Organization and Significant Accounting Policies | 12 Months Ended |
Sep. 30, 2014 |
Accounting Policies [Abstract] | |
Organization and Significant Accounting Policies | 1 | Organization and Significant Accounting Policies | | | | | | | | | | | |
The consolidated financial statements include the accounts of 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. |
Advanced BioEnergy, LLC is organized as a Delaware limited liability company. Members’ liability is limited pursuant to the Delaware Limited Liability Company Act. |
The Company currently operates three ethanol production facilities in Aberdeen and Huron, South Dakota. with a combined production capacity of 85 million gallons per year. |
The Company, through ABE Fairmont, also owned a production facility in Fairmont, NE. On December 7, 2012, the Company and ABE Fairmont sold the production facility in Fairmont, NE to Flint Hills Resources, LLC. See Note 3 of the financial statements for further description of the transaction. In accordance with the guidance under ASC Topic 205, section 20 Discontinued Operations, the results of operations for ABE Fairmont are disclosed as discontinued operations. |
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 Company’s cash balances are maintained in bank depositories and periodically exceed federally insured limits. The Company has not experienced losses in these accounts. The Company segregates cash restricted for debt service and has classified these funds according to the future anticipated use of the funds. Restricted cash includes cash held for debt service under the terms of its debt agreements and a deposit for a rail car sublease. |
Fair Value of Financial Instruments |
Financial instruments include cash, cash equivalents and restricted cash, accounts receivable, accounts payable, accrued expenses, warrants, and long-term debt. Based on the restructuring event, the fair value of the debt instruments at ABE South Dakota is not determinable. The fair value of the other financial instruments are estimated to approximate carrying value due to the short-term nature of these instruments, and are considered to be Level 3 inputs. |
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. |
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Level 3: Valuations incorporate 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, utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live-trading levels from the Chicago Board of Trade (“CBOT”) and New York Mercantile Exchange (“NYMEX”) markets. |
There were no balances of financial assets or financial liabilities, including derivative financial instruments, measured at the approximate fair value at September 30, 2014 or 2013. |
The Company calculated the fair value of the warrants using the Black-Scholes valuation model. During the years ended September 30, 2014, 2013, and 2012, the Company recognized $0, a loss of $1,416,000, and an unrealized gain of $107,000, respectively, related to the change in the fair value of the warrant derivative liability. On November 1, 2012, the warrants were exercised and the Company issued 532,671 units. Prior to its exercise, the warrant’s value increased in the first quarter of fiscal 2013 due to the pending sale of the Fairmont facility. |
The following table reflects the activity for liabilities measured at fair value, using Level 3 inputs for the year ended September 30, (amounts in thousands): |
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| | 2014 | | | 2013 | | | 2012 | |
Beginning balance | | $ | — | | | $ | 75 | | | $ | 182 | |
Loss (gain) related to change in fair value | | | — | | | | 1,416 | | | | (107 | ) |
Transfer to equity upon exercise | | | — | | | | (1,491 | ) | | | — | |
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Ending balance | | $ | — | | | $ | — | | | $ | 75 | |
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Receivables |
Credit sales are made to a relatively small number of 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 customer’s 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. There was no allowance for doubtful accounts recorded at September 30, 2014 or September 30, 2013. |
Inventories |
Corn, chemicals, supplies, work in process, ethanol and distillers’ grains inventories are stated at the lower of weighted average 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: |
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Office equipment | | | 3-7 Years | | | | | | | | | |
Process equipment | | | 10 Years | | | | | | | | | |
Building | | | 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 group exceeds the estimated fair value on that date. |
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Commodity Sales and Purchase Contracts, Derivative Instruments |
The Company currently does not enter into commodity futures and exchange-traded commodity options contracts for the sale of its products or purchases of its inputs. However, the Company does enter into forward sales contracts for ethanol, distillers and corn oil, and purchase contracts for corn and natural gas. The Company classifies these sales and purchase contracts as normal sales and purchase contracts and accordingly these contracts are not marked to market. These contracts provide for the sale or purchase of an item other than a financial instrument or derivative instrument that will be delivered in quantities expected to be sold or used over a reasonable period in the normal course of business. |
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. Under the terms of the marketing agreements, revenue is recognized when product is loaded into rail cars or trucks for shipment. Revenue was previously 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. Co-products are normally shipped free on board (“FOB”) shipping point. In accordance with the Company’s 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. Interest income is recognized as earned. |
Unit Based Compensation |
The Company uses the estimated market value at the time the units are granted to value those units granted to officers and directors. The Company records compensation cost on the straight line method over the vesting period. If the units vest upon achievement of a certain milestone, the Company recognizes the expense in the period in which the goal was met. |
