for
one, two, three or six month maturities.
Since the future maximum undiscounted cash payments on the
Senior Credit Agreement (including principal, interest and the
restructuring fee) exceed the adjusted carrying value, no gain
for the forgiven interest was recorded, the carrying value was
not adjusted and the modification of terms will be accounted for
on a prospective basis, via a new effective interest
calculation, amortized over the life of the note, offsetting
interest expense. Based on the treatment of the troubled debt
restructuring which will result in the additional carrying value
being amortized as a reduction in interest expense over the term
of the loan, the Companys effective interest rate over the
term of the restructuring note agreement is approximately 0.39%
over the Three-Month LIBOR (0.64% at June 30, 2011).
ABE South Dakotas obligations under the Senior Credit
Agreement are secured by a first-priority security interest in
all of the equity of and assets of ABE South Dakota.
ABE South Dakota is allowed to make equity distributions (other
than certain tax distributions) to ABE only upon ABE South
Dakota meeting certain financial conditions and if there is no
more than $25 million of principal outstanding on the
senior term loan. Loans outstanding under the Senior Credit
Agreement are subject to mandatory prepayment in certain
circumstances, including, but not limited to, mandatory
prepayments based upon receipt of certain proceeds of asset
sales, casualty proceeds, termination payments, and cash flows.
The Senior Credit Agreement and the related loan documentation
include, among other terms and conditions, limitations (subject
to specified exclusions) on ABE South Dakotas ability to
make asset dispositions; merge or consolidate with or into
another person or entity; create, incur, assume or be liable for
indebtedness; create, incur or allow liens on any property or
assets; make investments; declare or make specified restricted
payments or dividends; enter into new material agreements;
modify or terminate material agreements; enter into transactions
with affiliates; change its line of business; and establish bank
accounts. Substantially all cash of ABE South Dakota is required
to be deposited into special, segregated project accounts
subject to security interests to secure obligations in
connection with the Senior Credit Agreement. The Senior Credit
Agreement contains customary events of default and also includes
an event of default for defaults on other indebtedness by ABE
South Dakota and certain changes of control.
6. | Major Customers |
The Company has entered into Exclusive Ethanol Marketing
Agreements with Hawkeye Gold, LLC to sell substantially all of
its ethanol. Prior to January 2011, Hawkeye Gold was an
affiliate of Hawkeye Energy Holdings, LLC, a 34% owner of the
Companys membership units. ABE Fairmont executed an
Exclusive Ethanol Marketing Agreement dated as of
August 28, 2009 with Hawkeye Gold (the ABE Fairmont
Ethanol Agreement), which became effective on
January 1, 2010. Prior to that time, ABE Fairmonts
ethanol was marketed by Gavilon. ABE South Dakota executed
Exclusive Ethanol Marketing Agreements dated as of April 7,
2010 with Hawkeye Gold (the ABE South Dakota Ethanol
Agreements, and together with the ABE Fairmont Ethanol
Agreement, the Ethanol
13
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Agreements), which became effective October 1, 2010.
Prior to October 1, 2010, ABE South Dakotas ethanol
was marketed by Gavilon. The Ethanol Agreements require, among
other things, that:
(1) Hawkeye Gold must use commercially reasonable efforts
to submit purchase orders for, and ABE Fairmont and ABE South
Dakota must sell to Hawkeye Gold, substantially all of the
denatured fuel grade ethanol produced by ABE Fairmont and ABE
South Dakota,
(2) a purchase and sale of ethanol under the Ethanol
Agreements must be in the form of either a direct fixed price
purchase order, a direct index price purchase order, a terminal
storage purchase order, a transportation swap, or a similar
transaction that is mutually acceptable to the parties,
(3) ABE Fairmont or ABE South Dakota will pay any
replacement or other costs incurred by Hawkeye Gold as a result
of any failure to deliver by ABE Fairmont or ABE South Dakota,
respectively, and
(4) with certain exceptions, ABE Fairmont and ABE South
Dakota will sell substantially all of the ethanol they produce
to Hawkeye Gold. The initial term of the ABE Fairmont Agreement
is for two years, and provides for automatic renewal for
successive
18-month
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term. ABE
Fairmont has provided notice of non-renewal to Hawkeye Gold, and
is currently exploring a new agreement with several marketers,
including Hawkeye Gold. The initial terms of the ABE South
Dakota Ethanol Agreements are for three years and provide for
automatic renewal for successive one-year terms unless either
party provides written notice of nonrenewal at least
180 days prior to the end of any term.
ABE Fairmont is currently self-marketing the distillers grains
it produces. ABE South Dakota is party to a
co-product
marketing agreement with Dakotaland Feeds, LLC (Dakotaland
Feeds), under which Dakotaland Feeds markets the local
sale of distillers grains produced at the ABE South Dakota Huron
plant to third parties for an agreed upon commission. The
Company currently has an agreement with Hawkeye Gold to market
the distillers grains produced at the ABE South Dakota Aberdeen
plants. The initial term of this agreement is for three years
and provides for automatic renewal for successive one-year terms
unless either party provides written notice of nonrenewal at
least 180 days prior to the end of any term.
Sales and receivables from the Companys major customers
were as follows (in thousands):
June 30, |
June 30, |
|||||||
2011 | 2010 | |||||||
Hawkeye Gold Ethanol and Distiller Grains
|
||||||||
Nine months revenues (Since January 1, 2010 for prior year)
|
$ | 369,145 | $ | 95,364 | ||||
Receivable balance at period end
|
13,665 | 4,766 | ||||||
Gavilon Ethanol
|
||||||||
Nine months revenues
|
$ | | $ | 148,617 | ||||
Receivable balance at period end
|
| 3,693 | ||||||
Dakotaland ABE South Dakota Distillers Grains
|
||||||||
Nine months revenues
|
$ | 10,320 | $ | 9,983 | ||||
Receivable balance at period end
|
503 | 297 |
7. | Risk Management |
The Company is exposed to a variety of market risks, including
the effects of changes in commodity prices and interest rates.
These financial exposures are monitored and managed by the
Company as an integral part of its overall risk management
program. The Companys risk management program seeks to
reduce the potentially adverse effects that the volatility of
these markets may have on its current and future operating
results. To reduce these effects, the Company generally attempts
to fix corn purchase prices and related sale prices of ethanol
and
14
Table of Contents
ADVANCED
BIOENERGY, LLC & SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
distillers grains with forward purchase and sales contracts to
reduce volatility in future operating margins. In addition to
entering into contracts to purchase 2.5 million bushels of
corn and sell 14.3 million gallons of ethanol in which the
futures price was not locked, the Company had entered into the
following fixed price forward contracts at June 30, 2011
(in thousands):
Quantity (000s) | Amount | Period Covered | ||||||||||||
Corn
|
Purchase Contracts | 8,141 bushels | $ | 56,993 | Jul-Aug 2011 | |||||||||
Ethanol
|
Sale Contracts | 25,183 gallons | 66,301 | Jul-Aug 2011 | ||||||||||
Distillers grains
|
Sale Contracts | 43 tons | 7,929 | Jul-Aug 2011 |
Unrealized gains and losses on forward contracts, in which
delivery has not occurred, are deemed normal purchases and
normal sales, and, therefore are not marked to market in
the financial statements.
When forward contracts are not available at competitive rates,
the Company may engage in hedging activities using exchange-
traded futures contracts, OTC futures options or OTC swap
agreements. Changes in market price of ethanol-related hedging
activities are reflected in revenues while changes in market
price of corn- related items are reflected in cost of goods
sold. The following table represents the approximate amount of
realized and unrealized gains and changes in fair value
recognized in earnings on commodity contracts for the three and
nine months ended June 30, 2011 and 2010, and the fair
value of futures contracts as of June 30, 2011 and
September 30, 2010 (in thousands):
Income Statement |
Realized |
Unrealized |
Total |
|||||||||||||
Classification | Gain (Loss) | Gain (Loss) | Gain (Loss) | |||||||||||||
Three months ending June 30, 2011
|
Cost of Goods Sold | $ | (2 | ) | $ | (2 | ) | $ | (4 | ) | ||||||
Three months ending June 30, 2010
|
Cost of Goods Sold | (1,381 | ) | 915 | (466 | ) | ||||||||||
Nine months ending June 30, 2011
|
Cost of Goods Sold | $ | 88 | $ | (2 | ) | $ | 86 | ||||||||
Nine months ending June 30, 2010
|
Cost of Goods Sold | (614 | ) | (97 | ) | (711 | ) |
Balance Sheet |
June 30, |
September 30, |
||||||||
Classification | 2011 | 2010 | ||||||||
Derivative financial instrument futures contract
|
Current Assets | $ | | $ | 314 | |||||
Derivative financial instrument futures contract
|
Current Liabilities | 2 | |
8. | Members Equity |
In connection with the annual income tax return in Nebraska, the
Company was required to remit withholding tax of approximately
$27,000 relating to unit holders not resident in Nebraska.
Pursuant to the terms of the Operating Agreement, withholding
taxes are treated as distributions and reduce Members
Equity.
