PART I FINANCIAL INFORMATION
Item 1. Financial Statements
RED TRAIL ENERGY, LLC
Condensed Balance Sheets
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ASSETS
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March 31, 2013
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September 30, 2012
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|
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|
(Unaudited)
|
|
|
|
Current Assets
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
Restricted cash
|
|
1,499,253
|
|
|
6,904
|
|
|
Accounts receivable, primarily related party
|
|
5,095,513
|
|
|
3,750,301
|
|
|
Other receivables
|
|
109,979
|
|
|
40,069
|
|
|
Commodities derivative instruments, at fair value
|
|
—
|
|
|
180,110
|
|
|
Inventory
|
|
22,091,400
|
|
|
13,650,907
|
|
|
Prepaid expenses
|
|
162,299
|
|
|
87,523
|
|
|
Total current assets
|
|
28,959,444
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|
|
17,716,814
|
|
|
|
|
|
|
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Property, Plant and Equipment
|
|
|
|
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Land
|
|
836,428
|
|
|
833,131
|
|
|
Land improvements
|
|
4,127,372
|
|
|
4,127,372
|
|
|
Buildings
|
|
5,492,612
|
|
|
5,634,430
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|
|
Plant and equipment
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|
76,748,278
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|
76,696,675
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Construction in progress
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|
106,997
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|
|
25,885
|
|
|
|
|
87,311,687
|
|
|
87,317,493
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|
|
Less accumulated depreciation
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|
33,944,616
|
|
|
31,945,268
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|
|
Net property, plant and equipment
|
|
53,367,071
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|
55,372,225
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|
|
|
|
|
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Other Assets
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|
|
|
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Debt issuance costs, net of amortization
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73,088
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70,751
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Investment in RPMG
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605,000
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605,000
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Patronage equity
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|
2,030,726
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|
|
1,943,226
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Deposits
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40,000
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40,150
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Total other assets
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2,748,814
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|
2,659,127
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Total Assets
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$
|
85,075,329
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$
|
75,748,166
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Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Balance Sheets
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LIABILITIES AND MEMBERS' EQUITY
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March 31, 2013
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September 30, 2012
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(Unaudited)
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Current Liabilities
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|
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|
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Disbursements in excess of bank balances
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$
|
5,053,174
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$
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1,728,931
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Accounts payable
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1,944,333
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1,354,988
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Accrued expenses
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4,917,121
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6,273,695
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Commodities derivative instruments, at fair value
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188,125
|
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|
—
|
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Accrued loss on firm purchase commitments (see note 7)
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455,000
|
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|
—
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Short-term borrowings
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|
6,082,000
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|
242,000
|
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Current maturities of long-term debt
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2,503,404
|
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2,584,429
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Total current liabilities
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21,143,157
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12,184,043
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Long-Term Liabilities
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Notes payable
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20,000,553
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21,252,164
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Contracts payable
|
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275,000
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275,000
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Total long-term liabilities
|
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20,275,553
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21,527,164
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Members’ Equity
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43,656,619
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42,036,959
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Total Liabilities and Members’ Equity
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|
$
|
85,075,329
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|
|
$
|
75,748,166
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Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Statements of Operations (Unaudited)
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Three Months Ended
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Three Months Ended
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Six Months Ended
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Six Months Ended
|
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March 31, 2013
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March 31, 2012
|
|
March 31, 2013
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March 31, 2012
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|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Revenues, primarily related party
|
$
|
37,514,330
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|
$
|
37,123,717
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$
|
79,773,208
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|
$
|
74,550,717
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|
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Cost of Goods Sold
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Cost of goods sold
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34,421,127
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36,812,127
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75,247,752
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73,142,435
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Lower of cost or market inventory adjustment
|
92,500
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39,893
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|
341,500
|
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|
180,647
