UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-K/A
(Amendment No. 1)
Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2004
Commission file number 0-50711
Northern Growers, LLC
(Exact name of registrant as specified in its charter)
South Dakota |
| 77-0589881 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
48416 144th Street
P.O. Box 356
Big Stone City South Dakota 57216
605-862-7902
(Address of Principal Executive Offices) (Zip Code)
(605) 862-7902
(Issuer’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Capital Units
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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.
ý Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10—K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined under the Exchange Act of Rule 12b-2).
o Yes ý No
As of June 30, 2004, the aggregate market value of the registrant’s Class A capital units held by non-affiliates of the registrant was $23,850,000, computed using the last sales price of $4.00 per Class A capital unit of the registrant’s capital units on June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of the date of this filing, there were 6,328,500 Class A capital units of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-K - Portions of the Proxy Statement for 2005 Annual Meeting of Members.
Explanatory Footnote Regarding Amendment No. 1
Northern Growers, LLC (“Northern Growers,” “we,” “our,” “us,”) is filing this Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2004 (the “Amendment”) to reflect the restatement of its consolidated financial statements for the year ended December 31, 2004. On May 4, 2005, our audit committee concluded that the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 31, 2005, had misclassified under our consolidated statement of operations a $1.4 million credit. Specifically, we misclassified as other income, rather than as a reduction in cost of revenues, a $1.4 million settlement credit received by Northern Lights Ethanol, LLC (“Northern Lights”), our majority-owned subsidiary.
The $1.4 million settlement credit was issued to Northern Lights in November 2004 by Big Stone Plant, the adjacent power plant that supplies steam to Northern Lights for its ethanol production process. Big Stone Plant reported to Northern Lights in November 2004 that a metering instrument which it owned and controlled had mistakenly reported the amount of steam that had been transferred to Northern Lights in 2003 and 2004. This error caused Big Stone Plant to overcharge Northern Lights for steam used, resulting in an excess steam expense for Northern Lights of $1.4 million in 2003 and 2004. The error was discovered only after Northern Lights initially questioned Big Stone Plant in March 2003 on the volume of steam reportedly being used in the production process, compared to the volume required for production. Testing by Big Stone Plant at the time and through 2004 failed to reveal the metering error until November 2004. In an effort to resolve the overcharge, Big Stone Plant notified Northern Lights that a credit would be issued, which Northern Lights agreed to accept.
The restatement will not affect our consolidated balance sheet, statements of cash flows, statements of members’ equity or net income for the year ended December 31, 2004, as the $1.4 million credit will be only reclassified from other income to a reduction of cost of revenues.
A discussion of the restatement is set forth in Note 13 to the Consolidated Financial Statements included in this Amendment. Changes also have been made to the following items in this Amendment as a result of the restatement:
Part II
• Item 6 Selected Financial Data (page 3).
• Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation (pages 4 to 11).
• Item 8 Financial Statements and Supplementary Data (pages F-1 to F-23).
• Item 9A Controls and Procedures (pages 13 to 14).
Items filed in the original Form 10-K that are not impacted by the restatement are not included in this Amendment.
Part IV
• Item 15 Exhibits, Financial Statement Schedules (pages F-1 to F-23).
This Amendment does not reflect events that have occurred after March 31, 2005, the date upon which the Annual Report on Form 10-K was originally filed with the Securities and Exchange Commission. Accordingly, this Amendment should be read in conjunction with our filings with the Securities and Exchange Commission subsequent to the filing of the original Form 10-K on March 31, 2005.
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Item 6. Selected Financial Data.
The following table sets forth selected financial data of Northern Growers, LLC and our predecessor cooperative for the periods indicated. The audited financial statements included in Item 8 of this report have been audited by our independent registered public accounting firm, Eide Bailly LLP.
|
| 2004 |
| 2003 |
| 2002 (1) |
| |||
Statement of Operations Data: |
|
|
|
|
|
|
| |||
Revenue |
| $ | 86,587,585 |
| $ | 70,857,262 |
| $ | 32,756,935 |
|
Cost of Revenues |
| $ | 72,729,131 |
| $ | 58,920,917 |
| $ | 24,674,714 |
|
Cost of Revenues—Settlement Credit (2) |
| $ | (1,449,248 | ) | — |
| — |
| ||
Gross Profit |
| $ | 15,307,702 |
| $ | 11,936,345 |
| $ | 8,082,221 |
|
General and Administrative Expense |
| $ | 2,984,238 |
| $ | 2,739,136 |
| $ | 1,352,524 |
|
Income from Operations |
| $ | 12,323,465 |
| $ | 9,197,209 |
| $ | 6,072,565 |
|
Interest Expense |
| $ | 1,500,438 |
| $ | 1,847,108 |
| $ | 963,714 |
|
Minority Interest in Subsidiary Income |
| $ | (2,528,026 | ) | $ | (1,770,430 | ) | $ | (1,229,452 | ) |
Net Income |
| $ | 8,371,332 |
| $ | 5,611,068 |
| $ | 3,880,017 |
|
Capital Units Outstanding |
| $ | 6,328,500 |
| $ | 6,328,500 |
| $ | 6,328,450 |
|
Net Income per Capital Unit |
| $ | 1.32 |
| $ | 0.89 |
| $ | 0.61 |
|
Cash Distributions declared per Capital Unit |
| $ | 0.95 |
| $ | 0.79 |
| $ | 0.00 |
|
|
|
|
|
|
|
|
| |||
Balance Sheet Data: |
|
|
|
|
|
|
| |||
Working Capital |
| $ | 560,046 |
| $ | 194,176 |
| $ | 5,718,766 |
|
Net Property, Plant & Equipment |
| $ | 40,885,963 |
| $ | 41,735,733 |
| $ | 43,016,408 |
|
Total Assets |
| $ | 54,678,507 |
| $ | 53,786,201 |
| $ | 59,031,879 |
|
Long-Term Obligations |
| $ | 16,387,498 |
| $ | 20,053,377 |
| $ | 27,858,349 |
|
Minority Interest |
| $ | 5,715,325 |
| $ | 5,014,499 |
| $ | 4,899,960 |
|
Members Equity |
| $ | 19,446,001 |
| $ | 17,067,695 |
| $ | 16,280,448 |
|
Book Value per Capital Unit |
| $ | 3.07 |
| $ | 2.70 |
| $ | 2.57 |
|
(1) The year 2002 represents only a partial year of operations, as the ethanol plant commenced production in late June 2002. The financial information in the table also includes audited financial data of our predecessor cooperative prior to the effectiveness of the reorganization into a limited liability company on April 1, 2003.
(2) See Note 11 to the Consolidated Financial Statements.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
You should read the following discussion along with the audited financial statements and notes to the audited financial statements included elsewhere in this report. This report contains forward-looking statements, including, but not limited to, those under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Liquidity and Capital Resources,” involving future events, future business and other conditions, our future performance, and expected operations. These statements are based on management’s beliefs and expectations and on information currently available to management. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions.
Forward-looking statements involve numerous assumptions, risks and uncertainties. Northern Lights’ actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. While we believe that these statements are accurate, this business is dependent upon general economic conditions and various conditions specific to the industry and future trends and these factors could cause actual results to differ materially from the forward looking statements that have been made. In particular,
• The ethanol industry is increasingly competitive, with additional plants in operation, under construction, or in the planning stages. With additional plants coming on line, the supply of ethanol will increase, which, if the demand does not grow accordingly or is unaided by government policies and programs like a federal Renewable Fuels Standard, could adversely impact the price of ethanol and Northern Lights’ operating results.
• The ethanol industry and Northern Lights’ operating income may be adversely impacted by a decrease in or termination of government subsidies and other forms of financial incentives; a termination of government environmental and tax policies that encourage the production and use of ethanol; or, the prevention of new government policies and programs that encourage the use of ethanol.
• The ethanol industry and Northern Lights’ business are sensitive to corn and natural gas prices. When corn and natural gas prices increase Northern Lights’ operating results may suffer. When corn and natural gas prices fluctuate significantly, Northern Lights’ cost of revenues and its operating results may be adversely affected by the use of derivative instruments under its risk management program.