9. | Arbitration Settlement |
On June 30, 2011, the Company resolved all open issues
related to arbitration brought by a former officer against the
Company, and litigation brought by the former officer against a
director of the Company. The Company has booked a charge of
approximately $0.9 million for the three months ended
June 30, 2011, and $3.0 million for the nine months
ended June 30, 2011. In addition, the Company incurred
legal fees of approximately $0.2 million for the three
months ended June 30, 2011 and $0.8 million for the
nine months ended June 30, 2011 relating to this matter.
15
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Information
Regarding Forward-Looking Statements
This Quarterly Report on
Form 10-Q
contains forward-looking statements regarding our business,
financial condition, results of operations, performance and
prospects. All statements that are not historical or current
facts are forward-looking statements and are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve known and
unknown risks, uncertainties and other factors, many of which
may be beyond our control, which may cause our actual results,
performance or achievements to be materially different from any
future results, performances or achievements expressed or
implied by the forward-looking statements. Certain of these
risks and uncertainties are described in the Risk
Factors section of our Annual Report on
Form 10-K
for the year ended September 30, 2010 and in this
Form 10-Q.
These risks and uncertainties include, but are not limited to,
the following:
| our operational results are subject to fluctuations in the prices of grain, utilities and ethanol, which are affected by various factors including weather, production levels, supply, demand, changes in technology and government support and regulations; | |
| margins can be volatile and can evaporate, which may affect our ability to meet current obligations and debt service requirements at our operating entities; | |
| our hedging transactions and mitigation strategies could materially harm our results; | |
| cash distributions depend upon our future financial and operational performance and will be affected by debt covenants, reserves and operating expenditures; | |
| current governmental mandated tariffs, credits and standards may be reduced or eliminated, and legislative acts taken by state governments such as California related to low-carbon fuels that include the effects caused by indirect land use, may have an adverse effect on our business; | |
| alternative fuel additives may be developed that are superior to or cheaper than ethanol; | |
| transportation, storage and blending infrastructure may become impaired, preventing ethanol from reaching markets; | |
| our operating facilities may experience technical difficulties and not produce the gallons of ethanol we expect and insurance proceeds may not be adequate to cover these production disruptions; | |
| our units are subject to a number of transfer restrictions and no public market exists for our units, and we do not expect a public market to develop; and | |
| the ability of ABE Fairmont and ABE South Dakota to make distributions to ABE in light of restrictions in these subsidiaries credit facilities; |
You can identify forward-looking statements by terms such as
anticipates, believes,
could, estimates, expects,
intends, may, plans,
potential, predicts,
projects, should, will,
would, and similar expressions intended to identify
forward-looking statements. Forward-looking statements reflect
our current views with respect to future events, are based on
assumptions, and are subject to risks and uncertainties. Given
these uncertainties, you should not place undue reliance on
these forward-looking statements. Also, forward-looking
statements represent our estimates and assumptions only as of
the date of this report. Except as required by law, we assume no
obligation to update any forward-looking statements publicly, or
to update the reasons actual results could differ materially
from those anticipated in any forward-looking statements, even
if new information becomes available in the future. Readers are
urged to carefully review and consider the various disclosures
made by us in this report and in our other reports filed from
time to time with the Securities and Exchange Commission that
advise interested parties of the risks and factors that may
affect our business.
General
The following discussion and analysis provides information that
management believes is relevant to an assessment and
understanding of our consolidated financial condition and
results of operations. This discussion
16
Table of Contents
should be read in conjunction with the consolidated financial
statements included herewith and notes to the consolidated
financial statements thereto.
Overview
Advanced BioEnergy, LLC (Company, we,
our, Advanced BioEnergy or
ABE) was formed in 2005 as a Delaware limited
liability company. Our business consists of producing ethanol
and co-products, including wet, modified and dried distillers
grains. Ethanol is a renewable, environmentally clean fuel
source that is produced at numerous facilities in the United
States, mostly in the Midwest. In the U.S., ethanol is produced
primarily from corn and then blended with unleaded gasoline in
varying percentages. Ethanol is most commonly sold as E10.
Increasingly, ethanol is also available as E85, which is a
higher percentage ethanol blend for use in flexible-fuel
vehicles.
To execute our business plan, we entered into financial
arrangements to build and operate an ethanol production facility
in Fairmont, Nebraska. Separately, we acquired ABE South Dakota
in November 2006, which owned existing ethanol production
facilities in Aberdeen and Huron, South Dakota. Construction of
our Fairmont, Nebraska plant began in June 2006, and operations
commenced at the plant in October 2007. Construction of our new
facility in Aberdeen, South Dakota began in April 2007, and
operations commenced in January 2008. Our production operations
are carried out primarily through our operating subsidiaries,
ABE Fairmont, which owns and operates the Fairmont, Nebraska
plant and ABE South Dakota, which owns and operates plants in
Aberdeen and Huron, South Dakota.
Operating segments are defined as components of an enterprise
for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
deciding how to allocate resources in assessing performance.
Based on the related business nature and expected financial
results, the Companys plants are aggregated into one
operating segment.
DRY MILL
PROCESS
Dry mill ethanol plants produce ethanol by predominantly
processing corn. Other possible feeds are grain sorghum, or
other cellulosic materials. The corn is received by truck, then
weighed and unloaded in a receiving building. It is then
conveyed to storage silos. Thereafter, it is transferred to a
scalper to remove rocks, cobs, and other debris before it is fed
to a hammer mill where it is ground into flour and conveyed into
a slurry tank. Water, heat and enzymes are added to the flour in
the slurry tank to start the process of converting starch from
the corn into sugar. The slurry is pumped to a liquefaction tank
where additional enzymes are added. These enzymes continue the
starch-to-sugar
conversion. The grain slurry is pumped into fermenters, where
yeast is added, to begin the batch-fermentation process.
Fermentation is the process of the yeast converting the sugar
into alcohol and carbon dioxide. After the fermentation is
complete, a vacuum distillation system removes the alcohol from
the grain mash. The 95% (190-proof) alcohol from the
distillation process is then transported to a molecular sieve
system, where it is dehydrated to 100% alcohol (200 proof). The
200-proof alcohol is then pumped to storage tanks and blended
with a denaturant, usually gasoline. The 200-proof alcohol and
2.0-2.5% denaturant constitute denatured fuel ethanol.
Corn mash left over from distillation is pumped into a
centrifuge for dewatering. The liquid from the centrifuge, known
as thin stillage, is then pumped from the centrifuges to an
evaporator, where it is concentrated to a syrup. The solids that
exit the centrifuge, known as the wet cake, are conveyed to the
dryer system. Syrup is added to the wet cake as it enters the
dryer, where moisture is removed. The process produces
distillers grains with solubles, which is used as a
high-protein/fat animal-feed supplement. Dry-mill ethanol
processing creates three forms of distillers grains: wet
distillers grains with solubles, known as wet distillers grains;
modified wet distillers grains with solubles, known as modified
distillers grains; and dry distillers grains with solubles,
known as dry distillers grains. Wet and modified distillers
grains have been dried to approximately 67% and 50% moisture
levels, respectively, and are predominately sold to nearby
markets. Dried distillers grains have been dried to 11%
moisture, have an almost indefinite shelf life and may be sold
and shipped to any market regardless of its proximity to an
ethanol plant.
17
Table of Contents
FACILITIES
The table below provides a summary of our ethanol plants in
operation as of June 30, 2011:
Estimated |
||||||||||||||||||||
Estimated |
Annual |
Estimated |
||||||||||||||||||
Annual |
Distillers |
Annual |
||||||||||||||||||
Ethanol |
Grains |
Corn |
Primary |
|||||||||||||||||
Location | Production | Production(1) | Processed | Energy Source | Builder | |||||||||||||||
(Million gallons) | (000s Tons) | (Million bushels) | ||||||||||||||||||
Fairmont, NE
|
110 | 334 | 39.3 | Natural Gas | Fagen | |||||||||||||||
Aberdeen, SD(2)
|
9 | 27 | 3.2 | Natural Gas | Broin | |||||||||||||||
Aberdeen, SD(2)
|
44 | 134 | 15.7 | Natural Gas | ICM | |||||||||||||||
Huron, SD
|
32 | 97 | 11.4 | Natural Gas | ICM | |||||||||||||||
Consolidated
|
195 | 592 | 69.6 | |||||||||||||||||
(1) | Our plants produce and sell wet, modified wet and dried distillers grains. The stated quantities are on a fully dried basis operating at full production capacity. | |
(2) | Our plant at Aberdeen consists of two separate production facilities that operate on a separate basis. |
We believe that each of the operating facilities is in adequate
condition to meet our current and future production goals. We
also believe that these plants are adequately insured for
replacement cost plus related disruption expenditures.
The senior credit facility of the ABE Fairmont plant is secured
by a first mortgage on the plants real property and a
security interest lien on the plants personal property. We
also granted a subordinate lien and security interest to the
trustee of the subordinated exempt facilities revenue bonds used
to finance the ABE Fairmont plant. We pledged a first-priority
security interest in and first lien on substantially all of the
assets of the ABE South Dakota plants to the collateral agent
for the senior creditor of these plants.