Shipping Costs |
Effective August 1, 2012, the Company changed its marketing relationship for ethanol and as a result of the new contracts, records its ethanol sales net of freight cost. During the year ended September 30, 2012, the Company recorded approximately $11.0 million in freight cost as a component of cost of goods sold in the statement of operations from the sale of ethanol to a different marketer, under which ethanol sales were recorded gross of freight cost. |
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Income (Loss) Per Unit |
Basic and diluted income per unit is computed using the weighted-average number of vested units outstanding during the period. Unit warrants are considered unit equivalents and are considered in the diluted income-per-unit computation. Basic and diluted per unit data were computed as follows (in thousands except per unit data): |
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| | Years Ended | |
September 30, |
| | 2014 | | | 2013 | | | 2012 | |
Numerator: | | | | | | | | | | | | |
Basic earnings per unit: | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 29,481 | | | $ | (7,424 | ) | | $ | (9,153 | ) |
Income (loss) from discontinued operations | | | — | | | | 79,179 | | | | (614 | ) |
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Net income (loss) for basic earnings per unit | | $ | 29,481 | | | $ | 71,755 | | | $ | (9,767 | ) |
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Diluted earnings per unit: | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | 29,481 | | | $ | (7,424 | ) | | $ | (9,153 | ) |
Change in fair value of warrant derivative liability | | | — | | | | — | | | | (107 | ) |
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Income (loss) from continuing operations for diluted earnings per unit | | | 29,481 | | | | (7,424 | ) | | | (9,260 | ) |
Income (loss) from discontinued operations | | | — | | | | 79,179 | | | | (614 | ) |
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Net income (loss) for diluted earnings per unit | | $ | 29,481 | | | $ | 71,755 | | | $ | (9,874 | ) |
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Denominator: | | | | | | | | | | | | |
Basic common units outstanding | | | 25,411 | | | | 25,333 | | | | 24,714 | |
Diluted common units outstanding | | | 25,411 | | | | 25,333 | | | | 24,734 | |
Income (loss) from continuing operations per unit—basic and diluted | | $ | 1.16 | | | $ | (0.29 | ) | | $ | (0.37 | ) |
Income (loss) from discontinued operations per unit-basic and diluted | | | — | | | | 3.12 | | | | (0.03 | ) |
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Income (loss) per unit—basic and diluted | | $ | 1.16 | | | $ | 2.83 | | | $ | (0.40 | ) |
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Segment Reporting |
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 and in assessing performance. Based on the related business nature and expected financial results, the Company’s plants are aggregated into one reporting segment. |
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. Actual results could differ from those estimates. |
Income Taxes |
The Company has elected to be treated as a partnership for tax purposes and generally does not incur income taxes. Instead, the Company’s earnings and losses are included in the income tax returns of the members. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements. The Company files income tax returns in the U.S. federal and various state jurisdictions. The Company’s federal income tax returns are open and subject to examination from the 2011 tax return year and forward. Various state income tax returns are generally open from the 2010 and later tax return years based on individual state statute of limitations. |
Management has evaluated the Company’s tax positions under the Financial Accounting Standards Board issued guidance on accounting for uncertainty in income taxes and concluded the Company has taken no uncertain tax positions that require adjustment to the financial statements to comply with the provisions of this guidance. |
Discontinued Operations |
The Company has classified the results of operations of the Fairmont facility as discontinued operations in the first quarter of fiscal 2013 as a result of the sale of the Fairmont production facility in December 2012, and removed the operating results of the Fairmont facility from continuing operations for all periods presented. The major assets and liabilities relating to the disposal are disclosed in Note 3. |
Risks and Uncertainties |
The supply and demand for ethanol are impacted by federal and state legislation and regulation, most significantly the Renewable Fuels Standard (“RFS”), and any changes in legislation or regulation could cause the demand for ethanol to decline or its supply to increase, which could have a material adverse effect on our business, results of operations and financial condition, and the ability to operate at a profit. |
In November 2013, the EPA proposed a 9.7% reduction of the original 2014 statutory corn-based ethanol blending volume requirements to approximately 13.0 billion gallons per year. This would be a reduction from the 2013 requirement of 13.8 billion gallons for corn-based ethanol, and the original 2014 volume per the statute of 14.4 billion gallons. Current ethanol production capacity is approximately 14.9 billion gallons per the RFA. The proposal was originally subject to a 60-day comment period and the EPA planned to release the final version of the 2014 Renewable Volume Obligations (“RVOs”) in June 2014, then extended the planned release date. On November 21, 2014, the EPA announced that it would not finalize the 2014 RVOs until sometime in 2015 to allow them to take the appropriate time to correct their methodology and establish the necessary volumes to move forward with the original intent of the RFS. |
Ethanol has historically traded at a discount to gasoline, however with the recent decline in oil prices ethanol is currently trading at a premium to gasoline causing a disincentive for discretionary blending of ethanol beyond the required blend rate. Consequently, there may be a negative impact on ethanol pricing and demand, which could result in a material adverse effect on our business, results of operations and financial condition. |