• The ethanol industry and Northern Lights may be subject to additional regulation, such as environmental restrictions, or regulatory action, which could include fines, penalties, or injunctive relief as a result of any potential excessive emissions, which could result in an increase in costs and capital expenditures.
• Northern Lights is dependent upon Broin Management, LLC to manage the day-to-day activities of the plant, and upon Broin-related entities to purchase and market the ethanol and distiller’s grains produced at the plant, and for risk management services. If any of these entities cease providing services to Northern Lights, the plant’s operations will be adversely affected.
4
We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results or performance or what future business conditions will be like. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.
Overview
Northern Lights is engaged in the production of fuel-grade ethanol and distillers grains. Corn is supplied to Northern Lights’ plant from our members who are primarily local agricultural producers, and from purchases of corn on the open market. After processing the corn into ethanol, ethanol is sold to Ethanol Products, LLC, a Broin affiliate, which subsequently markets and sells the ethanol to gasoline blenders and refineries located throughout the continental United States. The price that Northern Lights receives from the sale of ethanol to Ethanol Products is based upon the price that Ethanol Products sets with its customers. Distiller’s grains are sold through Dakota Gold Marketing, another Broin affiliate, which markets and sells the product to local livestock feeders.
Northern Lights’ operating income or loss is significantly tied to the price at which ethanol and distiller’s grains are sold. Historically, the price of ethanol tends to fluctuate in the same direction as the price of unleaded gasoline and other petroleum products. Surplus ethanol supplies also tend to put downward price pressure on ethanol. In contrast, the price of distiller’s grains tends to fluctuate based on the price of substitute livestock feed, such as corn and soybean meal. Surplus grain supplies also tend to put downward price pressure on distiller’s grains.
Northern Lights Ethanol’s cost of revenues, which includes production expenses, is significantly affected by the cost of corn, natural gas and steam. In 2004, for instance, the cost of corn was approximately 65% of total cost of revenues, including the settlement credit, whereas the cost of natural gas and steam was approximately 14% of total cost of revenues. Comparatively, in 2003, the cost of corn was approximately 58% of cost of revenues, while the cost of natural gas and steam was approximately 13% of cost of revenues. The cost of corn is affected primarily by supply and demand factors such as crop production, world carryout, exports, risk management and weather, much of which Northern Lights has no control. Natural gas prices generally fluctuate with the energy complex. Over the last few years, natural gas prices have been higher than historical averages, with management expecting this trend to continue due to higher prices for crude oil and other alternative fuels.
The 2004 year started with very strong earnings, only to see earnings fall in the middle of the year, followed by a strong earnings recovery at the end of the year. The principal cause for these fluctuations was the price volatility of corn, which proved to be significantly greater than in 2003. Earnings fell during the spring when corn prices increased to near record highs. Fears of a wet spring and a decrease in corn production were the principal causes for the increase, although Northern Lights’ risk management program mitigated some of the increase. As the year progressed through the summer and early fall, corn prices actually declined due to a forecasted record corn crop. Unfortunately, when prices declined during this period, risk management had an adverse impact on cost of revenues and therefore earnings. During the fourth quarter, however, with a return of extremely low and stable prices for corn and a continuation of higher prices for ethanol, earnings made a full recovery.
While 2004 was marked by significant price volatility of corn, it was also marked by several positives. Earnings at Northern Lights increased by approximately $2.7 million from 2003 due to strong ethanol sales and a $1.4 million settlement credit received from Big Stone Plant. Further, total ethanol production at the plant increased due to additional improvements made to the plant. Total production was 47.4 million gallons in 2004, compared to 43.6 million gallons in 2003 and, for the first six months of production, 20.5 million gallons in 2002.
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Management’s outlook for 2005 is relatively positive. The first quarter began with relatively high ethanol prices and stable and low corn costs, which we expect to continue going into the second quarter and positively impact earnings during these quarters. There is less certainty, however, about earnings potential during the last two quarters. As spring approaches, price volatility of corn may return to the markets, particularly in anticipation of a new corn crop. Unless there is a plentiful corn crop in 2005, like in 2004, the price of corn may increase and lead to an increase in production costs. Further, unless demand for ethanol continues to increase and new markets for ethanol open up through passage of a federal Renewable Fuels Standard bill or other means, the price of ethanol may be adversely impacted by a potential surplus of ethanol. Approximately 700 million new gallons of ethanol are slated to enter the market by the end of 2005, some of which may not be absorbed unless new markets in the United States are developed. If ethanol prices decrease, Northern Lights’ earnings may suffer.
Results of Operations
Northern Lights started operations on July 5, 2002 and began operating at full name-plate capacity in August, 2002. Accordingly, there is no comparable income and sales data for the year ended December 31, 2002.
Comparison of years ended December 31, 2004 and December 31, 2003.
|
| Year Ended December 31, |
| ||||||||
|
| 2004 |
| 2003 |
| ||||||
|
| $ |
| % |
| $ |
| % |
| ||
Revenue: |
|
|
|
|
|
|
|
|
| ||
Ethanol |
| $ | 68,501,969 |
| 79% |
| $ | 51,913,676 |
| 73% |
|
Distiller’s Grains |
| $ | 16,486,472 |
| 19% |
| $ | 13,643,646 |
| 19% |
|
Incentive |
| $ | 1,599,144 |
| 2% |
| $ | 5,299,940 |
| 7% |
|
Total |
| $ | 86,587,585 |
| 100% |
| $ | 70,857,262 |
| 100% |
|
Revenues-Revenue increased $15.7, or 22%, to $86.6 million for the year ended December 31, 2004 from $70.9 million for the year ended December 31, 2003. Total revenues increased primarily because of an increase in ethanol revenue.
Revenue from the sale of ethanol increased 32% from the year ended December 31, 2003 to the year ended December 30, 2004. The increase was due primarily to a 24% increase in the average sales price per gallon of ethanol along with a 7% increase in the volume of ethanol sold. The price increase was mainly attributable to higher prices of unleaded gasoline and a strong demand for ethanol. The increase in volume sold was facilitated by an increase in production volumes, caused primarily from an improvement in plant efficiencies.
Revenue from the sale of distiller’s grains increased approximately 21% from the year ended December 31, 2003 to the year ended December 31, 2004. The increase was due primarily to a 17% increase in the volume of distiller’s grains sold, resulting from an increase in production at the plant.
Total incentive revenues from federal and state government incentive programs decreased by 70% from the year ended December 31, 2003 to the year ended December 31, 2004. Incentive revenue consists of income received from federal and state governments in connection with Northern Lights’ ethanol production. The incentive revenue from the United States Department of Agriculture’s Commodity Credit Corporation Bioenergy Program decreased $3.2 million, or 77%, to $900,000 for the year ended December 31, 2004 from
6
$4.1 million for the year ended 2003. The decrease was due primarily to how the payments are structured and made under the program. Payments are based principally on the increase in gallons of ethanol produced compared to the prior year’s production. Because 2002 was Northern Lights’ first year of production, the plant had the largest increase in production from the prior year. Between 2004 and 2003, the plant had a far smaller increase in production which, accordingly, led to less incentive revenue being earned. Management anticipates receiving less under this program in 2005 compared to 2004 because the plant is not expected to experience a significant increase in production from last year to justify an increase in payment, and Congress has reduced funding for the program from $150 million to $100 million in 2005.
Incentive revenue from the state of South Dakota incentive program decreased $518,000, or 44%, to $667,000 from the year ended December 31, 2003 to the year ended December 31, 2004. The decrease was due to an earlier than anticipated depletion of funds allocated to the program in the 2004 program year (July 1, 2003 to June 30, 2004). While funds allocated to this program have increased in the 2005 program year and are expected to increase in the 2006 program year, it is uncertain whether the funds allocated to this program will be depleted before the end of these program years, much of which is dependent upon the production levels of all plants operating in South Dakota during these periods.