ABE Fairmont entered into a new marketing agreement with Hawkeye
Gold, which became effective on January 1, 2010. Prior to
January 2011, Hawkeye Gold was an affiliate of Hawkeye Energy
Holdings, LLC, a 34% owner of the Companys membership
units. Hawkeye Gold was sold by Hawkeye Energy Holdings, LLC to
a third party effective January 1, 2011. The marketing
agreement with Hawkeye Gold requires, among other things, that
Hawkeye Gold must use commercially reasonable efforts to submit
purchase orders for, and ABE Fairmont must sell to Hawkeye Gold,
substantially all of the denatured fuel-grade ethanol produced
by ABE Fairmont. The initial term of the agreement is for two
years and provides for automatic renewal for successive
18-month
terms unless either party provides written notice of nonrenewal
at least 180 days prior to the end of any term. ABE
Fairmont has provided notice of nonrenewal to Hawkeye Gold and
is currently exploring a new marketing agreement with several
marketers, including Hawkeye Gold.
ABE South Dakota executed new marketing agreements with Hawkeye
Gold, which became effective October 1, 2010. The
agreements provide that Hawkeye Gold will use commercially
reasonable efforts to submit purchase orders for, and ABE South
Dakota will sell to Hawkeye Gold, substantially all of the
denatured fuel-grade ethanol produced at the South Dakota
plants. The initial term of the agreement is for three years and
provides for automatic renewal for successive one-year terms
unless either party provides written notice of nonrenewal at
least 180 days prior to the end of any term. Prior to
October 1, 2010, ABE South Dakotas ethanol was
marketed by Gavilon, LLC (Gavilon).
Sales of distillers grains have represented 17% and 14% of our
revenues for the quarters ended June 30, 2011 and 2010,
respectively. When the plants are operating at capacity they
produce approximately 592,000 tons of dried distillers grains
equivalents per year, approximately 17 pounds per bushel of
corn. Distillers grains are a high-protein, high-energy animal
feed supplement primarily marketed to the dairy and beef
industry, as well as the poultry and swine markets.
18
Table of Contents
Plan
of Operations Through June 30, 2012
Over the next year we will continue our focus on operational
improvements at each of our operating facilities. These
operational improvements include exploring methods to improve
ethanol yield per bushel and maximizing production output at
each of our plants. We will also have a continued emphasis on
safety and environmental regulation, reducing our operating
costs, and optimizing our margin opportunities through prudent
risk-management policies. We are also improving the rail
facilities at the Huron plant location, and adding corn oil
extraction technology to our Fairmont facility which is expected
to be operational before September 30, 2011.
RESULTS
OF OPERATIONS
Quarter
Ended June 30, 2011 Compared to Quarter Ended June 30,
2010
The following table reflects quantities of our products sold at
average net prices as well as bushels of corn ground and therms
of gas burned at average costs for the three months ended
June 30, 2011 and 2010:
Three Months Ended |
Three Months Ended |
|||||||||||||||
June 30, 2011 | June 30, 2010 | |||||||||||||||
Average |
Average |
|||||||||||||||
Sold/Consumed | Net Price/Cost | Sold/Consumed | Net Price/Cost | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Ethanol (gallons)
|
49,577 | $ | 2.59 | 49,459 | $ | 1.57 | ||||||||||
Dried distillers grains (tons)
|
114 | 184.66 | 117 | 89.44 | ||||||||||||
Wet/modified distillers grains (tons)
|
69 | 74.03 | 77 | 31.20 | ||||||||||||
Corn (bushels)
|
17,541 | $ | 7.02 | 17,721 | $ | 3.37 | ||||||||||
Gas (mmbtus)
|
1,369 | 4.37 | 1,350 | 4.41 |
Net
Sales
Net sales for quarter ended June 30, 2011 were
$154.8 million compared to $90.3 million for the
quarter ended June 30, 2010, an increase of
$64.5 million or 71%. The increase in revenues was due to
an increase in average prices of ethanol and distillers grains
of 65% and 116%, respectively. Ethanol prices rose due to
increased demand, general overall motor fuel price increases and
commodity inflation, particularly higher corn prices. The price
of distillers grains generally follows the price of corn,
resulting in higher prices in 2011. During the fiscal quarters
ending June 30, 2011 and 2010, 83% and 86%, respectively,
of our net sales were derived from the sale of ethanol and our
remaining net sales were derived from the sale of distillers
grains.
Cost
of Goods Sold
Costs of goods sold for the quarter ending June 30, 2011
were $153.4 million, compared to $86.2 million for the
quarter ending June 30, 2010, an increase of
$67.2 million or 78%. Costs of goods sold included no
hedging gains or losses in the quarter ended June 30, 2011
and a hedging loss of $0.5 million in the quarter ended
June 30, 2010. Corn costs represented 80% and 69% of cost
of sales for the fiscal quarters ending June 30, 2011 and
2010. Corn costs increased 108% to $7.02 per bushel in the
quarter ending June 30, 2011 from $3.37 per bushel for the
quarter ending June 30, 2010. The increase in corn cost per
bushel was due primarily to the corn crop not being as favorable
as the prior year, world-wide commodity inflation, and generally
lower corn availability. The Company believes that corn prices
will remain high until the size of the next corn crop is
determined. Should we experience an unfavorable growing season
for the remainder of fiscal 2011, we may continue to experience
high corn prices through the remainder of fiscal 2011 and
beyond. Natural gas costs represented 4% and 7% of cost of sales
for the fiscal quarters ending June 30, 2011 and 2010. Our
average gas prices decreased slightly to $4.37 per mmbtu in the
quarter ending June 30, 2011 from $4.41 per mmbtu in the
quarter ending June 30, 2010.
Gross
Profit
Our gross profit for the quarter ending June 30, 2011 was
$1.5 million, compared to gross profit of $4.1 million
for the quarter ending June 30, 2010. The decrease in gross
profit was primarily due to a reduction in the crush margin. We
define the crush margin as the price of ethanol per gallon less
the costs of corn and natural gas on a per
19
Table of Contents
gallon basis. Compared to the quarter ending June 30, 2010,
crush margins for the quarter ending June 30, 2011
decreased, as corn prices increased more than ethanol prices on
a per gallon basis.
Selling,
General, and Administrative Expenses
As a percentage of sales, selling, general and administrative
expenses decreased to 1.7% for the quarter ended June 30,
2011 compared to 2.3% for the quarter ended June 30, 2010.
Selling, general, and administrative expenses are comprised of
recurring administrative personnel compensation, legal,
technology, consulting, insurance and accounting fees as well as
certain non-recurring charges. For the quarter ending
June 30, 2011, selling, general and administrative expenses
were $2.7 million, of which $0.2 million was
non-recurring legal expense, and approximately $0.9 million
was a charge related to the arbitration settlement as discussed
below. Selling, general and administrative expenses were
$2.1 million for the quarter ending June 30, 2010, of
which $0.3 million was non-recurring legal expense related
to the same matter. Excluding non-recurring items, selling,
general, and administrative expenses were $1.6 million, or
1.0% of sales, for the quarter ending June 30, 2011, and
$1.8 million, or 2.0% of sales, for the quarter ending
June 30, 2010.
On June 30, 2011, the Company resolved all open issues
relating to the previously reported arbitration brought by a
former officer of the Company against ABE, and the previously
reported litigation brought by the former officer against a
director of the Company. See Item 1, Legal Proceedings, in
Part II of this
Form 10-Q.
The Company has taken a charge of approximately
$0.9 million in the third quarter with respect to this
matter.
Other
Income
Other income for the quarter ended June 30, 2011 was
$0.2 million, compared to no income or loss for the quarter
ended June 30, 2010. The increase was due to Nebraska
Advantage Act refunds, as described below under Government
Programs, Tax Credits and Tax Increment Financing.
Interest
Expense
Interest expense for the quarter ending June 30, 2011 was
$0.8 million, compared to $2.4 million for the quarter
ended June 30, 2010, a decrease of $1.6 million. The
decrease in interest expense is a result of the overall
reduction in principal and a reduction in interest rates on ABE
South Dakotas debt after the restructuring in June 2010,
as well as scheduled principal payments and sweep payments as
required under the credit agreements. As of June 30, 2010,
the total principal outstanding was $171.7 million,
decreasing to $151.5 million at June 30, 2011. The
interest rates on the senior credit facility for ABE South
Dakota decreased from a variable rate of 1.85% at June 30,
2010 to a variable rate of 1.77% at June 30, 2011. Prior to
the restructuring in June 2010, ABE South Dakota was paying
fixed rates between 8.27% and 10.00%. The interest expense at
June 30, 2011 also reflects a reduction in interest expense
resulting from the amortization of deferred gain that resulted
from the debt restructuring.
Gain
on Extinguishment of Debt
Effective June 18, 2010, in connection with the
restructuring of ABE South Dakota debt, the Company paid
$2.85 million as full satisfaction of $19.0 million of
bonds and $1.5 million of accrued interest, resulting in a
gain on extinguishment of debt of $17.6 million.