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Loss on firm purchase commitments
|
455,000
|
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|
677,000
|
|
|
1,091,000
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|
677,000
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Total Cost of Goods Sold
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34,968,627
|
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|
37,529,020
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|
76,680,252
|
|
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74,000,082
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|
|
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Gross Profit (Loss)
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2,545,703
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|
|
(405,303
|
)
|
|
3,092,956
|
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|
550,635
|
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General and Administrative Expenses
|
538,568
|
|
|
574,223
|
|
|
1,064,815
|
|
|
1,249,530
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Operating Income (Loss)
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2,007,135
|
|
|
(979,526
|
)
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2,028,141
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(698,895
|
)
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Other Income (Expense)
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Interest income
|
20,795
|
|
|
13,007
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|
|
30,057
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|
27,240
|
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Other income
|
13,390
|
|
|
46,892
|
|
|
50,805
|
|
|
1,847,577
|
|
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Interest expense
|
(250,352
|
)
|
|
11,294
|
|
|
(489,343
|
)
|
|
(463,505
|
)
|
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Total other income (expense), net
|
(216,167
|
)
|
|
71,193
|
|
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(408,481
|
)
|
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1,411,312
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|
|
|
|
|
|
|
|
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Net Income (Loss)
|
$
|
1,790,968
|
|
|
$
|
(908,333
|
)
|
|
$
|
1,619,660
|
|
|
$
|
712,417
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|
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Weighted Average Units Outstanding
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Basic
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40,148,160
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|
40,213,973
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40,155,742
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40,213,973
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Diluted
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40,148,160
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40,293,973
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40,158,270
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40,293,973
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Net Income (Loss) Per Unit
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Basic
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$
|
0.04
|
|
|
$
|
—
|
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
|
|
|
|
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Diluted
|
$
|
0.04
|
|
|
$
|
—
|
|
|
$
|
0.04
|
|
|
$
|
0.02
|
|
|
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Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Statements of Cash Flows (Unaudited)
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Six Months Ended
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Six Months Ended
|
|
|
March 31, 2013
|
|
March 31, 2012
|
|
Cash Flows from Operating Activities
|
(Unaudited)
|
|
(Unaudited)
|
|
Net income
|
$
|
1,619,660
|
|
|
$
|
712,417
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
2,017,509
|
|
|
1,721,180
|
|
|
Change in fair value of derivative instruments
|
368,235
|
|
|
(1,369,271
|
)
|
|
Equity-based compensation
|
—
|
|
|
10,002
|
|
|
Lower of cost or market inventory adjustment
|
341,500
|
|
|
180,647
|
|
|
Gain on disposal of fixed assets
|
(18,788
|
)
|
|
—
|
|
|
Loss on firm purchase commitments
|
1,091,000
|
|
|
677,000
|
|
|
Noncash patronage equity
|
(87,500
|
)
|
|
—
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
Restricted cash
|
(1,492,350
|
)
|
|
—
|
|
|
Accounts receivable
|
(1,345,212
|
)
|
|
1,444,933
|
|
|
Other receivables
|
(69,910
|
)
|
|
1,417,853
|
|
|
Inventory
|
(9,417,992
|
)
|
|
903,515
|
|
|
Prepaid expenses
|
(74,776
|
)
|
|
60,508
|
|
|
Other assets
|
150
|
|
|
84,856
|
|
|
Accounts payable
|
589,345
|
|
|
(1,321,257
|
)
|
|
Accrued expenses
|
(1,356,574
|
)
|
|
862,144
|
|
|
Accrued purchase commitment losses
|
—
|
|
|
(444,000
|
)
|
|
Cash settlements on interest rate swap
|
—
|
|
|
(633,714
|
)
|
|
Net cash (used in) provided by operating activities
|
(7,835,703
|
)
|
|
4,306,813
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
Proceeds from disposal of fixed assets
|
160,950
|
|
|
—
|
|
|
Capital expenditures
|
(145,533
|
)
|
|
(1,895,707
|
)
|
|
Net cash provided by (used in) investing activities
|
15,417
|
|
|
(1,895,707
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
Disbursements in excess of bank balances
|
3,324,243
|
|
|
—
|
|
|
Loan fees
|
(11,321
|
)
|
|
—
|
|
|
Net advances on short-term borrowings
|
5,840,000
|
|
|
—
|
|
|
Debt repayments
|
(1,332,636
|
)
|
|
(6,692,927
|
)
|
|
Net cash provided by (used in) financing activities
|
7,820,286
|
|
|
(6,692,927
|
)
|
|
|
|
|
|
|
Net Decrease in Cash and Equivalents
|
—
|
|
|
(4,281,821
|
)
|
|
Cash and Equivalents - Beginning of Period
|
1,000
|
|
|
4,672,997
|
|
|
Cash and Equivalents - End of Period
|
$
|
1,000
|
|
|
$
|
391,176
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
Interest paid net of swap settlements in 2012
|
$
|
240,940
|
|
|
$
|
833,033
|
|
|
Noncash Investing and Financing Activities
|
|
|
|
|
Capital expenditures in accounts payable
|
$
|
—
|
|
|
$
|
333,425
|
|
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the fiscal year ended September 30, 2012, contained in the Company's Annual Report on Form 10-K.
In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2013.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), owns and operates a
50 million
gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”).
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 and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, valuation of derivatives, inventory, patronage equity and purchase commitments; the analysis of long-lived assets impairment and other contingencies. Actual results could differ from those estimates.
Net Income (Loss) Per Unit
Net income (loss) per unit is calculated on a basic and fully diluted basis using the weighted average units outstanding during the period.
2. DERIVATIVE INSTRUMENTS
Commodity Contracts
As part of its hedging strategy, the Company may enter into ethanol, soybean oil, and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales, corn oil sales, and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Ethanol derivative fair market value gains or losses are included in the results of operations and are classified as revenue and corn derivative changes in fair market value are included in cost of goods sold.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of:
|
|
March 31, 2013 (unaudited)
|
|
September 30, 2012
|
|
Contract Type
|
|
# of Contracts
|
Notional Amount (Qty)
|
Fair Value
|
|
# of Contracts
|
Notional Amount (Qty)
|
Fair Value
|
|
Corn futures
|
|
—
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
—
|
|
|
$
|
—
|
|
|
Corn options
|
|
700
|
|
3,500,000
|
|
bushels
|
$
|
(188,125
|
)
|
|
400
|
|
2,000,000
|
|
bushels
|
$
|
173,750
|
|
|
Soybean oil futures
|
|
—
|
|
—
|
|
|
$
|
—
|
|
|
10
|
|
600,000
|
|
pounds
|
$
|
6,360
|
|
|
Total fair value
|
|
|
|
|
$
|
(188,125
|
)
|
|
|
|
|
$
|
180,110
|
|
|
Amounts are recorded separately on the balance sheet - negative numbers represent liabilities
|
Interest Rate Contracts
Prior to refinancing its term debt in April 2012, the Company had interest rate swap agreements that exchanged variable interest rates for fixed rates over the term of the agreements. As of March 31, 2013, the Company no longer had any interest rate swap contracts in place.
The Company recorded net settlements of approximately
$0
and
$634,000
for the six months ended March 31, 2013 and 2012, respectively. See Note 4 for a description of these agreements.