Cost of Revenues-Total cost of revenues increased $12.4 million, or 21%, to $71.3 million for the year ended December 31, 2004 from $58.9 million for the year ended December 31, 2003. The total cost of revenues for the year ended December 31, 2004 includes the $1.4 million settlement credit received from the Big Stone Plant in November, 2004, discussed below, which decreased the cost of revenues and offset the overall cost of revenues’ increase. Excluding the settlement credit, the cost of revenues increased $13.8 million, or 23%, to $72.7 million for the year ended December 31, 2004. The $13.8 million increase in the cost of revenues resulted primarily from a 34% increase in the overall cost of corn. The increase in the cost of corn was caused by an approximately 11% increase in the market price of corn per bushel from the year ended December 31, 2003 to the year ended December 31, 2004 and the risk management program in 2004.
In terms of risk management in 2004, the use of corn hedging instruments relative to the price fluctuation of corn in 2004 was a contributing factor for the increase in cost of corn. Gains and losses that result from a change in value of corn and natural gas hedging instruments are recognized in cost of revenues as the changes occur. For the year ended December 31, 2004, cost of revenues includes losses of $3.5 million from the use of corn derivative instruments, up from a $100,000 gain in 2003. These losses were caused by the fluctuations in the price of corn in 2004. At the end of 2003, Northern Lights increased its use of corn hedging instruments and positions to protect against the market price forecasts for corn. Those forecasts predicted higher prices for corn because of low world carryout prior to the growing season, decreased production, and drought. As the year progressed, however, and it became apparent that corn production would be much higher than expected, the original market forecasts proved incorrect and the market price of corn actually declined. When the market price declined, the value of the corn derivative instruments fell which led to an increase in cost of revenues.
At least for the first half of 2005, management does not anticipate the same or similar impact on cost of revenues from the risk management program. Because of the record corn crop in 2004 and higher than anticipated world corn carryout, the market conditions for corn are expected to be positive, namely lower prices for corn and less price volatility. For the second half of 2005, however, while management believes the market will remain positive, conditions could alter the stability of the market and use of hedging instruments, therefore increasing the potential for losses under the risk management program.
Cost of Revenues-Settlement Credit-In November 2004, Big Stone Plant, the plant which supplies steam to the ethanol plant for the production process, issued to Northern Lights a $1.4 million credit. The credit was issued after Big Stone Plant determined that a metering instrument it owned and controlled had erroneously reported the volume of steam that had been transferred to Northern Lights in 2003 and 2004. As a result of this
7
error, Big Stone Plant overcharged Northern Lights for the transfer and use of steam in 2003 and 2004. Big Stone Plant’s realization of the metering error was the result of an informal dispute between Northern Lights and Big Stone Plant when, in March 2003, Northern Lights questioned Big Stone Plant about the reported volume of steam that had been used and transferred to Northern Lights. Big Stone Plant, after conducting several tests and analyses, believed the volume reports were accurate until the fall of 2004, when it discovered that the metering instrument had been miscalibrated. In an effort to resolve the steam overcharge, Big Stone notified Northern Lights in November 2004 that a $1.4 million settlement credit would be issued, which Northern Lights agreed to accept.
General and Administrative Expenses-General and administrative expenses increased $250,000, or 9%, to $2.98 million for the year ended December 31, 2004 from $2.73 million for the year ended 2003. The increase in general and administrative expenses was primarily the result of increased management fees and employee profit-sharing costs during the year, which are both based on the increased profitability of Northern Lights.
Interest Expense-Interest expense decreased $350,000, or 19%, to $1.5 million for the year ended December 31, 2004 from $1.85 million for the year ended 2003. The decrease in interest expense was primarily due to a $3.7 million reduction in outstanding debt from December 31, 2003 to December 31, 2004.
Minority Interest in Subsidiary-Minority interest in subsidiary increased $750,000, or 43%, to $2.52 million for the year ended December 31, 2004 from $1.77 million for the year ended 2003. The increase in minority interest was the result of an increase in net income.
Net Income-Net income increased $2.8 million to a net income of $8.4 million for the year ended December 31, 2004 from a net income of $5.6 million for the year ended December 31, 2003. This change was caused primarily by, as discussed above, an increase in ethanol revenues and the settlement credit received from the Big Stone Plant.
Liquidity and Capital Resources
The following table shows the cash flows between the year ended December 31, 2004 and the year ended December 31, 2003:
|
| Year Ended December 31 |
| ||||
|
| 2004 |
| 2003 |
| ||
|
| $ |
| $ |
| ||
Net cash from operating activities |
| $ | 11,122,960 |
| $ | 13,182,320 |
|
Net cash (used for) investing activities |
| $ | (2,050,295 | ) | $ | (1,128,154 | ) |
Net cash (used for) financing activities |
| $ | (8,437,658 | ) | $ | (13,766,313 | ) |
Cash Flow From Operating Activities-The decrease of approximately $2.1 million in net cash flow provided from operating activities between 2003 and 2004 was due to an increase in net income between periods, offset by a decrease in accounts receivable outstanding in 2004 and a change in corn payable. Accounts receivable decreased in 2003 because of substantial payments received from the incentive programs, compared to an increase in 2004 when incentive programs provided less cash. Corn payable increased in 2003 because more agricultural producers at the end of 2003, compared to the end of 2004, elected to defer payment to 2004 for delivering corn to the plant.
Cash Flow From Investing Activities-The increase of approximately $920,000 in net cash flow used for investing activities between periods was attributed to an increase in capital improvement projects at the plant from $1.13 million in 2003 to $2.05 million in 2004. The capital improvement projects in 2004 consisted of
8
general improvements to property, plant and equipment, including dryer and electrical systems.
Management anticipates making at least $1.1 million in capital expenditures on the plant in 2005. The largest capital expenditure will be for a rail expansion project at the plant, costing $1.1 million and financed by US Bank. The project consists of adding an additional track line to improve the transportation of ethanol and distiller’s grains by railcar. Details of the US Bank financing are further discussed below under “Indebtedness.”
Cash Flow From Financing Activities-The decrease of approximately $5.3 million in net cash used for financing activities between periods was due principally to a $5.0 million payment on the variable-rate, revolving note in 2003, and $770,000 of additional excess cash flow payments in 2003 on the fixed-rate note. Principal paid on the fixed-rate note relative to required excess cash flow payments totaled $1,695,000 during 2003 and $925,708 during 2004.
Management anticipates in the next 12 months having sufficient cash flows from operating activities and revolving debt to fund working capital and to cover operating and administrative expenses, capital expenditures (other than the rail expansion project), and debt service obligations.
Indebtedness
US Bank National Association of Sioux Falls, South Dakota, is Northern Lights’ primary lender. Prior to entering into a refinancing agreement on March 30, 2005, Northern Lights had four loans outstanding with US Bank National Association: a $15 million fixed rate note, a $11.1 million variable-rate non-revolving note, a $5 million variable-rate, revolving note, and a $1.2 million note. The fixed and variable notes were obtained under a Loan Agreement dated July 11, 2001 and amendments dated January 1, 2003. The $1.2 million note was obtained separately on May 1, 2003.
The $15 million fixed-rate note bore 6.95% interest annually and required equal quarterly payments of approximately $521,000 with a balloon payment due on December 31, 2007. There was a prepayment penalty if Northern Lights prepaid the loan prior to its maturity by any means other than the mandated prepayments calculated based on Northern Lights’ excess cash flow under the Loan Agreement. Under the Loan Agreement, Northern Lights was required to prepay US Bank a portion of the principal of the loan by May 1 of each year in an amount equal to 15% of the excess cash flow but not more than 20% of the outstanding principal balance of the loan. The Loan Agreement defined excess cash flow as the net income of Northern Lights before deductions for depreciation and amortization less expenditures for fixed and capital assets not financed by debt, required principal payments including capitalized lease obligations, and interest expense. Excess cash flow payments of $425,708 were made for the year ended December 31, 2004 compared to payments of $1,695,000 for the year ended December 31, 2003. In addition to the excess cash flow payments, a total of $1,293,715 in principal payments was made on the fixed rate note during the year ended December 31, 2004, compared to principal payments of $1,129,142 during the year ended December 31, 2003. The outstanding principal balance on this note was $9,956,435 as of December 31, 2004.