Debt
Restructuring Costs
The Company incurred legal and professional fees related to the
restructuring of ABE South Dakota debt of $0.9 million for
the three months ended June 30, 2010.
20
Table of Contents
Nine
Months Ended June 30, 2011 Compared to Nine Months Ended
June 30, 2010
The following table reflects quantities of our products sold at
average net prices as well as bushels of corn ground and therms
of gas burned at average costs for the nine months ended
June 30, 2011 and 2010:
Nine Months Ended |
Nine Months Ended |
|||||||||||||||
June 30, 2011 | June 30, 2010 | |||||||||||||||
Average |
Average |
|||||||||||||||
Sold/Consumed | Net Price/Cost | Sold/Consumed | Net Price/Cost | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Ethanol (gallons)
|
153,322 | $ | 2.31 | 148,371 | $ | 1.65 | ||||||||||
Dried distillers grains (tons)
|
351 | 154.91 | 339 | 94.68 | ||||||||||||
Wet/modified distillers grains (tons)
|
234 | 62.42 | 260 | 33.61 | ||||||||||||
Corn (bushels)
|
54,588 | 5.87 | 53,212 | 3.43 | ||||||||||||
Gas (mmbtus)
|
4,166 | 4.27 | 4,082 | 4.85 |
Net
Sales
Net sales for the nine months ended June 30, 2011 were
$424.2 million compared to $285.3 million for the nine
months ended June 30, 2010, an increase of
$138.9 million or 49%. The increase in revenues was mainly
due to an increase in average prices of ethanol and distillers
grains of 40% and 73%, respectively. Ethanol prices rose due to
increased demand, general overall motor fuel price increases and
commodity inflation, particularly higher corn prices. The price
of distiller grains generally follows the price of corn,
resulting in higher prices in fiscal 2011. For the nine months
ended June 30, 2011 and 2010, 84% and 86%, respectively, of
our net sales were derived from the sale of ethanol and our
remaining net sales were derived from the sale of distillers
grains.
Cost
of Goods Sold
Costs of goods sold for the nine months ended June 30, 2011
were $411.8 million, compared to $258.5 million for
the nine months ended June 30, 2010, an increase of
$153.5 million or 59%. Costs of goods sold included a corn-
related hedging gain of $0.1 million for the nine months
ended June 30, 2011 and a hedging loss of $0.7 million
for the nine months ended June 30, 2010. Corn costs
represented 78% and 71% of cost of sales for the nine months
ended June 30, 2011 and 2010, respectively. Corn costs
increased 71% to $5.87 per bushel for the nine months ended
June 30, 2011 from $3.43 per bushel for the nine months
ended June 30, 2010. The increase in corn cost per bushel
was due primarily to the corn crop not being as favorable as the
prior year, commodity inflation world-wide, and generally lower
corn availability. The Company believes that corn prices will
remain high until the size of the next corn crop is determined.
Should we experience an unfavorable growing season for the
remainder of fiscal 2011, we may continue to experience high
corn prices through the remainder of fiscal 2011 and beyond.
Natural gas costs represented 4% and 8% of cost of sales for the
nine months ended June 30, 2011 and 2010. Our average gas
prices decreased to $4.27 per mmbtu for the nine months ended
June 30, 2011 from $4.85 per mmbtu for the nine months
ended June 30, 2010.
Gross
Profit
Our gross profit for the nine months ended June 30, 2011
was $12.4 million, compared to gross profit of
$26.8 million for the nine months ended June 30, 2010.
The decrease in gross profit was primarily due to a reduction in
the crush margin. We define the crush margin as the price of
ethanol per gallon less the costs of corn and natural gas on a
per gallon basis. Compared to the nine months ended
June 30, 2010, crush margins for the nine months ended
June 30, 2011 decreased, as corn prices increased more than
ethanol prices on a per gallon basis.
Selling,
General, and Administrative Expenses
As a percentage of sales, selling, general and administrative
expenses have increased to 2.0% for the nine months ended
June 30, 2011 compared to 1.8% for the nine months ended
June 30, 2010. Selling, general, and administrative
expenses are comprised of recurring administrative personnel
compensation, legal, technology, consulting, insurance and
accounting fees as well as certain non-recurring charges. For
the nine months ended
21
Table of Contents
June 30, 2011, selling, general and administrative expenses
were $8.4 million, of which $0.8 million was
non-recurring legal expense and approximately $3.0 million
was a charge related to the arbitration proceedings discussed
below. Selling, general and administrative expenses were
$5.3 million for the nine months ended June 30, 2010,
of which $0.3 million was non-recurring legal expense
related to the arbitration proceedings. Excluding non-recurring
items, selling, general, and administrative expenses were
$4.6 million, or 1.0% of sales, for the nine months ended
June 30, 2011, and $5.0 million, or 1.8% of sales, for
the nine months ended June 30, 2010.
As discussed above, under the Quarter Ended June 30,
2011 Compared to Quarter Ended June 30, 2010, the
Company incurred a charge of approximately $3.0 million
related to resolution of all issues related to arbitration
brought by a former officer.
Other
Income
Other income for the nine months ended June 30, 2011 was
$0.8 million, compared to $0.3 million for the nine
months ended June 30, 2010. The increase was due to a
non-recurring refund of certain restructuring fees of
$0.1 million, and Nebraska Advantage Act refunds of
$0.4 million, as described below under Government
Programs, Tax Credits and Tax Increment Financing. Other
income also includes patronage dividends.
Interest
Expense
Interest expense for the nine months ended June 30, 2011
was $2.7 million, compared to $9.8 million for the
nine months ended June 30, 2010, a decrease of
$7.1 million. The decrease in interest expense is a result
of the overall reduction in principal balances and a reduction
in interest rates on ABE South Dakotas debt after the
restructuring in June 2010, as well as scheduled principal
payments and sweep payments as required by the credit
agreements. As of June 30, 2010, the total principal
outstanding was $171.8 million, decreasing to
$151.5 million at June 30, 2011. The interest rates on
the senior credit facility for ABE South Dakota decreased from a
variable rate of 1.85% at June 30, 2010 to a variable rate
of 1.77% at June 30, 2011. Prior to the restructuring in
June 2010, ABE South Dakota was paying fixed rates between 8.27%
and 10.00%. The interest expense at June 30, 2011 also
reflects a reduction in interest expense resulting from the
amortization of deferred gain that resulted from the debt
restructuring.
Gain
on Extinguishment of Debt
Effective June 18, 2010, in connection with the
restructuring of ABE South Dakota debt, the Company paid
$2.85 million as full satisfaction of $19.0 million of
bonds and $1.5 million of accrued interest, resulting in a
gain on extinguishment of debt of $17.6 million.
Debt
Restructuring Costs
The Company incurred legal and professional fees related to the
restructuring of ABE South Dakota debt of $2.0 million for
the nine months ended June 30, 2010.
TRENDS
AND UNCERTAINTIES AFFECTING THE ETHANOL INDUSTRY AND OUR FUTURE
OPERATIONS
Overview
Ethanol is currently blended with gasoline to meet regulatory
standards as a clean air additive, an octane enhancer, a fuel
extender and a gasoline alternative. According to the Renewable
Fuels Association, as of June 2011, the estimated ethanol
production capacity in the United States is 14.2 billion
gallons per year with an additional 0.4 billion gallons
under construction or expansion. The demand for ethanol is
affected by what is commonly referred to as the blending
wall, which is a regulatory cap on the amount of ethanol
that can be blended into gasoline. The blend wall affects the
demand for ethanol, and as industry production capacity reaches
the blend wall, the supply of ethanol in the market may surpass
the demand. Assuming current gasoline usage in the U.S. at
140 billion gallons per year and a blend rate of 10%
ethanol and 90% gasoline, the current blend wall can be assumed
at approximately 14 billion gallons of ethanol per year.
22
Table of Contents
In an attempt to increase the blend wall, Growth Energy, an
ethanol industry trade organization, requested a waiver from the
U.S. Environmental Protection Agency (EPA) to allow
blending of ethanol at a 15 percent blend rate. In October
of 2010, the EPA made a decision to allow the use of E15 blends
in 2007 and newer vehicles. On January 21, 2011, the EPA
announced E15 blends to be safe for use in all cars and pickups
built in 2001 and later. We do not yet know what the impact of
this decision will be on ethanol demand, as there are still
labeling issues, additional testing, and some regulatory issues
that must be addressed prior to widespread market use of the E15
blend.
Our operations are highly dependent on commodity prices,
especially prices for corn, ethanol, distillers grains and
natural gas. As a result of price volatility for these
commodities, our operating results may fluctuate substantially.
The price and availability of corn are subject to significant
fluctuations depending upon a number of factors that affect
commodity prices in general, including crop conditions, weather,
federal policy and foreign trade. Because the market price of
ethanol is not always directly related to corn prices, at times
ethanol prices may lag movements in corn prices and compress the
overall margin structure at the plants. As a result, operating
margins may become negative and we may be forced to shut down
the plants.
