UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to __________
Commission file number 000-53041
SOUTHWEST IOWA RENEWABLE ENERGY, LLC
(Exact name of registrant as specified in its charter)
Iowa 20-2735046
---- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
10868 189th Street, Council Bluffs, Iowa 51503
----------------------------------------------
(Address of principal executive offices)
(712) 366-0392
--------------
(Registrant's telephone number, including area code)
- ---------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant has (1) 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 |X| No [ ]
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.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No |X|
As of January 31, 2009, the issuer had 8,805 Series A Units, 3,334 Series B
Units, and 1,000 Series C Units issued and outstanding.
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
Item Number Item Matter Page Number
Item 1. Unaudited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART II--OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 1A. Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. . . . . . . . . . 25
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . 25
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Balance Sheets
December 31, 2008 September 30, 2008
-----------------------------------------------------------------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,840,772 $ 6,557,394
Restricted cash 3,314,420 3,289,949
Due from broker 1,447,694 ---
Prepaid expenses and other 230,027 43,261
Inventory 7,520,931 ---
-----------------------------------------------------------------------
Total current assets 14,353,844 9,890,604
-----------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Land 2,064,090 2,064,090
Construction in progress 191,397,784 172,745,278
Office and other equipment 496,912 389,823
-------------------------------------------------------------------
193,958,786 175,199,191
Accumulated depreciation (44,773) (37,249)
-------------------------------------------------------------------
193,914,013 175,161,942
-------------------------------------------------------------------
OTHER ASSETS, Financing costs, net of amortization of 2,877,494 3,088,821
$783,500 and $497,672 -------------------------------------------------------------------
$ 211,145,351 $ 188,141,367
===================================================================
See Notes to Unaudited Financial Statements.
1
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Balance Sheets
December 31, 2008 September 30, 2008
----------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY (Unaudited)
CURRENT LIABILITIES
Accounts payable $ 3,861,010 $ 6,260,253
Retainage Payable 7,576,316 7,158,896
Accrued expenses 2,256,928 1,672,950
Derivative financial instruments 852,738 ---
Current maturities of long-term debt 37,282,975 35,198,440
----------------------------------------------------------------------
Total current liabilities 51,829,967 50,290,539
----------------------------------------------------------------------
NONCURRENT LIABILITIES
Long-term debt, less current maturities 87,675,151 63,893,467
Other 900,000 900,000
----------------------------------------------------------------------
88,575,151 64,793,467
----------------------------------------------------------------------
COMMITMENTS
MEMBERS' EQUITY
Members' capital
76,474,111 76,474,111
(Deficit) accumulated during the development stage (5,733,878) (3,416,750)
----------------------------------------------------------------------
70,740,233 73,057,361
----------------------------------------------------------------------
$ 211,145,351 $ 188,141,367
======================================================================
See Notes to Unaudited Financial Statements.
2
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Statements of Operations (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
Three Months Three Months March 28, 2005
Ended December Ended (Date of Inception) to
31, 2008 December 31, 2007 December 31, 2008
--------------------------------------------------------------------------
Revenues $ --- $ --- $ ---
--------------------------------------------------------------------------
General and administrative expenses 1,711,629 598,246 8,862,927
--------------------------------------------------------------------------
(Loss) before other income (1,711,629) (598,246) (8,862,927)
--------------------------------------------------------------------------
Other income and (expense):
Grant --- --- 305,994
Interest income 46,134 88,031 3,431,026
Miscellaneous income 5,340 5,035 83,086
Realized and unrealized losses on (656,973) --- (656,973)
derivative instruments
Loss on disposal of property --- --- (34,084)
--------------------------------------------------------------------------
(605,499) 93,066 3,129,049
---------------------------------------------------------------------------
Net (loss) $ (2,317,128) $ (505,180) $ (5,733,878)
==========================================================================
Weighted average units outstanding 13,139 13,139 7,712
==========================================================================
Net (loss) per unit - basic and diluted $ ($176.35) $ (38.45) $ (743.50)
==========================================================================
See Notes to Unaudited Financial Statements.
3
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Statements of Members' Equity (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Earnings
(Deficit)
Accumulated
During the
Members' Capital Development Stage Total
------------------------------------------------------------------------
Balance, March 28, 2005 (date of inception) $ --- $ --- $ ---
Issuance of 285 Series A membership 570,000 --- 570,000
units
Subscription receivable for 257 Series A (514,000) --- (514,000)
membership units
Net (loss) --- (29,634) (29,634)
------------------------------------------------------------------------
Balance, September 30, 2005 56,000 (29,634) 26,366
Receipt of membership units subscribed 514,000 --- 514,000
Issuance of 1,047 Series A membership 5,202,000 --- 5,202,000
units
Issuance of 1 Series B membership unit 6,000 --- 6,000
Net (loss) (752,231) (752,231)
------------------------------------------------------------------------
Balance, September 30, 2006 5,778,000 (781,865) 4,996,135
Issuance of 7,473 Series A membership 44,838,000 --- 44,838,000
units
Issuance of 3,333 Series B membership 19,998,000 --- 19,998,000
units
Issuance of 1,000 Series C membership 6,000,000 --- 6,000,000
units
Offering costs (139,889) --- (139,889)
Net income --- 1,082,715 1,082,715
------------------------------------------------------------------------
Balance, September 30, 2007 76,474,111 300,850 76,774,961
Net (loss) --- (3,717,600) (3,717,600)
------------------------------------------------------------------------
Balance, September 30, 2008 76,474,111 (3,416,750) 73,057,361
Net (loss) --- (2,317,128) (2,317,128)
------------------------------------------------------------------------
Balance, December 31, 2008 $ 76,474,111 $ (5,733,878) $ 70,740,233
========================================================================
See Notes to Unaudited Financial Statements.
4
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Three Months Three Months March 28, 2005
Ended Ended (Date of
December 31, December 31, Inception) to
2008 2007 December 31, 2008
--------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (2,317,128) $ (505,180) $ (5,733,878)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
Depreciation 7,524 3,428 44,773
Loss on disposal of property --- --- 34,084
Changes in working capital components:
(Increase) in due from broker (1,447,694) --- (1,447,694)
(Increase) decrease in prepaid expenses and other (186,766) 81,971 (230,027)
(Increase) in inventory (7,520,931) --- (7,520,931)
Increase in other non-current liabilities --- --- 900,000
Increase in accounts and retainage payable 1,387,472 18,103 1,549,560
Increase in derivative financial instruments 852,738 --- 852,738
Increase (decrease) in accrued expenses (5,007) 71,830 202,982
--------------------------------------------------------------
Net cash (used in) operating activities (9,229,792) (329,848) (11,348,393)
--------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (20,951,788) (13,929,101) (181,719,055)
Decrease in cash-held for plant construction --- 13,767,081 ---
Increase in restricted cash (24,471) --- (3,314,420)
Proceeds from sale of property and equipment --- --- 1,415,541
--------------------------------------------------------------
Net cash (used in) investing activities (20,976,259) (162,020) (183,617,934)
--------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of membership units --- --- 75,654,000
Payments for financing costs (74,501) (3,188) (2,700,994)
Payments for offering costs --- --- (139,889)
Proceeds from long-term borrowings 25,568,930 --- 91,213,899
Proceeds from bridge loan --- --- 34,100,000
Payments on long-term borrowings (5,000) (5,000) (1,319,917)
--------------------------------------------------------------
Net cash provided by (used in) financing activities 25,489,429 (8,188) 196,807,099
--------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,716,622) (500,056) 1,840,772
CASH AND CASH EQUIVALENTS
Beginning 6,557,394 1,742,940 ---
--------------------------------------------------------------
Ending $ 1,840,772 $ 1,242,884 $ 1,840,772
==============================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH OPERATING,
INVESTING AND FINANCING ACTIVITIES
Construction in progress included in accounts and $ 9,887,766 24,410,087 9,887,766
retainage payable
Membership units issued for financing costs --- --- 960,000
Interest capitalized and included in long-term debt 1,394,063 --- 3,801,590
and accruals
See Notes to Unaudited Financial Statements.
5
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Principal business activity: Southwest Iowa Renewable Energy, LLC (the
"Company"), located in Council Bluffs, Iowa, was formed in March 2005 to pool
investors to build a 110 million gallon annual production dry mill corn-based
ethanol plant. As of December 31, 2008, the Company is in the development stage
with its efforts being principally devoted to organizational matters and nearing
completion of plant construction. As of February, 2009, the Company has
commenced limited operation of the ethanol plant as part of testing and bringing
the plant into full operation.