The following tables provide details regarding the Company's derivative financial instruments at March 31, 2013 and September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet - as of March 31, 2013 (unaudited)
|
|
Asset
|
|
Liability
|
|
Commodity derivative instruments, at fair value
|
|
$
|
—
|
|
|
$
|
188,125
|
|
|
Total derivatives not designated as hedging instruments for accounting purposes
|
|
$
|
—
|
|
|
$
|
188,125
|
|
|
|
|
|
|
|
|
Balance Sheet - as of September 30, 2012
|
|
Asset
|
|
Liability
|
|
Commodity derivative instruments, at fair value
|
|
$
|
180,110
|
|
|
$
|
—
|
|
|
Total derivatives not designated as hedging instruments for accounting purposes
|
|
$
|
180,110
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Income/(Expense)
|
|
Location of gain (loss) in fair value recognized in income
|
|
Amount of gain(loss) recognized in income during the three months ended March 31, 2013 (unaudited)
|
|
Amount of gain (loss) recognized in income during the three months ended March 31, 2012 (unaudited)
|
|
Amount of gain (loss) recognized in income during the six months ended March 31, 2013 (unaudited)
|
|
Amount of gain (loss) recognized in income during the six months ended March 31, 2012 (unaudited)
|
|
Corn derivative instruments
|
|
Cost of Goods Sold
|
|
$
|
329,503
|
|
|
$
|
2,235,125
|
|
|
$
|
632,031
|
|
|
$
|
2,069,317
|
|
|
Ethanol derivative instruments
|
|
Revenue
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Soybean oil derivative instruments
|
|
Revenue
|
|
—
|
|
|
1,506
|
|
|
3,084
|
|
|
1,506
|
|
|
Interest rate swaps
|
|
Interest Expense
|
|
—
|
|
|
(3,324
|
)
|
|
—
|
|
|
(1,787
|
)
|
|
Total
|
|
|
|
$
|
329,503
|
|
|
$
|
2,233,307
|
|
|
$
|
635,115
|
|
|
$
|
2,069,036
|
|
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
3. INVENTORY
Inventory is valued at lower of cost or market. Inventory values as of March 31, 2013 and September 30, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2013
(unaudited)
|
|
September 30, 2012
|
|
Raw materials, including corn, chemicals and supplies
|
|
$
|
16,422,936
|
|
|
$
|
7,455,660
|
|
|
Work in process
|
|
1,279,088
|
|
|
1,231,096
|
|
|
Finished goods, including ethanol and distillers grains
|
|
2,872,317
|
|
|
3,704,046
|
|
|
Spare parts
|
|
1,517,059
|
|
|
1,260,105
|
|
|
Total inventory
|
|
$
|
22,091,400
|
|
|
$
|
13,650,907
|
|
Lower of cost or market adjustments for the three and six months ended March 31, 2013 and 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2013 (unaudited)
|
|
For the three months ended March 31, 2012 (unaudited)
|
|
For the six months ended March 31, 2013 (unaudited)
|
|
For the six months ended March 31, 2012 (unaudited)
|
|
Loss on firm purchase commitments
|
|
$
|
455,000
|
|
|
$
|
677,000
|
|
|
$
|
1,091,000
|
|
|
$
|
677,000
|
|
|
Loss on lower of cost or market adjustment for inventory on hand
|
|
92,500
|
|
|
39,893
|
|
|
341,500
|
|
|
180,647
|
|
|
Total loss on lower of cost or market adjustments
|
|
$
|
547,500
|
|
|
$
|
716,893
|
|
|
$
|
1,432,500
|
|
|
$
|
857,647
|
|
The Company has entered into forward corn purchase contracts under which it is required to take delivery at the contract price. At the time the contracts were created, the price of the contract approximated market price. Subsequent changes in market conditions could cause the contract prices to become higher or lower than market prices. As of March 31, 2013, the average price of corn purchased under certain fixed price contracts, that had not yet been delivered, was slightly higher than market price. Based on this information, the Company accrued an estimated loss on firm purchase commitments of
$455,000
for the three months ended March 31, 2013. The loss is recorded in “Loss on firm purchase commitments” on the statements of operations. The amount of the loss was determined by applying a methodology similar to that used in the impairment valuation with respect to inventory. Given the uncertainty of future ethanol prices, this loss may or may not be recovered, and further losses on the outstanding purchase commitments could be recorded in future periods.
The Company recorded inventory valuation impairments of
$92,500
and
$39,893
for the three months ended March 31, 2013 and 2012, respectively. The impairments, as applicable, were attributable primarily to decreases in market prices of ethanol. The inventory valuation impairment was recorded in “Lower of cost or market adjustment” on the statements of operations.
4. BANK FINANCING
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2013 (unaudited)
|
|
September 30, 2012
|
|
Long-term notes payable under loan agreement to bank
|
|
$
|
22,500,000
|
|
|
$
|
23,750,000
|
|
|
Capital lease obligations (Note 6)
|
|
3,957
|
|
|
86,593
|
|
|
Total Long-Term Debt
|
|
22,503,957
|
|
|
23,836,593
|
|
|
Less amounts due within one year
|
|
2,503,404
|
|
|
2,584,429
|
|
|
Total Long-Term Debt Less Amounts Due Within One Year
|
|
$
|
20,000,553
|
|
|
$
|
21,252,164
|
|
The Company's notes payable consist of a term loan and a long-term revolver (LTR). As of March 31, 2013, the variable interest rate on both the term loan and the LTR was
3.79%
. Both of these loans mature on April 16, 2017.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
The Company also has a
$12,000,000
operating line-of-credit that matured on April 16, 2013. This line-of-credit was recently extended for thirty days. At March 31, 2013, the Company had
$6,082,000
drawn on this line-of-credit leaving a balance of
$5,918,000
available. The variable interest rate was
3.71%
amounts on the operating line of credit.
|
|
|
|
|
|
|
|
|
Scheduled debt maturities for the twelve months ending March 31
|
|
Totals
|
|
|
|
|
|
2013
|
|
$
|
2,503,404
|
|
|
2014
|
|
2,500,553
|
|
|
2015
|
|
2,500,000
|
|
|
2016
|
|
2,500,000
|
|
|
2017
|
|
12,500,000
|
|
|
Thereafter
|
|
—
|
|
|
Total
|
|
$
|
22,503,957
|
|
As of March 31, 2013, the Company was in compliance with all of its debt covenants.