We focus on locking in margins based on a cash flows model that
continually monitors market prices of corn, natural gas and
other input costs against prices for ethanol and distillers
grains at each of our production facilities. We create
offsetting positions by using a combination of derivative
instruments, fixed-price purchases and sales, or a combination
of strategies in order to manage risk associated with commodity
price fluctuations. Our primary focus is not to manage general
price movements, for example minimize the cost of corn consumed,
but rather to lock in favorable margins whenever possible. In
the quarter ended June 30, 2011, the average Chicago Opis
Spot Ethanol Assessment was $2.64 per gallon and the average
NYMEX RBOB spot gasoline price was $3.10 per gallon, or
approximately $0.46 per gallon above ethanol prices.
Federal policy has a significant impact on ethanol market
demand. Ethanol blenders benefit from incentives that encourage
usage and a tariff on imported ethanol that supports the
domestic industry. Additionally, the renewable fuels standard
(RFS) mandates increased level of usage of both
corn-based and cellulosic ethanol. Any adverse ruling on, or
legislation affecting, RFS mandates in the future could have an
adverse impact on short-term ethanol prices and our financial
performance in the future.
The ethanol industry and our business depend upon continuation
of the federal and state ethanol supports such as the RFS, the
Volumetric Ethanol Excise Tax Credit (VEETC) and
import tariffs. We believe the ethanol industry expanded due to
these federal mandates, policies, and incentives. These
government mandates and incentives have supported a market for
ethanol that might disappear without these programs.
Alternatively, the government mandates and incentives may be
continued at lower levels than those at which they currently
exist. The elimination or reduction of the federal ethanol
supports would make it more costly for us to sell our ethanol
and would likely reduce our net income. In addition, state
regulatory activity may also negatively affect the consumption
of corn-based ethanol in certain domestic markets such as
California, due to low carbon fuel standards that take into
consideration the effects caused by indirect land use.
The
Renewable Fuels Standard
The RFS is a national program that imposes requirements with
respect to the amount of renewable fuel produced and used. The
RFS was revised by the EPA in July 2010 (RFS2) and
applies to refineries, blenders, distributors and importers. In
2011, the RFS2 requires that refiners and importers blend
renewable fuels totaling at least 8.01% of total fuel volume, or
approximately 13.95 billion gallons, of which
12.60 million gallons can be derived from corn-based
ethanol. The RFS2 requirement will increase incrementally over
the next several years to a renewable fuel requirement of
36.0 billion gallons, or approximately 11% of the
anticipated gasoline and diesel
23
Table of Contents
consumption, by 2022. The following chart illustrates the
potential United States ethanol demand based on the schedule of
minimum usage established by the program through the year 2022
(in billions of gallons).
Cellulosic |
RFS Requirement |
|||||||||||||||||||
Total Renewable |
Ethanol |
Biodiesel |
That Can Be Met |
|||||||||||||||||
Fuel |
Minimum |
Minimum |
Advanced |
With Corn-Based |
||||||||||||||||
Year | Requirement | Requirement | Requirement | Biofuel | Ethanol | |||||||||||||||
2011
|
13.95 | 0.25 | 0.80 | 1.35 | 12.60 | |||||||||||||||
2012
|
15.20 | 0.50 | 1.00 | 2.00 | 13.20 | |||||||||||||||
2013
|
16.55 | 1.00 | | 2.75 | 13.80 | |||||||||||||||
2014
|
18.15 | 1.75 | | 3.75 | 14.40 | |||||||||||||||
2015
|
20.50 | 3.00 | | 5.50 | 15.00 | |||||||||||||||
2016
|
22.25 | 4.25 | | 7.25 | 15.00 | |||||||||||||||
2017
|
24.00 | 5.50 | | 9.00 | 15.00 | |||||||||||||||
2018
|
26.00 | 7.00 | | 11.00 | 15.00 | |||||||||||||||
2019
|
28.00 | 8.50 | | 13.00 | 15.00 | |||||||||||||||
2020
|
30.00 | 10.50 | | 15.00 | 15.00 | |||||||||||||||
2021
|
33.00 | 13.50 | | 18.00 | 15.00 | |||||||||||||||
2022
|
36.00 | 16.00 | | 21.00 | 15.00 |
The RFS2 went into effect on July 1, 2010 and requires
certain gas emission reductions for the entire lifecycle,
including production of fuels. The greenhouse gas reduction
requirement generally does not apply to facilities that
commenced construction prior to December 2007. If this changes
and our plants must meet the standard for emissions reduction,
it may affect the way we procure feed stock and modify the way
we market and transport our products.
Blending
Incentives
The VEETC, often commonly referred to as the
blenders credit, was created by the American
Jobs Creation Act of 2004. This credit allows gasoline
distributors who blend ethanol with gasoline to receive a
federal excise tax credit of $0.45 per gallon of pure ethanol
used, or $0.045 per gallon for E10 and $0.3825 per gallon for
E85. To ensure the blenders credit spurs growth in
domestic production, federal policy has insulated the domestic
ethanol industry from foreign competition by levying a $0.54 per
gallon tariff on all imported ethanol. Both the VEETC and the
tariff were set to expire on December 31, 2010, but were
extended for one year as part of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of
2010 signed into law by President Obama on
December 17, 2010. In the fiscal third quarter of 2011,
several legislative bills were introduced in the US Senate and
House of Representatives to immediately repeal the VEETC. The
bills did not become part of the debt-reduction package signed
into law by President Obama on August 2, 2011, so the VEETC
will expire on December 31, 2011, unless additional
legislation is passed into law.
California
Low Carbon Fuel Standard
In April 2009, the California air regulators approved the
Low-Carbon Fuel Standard aimed at achieving a 10% reduction in
motor vehicle emissions of greenhouse gases by 2020. Other
states may adopt similar legislation, which may lead to a
national standard. The regulation requires that providers,
refiners, importers and blenders ensure that the fuels they
provide in the California market meet a declining standard of
carbon intensity. This rule calls for a reduction of greenhouse
gas emissions associated with the production, transportation and
consumption of a fuel. The emissions score also includes
indirect land-use change created from converting a forest to
cultivated land for row crops. The final regulation contains a
provision to review the measurement of the indirect land-use
effects and further analysis of the land use values and modeling
inputs.
This standard and others to follow may affect the way ethanol
producers procure feedstocks, produce dry distillers grains and
market and transport ethanol and distillers grains. Ethanol
produced through low carbon methods, including imported ethanol
made from sugarcane, may be redirected to certain markets and
U.S. producers may be required to market their ethanol in
other regions.
24
Table of Contents
Imported
Ethanol Tariffs
There is a $0.54 per gallon tariff on imported ethanol, which
expires on December 31, 2011. Ethanol imports from 24
countries in Central America and the Caribbean region are
exempted from the tariff under the Caribbean Basin Initiative or
CBI, which provides that specified nations may export an
aggregate of 7% of the prior years U.S. ethanol
production into the U.S., with additional exemptions from
ethanol produced from feedstock in the Caribbean region over the
7% limit. Ethanol imported from Caribbean basin countries may be
a less expensive alternative to domestically produced ethanol.
Expiration of this tariff could lead to the importation of
ethanol from other countries, which may be a less expensive
alternative to ethanol produced domestically. This could affect
our ability to sell our ethanol at the price we need to operate
profitably. In June 2011, a bill was introduced in the US House
of Representatives to repeal the tariff on imported ethanol. The
bill did not become part of the debt-reduction package signed
into law by President Obama on August 2, 2011, so the
tariff will expire on December 31, 2011 as noted above,
unless new legislation is passed into law.
Chinese
Anti-Dumping Investigation
On December 28, 2010, the Chinese government announced a
one-year investigation into the potential violation of
anti-dumping laws regarding imported dried distillers grains
originating in the United States. The allegation is that the
recent surge in imports of U.S. dried distillers grains is
undercutting sales of domestically produced dried distillers
grains and that U.S. dried distillers grains are being sold
at a price lower than the fair market value. If the Chinese
government finds evidence of dumping upon conclusion of the
investigation on December 28, 2011, a final determination
will include the imposition of punitive tariffs on
U.S. imports of DDGS to China. Punitive tariffs, if
applied, will be significantly higher, as much as
50 percent, for non-cooperating parties. Although the
Company does not sell distillers grains directly into China,
some of our distillers grains may be sold into China through
third parties. The Company has chosen to cooperate with the
Chinese governments investigation, but at this time we are
uncertain as to the impact this may have on our business.
COMPETITION
Ethanol
The ethanol we produce is similar to ethanol produced by other
plants. The RFA reports that as of June 2011, current
U.S. ethanol production capacity is approximately
14.2 billion gallons per year. On a national level there
are numerous other production facilities with which we are in
direct competition, many of whom have greater resources than we
do. As of June 2011, Nebraska had 25 ethanol plants producing an
aggregate of 1.8 billion gallons of ethanol per year, and
South Dakota had 15 ethanol plants producing an aggregate of
1.0 billion gallons of ethanol per year, including our
plants.
The largest ethanol producers include: Abengoa Bioenergy Corp.,
Archer Daniels Midland Company, Cargill, Inc., Green Plains
Renewable Energy, Inc., POET, LLC and Valero Renewable Fuels.