The $11.1 million variable-rate, non-revolving note bore interest at 1.00% over US Bank’s prime rate. This note required quarterly payments of interest and amortized principal on the basis of a ten-year term. This note was due on December 31, 2007. As of December 31, 2004, Northern Lights’ variable rate was 6.25%. Principal payments of $1,236,072 were made on the variable-rate note during the year ended December 31, 2004, compared to principal payments of $1,152,732 made in the year ended December 31, 2003. The outstanding principal balance on this note was $8,711,196 as of December 31, 2004.
The $5 million variable-rate, revolving note bore interest at 1.00% over US Bank’s prime rate, required quarterly interest-only payments, and was due on December 31, 2007. The revolving feature permits Northern Lights to re-borrow in multiples of $100,000 on a revolving basis, the difference between the unpaid principal
9
amount on the note and $5 million. Northern Lights paid an unused commitment fee of 0.5% per year that was assessed quarterly on any funds not borrowed under the note. As of December 31, 2004, the rate was 6.25%, compared to a rate of 5.0% as of December 31, 2003. The unpaid principal balance was $0.00 as of December 31, 2004 and as of December 31, 2003.
Northern Lights is required to provide US Bank with audited annual and unaudited quarterly financial statements. In addition, minimum debt service coverage ratios, minimum working capital, minimum tangible net worth, a maximum capital expenditure limitation and other standard negative and affirmative covenants are required. The calculation of minimum working capital includes the amount US Bank is allowed to loan Northern Lights under the $5 million variable rate, revolving note. If an event of default occurs, as defined in the Loan Agreement, US Bank may terminate the Loan Agreement and declare the entire amount immediately due and owing. Events of default under the Agreement include failure to make payments when due or violation of one or more of the Agreement’s covenants. All of Northern Lights’ tangible and intangible property, including its leasehold interest, easement rights, improvements, equipment, personal property, and contracts, serve as the collateral for the debt financing secured by US Bank. Management believes that Northern Lights is in compliance with all covenants and restrictions under its existing Loan Agreement and other agreements with US Bank.
The $1.2 million loan with US Bank was obtained to finance the acquisition and installation of two regenerative thermal oxidizers. Northern Lights paid interest on the outstanding balance at a fixed rate of 5.70% and final payment is due on May 1, 2007. The note is secured by the regenerative thermal oxidizers and a lien on all payments that Northern Lights receives or is entitled to receive under the Bioenergy Program. Northern Lights made $281,964 in principal payments for the year ended December 31, 2004, compared to $434,827 in principal payments for the year ended December 31, 2003. Of the $434,827 in principal payments in 2003, $300,000 was made in conjunction with a refinancing in 2003. The principal balance outstanding on this note was $783,209 as of December 31, 2004.
On March 30, 2005, Northern Lights and US Bank entered into an amended Loan Agreement. The purpose of the agreement was to refinance existing debt and to finance the planned rail expansion project at the plant. Effective March 30th, there will be five loans and notes with US Bank: a $15.8 million fixed rate note; a $3.9 million variable-rate, non-revolving note; a $5 million variable-rate, revolving note; a $3.0 million variable rate, revolving note; and a $1.2 million note. The $15.8 million note and $3.9 million note will retire the original $15.0 million and $11.1 million note and loans. The terms and conditions of the Loan Agreement dated March 30, 2005 remain the same as the original Loan Agreement, as discussed above, except for as stated below.
The $15.8 million fixed rate note bears an interest rate at 6.38%. This note requires quarterly payments of interest and amortized principal of $537,500 on the basis of a ten-year term, the first payment being due on June 30, 2005. The loan is subject to maturity on March 31, 2012.
The $3.9 million variable rate, non-revolving note bears interest at US Bank’s prime rate (currently 5.75%). This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term, the first payment being due on June 30, 2005. The first payment of principal and interest will be $153,600. Like the fixed rate note, the loan matures on March 31, 2012.
The $5 million variable-rate, revolving note bears interest at US Bank’s prime rate and carries an unused commitment fee of 0.375%, assessed quarterly. This note requires quarterly interest-only payments and is subject to a new maturity of March 31, 2012.
The $1.2 million note for the thermal oxidizers now bears interest at a fixed rate of 4.7%, with slightly lower quarterly payments being due until maturity on April 30, 2007.
10
As part of the refinancing, Northern Lights obtained a new $3.0 million variable rate, revolving note. This note requires quarterly interest payments when drawn, the first potential payment starting on June 30, 2005. The maturity on this note is March 31, 2008. The interest rate is equal to US Bank’s prime rate and carries an unused commitment fee of 0.375%, assessed quarterly. The note is tied to the borrowing base and cannot be used until the existing $5 million variable rate, revolving note is fully drawn.
As part of the amended Loan Agreement, some covenants are changed. The amendment increases the minimum working capital requirement from $2 million to $4 million (including the amount US Bank is allowed to loan Northern Lights under the $5 million variable rate, revolving loan); eliminates the 15% excess cash flow payment; changes the fixed charge coverage ratio; and changes the number of allowable distributions to members to more than one each year, provided all other covenants are complied with under the Loan Agreement.
In addition to Northern Lights’ long-term debt, the following table provides information regarding the consolidated contractual obligations of Northern Growers as of December 31, 2004:
|
| Total |
| Less than |
| One to |
| Four to |
| After Five |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-Term Debt Obligations |
| $ | 19,450,840 |
| $ | 3,063,342 |
| $ | 16,387,498 |
| $ | 0 |
| $ | 0 |
|
Capital Lease Obligations |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
| $ | 0 |
|
Operating Lease Obligations |
| $ | 387,115 |
| $ | 2,400 |
| $ | 5,040 |
| $ | 5,040 |
| $ | 374,635 |
|
Purchase Obligations |
| $ | 1,796,604 |
| $ | 403,674 |
| $ | 434,160 |
| $ | 434,160 |
| $ | 524,610 |
|
Total Contractual Cash Obligations |
| $ | 21,634,559 |
| $ | 3,469,416 |
| $ | 16,826,698 |
| $ | 439,200 |
| $ | 899,245 |
|
Off-Balance Sheet Arrangements
We do not use or have any off-balance sheet financial arrangements.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4, “Inventory Pricing” (SFAS No. 151). The Statement amends and clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The statement requires such costs be recognized as current period charges. The statement also requires the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facility. Management has determined that implementation of this pronouncement will not have a material effect on the financial statements.
Critical Accounting Policies and Estimates
Preparation of our financial statements require estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Management continually evaluates these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.
The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating
11
results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.
Of the significant accounting policies described in the notes to the financial statements, we believe that the following may involve a higher degree of estimates, judgments, and complexity.
Commitments and Contingencies. Contingencies, by their nature, relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred, as well as in estimating the amount of the potential expense. In conformity with accounting principles generally accepted in the United States, we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Inventory Valuation. Northern Lights accounts for its corn inventory at estimated net realizable market value. Corn is an agricultural commodity that is freely traded, has quoted market prices, may be sold without significant further processing, and has predictable and insignificant costs of disposal. Northern Lights derives its estimates from local market prices determined by grain terminals in its area. Changes in the market value of corn inventory is recognized as a component of cost of revenues. Ethanol and distiller’s grains are stated at net realizable value. Work-in-process and chemical inventory are stated at an average cost method.
Revenue Recognition. Revenue from the production of ethanol and related products is recorded when title transfers to customers, net of allowances for estimated returns. Generally, ethanol and related products are shipped FOB shipping point. Interest income is recognized when earned.
Revenue from federal and state incentive programs is recorded when we have produced or sold the ethanol and satisfied the reporting requirements under each applicable program. When it is uncertain that we will receive full allocation and payment due under the federal incentive program, we derive an estimate of the incentive revenue for the relevant period based on various factors including the most recently used payment factor applied to the program. The estimate is subject to change as management becomes aware of increases or decreases in the amount of funding available under the federal incentive program or other factors that affect funding or allocation of funds under such program.