Interest Rate Swap Agreements
The Company does not have any interest rate swap agreements in place pursuant to the terms of the refinance with its senior lender in April 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
For the three months ended March 31, 2013 (unaudited)
|
|
For the three months ended March 31, 2012 (unaudited)
|
|
For the six months ended March 31, 2013 (unaudited)
|
|
For the six months ended March 31, 2012 (unaudited)
|
|
Interest expense on long-term debt
|
|
$
|
250,352
|
|
|
$
|
(14,617
|
)
|
|
$
|
489,343
|
|
|
$
|
461,719
|
|
|
Interest rate swaps
|
|
—
|
|
|
3,323
|
|
|
—
|
|
|
1,786
|
|
|
Total interest expense
|
|
$
|
250,352
|
|
|
$
|
(11,294
|
)
|
|
$
|
489,343
|
|
|
$
|
463,505
|
|
5. FAIR VALUE MEASUREMENTS
The following table provides information on those assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2013 and September 30, 2012, respectively.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
Carrying Amount as of March 31, 2013 (unaudited)
|
|
Fair Value as of March 31, 2013 (unaudited)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Commodities derivative instruments
|
$
|
188,125
|
|
|
$
|
188,125
|
|
|
$
|
188,125
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
Carrying Amount as of September 30, 2012
|
|
Fair Value as of September 30, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Commodities derivative instruments
|
$
|
180,110
|
|
|
$
|
180,110
|
|
|
$
|
180,110
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Total
|
$
|
180,110
|
|
|
$
|
180,110
|
|
|
$
|
180,110
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The fair value of the corn, ethanol and soybean oil derivative instruments is based on quoted market prices in an active market.
Financial Instruments Not Measured at Fair Value
The estimated fair value of the Company's long-term debt, including the short-term portion, at March 31, 2013 and September 30, 2012 approximated the carrying value of approximately
$22.5 million
and
$23.8 million
, respectively. Fair value was estimated using estimated variable market interest rates as of March 31, 2013. The fair values and carrying values consider the terms of the related debt and exclude the impacts of debt discounts and derivative/hedging activity.
6. LEASES
The Company leases equipment under operating and capital leases through January 2020. The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Equipment under operating lease includes a locomotive and rail cars. Rent expense for operating leases was approximately
$127,000
and
$263,000
for the three and six months ended March 31, 2013, respectively and
$155,000
and
$374,000
for the three and six months ended March 31, 2012, respectively. Equipment under capital leases consists of office equipment and plant equipment.
Equipment under capital leases is as follows at:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
March 31, 2013
(unaudited)
|
|
September 30, 2012
|
|
Equipment
|
|
$
|
483,217
|
|
|
$
|
483,217
|
|
|
Less accumulated amortization
|
|
(37,163
|
)
|
|
(26,460
|
)
|
|
Net equipment under capital lease
|
|
$
|
446,054
|
|
|
$
|
456,757
|
|
At March 31, 2013, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year. Amounts shown below are for the 12 months period ending March 31:
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Capital Leases
|
|
2013
|
|
$
|
388,742
|
|
|
$
|
3,664
|
|
|
2014
|
|
306,793
|
|
|
559
|
|
|
2015
|
|
208,920
|
|
|
—
|
|
|
2016
|
|
208,920
|
|
|
—
|
|
|
Thereafter
|
|
375,700
|
|
|
—
|
|
|
Total minimum lease commitments
|
|
$
|
1,489,075
|
|
|
4,223
|
|
|
Less amount representing interest
|
|
|
|
(266
|
)
|
|
Present value of minimum lease commitments included in liabilities on the balance sheet
|
|
|
|
$
|
3,957
|
|
7. COMMITMENTS AND CONTINGENCIES
Firm Purchase Commitments for Corn
To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At March 31, 2013, the Company had various fixed price contracts for the purchase of approximately
3.8 million
bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately
$27.7 million
related to the
3.8 million
bushels under contract.
8. RELATED-PARTY TRANSACTIONS
The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains and sale of ethanol. The related parties include unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). Significant related party activity affecting the financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
(unaudited)
|
|
September 30, 2012
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
$
|
4,120,914
|
|
|
$
|
2,853,704
|
|
|
Accounts payable
|
|
|
|
|
|
1,239,988
|
|
|
839,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2013 (unaudited)
|
|
For the three months ended March 31, 2012 (unaudited)
|
|
For the six months ended March 31, 2013 (unaudited)
|
|
For the six months ended March 31, 2012 (unaudited)
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
31,569,847
|
|
|
$
|
30,791,203
|
|
|
$
|
65,101,773
|
|
|
$
|
64,434,861
|
|
|
Cost of goods sold
|
|
762,765
|
|
|
524,298
|
|
|
1,510,368
|
|
|
1,228,026
|
|
|
General and administrative
|
|
21,017
|
|
|
30,333
|
|
|
55,704
|
|
|
56,578
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory Purchases
|
|
$
|
7,598,482
|
|
|
$
|
8,122,404
|
|
|
$
|
14,030,600
|
|
|
$
|
14,856,088
|
|
9. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS
The Company has certain risks and uncertainties that it experiences during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices, supply and demand, weather, government policies and programs, and
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2013
unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.
The Company anticipates that the results of operations during the remainder of fiscal 2013 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets, demand for corn from the ethanol industry and drought conditions currently being experienced by much of the United States.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and
six month
periods ended
March 31, 2013
, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements, notes and information contained in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2012
.
Forward Looking Statements
This report contains forward-looking statements that involve future events, our future performance and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the following factors:
|
|
|
|
|
|
Ÿ
|
Fluctuations in the price and market for ethanol, distillers grains and corn oil;
|
|
Ÿ
|
Availability and costs of products and raw materials, particularly corn and coal;
|
|
Ÿ
|
Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;
|
|
Ÿ
|
Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;
|
|
Ÿ
|
Our ability to generate and maintain sufficient liquidity to fund our operations, meet debt service requirements and necessary capital expenditures;
|
|
Ÿ
|
Our ability to continue to meet our loan covenants;
|
|
Ÿ
|
Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
|
|
Ÿ
|
Results of our hedging transactions and other risk management strategies;
|
|
Ÿ
|
Changes and advances in ethanol production technology; and
|
|
Ÿ
|
Competition from alternative fuels and alternative fuel additives.
|
Available Information
Information about us is also available at our website at
www.redtrailenergyllc.com
, which includes links to reports we have filed with the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Quarterly Report on Form 10-Q.