Producers of this size may have an advantage over us from
economies of scale and stronger negotiating positions with
purchasers. We market our ethanol on a regional and national
basis. We believe that we are able to reach the best available
markets through the use of experienced ethanol marketers and by
the rail delivery methods we use. Our plants compete with other
ethanol producers on the basis of price, and, to a lesser
extent, delivery service. We believe that we can compete
favorably with other ethanol producers due to our proximity to
ample grain, natural gas, electricity and water supplies at
favorable prices.
Distillers
Grains
In the sales of our distillers grains, we compete with other
ethanol producers, as well as a number of large and smaller
suppliers of competing animal feed. We believe the principal
competitive factors are price, proximity to purchasers and
product quality. Currently 79% of our distillers grain revenues
are derived from the sale of dried distillers grains, which have
an indefinite shelf life and can be transported by truck or
rail, and 21% as modified and wet distillers grains, which have
a shorter shelf life and are typically sold in local markets.
25
Table of Contents
LIQUIDITY
AND CAPITAL RESOURCES
Financing
and Existing Debt Obligations
We conduct our business activities and plant operations through
Advanced BioEnergy, ABE Fairmont and ABE South Dakota. The
liquidity and capital resources for each entity are based on the
entitys existing financing arrangements and capital
structure. ABE Fairmont has traditional project financing in
place, including senior secured financing, working capital
facilities and subordinate exempt-facilities revenue bonds. In
June 2010, ABE South Dakota entered into the Senior Credit
Agreement (as defined below), which eliminated its subordinated
debt. There are provisions contained in the various financing
agreements at each operating entity preventing cross-default or
collateralization between operating entities. Advanced BioEnergy
is highly restricted in its ability to use the cash and other
financial resources of each subsidiary for the benefit of
Advanced BioEnergy, with the exception of allowable
distributions as defined in the separate financing agreements.
Advanced
BioEnergy, LLC
ABE had cash and cash equivalents of $2.8 million on hand
at June 30, 2011. ABE does not have any debt outstanding as
of June 30, 2011. ABE does not expect to make any
distributions to its unit holders in the next 12 months.
ABEs primary source of operating cash comes from charging
a monthly management fee to ABE Fairmont and ABE South Dakota
for services provided in connection with operating the ethanol
plants. The primary management services provided include risk
management, accounting and finance, human resources and other
general management-related responsibilities. From time to time
ABE may also receive certain allowable distributions from ABE
Fairmont and ABE South Dakota based on the terms and conditions
in their respective senior credit agreements. In January 2011,
ABE received a distribution from ABE Fairmont of
$4.7 million based on the fiscal 2010 financial results of
ABE Fairmont. This distribution was subject to ABE Fairmont
remaining in compliance with all loan covenants and terms and
conditions of its senior secured credit agreement. ABE does not
expect any distribution from ABE South Dakota in 2011.
On June 30, 2011, ABE disbursed approximately
$3.4 million in settlement of the arbitration proceedings
brought by our former chief executive officer. ABE also received
a $490,000 promissory note from a related party to offset a
portion of the settlement.
We believe ABE has sufficient financial resources available to
fund current operations and capital expenditure requirements for
at least the next 12 months.
ABE
Fairmont
ABE Fairmont had cash and cash equivalents of $9.6 million
and restricted cash of $1.8 million on hand at
June 30, 2011. The restricted cash is held in escrow for
future debt service payments. As of June 30, 2011, ABE
Fairmont had total debt outstanding of $61.1 million
consisting of $54.9 million in senior secured credit and
$6.2 million of subordinate exempt-facilities revenue
bonds. ABE Fairmont is required to make monthly interest
payments on its senior secured credit and semi-annual interest
payments on its outstanding subordinate exempt revenue bonds.
ABE Fairmont is required to make quarterly principal payments of
$2.6 million on its senior secured credit. ABE Fairmont has
made total principal payments of $0.8 million on the
subordinate exempt facilities revenue bonds through
June 30, 2011. In April 2011, ABE Fairmont amended the
senior secured credit agreement to defer the May 2011 principal
payment of $2.6 million in order to finance a capital
project. This amendment has the effect of extending the final
principal payment on term loan A in 2014 by one quarter.
ABE Fairmont is allowed to make cash distributions to ABE if ABE
Fairmont meets all conditions required in its senior secured
credit agreement at the end of a fiscal year. This annual
distribution is limited to 40% of net income calculated in
accordance with generally accepted accounting principles and
other terms contained in its senior secured credit agreement.
The distribution is subject to the completion of ABE
Fairmonts annual financial statement audit and ABE
Fairmont remaining in compliance with all loan covenants and
terms and conditions of the senior secured credit agreement. The
annual distribution based on ABE Fairmont fiscal 2010 financial
results was $4.7 million. The distribution was made at the
end of January 2011.
26
Table of Contents
ABE Fairmonts senior secured credit agreement also
requires an annual cash sweep subject to a free cash flow
calculation, as defined in its senior secured credit agreement.
The cash sweep requires that, for each fiscal year ending in
2010 through 2013, ABE Fairmont must make a payment equal to the
lesser of $8.0 million or 75% of its free cash flow after
distributions, not to exceed $16.0 million in the aggregate
for all of the free cash flow payments. Based on fiscal 2010
financial results, ABE Fairmont made a cash sweep payment of
$5.0 million in December 2010. Cash sweep payments are
subject to compliance with all loan covenants and terms and
conditions of the senior secured credit agreement.
We believe ABE Fairmont has sufficient financial resources
available to fund its current operations and capital expenditure
requirements for at least the next 12 months. In addition
to the cash on hand, ABE Fairmont has a $4.0 million
revolving credit facility for financing eligible grain inventory
and equity in Chicago Board of Trade futures positions, which
expires in April 2012. ABE Fairmont also has a revolving credit
facility for financing third-party letters of credit, which
expires in February 2012. ABE Fairmont issued a letter of credit
in connection with a rail car lease, thereby fully utilizing the
$911,000 financing available as of June 30, 2011.
ABE Fairmonts senior secured credit facility agreement
contains financial and restrictive covenants, including
limitations on additional indebtedness, restricted payments, and
the incurrence of liens and transactions with affiliates and
sales of assets. In addition, the senior secured credit facility
requires ABE Fairmont to comply with certain financial
covenants, including maintaining monthly minimum working
capital, monthly minimum net worth, annual debt service coverage
ratios and capital expenditure limitations. ABE Fairmont was in
compliance with all covenants at June 30, 2011.
ABE South
Dakota
ABE South Dakota had cash and cash equivalents of
$7.6 million and $4.0 million of restricted cash on
hand at June 30, 2011. The restricted cash consists of
$3.0 million for a debt service payment reserve, and
$1.0 million for the construction of certain rail
infrastructure at its Huron, South Dakota ethanol facility. As
of June 30, 2011, ABE South Dakota had interest bearing
term debt outstanding of $77.8 million.
In June 2010, ABE South Dakota entered into an Amended and
Restated Senior Credit Agreement dated as of June 16, 2010
(the Senior Credit Agreement) among ABE South
Dakota, the lenders from time to time party thereto, and WestLB
AG, New York Branch, as administrative agent and collateral
agent. The Senior Credit Agreement converted the outstanding
principal amount of the loans and certain other amounts under
interest rate protection agreements under the existing senior
credit agreement to a senior term loan in an aggregate principal
amount equal to $84.3 million. Interest accrued on
outstanding term and working capital loans under the existing
credit agreement was reduced to zero on June 18, 2010. The
principal amount of the term loan facility is payable in equal
quarterly payments of $750,000, with the remaining principal
amount fully due and payable on June 30, 2016. ABE South
Dakota has agreed to pay a $3.0 million restructuring fee
to the lender due at the earlier of March 31, 2016 and the
date on which the loans are repaid in full. The Company recorded
the restructuring fee as long-term, non-interest bearing debt.
ABE South Dakotas obligations under the Senior Credit
Agreement are secured by a first-priority security interest in
all of the equity in and assets of ABE South Dakota.
ABE South Dakota is allowed to make equity distributions (other
than certain tax distributions) to ABE only if (i) ABE
South Dakota meets certain financial conditions and,
(ii) there is no more than $25 million of principal
outstanding on the senior term loan. Loans outstanding under the
Senior Credit Agreement are subject to mandatory prepayment in
certain circumstances, including, but not limited to, mandatory
receipt of certain proceeds of asset sales, casualty proceeds,
termination payments, and cash flows.
The Senior Credit Agreement and the related loan documentation
include, among other terms and conditions, limitations (subject
to specified exclusions) on ABE South Dakotas ability to
make asset dispositions; merge or consolidate with or into
another person or entity; create, incur, assume or be liable for
indebtedness; create, incur or allow liens on any property or
assets; make investments; declare or make specified restricted
payments or dividends; enter into new material agreements;
modify or terminate material agreements; enter into transactions
with affiliates; change its line of business; and establish bank
accounts. Substantially all cash of ABE South Dakota is required
to
27
Table of Contents
be deposited into special, segregated project accounts subject
to security interests to secure obligations in connection with
the Senior Credit Agreement. The Senior Credit Agreement
contains customary events of default and also includes an event
of default for defaults on other indebtedness by ABE South
Dakota and certain changes of control. ABE South Dakota was in
compliance with all covenants at June 30, 2011.