Long-Lived Assets. Depreciation and amortization of our property, plant, and equipment is provided on the straight-line method by charges to operations at rates based upon the expected useful lives of individual or groups of assets. Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.
Long-lived assets, including property, plant and equipment, and investments are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. Considerable management judgment is necessary to estimate discounted future cash flows and may differ from actual cash flows.
Accounting for Derivative Instruments and Hedging Activities. Northern Lights enters into derivative instruments to hedge its exposure to price risk related to forecasted corn and natural gas purchases, forward corn purchase contracts and forecasted ethanol sales. It does not typically enter into derivative instruments other than for hedging purposes. All derivative contracts are recognized on the December 31, 2004 and 2003 balance sheets at their fair market value. Currently, none of the derivative instruments are classified as cash-flow hedges for accounting purposes.
On the date the derivative instrument is entered into, Northern Lights will designate the derivative as either (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair
12
value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge) or (3) will not designate the derivative as a hedge. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a fair value hedge, along with the gain or loss on the hedged asset or liability that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of a derivative that is designated as and meets all the required criteria for a cash flow hedge are recorded in accumulated other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings. Changes in the fair value of a derivative that is not designated as a hedge are recorded in current period earnings.
Item 9A. Controls and Procedures.
On May 4, 2005, our audit committee was advised by management of an accounting error in our Form 10-K for the year ended December 31, 2004. The error pertained to the misclassification in the consolidated statement of operations of a $1.4 million settlement credit received in November 2004. Management misclassified the $1.4 million settlement credit as other income, rather than as a reduction in cost of revenues. The credit was issued to Northern Lights after Big Stone Plant, the adjacent power plant that supplies steam to Northern Lights for its ethanol production process, determined that a metering instrument it owned and controlled had erroneously reported the volume of steam that had been transferred to Northern Lights in 2003 and 2004. This error caused Big Stone Plant to overcharge Northern Lights for steam used, resulting in an excess steam expense for Northern Lights of $1.4 million in 2003 and 2004. Big Stone Plant notified Northern Lights of this error in November 2004 and of its desire to issue a credit to resolve the error, which Northern Lights agreed to accept. The reclassification of the $1.4 million settlement credit to cost of revenues will not affect our consolidated balance sheet, statement of cash flow, statement of members’ equity or net income for the year ended December 31, 2004.
Management initially decided to classify the $1.4 million settlement credit as other income to make the disclosure of the settlement credit as transparent as possible in the Form 10-K and in reliance on certain accounting information it believed was applicable. While management believes it achieved the transparency objective by classifying the settlement credit as other income, management now acknowledges that the application of and reliance on the accounting information for purposes of classifying the settlement credit was incorrect. The settlement credit arose from a production or steam expense overcharge in 2003 and 2004. Because cost of revenues includes all production expenses, including steam expense, the credit should have been classified under cost of revenues.
During management’s evaluation of our disclosure controls and procedures relating to the misclassification of the settlement credit, management did not identify any deficiencies. The settlement credit was not made known to and accepted by management until November 2004, as the nature of the informal dispute between Northern Lights and Big Stone Plant between March 2003 and November 2004 precluded management from identifying the error made by Big Stone Plant. Upon acceptance of the settlement credit, management disclosed the settlement credit to all appropriate parties, including our audit committee, disclosure committee, independent registered public accounting firm and legal counsel. Management and these parties then entered into an analysis and discussion on how the credit would affect our consolidated statement of operations and how it should be disclosed and classified in the Form 10-K. Based on this analysis, management decided to classify the settlement credit as other income which, in retrospect, was an incorrect classification. Because management believes classification of the settlement credit went through all of the appropriate channels, parties
13
and analysis before being disclosed, was disclosed as other income primarily to make the settlement credit as transparent as possible in the Form 10-K, and was classified as other income due to a misjudgment, our chief executive officer and management, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), have concluded that our disclosure controls and procedures, as currently constituted, are effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.
During management’s evaluation of our internal controls relating to the misclassification of the settlement credit, however, management identified a deficiency. Management believes that it may lack certain expertise and experience to account for non-recurring transactions, like in the case of the settlement credit. As a result of this deficiency, the following actions will be taken to prevent future reoccurrences:
• When management determines that it may lack the necessary experience and expertise regarding the accounting of certain transactions that are likely to impact materially our consolidated financial statements, management will attempt to seek the consultation of an independent certified public accountant before making any final decision regarding the accounting of such transaction.
• When the audit committee determines that it may lack the necessary experience and expertise regarding the accounting of certain transactions that are likely to impact materially our consolidated financial statements, the audit committee will attempt to seek the consultation of an independent certified public accountant before approving our audited or unaudited consolidated financial statements.
Management and the audit committee intend to monitor the implementation of the above and are prepared to take additional measures where necessary to strengthen internal controls and procedures. Other than the foregoing initiatives, since the date of the chief executive officer’s and management’s evaluation, there have been no material changes in our internal controls over financial reporting, which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:
(1) Consolidated Financial Statements — Reference is made to the “Index to Financial Statements” of Northern Growers, LLC located at page F-1 of this report for a list of the financial statements and schedules for the year ended December 31, 2004 included herein.
(2) All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or notes thereto.
(3) The exhibits we have filed herewith or incorporated by reference herein are set forth on the attached Exhibit Index.
(b) See Item 15(a)(3)
(c) —
14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| NORTHERN GROWERS, LLC | ||
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Date: |
May 26, 2005 |
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/s/ Robert Narem |
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| Robert Narem, Chief Executive Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| NORTHERN GROWERS, LLC | ||
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Date: |
May 26, 2005 |
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/s/ Robert Narem |
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| Robert Narem, Chief Executive Officer and | |
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Date: |
May 26, 2005 |
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/s/ Ronald Anderson |
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| Ronald Anderson, Manager |
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Date: |
May 26, 2005 |
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/s/ Glenn Berdan |
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| Glenn Berdan, Manager |
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Date: |
May 26, 2005 |
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/s/ Dennis Flemming |
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| Dennis Flemming, Manager |
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Date: | May 26, 2005 |
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| Lars Herseth, Manager |
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15
Date: |
May 26, 2005 |
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/s/ Mark Lounsbery |
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| Mark Lounsbery, Manager |
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Date: |
May 26, 2005 |
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| Robert Metz, Manager |
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Date: |
May 26, 2005 |
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/s/ Jeff Olson |
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| Jeff Olson, Manager |
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Date: |
May 26, 2005 |
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/s/ Ronald Olson |
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| Ronald Olson, Manager |
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Date: |
May 26, 2005 |
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/s/ James Peterson |
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| James Peterson, President, Manager |
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Date: |
May 26, 2005 |
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/s/ Delton Strasser |
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| Delton Strasser, Secretary, Manager |
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Date: |
May 26, 2005 |
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/s/ Steve Street |