Overview
Red Trail Energy, LLC, a North Dakota limited liability company (the "Company," "Red Trail," or "we," "our," or "us"), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the "Plant"). Our revenues are derived from the sale and distribution of our ethanol, distillers grains and corn oil primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.
Results of Operations for the Three Months Ended
March 31, 2013
and
2012
The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total sales and revenues in our unaudited statements of operations for the three months ended
March 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2013 (Unaudited)
|
|
Three Months Ended
March 31, 2012 (Unaudited)
|
|
Statement of Operations Data
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Revenues
|
$
|
37,514,330
|
|
|
100.00
|
|
|
$
|
37,123,717
|
|
|
100.00
|
|
|
Cost of Goods Sold
|
34,968,627
|
|
|
93.21
|
|
|
37,529,020
|
|
|
101.09
|
|
|
Gross Profit (Loss)
|
2,545,703
|
|
|
6.79
|
|
|
(405,303
|
)
|
|
(1.09
|
)
|
|
General and Administrative Expenses
|
538,568
|
|
|
1.44
|
|
|
574,223
|
|
|
1.55
|
|
|
Operating Income (Loss)
|
2,007,135
|
|
|
5.35
|
|
|
(979,526
|
)
|
|
(2.64
|
)
|
|
Other Income (Expense)
|
(216,167
|
)
|
|
(0.58
|
)
|
|
71,193
|
|
|
0.19
|
|
|
Net Income (Loss)
|
$
|
1,790,968
|
|
|
4.77
|
|
|
$
|
(908,333
|
)
|
|
(2.45
|
)
|
The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended
March 31, 2013
and
2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended March 31, 2013 (unaudited)
|
|
Three Months ended
March 31, 2012
(unaudited)
|
|
Production:
|
|
|
|
|
|
Ethanol sold (gallons)
|
|
12,256,193
|
|
|
14,308,806
|
|
|
Dried distillers grains sold (tons)
|
|
16,467
|
|
|
26,951
|
|
|
Modified distillers grains sold (tons)
|
|
29,256
|
|
|
28,499
|
|
|
Corn oil sold (pounds)
|
|
1,480,400
|
|
|
—
|
|
|
Revenues:
|
|
|
|
|
|
Ethanol average price per gallon
|
|
$
|
2.34
|
|
|
$
|
2.04
|
|
|
Dried distillers grains average price per ton
|
|
260.39
|
|
|
189.97
|
|
|
Modified distillers grains average price per ton
|
|
127.66
|
|
|
96.24
|
|
|
Corn oil average price per pound
|
|
0.35
|
|
|
—
|
|
|
Primary Inputs:
|
|
|
|
|
|
Corn ground (bushels)
|
|
4,333,502
|
|
|
5,274,723
|
|
|
Costs of Primary Inputs:
|
|
|
|
|
|
Corn average price per bushel (net of hedging)
|
|
$
|
6.60
|
|
|
$
|
5.87
|
|
|
Other Costs:
|
|
|
|
|
|
Chemical and additive costs per gallon of ethanol sold
|
|
$
|
0.086
|
|
|
$
|
0.081
|
|
|
Denaturant cost per gallon of ethanol sold
|
|
0.050
|
|
|
0.050
|
|
|
Electricity cost per gallon of ethanol sold
|
|
0.064
|
|
|
0.055
|
|
|
Direct labor cost per gallon of ethanol sold
|
|
0.052
|
|
|
0.040
|
|
Revenue
Our revenue was comparable during our quarter ended
March 31, 2013
and the same period of
2012
due to higher prices for our products and the introduction of corn oil revenue which was offset by a decrease in our total production. Our production was lower during our quarter ended
March 31, 2013
compared to the same period of
2012
due to an unscheduled plant shutdown in February 2013. During our quarter ended
March 31, 2013
, approximately
77%
of our total revenue was derived from ethanol sales, approximately
22%
was from distillers grains sales and approximately
1%
was from corn oil sales. During our quarter ended
March 31, 2012
, approximately
79%
of our total revenue was derived from ethanol sales, approximately
21%
was from distillers grains sales and we had not yet started selling corn oil so we had no corn oil revenue.
Management attributes the increase in ethanol prices during our quarter ended
March 31, 2013
with decreased ethanol imports which resulted in a more favorable spread between ethanol supply and demand than we have experienced in recent quarters. Further, commodity prices generally were higher during our quarter ended
March 31, 2013
compared to the same period of
2012
which typically benefits ethanol prices. Management anticipates that we will continue to experience favorable operating margins during our third quarter of 2013, however, management expects that margins during our fourth quarter may be less favorable.
Management anticipates that ethanol imports from Brazil will increase during our fourth quarter of 2013 which may negatively impact ethanol prices and our profitability. Further, management anticipates that corn prices may increase during our fourth quarter of 2013 as the market tries to ration the corn supply until the fall harvest which may negatively impact the price we pay for corn.
We experienced an increase in the price we received for our distillers grains during our quarter ended
March 31, 2013
compared to the same period of
2012
, primarily due to higher corn prices and decreased corn supplies. Since distillers grains are typically used as a feed substitute for corn and soybean meal, when corn prices increase and corn is more scarce it positively impacts distillers grains demand and prices. Further, we have seen distillers grains prices on a per ton basis getting closer to the price of corn on a per ton basis which management attributes to the tight corn supplies. Management anticipates that distillers grains prices will continue to track corn prices and due to the tight corn supplies that we will continue to see strong distillers grains demand. We sold less distillers grains during our quarter ended
March 31, 2013
compared to the same period of
2012
due to less overall production at the ethanol plant along with the fact that we are now removing some of the corn oil which is contained in our distillers grains to sell separately. When we separate corn oil from the distillers grains, the total tons of distillers grains we sell is reduced. However, management believes that the increased revenue we experience from the corn oil sales more than makes up for the lost volume of distillers grains that we sell. Further, management does not believe that the removal of the corn oil has a significant negative impact on the value of our distillers grains.