Basis of presentation and other information: The balance sheet as of September
30, 2008 was derived from the Company's audited balance as of that date. The
accompanying financial statements as of and for the three months ended December
31, 2008 and 2007 are unaudited and reflect all adjustments(consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for the
interim periods. These unaudited financial statements and notes should be read
in conjunction with the audited financial statements and notes thereto, for the
year ended September 30, 2008 contained in the Company's Annual Report on Form
10-K. The results of operations for the interim periods presented are not
necessarily indicative of the results for the entire year.
A summary of significant accounting policies follows:
Use of estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentration of credit risk: The Company's cash balances are maintained in
bank deposit accounts which at times may exceed federally insured limits. The
Company has not experienced any losses in such accounts.
Risks and uncertainties: The current U.S. recession has reduced the nation's
demand for energy. The bankruptcy filing of one of the industry's major
producers has resulted in great economic uncertainty about the viability of
ethanol. The ethanol boom of recent years spurred overcapacity in the
industry and capacity is currently nearing the Renewable Fuels Standard
("RFS") mandates. The average national ethanol spot market price has plunged
over 44% since July 2008. The drop in crude oil prices from a record $150 a
barrel to its recent price of less than $40 a barrel has resulted in the
price of reformulated gasoline blendstock for oxygen blending ("RBOB")
dropping below $1 per gallon in December 2008. With ethanol spot prices
exceeding RBOB prices the economic incentives for blenders to continue using
ethanol has become less advantageous. This could result in a significant
reduction in the demand for ethanol.
As such, the Company may need to evaluate whether crush margins will be
sufficient to operate the plant and generate enough cash to cover debt
service. In the event crush margins become negative for an extended period of
time, the Company may be required to reduce capacity or shut down the plant
once operational.
Inventory: Inventory consists primarily of corn and is stated at the lower of
cost or market using the first-in, first-out method. Market is based on
current replacement values except that it does not exceed net realizable
values and it is not less than the net realizable values reduced by an
allowance for normal profit margin.
Derivative financial instruments: The Company enters into derivative
contracts to hedge the Company's exposure to price risk related to forecasted
corn needs and forward corn purchase contracts. The Company uses cash,
futures and options contracts to hedge changes to the commodity prices of
corn and ethanol. All the derivative contracts are recognized on the balance
sheet at their fair market value. We do not enter into these
6
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (continued)
derivative financial instruments for trading or speculative purposes, nor do
we designate these contracts as hedges for accounting purposes, pursuant to
the requirements of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. Accordingly, any realized or unrealized gain or loss
related to these derivative instruments is recorded in the statement of
operations as a component of non-operating income until the plant is
operational. Once the plant is operational, these gains or losses will be
included in revenue if the contracts relate to ethanol and cost of revenue if
the contracts relate to corn. During the three months ended December 31, 2008
and for the period from March 28, 2005 (date of inception) to December 31,
2008, the Company recorded a combined realized and unrealized loss for
derivative financial instruments of ($656,973). There was no realized or
unrealized gain or loss during the three months ended December 31, 2007.
The derivative financial instruments liability of $852,738 at December 31,
2008 is made up of 2,695,000 bushels.
Income taxes: The Company has elected to be treated as a partnership for
federal and state income 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.
Net (loss) per unit: (Loss) per unit have been computed on the basis of the
weighted average number of units outstanding during each period presented.
Note 2. Members' Equity
The Company was formed on March 28, 2005 to have a perpetual life with no limit
on the number of authorized units. The Company was initially capitalized by an
aggregate of $570,000 in exchange for 285 Series A membership units. In December
2005, the Company issued an additional 360 Series A membership units in exchange
for $1,080,000. In March 2006, the Company completed a private placement
offering with one membership unit at $6,000 being at risk and the remaining
investment held in escrow until closing of the offering. The Company approved
and issued 687 Series A and one Series B at risk membership units at $6,000 per
unit for total proceeds of $4,128,000. The offering was closed in November 2006
with the issuance of 7,313 Series A membership units, 3,333 Series B membership
units and 1,000 Series C membership units for total proceeds of $69,876,000.
In May 2007, 25 Series A membership units were issued to a development group for
its efforts to develop the project. In addition, in May 2007, 135 Series A
membership units were issued to a related party for its organizational services.
At December 31, 2008 and September 30, 2008 outstanding member units were:
- ----------------------------------------------------------------
A Units 8,805
B Units 3,334
C Units 1,000
The Series A, B and C unit holders all vote on certain matters with equal
rights. The Series C unit holders as a group have the right to elect one Board
member. The Series B unit holders as a group have the right to elect that number
of Board members which bears the same proportion to the total number of
Directors in relation to Series B outstanding units to total outstanding units.
Series A unit holders as a group have the right to elect the remaining number of
Directors not elected by the Series C and B unit holders.
Effective March 7, 2008, the Company entered into a Series C Unit Issuance
Agreement (the "Series C Agreement") with ICM, Inc. ("ICM") and a Series E Unit
Issuance Agreement (the "Series E Agreement", together with the
7
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 2. Members' Equity (continued)
Series C Agreement, the "Unit Issuance Agreements") with Bunge North America,
Inc. ("Bunge") in connection with the LCs (see Note 3). Under the Unit Issuance
Agreements, the Company has agreed to pay Bunge and ICM each a fee for the
issuances of their respective LCs equal to 6% per annum of the undrawn face
amount of their respective LCs. The Unit Issuance Agreements provide that the
Company will use its best efforts to raise funds through a subsequent private
placement offering of Units (the "Private Placement"), or such other form of
equity or debt financing as the Company's Board of Directors may deem necessary,
in an amount sufficient to pay off the Bridge Loan (see Note 3) in full prior to
maturity. In the event that the LCs are drawn upon as discussed below or if
Bunge or ICM make any payment to Commerce Bank, N.A. (the Bridge Lender) that
reduces amounts owed by the Company under the Bridge Loan (each, a "Bridge Loan
Payment"), the Unit Issuance Agreements provide that the Company will
immediately reimburse Bunge and/or ICM, as applicable, for the amount of such
Bridge Loan Payment by issuing Units to Bunge and ICM, as further described
below.
Under the Series C Agreement, if ICM makes a Bridge Loan Payment, the Company
will immediately issue Series C Units to ICM based on a Unit price that is equal
to the lesser of $3,000 or one half (1/2) of the lowest purchase price paid by
any party for a Unit who acquired (or who has entered into any agreement,
instrument or document to acquire) such Unit as part of the Private Placement
after the date of the Series C Agreement but prior to the date of any Bridge
Loan Payment made by ICM. The Series C Agreement further provides that ICM will
have the right to purchase its pro rata share of any Units issued by the Company
at any time after the date of the Series C Agreement.
Under the Series E Agreement, if Bunge makes a Bridge Loan Payment, the Company
will immediately issue Series E Units to Bunge based on a Unit price that is
equal to the lesser of $3,000 or one half (1/2) of the lowest purchase price
paid by any party for a Unit who acquired (or who has entered into any
agreement, instrument or document to acquire) such Unit as part of the Private
Placement after the date of the Series E Agreement but prior to the date of any
Bridge Loan Payment made by Bunge. The Series E Agreement further provides that
Bunge will have the right to purchase its pro rata share of any Units issued by
the Company at any time after the date of the Series E Agreement.
Note 3. Construction and Revolving Loan/Credit Agreements
In May 2007 and amended as noted below, the Company entered into a loan
commitment with AgStar Financial Services, PCA ("AgStar") for $126,000,000
senior secured debt, consisting of a $111,000,000 construction loan and a
$15,000,000 revolving line of credit under the terms of a Credit Agreement (the
"Credit Agreement"). The Credit Agreement also provides for a loan up to
$1,000,000 on a revolving basis (the "Swingline Revolver"). Borrowings under the
construction loan include a variable interest rate based on LIBOR plus 3.65% for
each advance under the Credit Agreement. Upon completion of construction, the
construction loan may be segmented into two credit facilities, an amortizing
term facility of $101,000,000 and a revolving term facility of $10,000,000. Upon
conversion, the Company has the option of converting 50% of the term note into
fixed rate loans at the lender's bonds rate plus 3.25%. The portion of the term
loan not fixed and the term revolving line of credit will accrue interest equal
to LIBOR plus 3.45%. The Credit Agreement and Revolving Line of Credit require
the maintenance of certain financial and nonfinancial covenants. Borrowings
under the Credit Agreement are collateralized by substantially all of the
Company's assets. The construction/revolving term credit facility requires
monthly principal payments starting the seventh month following conversion of
the construction loan to a term loan. The conversion will occur the earlier of
March 1 or 60 days after completion of the construction. The loan will be
amortized over 114 months and will mature five years after the conversion date.