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| Steve Street, Vice President, Manager |
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Date: |
May 26, 2005 |
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/s/ Gregory Toben |
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| Gregory Toben, Manager |
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Date: | May 26, 2005 |
| /s/ Bill Whipple |
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| Bill Whipple, Manager |
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Date: | May 26, 2005 |
| /s/ Robert Wittnebel |
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| Robert Wittnebel, Manager |
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16
EXHIBIT INDEX
Exhibit |
| Description |
| Filed |
| Incorporated by |
2.1 |
| Plan of Organization |
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|
| Appendix A to Issuer’s Prospectus filed with the Commission on March 17, 2003. |
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3.1 |
| Articles of Organization |
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| Appendix B to Issuer’s Prospectus filed with the Commission on March 17, 2003. |
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3.2 |
| Amendment and Addendum to Operating Agreement dated July 16, 2003 |
|
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| Exhibit 3.3 to the Issuer’s Form 10-KSB filed with the Commission on March 30, 2004. |
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|
|
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4.1 |
| Form of Class A Certificate |
|
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| Exhibit 4.1 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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|
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10.1 |
| Licensing Agreement with Broin and Associates, Inc., dated November 2, 2000 |
|
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| Exhibit 10.2 to the Issuer’s Form S-4 filed with the Commission July 26, 2002. |
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10.2 |
| Management Agreement with Broin Management, LLC, dated November 2, 2000 |
|
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| Exhibit 10.3 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.3 |
| Corn Price Risk Management Agreement with Broin Management, LLC, dated November 16, 2001 |
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| Exhibit 10.4 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.4 |
| Ethanol Marketing and Services Agreement with Ethanol Products, LLC, dated March 5, 2002 |
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| Exhibit 10.5 to the Issuer’s Form S-4/A filed with the Commission on January 8, 2003. |
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10.5 |
| DDGS Marketing Agreement with Dakota Commodities (a/k/a Dakota Gold Marketing), dated April 10, 2002 |
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| Exhibit 10.6 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.6 |
| Loan Agreement with US Bank, dated July 11, 2001 |
|
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| Exhibit 10.7 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.7 |
| Note, Mortgage and Security Agreement, dated July 11, 2001 |
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| Exhibit 10.8 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.8 |
| Lease Agreement with Big Stone — Grant Industrial Development and Transportation, dated April 18, 2001 |
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| Exhibit 10.9 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.9 |
| Steam Sale Agreement with Otter Tail Power Company, dated April 18, 2001 |
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| Exhibit 10.10 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.10 |
| Water and Fuel Oil Agreement with Otter Tail Power Company, dated August 14, 2001 |
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| Exhibit 10.11 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.11 |
| Electric Service Agreement with Otter Tail Power Company, dated September 26, 2001 |
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| Exhibit 10.12 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.12 |
| Water and Sanitary Sewer Agreement with the City of Big Stone City, dated December 21, 2001 |
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| Exhibit 10.13 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.13 |
| Access and Rail Agreement with Otter Tail Corporation, dated April 18, 2001 |
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| Exhibit 10.14 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.14 |
| Industry Track Agreement with Burlington Northern and Santa Fe Railway Company, dated January 8, 2002 |
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| Exhibit 10.15 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.15 |
| Service Request Form and Extended Service Agreement with NorthWestern Public Service, dated March 19, 2002 |
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| Exhibit 10.17 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
17
10.16 |
| Security Agreement and Promissory Note with US Bank, dated June 5, 2002 |
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| Exhibit 10.18 to the Issuer’s Form S-4 filed with the Commission on July 26, 2002. |
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10.17 |
| Security Agreement and Promissory Note with US Bank, dated December 15, 2002 |
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| Exhibit 10.19 to the Issuer’s Form S-4/A filed with the Commission on January 8, 2003. |
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10.18 |
| $15 million Fixed-Rate Note with US Bank, dated January 1, 2003 |
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| Exhibit 10.20 to the Issuer’s Form S-4/A filed with the Commission on January 8, 2003. |
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10.19 |
| $11.1 million Variable-Rate Note with US Bank dated January 1, 2003 |
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| Exhibit 10.21 to the Issuer’s Form S-4/A filed with the Commission on January 8, 2003. |
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10.20 |
| $5 million Revolving Variable-Rate Note with US Bank, dated January 1, 2003 |
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| Exhibit 10.22 to the Issuer’s Form S-4/A filed with the Commission on January 8, 2003. |
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10.21 |
| Mortgage in favor of US Bank, dated December 31, 2002 |
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| Exhibit 10.23 to the Issuer’s Form S-4/A filed with the Commission on January 8, 2003. |
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10.22 |
| Memorandum of Understanding with Broin Enterprises, Inc., dated January 28, 2003 |
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| Exhibit 10.24 to the Issuer’s Form S-4/A filed with the Commission on March 6, 2003. |
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|
|
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10.23 |
| $1.2 million Promissory Note with US Bank, dated May 1, 2003 |
|
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| Exhibit 10.18 to the Registrant’s Form 10-QSB filed with the Commission on August 14, 2003. |
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10.24 |
| Trading Service Agreement with Alerus Securities Corporation dated February 2, 2004 |
|
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| Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on May 17, 2004. |
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10.25 |
| Amendment to US Bank Loan Agreement dated June 22, 2004 |
|
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| Exhibit 10.1 to the Registrant’s Form 10-Q filed with the Commission on August 16, 2004. |
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10.26 |
| Second Amendment to US Bank Loan Agreement dated March 30, 2005 |
|
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| Exhibit 10.26 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005. |
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|
|
|
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|
|
10.27 |
| $15.8 Million Promissory Note with US Bank dated March 30, 2005 |
|
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| Exhibit 10.27 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005 |
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|
|
|
|
|
|
10.28 |
| $3.9 Million Promissory Note with US Bank dated March 30, 2005 |
|
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| Exhibit10.28 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005. |
|
|
|
|
|
|
|
10.29 |
| $3.0 Million Promissory Note with US Bank dated March 30, 2005 |
|
|
| Exhibit 10.29 to the Registrant’s Form 10-K filed with the Commission on March 31, 2005. |
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|
31 |
| Rule 13a-14/15d-14(a) Certifications |
| X |
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|
|
|
|
|
|
|
|
32 |
| Section 1350 Certification |
| X |
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18
NORTHERN GROWERS, LLC
Table of Contents
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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CONSOLIDATED FINANCIAL STATEMENTS |
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19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee
Northern Growers, LLC
Big Stone City, South Dakota
We have audited the accompanying consolidated balance sheets of Northern Growers, LLC as of December 31, 2004 and 2003, and the related consolidated statements of operations, members’ equity and cash flows for each of the three years in the period ended December 31, 2004. These consolidated financial statements are the responsibility of Northern Growers' management. Our responsibility is to express an opinion on these consolidated financial statements based upon our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northern Growers, LLC as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, on April 1, 2003, Northern Growers Cooperative was dissolved and reorganized as Northern Growers, LLC.
As discussed in Notes 11 and 13, Northern Growers, LLC has restated its consolidated statement of operations for the year ended December 31, 2004, to reflect a reclassification of a settlement credit.
/s/ Eide Bailly LLP |
|
Minneapolis, Minnesota
January 26, 2005, except for Note 12 and the last paragraph in Note 3, for which the date is March 4, 2005, and Note 11 and Note 13, for which the date is May 23, 2005.