Cost of Goods Sold
Our cost of goods sold from the production of ethanol and distillers grains is primarily made up of corn and energy expenses. Our cost of goods sold as a percentage of revenues was
93.2
% for the three months ended
March 31, 2013
as compared to
101.1
% for the same period in
2012
. The decrease in our cost of goods sold as a percentage of revenue was due to a decrease in the bushels of corn we used during our quarter ended
March 31, 2013
as compared to the same period in
2012
along with increased ethanol prices.
Corn Costs
Our cost of goods sold related to corn was lower for our quarter ended
March 31, 2013
as compared to the same period in
2012
due to a combination of higher corn prices per bushel which was more than offset by a significant decrease in our corn consumption. Our corn consumption was lower during our quarter ended
March 31, 2013
as compared to the same period in
2012
due to our decreased production. Management attributes the increase in the average price we paid for corn during our quarter ended
March 31, 2013
as compared to the same period in
2012
to higher competition for corn which led to increased corn prices. Market corn prices have been higher in recent years due to lower corn carryover and production during the last two crop years which has resulted in a supply of corn which is less than market demand. The corn market has been rationing the limited corn supply through higher prices during our last two fiscal years. Further, competition for corn in our area has increased basis levels. Although we believe there is corn available nationally from a supply and demand standpoint, there is uncertainty over the amount, quantity, and quality of local corn for the plant. The cost of corn is the highest cost input to the plant and further increases in corn costs could dramatically affect our expected cost of goods sold. Management anticipates that corn prices will remain volatile, especially if we experience unfavorable weather conditions during the 2013 growing season.
In the ordinary course of business, we enter into forward purchase contracts for our commodity purchases and sales. At
March 31, 2013
, we had forward corn purchase contracts for various delivery periods through December 2013 for a total commitment of approximately $27.7 million. Our outstanding corn commitments are projected to settle by December 2013.
Coal Costs
We purchase the coal needed to power our ethanol plant from a supplier under a long-term contract. Our coal costs were down 26.5% during the three month period ended March 31, 2013 compared to the same period of 2012, primarily due to decreased coal usage. Our coal consumption was down due to implementation of our flue gas recirculation project and lower production. The flue gas recirculation project was originally placed in service in May 2011.
General and Administrative Expenses
Our general and administrative expenses as a percentage of revenues was 1.4% for the three months ended
March 31, 2013
compared to
1.5
% in the same period of
2012
. General and administrative expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. We experienced a decrease in actual general and administrative expenses of approximately $35,655 for the three month period ended
March 31, 2013
as compared to the same period in
2012
. Our efforts to optimize efficiencies and maximize production may result in a decrease in
our general and administrative expenses on a per gallon basis going forward. However, because these expenses generally do not vary with the level of production at the plant, we expect our actual operating expenses to remain steady throughout the remainder of our 2013 fiscal year.
Other Income/Expense
Our other loss for the three months ended
March 31, 2013
was
0.6
% of our total revenues compared to other income of
0.2
% of revenues for the same period in
2012
. The difference in our other income/expense during the two periods primarily related to our interest expense. We had significantly more interest expense during the 2013 period due to an interest expense reversal during the 2012 period. The reversal was related to a settlement agreement between us and our design/builder and was triggered in March 2012.
Results of Operations for the Six Months Ended
March 31, 2013
and
2012
The following table shows the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations for the six months ended
March 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
March 31, 2013 (Unaudited)
|
|
Six Months Ended
March 31, 2012 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Revenues
|
$
|
79,773,208
|
|
|
100.00
|
|
|
$
|
74,550,717
|
|
|
100.00
|
|
|
Cost of Goods Sold
|
76,680,252
|
|
|
96.12
|
|
|
74,000,082
|
|
|
99.26
|
|
|
Gross Profit
|
3,092,956
|
|
|
3.88
|
|
|
550,635
|
|
|
0.74
|
|
|
General and Administrative Expenses
|
1,064,815
|
|
|
1.33
|
|
|
1,249,530
|
|
|
1.68
|
|
|
Operating Income (Loss)
|
2,028,141
|
|
|
2.54
|
|
|
(698,895
|
)
|
|
(0.94
|
)
|
|
Other Income (Expense)
|
(408,481
|
)
|
|
(0.51
|
)
|
|
1,411,312
|
|
|
1.89
|
|
|
Net Income
|
$
|
1,619,660
|
|
|
2.03
|
|
|
$
|
712,417
|
|
|
0.95
|
|
The following table shows additional data regarding production and price levels for our primary inputs and products for the
six months
ended
March 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended
March 31, 2013
(unaudited)
|
|
Six Months ended
March 31, 2012
(unaudited)
|
|
Production:
|
|
|
|
|
|
Ethanol sold (gallons)
|
|
26,181,614
|
|
|
26,841,510
|
|
|
Dried distillers grains sold (tons)
|
|
44,535
|
|
|
54,179
|
|
|
Modified distillers grains sold (tons)
|
|
53,752
|
|
|
46,195
|
|
|
Corn oil sold (pounds)
|
|
3,802,267
|
|
|
—
|
|
|
Revenues:
|
|
|
|
|
|
Ethanol average price/gallon (net of hedging)
|
|
$
|
2.27
|
|
|
$
|
2.23
|
|
|
Dried distillers grains price/ton
|
|
261.51
|
|
|
191.09
|
|
|
Modified distillers grains price/ton
|
|
126.15
|
|
|
96.13
|
|
|
Corn oil price/pound
|
|
0.34
|
|
|
—
|
|
|
Primary Input:
|
|
|
|
|
|
Corn ground (bushels)
|
|
9,550,474
|
|
|
9,917,976
|
|
|
Costs of Primary Input:
|
|
|
|
|
|
Corn avg price/bushel (net of hedging)
|
|
$
|
6.72
|
|
|
$
|
6.19
|
|
|
Other Costs (per gallon of ethanol sold):
|
|
|
|
|
|
Chemical and additive costs
|
|
$
|
0.086
|
|
|
$
|
0.087
|
|
|
Denaturant cost
|
|
0.051
|
|
|
0.048
|
|
|
Electricity cost
|
|
0.056
|
|
|
0.054
|
|
|
Direct labor cost
|
|
0.048
|
|
|
0.045
|
|
Revenue
We generated more revenue during the
six month
period ended
March 31, 2013
compared to the same period of
2012
, due primarily to higher prices for our products and the introduction of corn oil sales as an additional revenue source, partially offset by lower production. In the
six month
period ended
March 31, 2013
, ethanol sales comprised approximately
75%
of our revenues, distillers grains sales comprised approximately
23%
of our revenues and corn oil sales comprised approximately
2%
of our revenues. For the
six month
period ended
March 31, 2012
, ethanol sales comprised approximately
80%
of our revenues and distillers grains sales comprised approximately
20%
of our revenues. We had no corn oil sales during the 2012 period.