We believe ABE South Dakota has sufficient financial resources
available to fund current operations, make debt service payments
and fund capital expenditure requirements, including the
$1.0 million remaining for the rail infrastructure project
at Huron, over the next 12 months.
CASH
FLOWS
The following table shows our cash flows for the nine months
ended June 30, 2011 and 2010:
Nine Months Ended June 30 | ||||||||
2011 | 2010 | |||||||
(In thousands) | (In thousands) | |||||||
Net cash provided by operating activities
|
$ | 14,583 | $ | 24,777 | ||||
Net cash provided by (used in) investing activities
|
(2,743 | ) | 173 | |||||
Net cash used in financing activities
|
(14,576 | ) | (29,621 | ) |
Cash
Flow from Operations
Our cash flows from operations for the nine months ended
June 30, 2011 were lower compared to the same period in
2010, primarily due to decreased margins during fiscal 2011 and
a higher inventory value at June 30, 2011 resulting from
increased corn prices in 2011.
Cash
Flow from Investing Activities
We used more cash in investing activities in the nine months
ended June 30, 2011, compared to the same period in 2010
primarily due to capital expenditures for installation of corn
oil extraction equipment at our Fairmont facility, as well as
expansion of our rail handling capabilities in Huron. We also
received a $490,000 promissory note from a related party in
conjunction with the June 2011 settlement of arbitration brought
by a former officer against the Company and litigation against a
director of the Company.
Cash
Flow from Financing Activities
We used significantly less cash for financing activities during
the nine months ended June 30, 2011, compared to the same
period in 2010. This was due to the restructuring of the debt in
ABE South Dakota in June 2010, which resulted in a reduction of
outstanding principal.
28
Table of Contents
CREDIT
ARRANGEMENTS
Long-term debt consists of the following (in thousands, except
percentages):
June 30, 2011 |
June 30, |
September 30, |
||||||||||
Interest Rate | 2011 | 2010 | ||||||||||
ABE Fairmont:
|
||||||||||||
Senior credit facility variable
|
3.59 | % | $ | 34,866 | $ | 45,050 | ||||||
Senior credit facility fixed
|
7.53 | % | 20,000 | 20,000 | ||||||||
Seasonal line
|
3.29 | % | | | ||||||||
Subordinate exempt facilities bonds fixed
|
6.75 | % | 6,185 | 7,000 | ||||||||
61,051 | 72,050 | |||||||||||
ABE South Dakota:
|
||||||||||||
Senior debt principal variable
|
1.77 | % | 77,802 | 81,352 | ||||||||
Restructuring fee
|
N/A | 3,000 | 3,000 | |||||||||
Additional carrying value of restructured debt
|
N/A | 9,668 | 10,313 | |||||||||
90,470 | 94,665 | |||||||||||
Total outstanding
|
$ | 151,521 | $ | 166,715 | ||||||||
Additional carrying value of restructured debt
|
N/A | (9,668 | ) | (10,313 | ) | |||||||
Stated principal
|
$ | 141,853 | $ | 156,402 | ||||||||
The estimated maturities of debt at June 30, are as follows
(in thousands):
Amortization of |
||||||||||||
Additional Carrying |
||||||||||||
Stated |
Value of |
|||||||||||
Principal | Restructured Debt | Total | ||||||||||
2012
|
$ | 14,215 | $ | 889 | $ | 15,104 | ||||||
2013
|
14,215 | 1,951 | 16,166 | |||||||||
2014
|
12,881 | 2,566 | 15,447 | |||||||||
2015
|
13,815 | 2,471 | 16,286 | |||||||||
2016
|
79,617 | 1,791 | 81,408 | |||||||||
Thereafter
|
7,110 | | 7,110 | |||||||||
Total debt
|
$ | 141,853 | $ | 9,668 | $ | 151,521 | ||||||
SUMMARY
OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Note 1 to our consolidated financial statements contains a
summary of our significant accounting policies, many of which
require the use of estimates and assumptions. Accounting
estimates are an integral part of the preparation of financial
statements and are based upon managements current
judgment. We used our knowledge and experience about past events
and certain future assumptions to make estimates and judgments
involving matters that are inherently uncertain and that affect
the carrying value of our assets and liabilities. We believe
that of our significant accounting policies, the following are
noteworthy because changes in these estimates or assumptions
could materially affect our financial position and results of
operations:
Fair
Value of Financial Instruments
Financial instruments include cash, cash equivalents and
restricted cash, interest rate swaps, derivative financial
instruments, accounts receivable, accounts payable, accrued
expenses and long-term debt. We estimate the fair value of the
long-term debt based on anticipated interest rates that
management believes would currently be available to the Company
for similar issues of debt, taking into account the current
credit risk of the Company and
29
Table of Contents
other market factors. The Company believes the carrying value of
the debt instruments at ABE Fairmont and ABE South Dakota
approximate fair value. We estimate the fair value of all other
financial instruments to approximate carrying value due to the
short-term nature of these instruments.
Inventories
Corn, chemicals, supplies, work in process, ethanol and
distillers grains inventories are stated at the lower of
weighted cost or market.
Property
and Equipment
Property and equipment is carried at cost less accumulated
depreciation computed using the straight-line method over the
estimated useful lives:
Office equipment
|
5-7 Years | |
Process equipment
|
10 Years | |
Buildings
|
40 Years |
Maintenance and repairs are charged to expense as incurred;
major improvements and betterments are capitalized. Long-lived
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount on the asset may
not be recoverable. An impairment loss is recognized when
estimated undiscounted future cash flows from operations are
less than the carrying value of the asset group. An impairment
loss is measured by the amount by which the carrying value of
the asset exceeds the estimated fair value on that date.
Revenue
Recognition
Ethanol revenue is recognized when product title and all risk of
ownership is transferred to the customer as specified in the
contractual agreements with the marketers. At all of the
Companys plants, revenue is recognized upon the release of
the product for shipment. Revenue from the sale of co-products
is recorded when title and all risk of ownership transfers to
customers, which generally occurs at the time of shipment.
Co-products and related products are generally shipped free on
board (FOB) shipping point. Interest income is
recognized as earned. In accordance with the Companys
agreements for the marketing and sale of ethanol and related
products, commissions due to the marketers are deducted from the
gross sale price at the time of payment.
OFF-BALANCE
SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
GOVERNMENT
PROGRAMS, TAX CREDITS AND TAX INCREMENT FINANCING
We have applied for income and sales tax incentives available
under a Nebraska Advantage Act Project Agreement. As of
June 30, 2011, we have received approximately
$4.0 million in refunds under the Nebraska Advantage Act.
We anticipate earning investment credits for certain sales taxes
paid on construction costs, up to 10% of the cost of the
Fairmont plant construction, and up to 10% of new asset
additions. These investment credits can be used to offset
Nebraska sales, use, and income tax. Under the Nebraska
Advantage Act, we also anticipate earning employment credits for
5% of the annual costs of the newly created employment
positions, which can be used to offset future payroll taxes. We
will continue to earn additional investment and employment
credits under the Nebraska Advantage Act through the tax year
ended September 30, 2014. These credits can be carried over
until used, but will expire on September 30, 2020. Although
we may apply under several programs simultaneously and may be
awarded grants or other benefits from more than one program,
some combinations of programs are mutually exclusive. Under some
state and federal programs, awards are not made to applicants in
cases where construction on the project has started prior to the
award date. There is no guarantee that applications will result
in awards of grants or credits or deductions.
In December 2006, we received net proceeds of $6.7 million
from tax incremental financing from the Village of Fairmont,
Nebraska. We anticipate paying off the outstanding obligation
with future property tax payments assessed on the Fairmont plant.
30
Table of Contents
The State of South Dakota pays an incentive to operators of
ethanol plants to encourage the growth of the ethanol industry.
The Huron plant is eligible to receive an aggregate of
$9.7 million, payable up to $1 million per year. The
amounts are dependent on annual allocations by the State of
South Dakota and the number of eligible plants. ABE South Dakota
has historically received a payment between $700,000 and
$800,000 for the Huron plant per year. The State of South Dakota
has reduced the annual allocation for the remainder of the
fiscal year so the annual payment is expected to be
approximately $600,000 for this fiscal year.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
COMMODITY
PRICE RISK
We consider our principal market risk to be the potential
changes in commodity prices and their effect on our results of
operations. We are subject to significant market risk with
respect to the price of ethanol and corn. For the quarter ended
June 30, 2011, sales of ethanol represented 83.0% of our
total revenues and corn costs represented 80.0% of total cost of
goods sold. In general, ethanol prices are affected by the
supply and demand for ethanol, the cost of ethanol production,
the availability of other fuel oxygenates, the regulatory
climate and the cost of alternative fuels such as gasoline. The
price of corn is affected by weather conditions and other
factors affecting crop yields, farmer planting decisions and
general economic, market and regulatory factors. At
June 30, 2011, the price per gallon of ethanol and the cost
per bushel of corn on the Chicago Board of Trade, or CBOT, were
$2.56 and $6.29, respectively.