F-1
Northern Growers, LLC
DECEMBER 31, 2004 AND 2003
|
| 2004 |
| 2003 |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
| ||
Cash |
| $ | 3,500,317 |
| $ | 2,865,310 |
|
Accounts receivable |
|
|
|
|
| ||
Trade related party |
| 3,675,195 |
| 3,590,952 |
| ||
Trade |
| 541,646 |
| 500,885 |
| ||
Other |
| 877,357 |
| 302,546 |
| ||
Inventory |
| 4,639,561 |
| 4,300,904 |
| ||
Prepaid expenses |
| 344,702 |
| 99,587 |
| ||
Investment in commodity contracts |
| 110,951 |
| 184,622 |
| ||
|
|
|
|
|
| ||
Total current assets |
| 13,689,729 |
| 11,844,806 |
| ||
|
|
|
|
|
| ||
PROPERTY AND EQUIPMENT |
|
|
|
|
| ||
Land improvements |
| 4,003,657 |
| 3,520,698 |
| ||
Equipment |
| 34,905,067 |
| 33,710,785 |
| ||
Buildings |
| 8,125,978 |
| 8,124,155 |
| ||
|
| 47,034,702 |
| 45,355,638 |
| ||
Less accumulated depreciation |
| (6,148,738 | ) | (3,619,905 | ) | ||
|
|
|
|
|
| ||
Net property and equipment |
| 40,885,964 |
| 41,735,733 |
| ||
|
|
|
|
|
| ||
OTHER ASSETS |
|
|
|
|
| ||
Financing costs |
| 102,814 |
| 205,662 |
| ||
|
|
|
|
|
| ||
Total other assets |
| 102,814 |
| 205,662 |
| ||
|
|
|
|
|
| ||
|
| $ | 54,678,507 |
| $ | 53,786,201 |
|
See Notes to Consolidated Financial Statements
F-2
F-3
Northern Growers, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
|
| 2004 |
| 2003 |
| 2002 |
| |||
|
| (As Restated) |
|
|
|
|
| |||
REVENUES |
|
|
|
|
|
|
| |||
Sales related party |
| $ | 68,501,969 |
| $ | 51,913,676 |
| $ | 20,499,279 |
|
Sales |
| 16,486,472 |
| 13,643,646 |
| 5,116,829 |
| |||
Incentive |
| 1,599,144 |
| 5,299,940 |
| 7,140,827 |
| |||
Total revenues |
| 86,587,585 |
| 70,857,262 |
| 32,756,935 |
| |||
|
|
|
|
|
|
|
| |||
COST OF REVENUES |
|
|
|
|
|
|
| |||
Cost of revenues |
| 72,729,131 |
| 58,920,917 |
| 24,674,714 |
| |||
Settlement credit - see Note 11 |
| (1,449,248 | ) | — |
| — |
| |||
Total cost of revenues |
| 71,279,883 |
| 58,920,917 |
| 24,674,714 |
| |||
|
|
|
|
|
|
|
| |||
GROSS PROFIT |
| 15,307,702 |
| 11,936,345 |
| 8,082,221 |
| |||
|
|
|
|
|
|
|
| |||
EXPENSES |
|
|
|
|
|
|
| |||
Startup expenses |
| — |
| — |
| 657,132 |
| |||
General and administrative |
| 2,984,237 |
| 2,739,136 |
| 1,352,524 |
| |||
Total operating expenses |
| 2,984,237 |
| 2,739,136 |
| 2,009,656 |
| |||
|
|
|
|
|
|
|
| |||
INCOME FROM OPERATIONS |
| 12,323,465 |
| 9,197,209 |
| 6,072,565 |
| |||
|
|
|
|
|
|
|
| |||
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
| |||
Interest income |
| 10,780 |
| 8,153 |
| — |
| |||
Interest expense |
| (1,500,438 | ) | (1,847,108 | ) | (963,714 | ) | |||
Other |
| 65,551 |
| 23,244 |
| 618 |
| |||
Total other income (expenses) |
| (1,424,107 | ) | (1,815,711 | ) | (963,096 | ) | |||
|
|
|
|
|
|
|
| |||
INCOME BEFORE MINORITY INTEREST |
| 10,899,358 |
| 7,381,498 |
| 5,109,469 |
| |||
|
|
|
|
|
|
|
| |||
MINORITY INTEREST IN SUBSIDIARY INCOME |
| (2,528,026 | ) | (1,770,430 | ) | (1,229,452 | ) | |||
|
|
|
|
|
|
|
| |||
NET INCOME |
| $ | 8,371,332 |
| $ | 5,611,068 |
| $ | 3,880,017 |
|
|
|
|
|
|
|
|
| |||
BASIC AND DILUTED EARNINGS PER UNIT |
| $ | 1.32 |
| $ | 0.89 |
| $ | 0.61 |
|
|
|
|
|
|
|
|
| |||
BASIC AND DILUTED WEIGHTED AVERAGE UNITS OUTSTANDING |
| 6,328,500 |
| 6,328,500 |
| 6,328,450 |
| |||
|
|
|
|
|
|
|
| |||
DISTRIBUTIONS PER UNIT DECLARED |
| $ | 0.95 |
| $ | 0.76 |
| $ | — |
|
|
|
|
|
|
|
|
| |||
DISTRIBUTIONS PER UNIT PAID |
| $ | 0.56 |
| $ | 0.58 |
| $ | — |
|
See Notes to Consolidated Financial Statements
F-4
Northern Growers, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
See Notes to Consolidated Financial Statements
F-5
Northern Growers, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
(continued on next page)
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS — page 2
See Notes to Consolidated Financial Statements
F-7
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - NATURE OF OPERATIONS
Principal Business Activity
Northern Growers, LLC or the Company (formerly Northern Growers Cooperative or the Cooperative), is a South Dakota limited liability company located near Big Stone City, South Dakota. The Company was organized to pool investors and provide a portion of the corn supply for a 40 million gallon (annual capacity) ethanol plant owned by Northern Lights Ethanol, LLC (Northern Lights). Northern Lights was formed on February 14, 2001. On June 26, 2002, the plant began grinding corn and on July 5, 2002, the ethanol plant commenced its principal operations. Prior to July 5, 2002, the Company was in the development stage. The Company sells ethanol and related products within North America.
On April 1, 2002, Whetstone Ethanol, LLC (Whetstone) was formed. The initial member of Whetstone was the Cooperative. Whetstone was formed for the purpose of acquiring the assets and liabilities of the Cooperative. On April 10, 2002, the Board of Directors of the Cooperative approved a plan of reorganization related to an exchange whereby Whetstone would acquire the assets and liabilities of the Cooperative. On March 27, 2003, the members of the Cooperative approved the plan of reorganization. The effective date of the reorganization was April l, 2003. The transaction was an exchange of interests whereby the assets and liabilities of the Cooperative were transferred for capital units of Whetstone. For financial statements purposes, no gain or loss was recorded as a result of the exchange transaction.
As a result of the exchange, the Cooperative was dissolved, with Whetstone’s capital units distributed to the members of the Cooperative at a rate of one Whetstone capital unit for each share of equity common stock and all voting common stock of the Cooperative surrendered and retired. In connection with the reorganization, Whetstone changed its name to Northern Growers, LLC. A minimum of 5,000 capital units is required for ownership of the Company. Such units are subject to certain transfer restrictions, including approval by the Board of Managers of the Company. The Company also retains the right to redeem the capital units at $.20 per unit in the event a member attempts to dispose of the units in a manner not in conformity with the Operating Agreement, if a member becomes a holder of less than 5,000 units, if a member breaches their member or corn delivery agreement or becomes a bankrupt member. The Operating Agreement of the Company also includes provisions whereby cash flow in excess of $200,000 will be distributed to unit holders subject to limitations imposed by a super majority vote of the Board of Managers or restrictions imposed by loan covenants.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its 77.16% owned subsidiary, Northern Lights. All significant inter-company transactions and balances have been eliminated in consolidation. For purposes of these financial statements and notes, the use of the term “the Company” will refer to the consolidated accounts of Northern Growers and Northern Lights.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand accounts and other accounts that provide withdrawal privileges.
F-8
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Revenue Recognition
Revenue from the production of ethanol and related products is recorded upon transfer of title to customers, net of allowances for estimated returns on related products. Generally, ethanol and related products are shipped FOB shipping point. Interest income is recognized as earned.
Revenue from federal and state incentive programs is recorded when the Company has produced or sold the ethanol and satisfied the reporting requirements under each applicable program. When it is uncertain that the Company will receive full allocation and payment due under the federal incentive program, it derives an estimate of the incentive revenue for the relevant period based on various factors including the most recently used payment factor applied to the program. The estimate is subject to change as management becomes aware of increases or decreases in the amount of funding available under the incentive programs or other factors that affect funding or allocation of funds under such programs.
Shipping Costs
Freight charges incurred are reported as a component of cost of revenues.
Receivables and Credit Policies
Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Customer account balances with invoices dated over 30 days old are considered delinquent. Interest is not charged on any delinquent accounts.
Trade receivables are stated at the amount billed to the customer.
Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management reviews all trade receivable balances that exceed 30 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Management believes that all trade receivables are collectible; therefore, there is no valuation allowance as of December 31, 2004 and 2003.
Inventory
Ethanol and related product inventory is stated at net realizable value. Corn inventory is stated at market value, which approximates net realizable value (local market prices less cost of disposal), based on local market prices determined by grain terminals in the area of the plant. Other raw materials, spare parts and work-in-process inventory are stated at the lower of cost or market on an average cost method.