The revolving term credit agreement expires in five years after the conversion
of the loan at which time the principal outstanding is due. Borrowings are
subject to borrowing base restrictions, and the Credit Agreement includes
certain prepayment penalties.
8
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 3. Construction and Revolving Loan/Credit Agreements (continued)
In December 2008, the Company executed a second amendment to the Credit
Agreement that granted the Company early access to the seasonal Revolving Line
of Credit (as defined in the Credit Agreement). A borrowing base limitation is
included in the agreement that limits the availability of funds to the lesser of
$15,000,000 or 75 percent of eligible accounts receivable and eligible
inventory. Letters of credit can be drawn on the seasonal line of credit and
cannot exceed $5,000,000 in the aggregate. Additionally, the Company caused
AgStar to issue a Letter of Credit in favor of MidAmerican Energy in the amount
of $3,300,000. The Letter of Credit was issued against the Seasonal Revolving
Line of Credit. A third amendment was executed on December 30, 2008, to change
the definition of "Completion Date" to the earlier of March 1, 2009 or the date
a completion certificate is issued.
As of December 31, 2008 the outstanding balance under the Credit Agreement was
approximately $89,731,000. In addition to all other payments due under the
Credit Agreement, the Company also agreed to pay, beginning at the end of the
third fiscal quarter after the Conversion Date (as defined in the Credit
Agreement), the amount equal to 65% of the Company's Excess Cash Flow (as
defined in the Credit Agreement), up to a total of $4,000,000 per year, and
$16,000,000 over the term of the Credit Agreement.
On March 7, 2008, the Company amended the terms of the Credit Agreement and
obtained a bridge loan in the maximum principal amount of $36,000,000 (the
"Bridge Loan"). The Bridge Loan debt is secured by two letters of credit,
described below.
Bunge caused its bank to issue a letter of credit in the amount equal to 76% of
the maximum principal amount of the Bridge Loan in favor of the Bridge Lender
(the "Bunge LC"), and ICM caused its lender to similarly issue a letter of
credit in the amount equal to 24% of the maximum principal amount of the Bridge
Loan in favor of the Bridge Lender (the "ICM LC" and, together with the Bunge
LC, the "LCs"). Both LCs expire on March 16, 2009, and the Bridge Lender will
only draw against the LCs to the extent that the Company defaults under the
Bridge Loan or if the Company has not repaid the Bridge Loan in full by March 1,
2009. In the event the Bridge Lender draws against the LCs, the amounts drawn
will be in proportion to Bunge's and ICM's respective ownership of the Company's
Units which are not Series A--76% and 24%, respectively. As the Company repays
the principal of the Bridge Loan, the LCs' stated amounts will automatically be
reduced in the same proportion. As of December 31, 2008, there was an
outstanding principal and interest balance of approximately $35,064,000 under
the Bridge Loan.
The Company has requested an extension from both Bunge and ICM on the LCs to
extend the Bridge Loan. The Company is currently working with Bunge, ICM and all
banks involved to draft documents for extension of the Bridge Loan.
In connection with the Bridge Loan, the Company entered into the Unit Issuance
Agreements with Bunge and ICM, which govern the Company's repayment of Bunge
and/or ICM, as the case may be, in the event the LCs are drawn upon (see Note
2).
9
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 4. Long-Term Debt
Long-term debt consists of the following as of December 31, 2008 and September
30, 2008:
December 31, 2008 September 30, 2008
------------------ --------------------
$200,000 Note payable to Iowa Department Economic Development ("IDED")
non-interest bearing monthly payments of $1,667 due through maturity
date of March 2012 on non-forgivable portion (A) $ 163,333 $ 168,333
Bridge Loan bearing interest at LIBOR plus .80% (1.24% at December 31,
2008) through maturity on March 1, 2009 secured by two letters of credit
as described in Note 3. 35,064,144 34,761,857
Construction loan payable to AgStar bearing interest at LIBOR plus
3.65% (4.09% at December 31, 2008). See maturity discussed in Note 3. 89,730,649 64,161,717
-----------------------------------------------
124,958,126 99,091,907
Less current maturities (37,282,975) (35,198,440)
-----------------------------------------------
$ 87,675,151 $ 63,893,467
===============================================
(A) This debt is comprised of two components under the Master Contract (the
"Master Contract") dated November 21, 2006 and amended June 5, 2008 between
the Company and the IDED. A $100,000 loan is non interest-bearing and due
in monthly payments of $1,667 beginning April 2007, with a final payment of
$1,667 due March 2012; and a $100,000 forgivable loan. Both notes under the
Master Contract are collateralized by substantially all of the Company's
assets and subordinate to the above $126,000,000 financial institution debt
and construction and revolving loan/credit agreements included in Note 3.
The $100,000 forgivable loan may be forgiven upon IDED's confirmation of
the creation and retention of qualifying jobs as per the Master Contract.
If the Company does not meet the requirements of the Master Contract, the
note is due on an agreed upon payment schedule.
Note 5. Related-Party Transactions
In September 2005, the Company entered into an agreement that expired May 2007
(and was not renewed) with a management company that included a member and
director, for project development services for a monthly fee of $10,000, plus
actual travel and other approved expenses. The agreement also included a fee of
up to $1,600,000 for securing financing for the construction of a 110 gallon per
year ethanol facility. Financial close of the project occurred during the year
ended September 30, 2007 and 135 Series A membership units were issued directly
to the party's principals for $810,000 of the $1,600,000 fee. The total fee of
$1,600,000 has been capitalized as financing costs.
In September 2006, the Company entered into a design-build agreement with ICM, a
related party and a member of the Company, for a lump-sum contract price of
$118,000,000 (the "ICM Contract"). Under the ICM Contract, the Company was
required to make a down payment of 10% of the original contract price which
$2,000,000 was paid at
10
Southwest Iowa Renewable Energy, LLC (A Development Stage
Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 5. Related-Party Transactions (continued)
the delivery of the letter of intent, an additional $2,000,000 was paid in
November 2006 when the Company broke escrow and the remaining $7,800,000 of the
10% was paid in January 2007. Monthly applications are submitted for work
performed, subject to retainage. As of December 31, 2008 and 2007, the Company
incurred approximately $144,520,000 and $64,053,000 of construction in progress,
respectively under the ICM Contract. A total of $9,089,000 is included in
retainage and accounts payable as of December 31, 2008.
The Company entered into an agreement in October 2006 with Bunge, a related
party and a member of the Company, to purchase all of the distiller's grains
with soluble ("DGS") produced by the plant (the "DGS Agreement"). The Company
agreed to pay a purchase price subject to the sales price, transportation costs,
rail lease charge and a fixed rate marketing fee for the DGS produced. The DGS
Agreement commences when the Company begins producing DGS and continues for ten
years when it will automatically renew for successive three-year terms unless a
180-day written notice is given of either party's election not to renew before
the expiration of the initial term or the then current renewal term. In
addition, the Company is required to deliver written estimates of its
anticipated production annually and monthly. The Company is required to pay a
minimum annual marketing fee of $150,000. Beginning on the third anniversary of
the effective date of the DGS Agreement and thereafter, the annual minimum
amount and the purchase price may be adjusted based on terms within the
contract. Either party may terminate the agreement based on specific guidelines
in the DGS Agreement.
On January 30, 2008, the Company and Bunge entered into a Support Services
Agreement (the "Support Services Agreement"), under which Bunge agreed to
provide engineering support to the project, provide reports to the Company's
lender and assist the Company with requests by the lender's agent. The Company
will pay, in addition to Bunge's out of pocket expenses, an hourly fee of $95
for such services. The Support Services Agreement terminates upon the earlier of
completion of the ethanol plant or December 31, 2008. Bunge may terminate the
Support Services Agreement at any time, and the Company may terminate under
specified circumstances. Expenses for the three month period ended December 31,
2008 and 2007, and for the period from March 28, 2005 (date of inception) to
December 31, 2008 were approximately $21,000, none, and $135,000, respectively.
In December 2008, the Company and Bunge entered into other various agreements.
Under a Lease Agreement (the "Lease Agreement"), the Company has leased from
Bunge a grain elevator located in Council Bluffs, Iowa, for approximately
$67,000 per month. Expenses for the three month period ended December 31, 2008,
and for the period from March 28, 2005 (date of inception) to December 31, 2008
were approximately $33,000, and $33,000, respectively. In connection with the
Lease Agreement, the Company entered into a grain purchase agreement, under
which the Company agreed to purchase the grain inventory at the grain elevator
and the grain inventory located in the Company's on-site storage facility. The
Company purchased approximately 1,900,000 bushels of corn at an approximate
market value of $6,980,000.