We are also subject to market risk on the selling prices of our
distillers grains, which represent 17% of our total revenues.
These prices fluctuate seasonally when the price of corn or
other cattle feed alternatives fluctuate in price. The dried
distiller grains spot price for Nebraska and South Dakota local
customers were $185 and $174 per ton, respectively, at
June 30, 2011.
We are also subject to market risk with respect to our supply of
natural gas that is consumed in the ethanol production process.
Natural gas costs represented 3.9% of total cost of goods sold
for the quarter ended June 30, 2011. The price of natural
gas is affected by weather conditions and general economic,
market and regulatory factors. At June 30, 2011, the price
of natural gas on the NYMEX was $4.37 per mmbtu.
To reduce price risk caused by market fluctuations in the cost
and selling prices of related commodities, we have entered into
forward purchase/sale contracts and derivative transactions. At
June 30, 2011 we guaranteed prices representing 76.6% of
our estimated ethanol production through August 2011 by entering
into flat-priced contracts. At June 30, 2011 we had entered
into forward sale contracts representing 43.7% of our expected
distillers grains production and we had entered into forward
purchase contracts representing 69.3% of our current corn
requirements through August 2011. At June 30, 2011, prices
of 65.3% of our expected gas usage through August 2011 were
fixed with our natural gas providers.
The following represents a sensitivity analysis that estimates
our annual exposure to market risk with respect to our current
corn and natural gas requirements and ethanol sales. Market risk
is estimated as the potential impact on operating income
resulting from a hypothetical 10% change in the current ethanol,
distiller grains, corn, and natural gas prices. The results of
this analysis, which may differ from actual results, are as
follows:
Change in |
||||||||||||||||||
Estimated at |
Hypothetical |
Annual |
||||||||||||||||
Risk |
Change in |
Spot |
Operating |
|||||||||||||||
Volume(1) | Units | Price | Price(2) | Income | ||||||||||||||
(In millions) | (In millions) | |||||||||||||||||
Ethanol
|
94.3 | gallons | 10.0 | % | $ | 2.56 | $ | 24.1 | ||||||||||
Distillers grains
|
0.42 | tons | 10.0 | % | 180.21 | 7.6 | ||||||||||||
Corn
|
37.0 | bushels | 10.0 | % | 6.29 | 23.3 | ||||||||||||
Natural gas
|
3.0 | mmbtus | 10.0 | % | 4.37 | 1.3 |
(1) | The volume of ethanol at risk is based on the assumption that we will enter into contracts for 51.7% of our expected annual gallons capacity of 195 million gallons. The volume of distillers grains at risk is based on the assumption that we will enter into contracts for 29.2% of our expected annual distillers grains production of |
31
Table of Contents
592,000 tons. The volume of corn is based on the assumption that we will enter into forward contracts for 46.8% of our estimated current 69.6 million bushel annual requirement. The volume of natural gas at risk is based on the assumption that we will continue to lock in 44% of our gas usage. | ||
(2) | Current spot prices include the CBOT price per gallon of ethanol and the price per bushel of corn, the NYMEX price per mmbtu of natural gas and our listed local advertised dried distillers grains price per ton as of June 30, 2011. |
INTEREST
RATE/FOREIGN EXCHANGE RISK
Our future earnings may be affected by changes in interest rates
due to the impact those changes have on our interest expense on
borrowings under our credit facilities. As of June 30,
2011, we had $112.7 million of outstanding borrowings with
variable interest rates. With each 1% change in interest rates
our annual interest would change by $1.13 million.
We have no direct international sales. Historically all of our
purchases have been denominated in U.S. dollars. Therefore
we do not consider future earnings subject to foreign exchange
risk.
Item 4. | Controls and Procedures |
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted
an evaluation, under the supervision and with the participation
of our chief executive officer, who is also our chief financial
officer, of our disclosure controls and procedures (as defined
in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934). Based on this
evaluation, our chief executive officer, who is also our chief
financial officer, concluded that our disclosure controls and
procedures are effective to ensure that information required to
be disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and to ensure
that information required to be disclosed by the Company in the
reports the Company files or submits under the Exchange Act is
accumulated and communicated to the Companys management,
including its principal executive and principal financial
officer, to allow timely decisions regarding required
disclosures.
Changes
in Internal Controls
There were no changes in our internal controls over financial
reporting during our most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1. | Legal Proceedings |
Stephenson v.
Advanced BioEnergy, LLC. (Arbitration Matter)
As previously disclosed, pursuant to a Settlement Agreement
dated as of June 30, 2011, the Company resolved
all open issues related to: (i) previously reported pending
arbitration brought by Revis L. Stephenson III, a former officer
of ABE, against ABE (Stephenson Arbitration); (ii)
previously reported litigation brought by Stephenson against
Clean Energy Capital, LLC, a Delaware limited liability company
(CEC), and Scott Brittenham
(Brittenham), a director of ABE and an officer of
CEC (the Stephenson Lawsuit); and (iii) the
payment of legal fees by ABE in satisfaction of claims for
indemnification by Brittenham in the Stephenson Lawsuit.
Under the terms of the Settlement Agreement and a separate
Master Agreement dated as of June 30, 2011 (Master
Agreement): (i) ABE agreed to pay $3.4 million
to Stephenson; (ii) ABE agreed to pay $80,000 in legal fees
and costs incurred by Brittenham, CEC and the CEC Obligors, in
complete satisfaction of ABEs indemnification obligations
to Brittenham in connection with the Stephenson Lawsuit; and
(ii) the CEC Obligors (as
32
Table of Contents
defined below) agreed to jointly and severally reimburse ABE for
$450,000 of the $3.4 million and $40,000 of the legal fees
and expense by delivery of a $490,00 note (Note).
The Master Agreement was entered into between by and among ABE,
CEC, Ethanol Investment Partners, LLC, a Delaware limited
liability company (EIP), Ethanol Capital Partners,
LP Series R, a Delaware limited partnership,
Ethanol Capital Partners, LP Series T, a
Delaware limited partnership, Ethanol Capital Partners,
LP Series V, a Delaware limited partnership,
and Tennessee Ethanol Partners, LP, a Delaware limited
partnership (each limited partnership is referred to as a
CEC Partnership and collectively the CEC
Partnerships; and the CEC Partnerships and EIP are
collectively referred to as the CEC Obligors).
Each CEC Obligor entered into and delivered to ABE a pledge
agreement (the Pledge) dated as of June 30,
2011, under which it pledged its units of membership interest in
ABE to collateralize its obligations under the Note. The CEC
Obligors own and pledged a total of 4,423,499 units of
membership interest of ABE, (subject in the case of one CEC
Obligor to a prior pledge to CEC), which is approximately 17.1%
of ABEs outstanding units of membership interests. CEC has
agreed to guarantee payment of principal and interest under the
Note (Guarantee).
On June 30, 2011, all payments were made, and the Note,
Pledge, and Guarantee were entered into and delivered.
Item 1A. | Risk Factors |
There are no material changes from risk factors as previously
discussed in our September 30, 2010 Annual Report on
Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | [Removed and Reserved] |
Not applicable.
Item 5. | Other Information |
Frequency
of Say on Pay Votes
In the Companys Proxy Statement for the Regular Meeting of
Members held on March 18, 2011, the Board of Directors
included a nonbinding advisory member vote regarding the
frequency of future advisory votes on executive compensation.
The Company recommended members vote in favor of holding the
advisory vote on an annual basis and 95% of the units voting on
this matter voted in favor of holding the member advisory vote
on executive compensation on an annual basis. In light of the
voting results and consistent with its recommendation to
members, the Company has decided to include the advisory member
vote on executive compensation on an annual basis until the next
advisory vote on the frequency of the member vote on executive
compensation.
Item 6. | Exhibits |
The exhibits filed herewith are set forth on the
Exhibit Index filed as a part of this report beginning
immediately following the signatures.
33
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ADVANCED BIOENERGY, LLC
By: |
/s/ Richard
R. Peterson
|
Richard R. Peterson
Chief Executive Officer and President,
Chief Financial Officer
(Duly authorized signatory and Principal
Financial Officer)
Date: August 12, 2011
34
Table of Contents
EXHIBIT INDEX
Exhibit |
||||||
No | Description | Method of Filing | ||||
31 | Rule 13a-14(a)/15d-14(a) Certification by Principal Executive Officer, Financial and Accounting Officer. | Filed Electronically | ||||
32 | Section 1350 Certifications. | Filed Electronically | ||||
101 | The following materials from Advanced BioEnergys Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL: (i) Consolidated Balance Sheets at June 30, 2011 and September 30, 2010 ; (ii) Consolidated Statements of Operations for the three and nine months ended June 30, 2011 and June 30, 2010; (iii) Consolidated Statements of Changes in Members Equity for the nine months ended June 30, 2011; and (iv) Consolidated Statements of Cash Flows for the nine months ended June 30, 2011 and 2010; (v) Notes to the Consolidated Financial Statements. | Filed Electronically |
35