The average ethanol sales price we received for the
six month
period ended
March 31, 2013
increased
1.8%
when compared to the same period in
2012
. Management anticipates that ethanol prices will continue to be subject to influences from the prices of corn, gasoline demand and oil along with the uncertainties surrounding several prices of legislation which support the ethanol industry.
The price we received for our dried distillers grains increased by approximately
37%
during the
six month
period ended
March 31, 2013
compared to the same period of
2012
. Further, the price we received for our modified/wet distillers grains increased by approximately
31%
during the
six month
period ended
March 31, 2013
compared to the same period of
2012
. Management attributes the higher distillers grains prices to higher corn prices and lower corn supplies.
Cost of Good Sold
Our costs of goods sold as a percentage of revenues was approximately
96%
for the
six month
period ended
March 31, 2013
compared to approximately
99%
for the same period of
2012
. Our cost of goods sold was higher during the
six month
period ended
March 31, 2013
compared to the same period of
2012
primarily as a result of higher corn prices. However, our increased revenue decreased the percentage of our cost of goods sold compared to revenue during the 2013 period. We have experienced more favorable operating margins during 2013 which have improved our profitability.
General and Administrative Expenses
Our general and administrative expenses as a percentage of revenues was lower for the
six month
period ended
March 31, 2013
compared to the same period ended
March 31, 2012
due primarily to having more revenue. These percentages were approximately
1.3%
and approximately
1.7%
for the
six months
ended
March 31, 2013
and
2012
, respectively.
Other Income/Expense
Other expenses for the
six months
ended
March 31, 2013
, was approximately
0.5%
of our revenue and totaled approximately $408,000. Other income for the
six months
ended
March 31, 2012
totaled approximately $1.4 million and was approximately
1.9%
of our revenues. The decrease in net other income/expense is primarily due to recognition of approximately $1.7 million of income from the alternative fuel tax credit and a decrease in interest expense of approximately $665,000 due to the mediated settlement during the 2012 period.
Changes in Financial Condition for the Six Months Ended
March 31, 2013
Current Assets
. Our restricted cash was higher at
March 31, 2013
compared to
September 30, 2012
as a result of more cash we were required to maintain in our margin account with our commodities broker. Our accounts receivable was higher at
March 31, 2013
compared to
September 30, 2012
due to higher ethanol and distillers grains prices which increases the total amount we are owed by our product marketers, even though we are awaiting payment on a comparable quantity of products. The value of our inventory was higher at
March 31, 2013
compared to
September 30, 2012
due to due to greater quantity of inventory on hand plus higher corn and ethanol prices which impact the value of our raw materials and finished product inventory.
Property, Plant and Equipment
. The gross value of our property, plant and equipment was comparable at
March 31, 2013
and
September 30, 2012
. However, the net value of our property, plant and equipment was lower at
March 31, 2013
due to depreciation.
Other Assets
. Our other assets were higher at
March 31, 2013
compared to
September 30, 2012
primarily due to an increase in our patronage equity in our electricity provider which is a cooperative.
Current Liabilities
. Our disbursements in excess of bank balances was higher at
March 31, 2013
compared to
September 30, 2012
due to increased cash that we have been using to operate our business. Checks that we have outstanding in excess of our bank balances are paid from our revolving line of credit if we do not have sufficient cash in our operating accounts. We had slightly higher accounts payable at
March 31, 2013
compared to
September 30, 2012
due to higher corn prices. Our accrued expenses were lower at
March 31, 2013
compared to
September 30, 2012
due to having less open corn contracts at
March 31, 2013
compared to
September 30, 2012
. We had a higher balance outstanding on our revolving line of credit at
March 31, 2013
due to cash we used to operate our business.
Long-term Liabilities
. Our long-term liabilities were lower at
March 31, 2013
compared to
September 30, 2012
, due to scheduled quarterly loan payments we made during our 2013 fiscal year.
Liquidity and Capital Resources
Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.
The following table shows cash flows for the
six months
ended
March 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
(unaudited)
|
|
2012
(unaudited)
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(7,835,703
|
)
|
|
$
|
4,306,813
|
|
|
Net cash provided by (used in) investing activities
|
|
15,417
|
|
|
(1,895,707
|
)
|
|
Net cash provided by (used in) financing activities
|
|
7,820,286
|
|
|
(6,692,927
|
)
|
|
Net decrease in cash
|
|
$
|
—
|
|
|
$
|
(4,281,821
|
)
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,000
|
|
|
$
|
391,176
|
|
Cash Flow from Operations
Our operations used cash during our first six months of 2013 due primarily to increases in restricted cash, accounts receivable, inventory and a decrease in accrued expenses. As the price of corn, ethanol and distillers grains have increased, it has increased the amount of cash that is tied to our accounts receivable and inventory. Further, cash we deposited in our restricted cash account was higher for our first six months of 2013 related to cash we deposited in our margin account. We used more cash for our accrued expenses during our first six months of 2013 due to payments on open corn contracts. Our operations provided a significant amount of cash during our first six months of 2012, primarily due to decreases in our receivables and inventory during the 2012 period.