Under an Ethanol Purchase Agreement (the "Ethanol Purchase Agreement"), the
Company has agreed to sell Bunge all of the ethanol produced at the ethanol
plant, and Bunge has agreed to purchase the same, up to the ethanol plant's
nameplate capacity of 110,000,000 gallons a year. The Company will pay Bunge a
per-gallon fee for ethanol sold by Bunge for the Company under this agreement,
subject to a minimum annual fee of $750,000 and adjusted according to specified
indexes after three years. The initial term of the agreement, which will
commence upon the termination of that Ethanol Merchandising Agreement between
the Company and Lansing Ethanol Services, LLC, is three years and it will
automatically renew for successive three-year terms unless one party provides
the other with notice of their election to terminate 180 days prior to the end
of the term.
Under a Risk Management Services Agreement (the "Risk Management Services
Agreement"), Bunge has agreed to provide the Company with assistance in managing
its commodity price risks for a quarterly fee of $75,000. The agreement has an
initial term of three years and will automatically renew for successive three
year terms, unless one party provides the other notice of their election to
terminate 180 days prior to the end of the term. The agreement is
11
Southwest Iowa Renewable Energy, LLC (A Development Stage
Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 5. Related-Party Transactions (continued)
effective January 1, 2009 and therefore, no fees have been paid or accrued under
this agreement as of December 31, 2008.
In October 2006, the Company entered into an agreement with a company in which
Bunge holds a membership interest, AGRI-Bunge, LLC, to procure all grain
required for the Company's ethanol plant. The Company agreed to pay an agency
fee mutually agreed to by both parties for corn delivered by truck or rail, with
a minimum annual fee. On December 15, 2008, this agreement was temporarily
suspended and replaced with a grain supply agreement between the parties. The
revised agreement has a term of ten years and automatically renews for
successive three-year terms unless a 180-day written notice is given by either
party. The Company agreed to pay an annual minimum fee of $675,000 under the
revised agreement. No fees are due as the plant is not currently operational.
In connection with obtaining the Bridge Loan, the Company entered into the Unit
Issuance Agreements, as described above in Note 2.
Note 6. Commitments
The total cost of the project, including the construction of the ethanol plant
and start-up expenses, is expected to be approximately $225,000,000. The Company
is funding the development of the ethanol plant by using the total equity raised
of $75,654,000, long term financing of approximately $126,000,000 under the
Credit Agreement and bridge financing of approximately $36,000,000 under the
Bridge Loan.
The Company entered into a contract with an unrelated party for construction of
a rail line in November 2007. The original contract amount was for $971,565 and
a change order was issued July 2008 in the amount of $227,671. As of December
31, 2008, $821,198 has been paid with $ 378,038 remaining in the contracted
price. Approximately $107,000 was included in accounts and retainage payable at
December 31, 2008.
The Company entered into a contract with an unrelated party in July 2008 for the
construction of parking lots and roads. The contract amount was for
approximately $1,274,000. As of December 31, 2008, $1,181,000 has been paid with
$93,000 remaining in the contracted price. Approximately $114,000 was included
in accounts and retainage payable at December 31, 2008.
The Company entered into a contract in March 2008 with an unrelated party for
installation of the electrical system for the plant's grain storage and handling
system. The contract amount is $1,114,000. As of December 31, 2008, $1,004,000
has been paid with approximately $109,000 included in accounts payable at
December 31, 2008.
The Company entered into various other contracts during 2007 and 2008 for the
construction for the ethanol plant, office building, rail track and acquisition
of equipment totaling approximately $2,600,000. With a future commitment of
approximately $316,000 as of December 31, 2008, which is expected to be paid in
calendar 2009. Of this total, approximately $167,000 is included in accounts and
retainage payable as of December 31, 2008.
In November 2006, the Company entered into an agreement with an unrelated entity
for marketing, selling and distributing all of the ethanol produced by the
Company. The Company will pay a fee mutually agreed to by both parties for each
gallon of ethanol sold. The Company intends to give notice that the contract
will be terminated six months after the start of ethanol manufacturing
operations. There are no penalties involved with terminating this agreement. As
of December 31, 2008, the ethanol plant is not operational and no amounts are
due under this agreement.
The Company has entered into a steam contract with an unrelated party dated
January 22, 2007. The agreement was amended October 2008 to modify the
circumstances under which the steam service can be interrupted. The vendor
agreed to provide the steam required by the Company, up to 475,000 pounds per
hour. The Company agreed to pay a
12
Southwest Iowa Renewable Energy, LLC (A
Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 6. Commitments (continued)
net energy rate for all steam service provided under the steam contract and a
monthly demand charge for condensate not returned (steam delivered less the
condensation returned.) The net energy rate is set for the first three years
then adjusted each year beginning on the third anniversary date. The steam
contract will remain in effect for ten years from the earlier of the date the
Company commences a continuous grind of corn for ethanol production, or February
1, 2009. As of December 31, 2008, no expenses have been incurred under this
agreement.
In October, 2007 the Company entered into an agreement with an investment
banking firm, an unrelated party, to assist in obtaining additional equity.
While the Bridge Loan is not due until March 1, 2009, the Company's goal is to
raise sufficient equity to replace the Bridge Loan as soon as possible. The
Company will pay a monthly fee of $10,000 for the services of the investment
banking firm until the agreement is terminated by both parties or the equity is
secured. As of October 2008, the Company temporarily suspended the agreement due
to the current credit market conditions. Expenses for the three month period
ended December 31, 2008 and 2007, and for the period from March 28, 2005 (date
of inception) to December 31, 2008, were $10,000, $55,000 and $505,000,
respectively.
In April, 2008 the Company entered into a Firm Throughput Service Agreement with
a natural gas supplier, an unrelated party, under which the vendor agreed to
provide the gas required by the Company, up to 900 Dth per day. The Company
agreed to pay the maximum reservation and commodity rates as provided under the
vendor's FERC Gas Tariff as revised from time to time, as well as other
additional charges. The agreement specifies an in-service date of October 1,
2008, and the term of the agreement is seven years. Expenses for the three month
period ended December 31, 2008 and 2007, and for the period from March 28, 2005
(date of inception) to December 31, 2008 were $52,400, none and $52,400,
respectively.
In March, 2008, the Company entered into the Unit Issuance Agreements, pursuant
to which the Company has agreed to pay Bunge and ICM each a fee for the
issuances of their respective LCs equal to 6% per annum of the undrawn face
amount of their respective LCs for a total annual amount of approximately
$2,160,000. For the three months ended December 31, 2008 and for the period
March 28, 2005 (date of inception) to December 31, 2008, the Company capitalized
$552,000 and $1,800,000, respectively, for interest related to the Unit Issuance
Agreements. No payments have been made under these agreements as of December 31,
2008.
In January, 2007, the Company entered into an agreement with Iowa Interstate
Railroad, LTD to provide the transportation of the Company's commodities from
Council Bluffs, Iowa to an agreed upon customer location. The agreement
commences on the date that the contract is approved by the Surface
Transportation Board, then it continues for five years and will automatically
renew for additional one year periods unless cancelled by either party. The
Company agreed to pay a mutually agreed upon rate per car.
In July 2008, the Company entered into a services agreement with an unrelated
party. Under the terms of the agreement, the vendor will provide operation and
maintenance services of the Company's natural gas border station. The agreement
became effective in November 2008 and has a term of one year. For the three
months ended December 31, 2008 and for the period March 28, 2005 (date of
inception) to December 31, 2008, the Company has incurred an expense of $5,000
under this agreement.
In August 2008, the Company entered into an agreement with an unrelated party
which establishes terms governing the Company's purchase of natural gas. The
agreement commenced in August 2008 and has a term of two years. The Company has
incurred no expense under this contract as of December 31, 2008.
As of December 31, 2008, the Company has several corn cash contracts with
unrelated parties amounting to 699,820 bushels, for a commitment of $3,005,000
and several basis contracts representing approximately 395,000 bushels of corn.
The contracts mature on various dates through December 2010.
Note 7. Fair Value Measurement
Effective October 1, 2008, the Company adopted FASB Statement No. 157, Fair
Value Measurements (SFAS No. 157), which provides a framework for measuring fair
value under generally accepted accounting principles. SFAS
13
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 7. Fair Value Measurement (continued)
No. 157 applies to all financial instruments that are being measured and
reported on a fair value basis. There were no material financial impacts to the
Company's adoption of SFAS No. 157.
As defined in SFAS No. 157, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair value, the
Company uses various methods including market, income and cost approaches. Based
on these approaches, the Company often utilizes certain assumptions that market
participants would use in pricing the asset or liability, including assumptions
about risk and/or the risks inherent in the inputs to the valuation technique.
These inputs can be readily observable, market-corroborated, or generally
unobservable inputs. The Company utilizes valuation techniques that maximize the
use of observable inputs and minimize the use of unobservable inputs. Based on
the observability of the inputs used in the valuation techniques, the Company is
required to provide the following information according to the fair value
hierarchy. The fair value hierarchy ranks the quality and reliability of the
information used to determine fair values. Financial assets and liabilities
carried at fair value will be classified and disclosed in one of the following
three 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 incorporate certain assumptions and projections in
determining the fair value assigned to such assets or
liabilities.
A description of the valuation methodologies used for instruments measured at
fair value, including the general classification of such instruments pursuant to
the valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Company's financial assets and financial liabilities
carried at fair value.
The following table summarizes financial liabilities measured at fair value on a
recurring basis as of December 31, 2008, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value:
Derivative financial statements. Commodity futures 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 CBOT and NYMEX markets.
Total Level 1 Level 2 Level 3
----------------- ------------ ------------- ----------
Liability, derivative financial instruments (852,738) (852,738) --- ---
14
Southwest Iowa Renewable Energy, LLC
(A Development Stage Company)
Notes to Unaudited Financial Statements
- --------------------------------------------------------------------------------
Note 8. Subsequent Events
On February 1, 2009, the Base Agreement dated August 27, 2008 between the
Company and Constellation NewEnergy was amended to provide additional natural
gas during periods when steam is interrupted from MidAmerican Energy. The
amendment requires an annual fee of $225,000 and is payable on a quarterly
basis.
Subsequent to December 31, 2008 and in February, 2009, the ethanol plant began
limited operations as part of testing and bringing the plant into full
operation.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward Looking Statements
This report on Form 10-Q by Southwest Iowa Renewable Energy, LLC (the
"Company," "we" or "us") contains forward-looking statements that involve future
events, our future performance and our expected future operations and actions.
In some cases you can identify forward-looking statements by the use of words
such as "may," "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:
• Overcapacity in the ethanol industry;
• Our ability to obtain any additional equity financing which may be
required to complete plant construction and commence operations, or
our inability to fulfill our debt financing covenants;
• Changes in our business strategy, capital improvements or development
plans;
• Construction delays and technical difficulties in constructing the
plant;
• Changes in the environmental regulations that apply to our plant site
and operations;
• Our ability to hire and retain key employees for the operation of the
plant;
• Changes in general economic conditions or the occurrence of certain
events causing an economic impact in the agricultural, oil or
automobile industries;
• Changes in the availability and price of electricity, steam and
natural gas;
• Changes in federal and/or state laws (including the elimination of any
federal and/or state ethanol tax incentives);
• Changes and advances in ethanol production technology; and competition
from alternative fuel additives.
Our actual results or actions could and likely will differ materially from
those anticipated in the forward-looking statements for many reasons, including
the reasons described in this report. We are not under any duty to update the
forward-looking statements contained in this report. We cannot guarantee future
results, levels of activity, performance or achievements. We caution you not to
put undue reliance on any forward-looking statements, which speak only as of the
date of this report. You should read this report completely and with the
understanding that our actual future results may be materially different from
what we currently expect. We qualify all of our forward-looking statements by
these cautionary statements.
Overview, Status and Recent Developments
We are a development stage Iowa limited liability company which was formed
on March 28, 2005 to develop, construct, own and operate a 110 million gallon
dry mill corn-based ethanol plant near Council Bluffs, Iowa (the "Facility").
Based upon engineering specifications from ICM, our primary constructor, we
expect the Facility to process approximately 39.3 million bushels of corn per
year into 110 million gallons of denatured fuel grade ethanol, 300,000 tons of
distillers' dry grains with solubles ("DDGS") and 50,000 tons of wet distillers'
grains with solubles ("WDGS," together with DDGS, "Distillers Grains"). The fuel
grade ethanol will be sold in markets throughout the United States and
Distillers Grains sold in markets throughout the United States and
internationally. To execute our business plan, we raised capital through two
offerings--an initial seed round in the fourth quarter of 2005 and a secondary
round in the first quarter of 2006. With the proceeds of our two equity
offerings, we began construction of our Facility in February of 2007. The
Facility began limited operation in February, 2009 as part of testing and
bringing the plant into full operation, and there are only two areas that are
not complete as of this filing:
• Back-up boilers: Our revised air permit was issued mid-December
allowing us to complete construction of our permanent backup boiler
system. This back-up system is expected to be operational by March 1,
2009 and will have the capacity to supply 100% of our plant's steam
needs in the event of a Mid America Energy shutdown.
• Site paving: A few areas will be completed in the spring, due to
weather.
16
On May 2, 2007, we entered into a $126,000,000 credit facility (as amended,
the "Credit Agreement") with AgStar Financial Services, PCA ("AgStar"), as agent
for a syndicate group of lenders (the "Lenders"). Effective March 7, 2008, we
amended the terms of our primary lending agreements, obtained a bridge loan in
the maximum principal amount of $36,000,000 (the "Bridge Loan") from Commerce
Bank, N.A. (the "Bridge Lender") and entered into arrangements with the Bridge
Lender and our key equity holders and operational partners, ICM and Bunge North
America, Inc. (a wholly owned subsidiary of Bunge Limited, a publicly-traded,
global agribusiness company) ("Bunge"). On March 7, 2008, we made the following
arrangements:
• We obtained the Bridge Loan in the maximum principal amount of
$36,000,000, which is secured by two letters of credit, as described below.
As of December 31, 2008, we have drawn $35,064,000 for payment of
construction in progress and interest on the Bridge Loan.
• Bunge caused its bank to issue a letter of credit in the amount equal to
76% of the maximum principal amount of the Bridge Loan in favor of the
Bridge Lender (the "Bunge LC"), and ICM caused its lender to similarly
issue a letter of credit in the amount equal to 24% of the maximum
principal amount of the Bridge Loan in favor of the Bridge Lender (the "ICM
LC" and, together with the Bunge LC, the "LCs"). Both LCs expire on March
16, 2009, and the Bridge Lender will only draw against the LCs to the
extent that we default under the Bridge Loan or if we have not repaid the
Bridge Loan in full by March 1, 2009. In the event the Bridge Lender draws
against the LCs, the amounts drawn will be in proportion to Bunge's and
ICM's respective ownership of the Company's Units which are not Series
A--76% and 24%, respectively. As we repay the principal of the Bridge Loan,
the LCs' stated amounts will automatically be reduced in the same
proportion.
• We entered into a Series C Unit Issuance Agreement with ICM (the "Series
C Agreement") and a Series E Unit Issuance Agreement with Bunge (the
"Series E Agreement", together with the Series C Agreement, the "Unit
Issuance Agreements") in connection with their respective issuances of the
LCs. Under the Unit Issuance Agreements, we agreed to pay Bunge and ICM
each a fee for the issuances of their respective LCs equal to 6% per annum
of the undrawn face amount of their respective LCs. The Unit Issuance
Agreements provide that we will use our best efforts to raise funds through
a subsequent private placement offering of Units (the "Private Placement"),
or such other form of equity or debt financing as our Board of Directors
may deem necessary, in an amount sufficient to pay off the Bridge Loan in
full prior to maturity. Although we anticipate that funds obtained from the
Private Placement or such other equity or debt financing will enable us to
pay off the Bridge Loan in full prior to maturity, in the event that the
LCs are drawn upon as discussed above or if Bunge or ICM make any payment
to the Bridge Lender that reduces amounts owed by us under the Bridge Loan
(each, a "Bridge Loan Payment"), the Unit Issuance Agreements provide that
we will immediately reimburse Bunge and/or ICM, as applicable, for the
amount of such Bridge Loan Payment by issuing Units to Bunge and ICM, as
further described below.
• Under the Series C Agreement, if ICM makes a Bridge Loan Payment, we will
immediately issue Series C Units to ICM based on a Unit price that is equal
to the lesser of $3,000 or one half (1/2) of the lowest purchase price paid
by any party for a Unit who acquired (or who has entered into any
agreement, instrument or document to acquire) such Unit after the date of
the Series C Agreement but prior to the date of any Bridge Loan Payment
made by ICM. The Series C Agreement further provides that ICM will have the
right to purchase its pro rata share of any Units issued by us at any time
after the date of the Series C Agreement.
• Under the Series E Agreement, if Bunge makes a Bridge Loan Payment, we
will immediately issue Series E Units to Bunge based on a Unit price that
is equal to the lesser of $3,000 or one half (1/2) of the lowest purchase
price paid by any party for a Unit who acquired (or who has entered into
any agreement, instrument or document to acquire) such Unit after the date
of the Series E Agreement but prior to the date of any Bridge Loan Payment
made by Bunge. The Series E Agreement further provides that Bunge will have
the right to purchase its pro rata share of any Units issued by us at any
time after the date of the Series E Agreement.