Cash Flow From Investing Activities
We used less cash for capital expenditures during the
six month
period ended
March 31, 2013
compared to the same period in
2012
. During the 2013 period, we primarily used cash for repair and replacement capital improvements. During the 2012 period, we were completing the installation of the corn oil extraction equipment which resulted in higher capital expenditures.
Cash Flow from Financing Activities
We received cash from our short-term loans and increases in the amount of disbursements we made in excess of our bank balances during the
six month
period ended
March 31, 2013
which provided cash for our operations. During the
six month
period ended
March 31, 2012
, we used cash to make additional payments on our long-term debt which used more cash during that period.
Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent, we expect operations to generate adequate cash flows to maintain operations.
Capital Expenditures
The Company had approximately $107,000 in construction in progress as of
March 31, 2013
. During the three months ended
March 31, 2013
, the Company placed in service approximately $61,000 in capital projects with the majority of these costs related to the installation of a new accounting server and upgrade to our accounting software.
Capital Resources
Short-Term Debt Sources
The Company has a revolving line-of-credit of $12,000,000 with $6,082,000 drawn on this line-of-credit as of
March 31, 2013
. This revolving line-of-credit matured on April 16, 2013. The line-of-credit was recently extended for thirty days and we expect to re-finance it on May 15, 2013. The variable interest rate on this line-of-credit is 3.5% over the one-month LIBOR with a rate of 3.71% as of
March 31, 2013
.
Long-Term Debt Sources
As of
March 31, 2013
, our long-term debt consisted of a term loan and a long-term revolving line-of-credit. The following table summarizes our long-term debt instruments with our senior lender.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Balance (Millions)
|
|
Interest Rate
|
|
Range of
Estimated
|
|
|
|
Term Note
|
|
March 31, 2013 (Unaudited)
|
|
September 30, 2012
|
|
March 31, 2013 (Unaudited)
|
|
September 30, 2012
|
|
Quarterly
Principal
Payment Amounts
|
|
Notes
|
|
Term Note
|
|
$
|
18.0
|
|
|
$
|
19.0
|
|
|
3.79
|
%
|
|
3.93
|
%
|
|
$500,000
|
|
1, 2
|
|
Long-Term Revolving Note
|
|
4.5
|
|
|
4.75
|
|
|
3.79
|
%
|
|
3.93
|
%
|
|
$125,000
|
|
1, 2, 3
|
Notes
1 - Maturity date of April 2017.
2 - Variable interest rate at 3.5% over the three-month LIBOR, reset quarterly.
3 - Quarterly payments are equal to required quarterly reductions in total available/principal payments of $125,000.
Restrictive Covenants
We are subject to a number of covenants and restrictions in connection with our credit facilities, including:
|
|
|
|
•
|
Providing FNBO with current and accurate financial statements;
|
|
|
|
|
•
|
Maintaining certain financial ratios including minimum working capital and fixed charge coverage ratio;
|
|
|
|
|
•
|
Maintaining adequate insurance;
|
|
|
|
|
•
|
Making, or allowing to be made, any significant change in our business or tax structure;
|
|
|
|
|
•
|
Limiting our ability to make distributions to members; and
|
|
|
|
|
•
|
Maintain a threshold of capital expenditures.
|
As of
March 31, 2013
, we are in compliance with our loan covenants.
Industry Support
North Dakota Grant
In 2006, we entered into a contract with the State of North Dakota through the Industrial Commission for a lignite coal grant not to exceed $350,000. We received $275,000 from this grant during 2006 with this amount currently shown in the long-term liability section of our Balance Sheet as Contracts Payable. Because we have not met the minimum lignite usage requirements specified in the grant for any year in which the plant has operated, we expect to have to repay the grant and are awaiting instructions from the Industrial Commission as to the terms of the repayment schedule. This repayment could begin at some point in 2013, but as of
March 31, 2013
we have not received any instructions from the Industrial Commission.
Critical Accounting Estimates
Our most critical accounting policies, which are those that require significant judgment, include policies related to the carrying amount of property, plant and equipment; valuation of derivatives, inventory and purchase commitments of inventory. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012. For valuation allowances related to firm purchase commitments of inventory, please refer to the disclosures in Note 3 of the Notes to the Unaudited Condensed Financial Statements in this Quarterly Report. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the quarter ended
March 31, 2013
.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and ethanol. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes pursuant to the requirements of Generally Accepted Accounting Principles ("GAAP").
Commodity Price Risk
We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn in the ethanol production process and the sale of ethanol.
We enter into fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter into these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position. For example, if we have 1 million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG) is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.
Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We use fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of sales. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.
As of
March 31, 2013
we had approximately 3.8 million bushels of corn under fixed price contracts. Some of these contracts were priced above current market prices so an accrual for a loss on firm purchase commitments of $455,000 was recorded.
It is the current position of our ethanol marketing company, RPMG, that under current market conditions selling ethanol in the spot market will yield the best price for our ethanol. RPMG will, from time to time, contract a portion of the gallons they market with fixed price contracts.
We estimate that our expected corn usage will be between 18 million and 20 million bushels per calendar year for the production of approximately 50 million to 54 million gallons of ethanol. As corn prices move in reaction to market trends and information, our income statements will be affected depending on the impact such market movements have on the value of our derivative instruments.
To manage our coal price risk, we entered into a coal purchase agreement with our supplier to supply us with coal, fixing the price at which we purchase coal. If we are unable to continue buying coal under this agreement, we may have to buy coal in the open market.
Interest Rate Risk
We are exposed to market risk from changes in interest rates on our senior debt which bears variable interest rates. We anticipate that a hypothetical 1% change in the interest rate on our senior debt as of
March 31, 2013
, would cause an adverse change to our income in the amount of approximately $195,000 for a 12 month period.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.
Our management, including our President and Chief Executive Officer (the principal executive officer),Gerald Bachmeier, along with our Chief Financial Officer, (the principal financial officer), Jodi Johnson, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of
March 31, 2013
. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.
For the fiscal quarter ended
March 31, 2013
, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