The Bridge Loan is due March 1, 2009. We have requested an extension of the
Bridge Loan arrangement from Bridge Lender, AgStar, Bunge and ICM and drafting
documents for the extension is currently underway.
17
Results of Operations
For the three month periods ended December 31, 2008 and 2007, we incurred
net losses of approximately ($2,317,000) and ($505,000), respectively. We have
incurred an accumulated net loss of approximately ($5,734,000) for the period
March 28, 2005 (date of inception) through December 31, 2008. These losses were
incurred for general and administrative expenses relating to organization and
development as we continue to construct our plant. We recorded a net realized
and unrealized loss of ($656,973) for corn hedging contracts, for the
three-month period ending December 31, 2008 and for the period from March 28,
2005 (date of inception) through December 31, 2008, respectively.
Liquidity and Capital Resources
We intend to rely on our current equity and available debt to fund
completion of the project, cover start-up costs and purchase inventory prior to
our operational date. We will seek to issue equity to replace the Bridge Loan,
as described above. However, if we are not successful in raising equity or debt
from third parties to replace the Bridge Loan, it will be converted to
additional Series C and Series E Units. Under the terms of the Credit Agreement,
as of December 31, 2008 we have drawn approximately $89,731,000 under the Credit
Agreement and have also drawn approximately $35,064,000 of principal and
interest under the Bridge Loan. We anticipate that our working capital will be
tight because of the implementation of a 75% borrowing base on accounts
receivable and inventory in an amendment to the Credit Agreement that could
significantly reduce cash available for draws.
Once operational, we believe operating margins will be very tight. We
anticipate that cash flow from operations will allow us to make our interest
payments, but may not be adequate to service our principal payments. We have
requested that AgStar delay the start date of principal payments. If the
extension is granted, principal payments under the Credit Agreement, presently
scheduled to begin December 1, 2009, would be extended an additional six months,
to June 1, 2010.
We executed a second amendment to our Credit Agreement on December 19,
2008, that granted us early access to our seasonal Revolving Line of Credit. The
amendment allows access to the funds prior to the plant being operational and
includes a borrowing base limitation which limits the availability of funds to
the lesser of $15,000,000 or 75% of eligible accounts receivable and eligible
inventory. We can use this line of credit to hedge corn, natural gas and ethanol
futures. The volatility in the commodities markets recently has resulted in wide
swings in margins for ethanol production. If additional working capital were
available, we would be able to more effectively reduce the impact of commodities
volatility.
Cash (used in) operations for the three month period ended December 31,
2008 and December 31, 2007, and from March 28, 2005 (date of inception) through
December 31, 2008, was ($9,229,792), ($329,848) and ($11,348,393), respectively.
Cash has been used primarily for pre-operational and administrative expenses.
For the three month period ended December 31, 2008 and December 31, 2007, and
from March 28, 2005 (date of inception) through December 31, 2008, net cash used
in investing activities was ($20,976,259), ($162,020) and ($183,617,934),
respectively, primarily related to the construction of our plant. Cash (used in)
operations increased significantly for the three-month period ending December
31, 2008 due to the purchase of inventories of corn and chemicals for
operations.
Cash for the period ending December 31, 2008 was provided by advance from
our construction loan. We used cash of $8,188 for the period ending December 31,
2007 to fund financing costs and pay down on the Master Contract (the "IDED
Contract") with the Iowa Department Economic Development (the "IDED"), effective
November 21, 2006 and amended June 5, 2008. For the three month periods ended
December 31, 2008 and December 31, 2007, and from March 28, 2005 (date of
inception) through December 31, 2008, cash provided by (used in) financing
activities was $25,489,429, ($8,188) and $196,807,099, respectively. This cash
was generated through our equity financing of $75,654,000, the Bridge Loan of
$34,100,000 and $89,731,000 from our construction loan.
18
Trends and Uncertainties Impacting Ethanol Industry and Our Future Operations
Our operations are highly dependent on commodity prices, especially prices
for corn, ethanol, distiller's 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, governmental programs and foreign
purchases. We may experience increasing costs for corn and natural gas and
decreasing prices for ethanol and distillers grains which could significantly
impact our operating results. Because the market price of ethanol is not
directly related to corn prices, ethanol producers are generally not able to
compensate for increases in the cost of corn feedstock through adjustments in
prices charged for ethanol. Based on recent forward prices of corn and ethanol,
it is possible that in the future we may be operating the Facility at low to
negative operating margins. At this time, we plan to commence operations even if
we are not immediately profitable, but we will continue to monitor corn and
ethanol prices and their effect on our longer-term profitability.
The price of corn has been very volatile during the past year. Since the
end of fiscal 2007, the Chicago Mercantile Exchange ("CME") near-month corn
price has risen above $7.00 per bushel. The CME near-month corn price for March
2009 was $3.97 per bushel. We believe the increase in corn prices was primarily
due to export demand, speculation, ethanol demand and current production
concerns. Higher corn prices will negatively affect our costs of production.
However, we also believe that higher corn prices may, depending on the prices of
alternative crops, encourage farmers to plant more acres of corn in the coming
years and possibly divert land in the Conservation Reserve Program to corn
production. We believe an increase in land devoted to corn production could
reduce the price of corn to some extent in the future.
The United States Department of Agriculture ("USDA") is projecting a higher
carryout for corn this year due to smaller than expected usage for ethanol and
exports. The USDA report for crop year 2008 (the period of September 2008
through August 2009) has projected the season-average farm price of corn at
$3.55 to $4.25 per bushel. We feel that there will continue to be volatility in
the corn market. The report projected corn inventory to be 316 million bushels
(a decrease from the prior year's report), corn used in ethanol production to be
3,600 million bushels (a decrease by 100 million bushels from the prior year's
report) and corn exports to be 1,750 million bushels (a decrease by 50 million
bushels from the prior year's report). Assuming no significant increase in
speculative investing activities, these projections would indicate corn prices
could continue to decline.
Historically, ethanol prices have tended to track the wholesale price of
gasoline. Ethanol prices can vary from state to state at any given time. For the
past two years, according to ProExporter, the average U.S. ethanol wholesale
price was $2.13 per gallon. For the same time period, the average U.S. wholesale
gasoline price was $2.45 per gallon. During the last six months of fiscal 2008,
the average U.S. ethanol price was $2.26 per gallon. For the same time period,
U.S. gasoline prices have averaged $2.03 per gallon, or approximately $0.23 per
gallon below ethanol prices. In December 2008, JP Morgan cut its 2009 price
target for oil to $43 a barrel from $69, citing "deterioration in the world
economic environment and the ensuing sharp contraction in global oil demand in
both 2008 and 2009". If corn were to average $4.00 per bushel, we would need to
generate an average netback of $1.65 per gallon to be able to service our
interest and principal payments. Netback is the sales price minus all freight
charges, storage charges or marketing fees.
Federal policy has a significant impact on ethanol market demand. Ethanol
blenders benefit from incentives that encourage ethanol usage and a tariff on
imported ethanol supports the domestic industry. Additionally, the Renewable
Fuels Standard ("RFS") mandates increased level of usage of both corn-based and
cellulosic ethanol. The RFS policies were challenged in a proceeding at the EPA
by the State of Texas. The State of Texas sought a waiver of 50% of the RFS
mandate because of the economic impact of high corn prices. The EPA denied this
request in early August, 2008. Any adverse ruling in the future on any other RFS
waiver request could have an adverse impact on short-term ethanol prices.
We believe that any reversal in federal policy could have a profound impact
on the ethanol industry. In recent months, a political debate has developed
related to the alleged adverse impact that increased ethanol production has
19
had on food prices. The high-profile debate focuses on conflicting economic
theories explaining increased commodity prices and consumer costs. Political
candidates and elected officials have responded with proposals to reduce, limit
or eliminate the RFS mandate, blender's credit and tariff on imported ethanol.
While at present no policy change appears imminent, we believe that the debates
have created uncertainty and increased the ethanol industry's exposure to
political risk.
Competition
There are many other ethanol projects in Iowa and Nebraska that compete
with us for limited resources including investors and key business relationships
with suppliers and purchasers. Ethanol is a commodity product, like corn, which
means our ethanol plant competes with other ethanol producers on the basis of
price and, to a lesser extent, delivery service. We believe our Facility's
location offers an advantage over other ethanol producers in that it has ready
access by rail to both local and national markets.
Until very recently, excess capacity in the ethanol industry has had an
adverse effect on many plants' results of operations, cash flows and financial
conditions, as market forces have already reduced the profitability of other
currently operational ethanol companies. According to the March 2009 issue of
Ethanol Producer's Magazine there are currently 32 plants that are not producing
ethanol. Many of these plants may have halted production because of unfavorable
cost-of-production/sale price conditions. There is speculation within the
ethanol industry that several additional plants will close and that many plants
under development will not be completed.
In a manufacturing industry, producers have an incentive to manufacture
additional products so long as the sale price exceeds the marginal cost of
production (i.e., the cost of producing only the next unit, without regard to
interest, overhead or fixed costs). This incentive can disappear if the market
price of ethanol is reduced to a level that is inadequate to generate sufficient
cash flow to cover costs of production.
Finally, alternative fuels and ethanol production methods are continually
under development by other parties, including other ethanol producers and oil
companies, with far greater resources than us and who can influence legislation
and public perception of ethanol. New ethanol products or methods of ethanol
production developed by larger and better-financed competitors could provide
them competitive advantages and harm our business.
Sources of Funds
The total project cost to construct our Facility and commence operations is
currently estimated to be approximately $225,000,000. To date, we have planned
to finance the construction of the Facility with a combination of equity and
debt capital. We initially raised equity from our seed capital investors and
completed a secondary private offering in March 2006. We intend to draw on our
debt financing under the terms of the Credit Agreement and the Bridge Loan. We
have also received grant income from the USDA and a loan from the IDED. The
following schedule sets forth the sources of funds from our equity offering
proceeds and our debt financing proceeds and grants:
20
Source of Funds Amount Percent of Total
Equity:
Member Equity (Seed Capital Offerings) $ 1,650,000 0.74 %
Member Equity (Secondary Offering) $ 74,004,000 32.94 %
Other:
Interest, Grant and Other Income $ 3,881,400 1.72 %
Total Equity and Other $ 79,535,400 35.40 %
Debt:
Credit Facility $ 111,000,000 49.40 %
Bridge Loan $ 34,100,000 15.20 %
Total Debt $ 145,100,000 64.60 %
------------------------------------------------------------------------------------------------------------------
Total $ 224,635,000 100 %
Other Income
In addition to our equity financing, the Credit Agreement and the Bridge
Loan, we have earned interest, rent, grant and other income of $51,000, $93,065
and $3,821,000 for the three-month periods ending December 31, 2008 and December
31, 2007, and from date of inception, respectively. We had significant interest
income from equity contributions prior to construction of the plant. The
remainder of the income was from the USDA grant discussed below.
Debt Financing
In May 2007, we closed on our debt financing with AgStar as agent for the
Lenders. Our debt financing is principally governed by the Credit Agreement with
the Lenders, along with other agreements, which were amended March 7, 2008 in
connection with the Bridge Loan. The Credit Agreement provides for an
$111,000,000 construction loan which is convertible into a term loan (the
"Construction Loan"), at a variable interest rate of LIBOR (the London Interbank
Offered Rate) plus 3.65%. The Credit Agreement requires that we make monthly
principal payments commencing seven months following the date the Construction
Loan converts to a term loan (60 days after completion of construction of the
Facility) (the "Conversion Date"). On the Conversion Date, the Credit Agreement
provides that the Construction Loan will be converted into a term loan of up to
$101,000,000 (the "Term Loan") and a term revolving loan of up to $10,000,000
(the "Term Revolver"); and up to 50% of the outstanding Construction Loan can be
converted to a fixed rate term loan ("Fixed Rate Loan"). In addition, the Credit
Agreement provides for a revolving line of credit of approximately $15,000,000
(the "Revolving Line of Credit"). The Revolver provides for a variable interest
rate of LIBOR plus 3.45%. Finally, the Credit Facility provides for a loan up to
$1,000,000 on a revolving basis (the "Swingline Revolver"). Under the terms of
the First Amendment to the Credit Agreement, the Company's lenders waived any
and all covenant violations or events of default as of March 7, 2008 arising out
of or related to increased project costs.
In addition to all other payments due under the Credit Agreement, we also
agreed to pay, beginning at the end of the third fiscal quarter after the
Conversion Date, the amount equal to 65% of our Excess Cash Flow (as defined in
the Credit Agreement), up to a total of $4,000,000 per year, and $16,000,000
over the term of the Credit Agreement. Such payment will be applied to the
outstanding principal of the Term Loan (once funded), and will not be subject to
the prepayment fee. The prepayment fee is due if the Construction Loan or Term
Loan is paid in full within 24 months after the Conversion Date. We also agreed
to pay to each Lender, annually, a letter of credit fee equal to 150 basis
points of each Lender's maximum amount available to us under its letter of
credit. We will pay a commitment fee of 35 basis points per year of the unused
portion of each Lender's Revolving Commitment, as defined in the Credit
Agreement, and payable in arrears in quarterly installments. The repayment of
any loan will be made to the Lenders pro rata based on each Lender's
contribution to the total outstanding principal of that loan.
21
In December 2008, we issued a Letter of Credit in the favor of MidAmerican
Energy in the amount of $3,300,000 as required by our steam agreement. This
Letter of Credit was issued against our Revolving Line of Credit and reduces the
availability of our $15,000,000 seasonal revolving line of credit to
$11,700,000.
Governmental Programs
• IDED: We entered into the IDED Contract, which provides for financial
assistance from IDED. The awards granted under the IDED Contract can be reduced
or terminated if there is a change in the IDED revenues appropriated to us under
the Master Contract or for any other reason beyond IDED's control. All amounts
of financing received from IDED will be spent on the construction of our
Facility. As part of the Master Contract, we granted to IDED a second position
security interest in all of our assets, and a first position security interest
in our rolling stock valued at $200,000. We covenant to (i) maintain our
business and Facility in Iowa, (ii) create certain numbers of jobs, based on the
job category (the "Job Requirement"), (iii) provide certain benefits, (iv)
complete the Facility and comply with performance requirements regarding its
completion, (v) maintain our properties in a condition of good repair, (vi) pay
all taxes, assessments and fees, and (vii) insure our risks as any person
similarly situated would. We agree to provide reports including a mid-year
status report, an end-of-year status report, an end of project report, and an
end of job maintenance period report. Additionally, we agreed to not be a party
to any merger or consolidation, we agree to not sell, transfer, or lease any
property covered by a security interest, and we agreed to not form or acquire
any subsidiaries or transfer any assets pledged as security to any subsidiary.
The Master Contract contains standard events of default, and in addition
declares an event of default when we are subject to any judgment in excess of
$100,000, in the aggregate.
The IDED Contract contains a VAAPFAP Funding Agreement ("VA Funding
Agreement"), which provides us with an interest-free loan of $100,000, payable
over 60 months, and a $100,000 forgivable loan, payable over 36 months. The
forgivable loan is only due if IDED determines that we failed to comply with the
terms of the VA Funding Agreement and the IDED Contract. In addition to the
requirements for funding under the IDED Contract, we must also provide evidence
that we have access to steam energy from MidAmerica Energy's plant to replace
natural gas before we will receive funds under the VA Funding Agreement. In the
event we fail to meet our Job Requirement, IDED can either require full
repayment of the loan or repayment on a pro rata basis. If we fail to meet our
Job Requirement, the forgivable loan will be forgiven on a pro rata basis, with
the remaining balance being amortized over a two year period and carrying a 6%
interest rate, due from the first day of disbursement of the shortfall amount.
We have signed two promissory notes, each for $100,000, covering the loans
provided for under the VA Funding Agreement. The VA Funding Agreement terminates
upon (i) IDED determining we have fully met all of the requirements of the VA
Funding Agreement, including repayment, (ii) an event of default, (iii) lack of
any distribution under the VA Funding Agreement within 24 months of the award
date, or (iv) mutual agreement.
The IDED Contract also contains a High Quality Job Creation Program Funding
Agreement ("HQJCP Funding Agreement"). Under the HQJCP Funding Agreement, we are
allowed to claim an investment tax credit ("Tax Credit") of up to 5% (with a
maximum of $6,922,308) of our qualifying expenses directly related to new jobs
created by the start-up, location, expansion, or modernization of our Facility,
we are eligible for a refund of sales, service, and use taxes we pay to
contractors or subcontractors, and we are eligible for a value-added tax
exemption. Under the HQJCP Funding Agreement, we must create 45 new high quality
jobs. These new jobs must be created within five years of Facility completion
and must be maintained for at least two years thereafter. We also agree to make
a qualifying investment of $141,331,160 toward the purchase and construction of
our Facility. Additionally, we must (i) offer our new employees a pension or
profit sharing plan, (ii) create a high value-added good or service in
"Value-Added Agriculture" (one of Iowa's target industries), (iii) provide
employees 90% of the cost of medical and dental insurance, and (iv) have active
productivity and safety programs. If we fail to create the number of required
jobs, then we will be required to repay these tax benefits pro rata to the
percent of jobs we failed to create over the number of jobs we are required to
create. If we fail to meet the four requirements above for two years in a row,
then we forfeit all tax benefits we receive under the HQJCP Funding Agreement.
If we sell or dispose of any building, land, or structure that has received tax
incentives under this program, then our tax liability will be increased as
outlined in the HQJCP Funding Agreement. In the event we layoff employees or
close our Facility prior to receiving any tax benefits, the benefits may be
reduced or terminated by IDED. The HQJCP Funding Agreement terminates upon (i)
IDED determining we have fully met all of the requirements of the HQJCP Funding
Agreement, including repayment, (ii) an event of default, (iii) lack of any
distribution under the HQJCP Funding Agreement within 24 months of the award
date, or (iv) mutual agreement.
22
• USDA: We entered into a Value-Added Agricultural Product Market Development
(VAPG) Grant Agreement ("Grant Agreement") with the United States of America,
dated November 3, 2006. We received a grant of $300,000 for payment of (i)
administrative staff salaries during construction and start-up, (ii) the rental
of temporary office space, and (iii) permanent staff salaries for three months.
As a condition to receiving the grant, we agreed to contribute at least $300,000
of our own money to be spent at an equal or greater rate than the Grant
Agreement funds. We also agree to maintain a financial management system and
receive payment in accordance with federal regulations. Additionally, we agreed
to comply with certain bonding coverage, audit and reporting obligations.
Finally, we agreed to comply with federal regulations concerning property,
procurement and records access. The Grant Agreement expired September 30, 2008.
Uses of Funds
The following table describes the estimated use of our offering and debt
financing proceeds. The figures are estimates only, and the actual uses of
proceeds may vary significantly from the descriptions given below.
Estimated Uses of Funds Amount Percent of Total
Plant Construction $ 119,161,000 53.1 %
Other Construction $ 65,635,000 29.2 %
Land and Site Development $ 10,331,000 4.6 %
Site Utilities, Fire Protection and Water Supply $ 3,893,000 1.7 %
Rolling Stock $ 1,450,000 0.6 %
Administration Building, Computer Systems and Furnishings $ 1,140,000 0.5 %
Rail line $ 12,544,000 5.6 %
Construction Insurance $ 443,000 0.2 %
Equity and Debt Financing Expenses+ $ 2,414,000 1.1 %
Organizational $ 5,424,000 2.4 %
Start-Up $ 2,200,000 1.0 %
- -----------------------------------------------------------------------------------------------------
Total $ 224,635,000 100 %
+ Does not include additional expenses we may incur to raise additional
equity as discussed elsewhere in this report.
The ICM Contract provides for a fixed fee of $118,000,000 to build the
primary portions of our Facility. In 2008, we executed ten change orders under
the ICM Contract in the amount of $30,519,000. These change orders were for
items outside of the scope of the ICM Contract and therefore were time and
material based items instead of fixed price. Through December 31, 2008, the
Company has incurred approximately $144,520,000 for construction services under
the ICM Contract, leaving $4,000,000 of future commitment, which we expect to
pay in 2009. The Standard Form of Design-Build Agreement and General Conditions
Between Owner and Contractor dated December 18, 2006, between us and Todd &
Sargent, Inc. ("T&S"), provides for a fee, subject to change orders, of
approximately $9,661,000 to design and construct a 1,000,000 bushel grain
receiving and storage facility and Distillers Grain storage facility, which work
is completed. Through December 31, 2008, we have paid T&S $9,641,000, leaving a
balance of $20,000 in future commitments.
Summary of Critical Accounting Policies and Estimates
Note 1 to our condensed 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 management's 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.
23
Application of Critical Accounting Estimates
Management uses estimates and assumptions in preparing our financial
statements in accordance with accounting principles generally accepted in the
United States. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. We do not believe that any of the
significant accounting policies described in the notes to the financial
statements are critical at this time; however we expect to continue to review
our accounting policies as we commence operation of our ethanol plant in order
to determine if any of these accounting policies are critical.
Market Risks
We engage in hedging transactions which involve risks that could harm our
business. We are exposed to market risk from changes in commodity prices.
Exposure to commodity price risk results from our dependence on corn and natural
gas in the ethanol production process. We seek to minimize the risks from
fluctuations in the prices of corn and natural gas through the use of hedging
instruments. The effectiveness of our hedging strategies is dependent upon the
cost of corn and natural gas and our ability to sell sufficient products to use
all of the corn and natural gas for which we have futures contracts. There is no
assurance that our hedging activities will successfully reduce the risk caused
by price fluctuation which may leave us vulnerable to high corn and natural
prices. Alternatively, we may choose not to engage in hedging transactions in
the future. As a result, our future results of operations and financial
conditions may also be adversely affected during periods in which corn and/or
natural gas prices increase.
We have a significant amount of debt, and our existing debt financing
agreements contain, and our future debt financing agreements may contain,
restrictive covenants that limit distributions and impose restrictions on the
operation of our business. The use of debt financing makes it more difficult for
us to operate because we must make principal and interest payments on the
indebtedness and abide by covenants contained in our debt financing agreements.
The level of our debt may have important implications on our operations,
including, among other things: (a) limiting our ability to obtain additional
debt or equity financing; (b) making us vulnerable to increases in prevailing
interest rates; (c) placing us at a competitive disadvantage because we may be
substantially more leveraged than some of our competitors; (d) subjecting all or
substantially all of our assets to liens, which means that there may be no
assets left for shareholders in the event of a liquidation; and (e) limiting our
ability to make business and operational decisions regarding our business,
including, among other things, limiting our ability to pay dividends to our unit
holders, make capital improvements, sell or purchase assets or engage in
transactions we deem to be appropriate and in our best interest.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 4. Controls and Procedures.
Our management, including our President and Chief Executive Officer (our
principal executive officer), Mark Drake, along with our Chief Financial Officer
(our principal financial officer), Cindy Patterson, have reviewed and evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15 under the under the Securities Exchange Act of 1934, as amended), as of
December 31, 2008. Based upon this review and evaluation, these officers believe
that our disclosure controls and procedures are effective as of December 31,
2008 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.
The Company has entered into derivatives and inventory management and
transactions. Our management feels we have adequate internal controls over these
activities.
Our management, including our principal executive officer and our
principal financial officer, have reviewed and evaluated any changes in our
internal control over financial reporting that occurred as of December 31, 2008
and there has been no change that has materially affected or is reasonably
likely to materially affect our internal control over financial reporting.
24
PART II
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
3(i) Articles of Organization, as filed with the Iowa Secretary of State on
March 28, 2005 (incorporated by reference to Exhibit 3(i) of Registration
Statement on Form 10 filed by Registrant on January 28, 2008).
3(ii) Second Amended and Restated Operating Agreement dated March 7, 2008
(incorporated by reference to Exhibit 4(i) of Amendment No. 1 to
Registration Statement on Form 10 filed by Registrant on March 21, 2008).
10.1 Lease Agreement dated December 15, 2008 with Bunge North America, Inc.
(incorporated by reference to Exhibit 10.2 of Form 8-K filed by the Company
on December 22, 2008).
10.2 Ethanol Purchase Agreement dated December 15, 2008 with Bunge North
America, Inc. Portions of the Agreement have been omitted pursuant to a
request for confidential treatment (incorporated by reference to Exhibit
10.3 of Form 8-K filed by the Company on December 22, 2008).
10.3 Risk Management Services Agreement dated December 15, 2008 with Bunge North
America, Inc. (incorporated by reference to Exhibit 10.4 of Form 8-K filed
by the Company on December 22, 2008).
10.4 Base Agreement with Cornerstone Energy, LLC d/b/a Constellation Energy
dated August 27, 2008 (incorporated by reference to Exhibit 10.1 of Report
on Form 8-K filed by the Registrant on September 2, 2008).
10.5 Grain Feedstock Supply Agreement dated December 15, 2008 with AGRI-Bunge,
LLC. Portions of the Agreement have been omitted pursuant to a request for
confidential treatment (incorporated by reference to Exhibit 10.1 of Form
8-K filed by the Company on December 22, 2008).
31.1 Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.
31.2 Rule 15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002) executed by the Principal Financial Officer.
32.1 Rule 15d-14(b) Certifications (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.
32.2 Rule 15d-14(b) Certifications (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SOUTHWEST IOWA RENEWABLE ENERGY, LLC
Date: February 17, 2009 /s/ Mark Drake
----------------------------------
Mark Drake, President and
Chief Executive Officer
Date: February 17, 2009 /s/ Cindy Patterson
----------------------------------
Cindy Patterson
Chief Financial Officer
26