Inventories at December 31, 2004 and 2003 are as follows:
|
| 2004 |
| 2003 |
| ||
Finished goods |
| $ | 2,112,405 |
| $ | 1,592,046 |
|
Raw materials |
| 1,500,457 |
| 1,845,031 |
| ||
Work-in-process |
| 399,049 |
| 365,060 |
| ||
Spare parts inventory |
| 627,650 |
| 498,767 |
| ||
|
| $ | 4,639,561 |
| $ | 4,300,904 |
|
F-9
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Investment in Grain Contracts, Derivative Instruments and Hedging Activities
SFAS No. 133 requires a company to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted from SFAS No. 133 as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal are documented as normal and exempted from the accounting and reporting requirements of SFAS No. 133.
The Company enters into short-term cash grain, option and futures contracts as a means of securing corn for the ethanol plant and managing exposure to changes in commodity prices. All derivatives are designated as non-hedge derivatives. Although the contracts are effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
As part of its trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk and is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes positions using cash and futures contracts and options.
Unrealized gains and losses related to derivative contracts are included as a component of cost of revenues in the accompanying consolidated financial statements. Inventories are recorded at net realizable value so that gains and losses on derivative contracts are offset by gains and losses on inventories and reflected in earnings currently. For the statement of cash flows, such contract transactions are classified as operating activities.
We have recorded an increase (decrease) to cost of revenues of $3,715,496, $(71,653) and $459,207 related to our derivative contracts for the year ended December 31, 2004, 2003 and 2002, respectively.
Financing Costs
Financing costs are amortized over the term of the related debt using the interest method of amortization. Amortization of financing costs during construction was capitalized as part of construction period interest. Accumulated amortization totaled $261,035 and $158,188 as of December 31, 2004 and 2003, respectively.
Minority Interest
Amounts recorded as minority interest on the balance sheet relate to the investment by Broin Investments I, LLC in Northern Lights, plus or minus any allocation of income or loss of Northern Lights. Earnings and losses of Northern Lights are allocated to its members in proportion to the member’s capital accounts.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Cash balances are maintained in bank depositories and periodically exceed federally insured limits.
F-10
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Property and Equipment
Property and equipment is stated at cost. Significant additions and betterments are capitalized, while expenditures for maintenance, repairs and minor renewals are charged to operations when incurred. Depreciation on assets placed in service is computed using the straight-line method over estimated useful lives as follows:
Land improvements | 8-40 years |
Equipment | 3-20 years |
Buildings | 10-40 years |
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value.
On June 10, 2002, the Company received a grant of $1,501,199 from the proceeds of tax increment financing bonds issued by Grant County, South Dakota. Under South Dakota law, proceeds from tax increment financing are not a liability of the entity, but are an obligation of the taxing district issuing the bonds. The grant was provided to fund infrastructure improvements related to the construction of the ethanol plant and will be repaid by Grant County from the incremental increase in property taxes related to the improvements of the property. The total amount of the grant is recorded as a reduction of the value of the property and equipment.
Environmental Liabilities
The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health, and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the liability is probable and the costs can be reasonably estimated.
Income Taxes
Northern Growers, LLC, is not a taxpaying entity for federal and state income tax purposes and thus, no income tax expense has been recorded in the statements. Income of the Company is taxed to the members in their respective returns.
Cost of Revenues
The primary components of cost of revenues from the production of ethanol and related products are corn expense, energy expense (steam, natural gas and electricity), raw materials expense (chemicals and denaturant), shipping costs on sales and depreciation on process equipment.
All shipping costs incurred with regard to the sale of ethanol and related product inventory are included in the consolidated statements of operations as a component of gross revenues. Accordingly, those shipping costs are deducted and are all classified as a component of cost of revenues. Shipping costs in relation to sales are defined as the cost to transport products to the customers. Other shipping costs in the cost of revenues include inbound freight charges on inventory.
F-11
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
General and Administrative Expenses
The primary components of general and administrative expenses are management fees, insurance expense and professional fees (legal and audit).
Reclassifications
Certain reclassifications have been made to the 2002 financial statements to conform to the presentation in 2003 and 2004. These reclassifications had no change in previously reported net income.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. The Statement amends and clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Management has determined that implementation of this pronouncement will not have an effect on the Company’s financial statements.
NOTE 3 - NOTES PAYABLE
Short-Term Notes Payable
The Company received advances of $5,000 from various entities to help establish the Company. The notes are due on demand and do not bear interest.
On June 5, 2002, Northern Lights entered into a $1,000,000 promissory note with US Bank National Association, Sioux Falls, South Dakota (Bank), which matured on May 1, 2003.
On December 15, 2002, Northern Lights entered into a $500,000 line of credit with the Bank, which matured on May 1, 2003.
The balance of the short-term notes payable as of December 31, 2004 and 2003 are as follows:
|
| 2004 |
| 2003 |
| ||
Non-interest bearing notes |
| $ | 5,000 |
| $ | 5,000 |
|
US Bank promissory note |
| — |
| — |
| ||
|
| $ | 5,000 |
| $ | 5,000 |
|
Long-Term Notes Payable
Northern Lights had a $31,100,000 note with the Bank for the construction and permanent financing of the plant. During construction and through the balance of 2002, interest was due on a quarterly basis. Collateral for the note was the mortgage on the ethanol plant, with a net book value of approximately $40,885,000 as of December 31, 2004, and assignment of certain agreements related to the construction and operation of the plant.
F-12
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
On January 1, 2003, Northern Lights converted its $31.1 million construction note to three promissory notes. The interest rate terms of the promissory notes are as follows:
• Variable rate, non-revolving loan for $11.1 million, amortized over a 10 year period, with interest and principal due March 31, June 30, September 30 and December 31. Interest is at prime plus 1% (6.25% at December 31, 2004). The loan has a maturity date of December 31, 2007.
• Fixed rate loan for $15 million, amortized over a ten-year period, with interest and principal due March 31, June 30, September 30 and December 31. Interest is fixed at 6.95%. The loan has a maturity of December 31, 2007 and is subject to a prepayment penalty.
• Variable rate, revolving loan for $5 million, interest only payments required on March 31, June 30, September 30 and December 31. Interest is at prime plus 1% (6.25% at December 31, 2004). The loan has a maturity date of December 31, 2007.
Except as noted above, the covenants and other terms and conditions of the original note with the Bank remain applicable to these three new notes.
On May 1, 2003, Northern Lights entered into a $1,200,000 promissory note with the Bank to refinance the then remaining unpaid and outstanding short-term notes payable balances of the $500,000 line of credit and $1,000,000 promissory note. The note bears interest at 5.7%, is payable in quarterly installments of principal and interest of $84,406 beginning August 1, 2003, matures on May 1, 2007 and is subject to a prepayment penalty. The note is collateralized by the previous security agreement between the Bank and Northern Lights.
Northern Lights is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital and net worth requirements. At December 31, 2004, Northern Lights was in compliance with its covenants. Annually, beginning May 1, 2003, the financing arrangements with U.S. Bank include terms whereby Northern Lights makes an additional principal payment equal to 15% of Northern Light’s excess cash flow (as defined by the agreement), not to exceed 20% of the outstanding principal balance. The excess cash flow payment made on May 1, 2003, was $1,010,000 and was applied to the principal of the fixed rate loan with the original principal balance of $15,000,000. In conjunction with Northern Light’s dividend distributions of September 22, 2003, February 10, 2004 and November 12, 2004, additional excess cash flow payments of $685,000, $335,664 and $590,044, respectively, were made on the same fixed rate loan.
The balance of the long-term notes payable as of December 31, 2004 and 2003 follows:
|
| 2004 |
| 2003 |
| ||
Variable rate, non-revolving loan |
| $ | 8,711,196 |
| $ | 9,947,268 |
|
Variable rate, revolving loan |
| — |
| — |
| ||
Fixed rate loan |
| 9,956,435 |
| 12,175,858 |
| ||
Promissory note |
| 783,209 |
| 1,065,173 |
| ||
|
| 19,450,840 |
| 23,188,299 |
| ||
Less current portion |
| (3,063,342 | ) | (3,134,922 | ) | ||
|
| $ | 16,387,498 |
| $ | 20,053,377 |
|
At December 31, 2004 and 2003, the Company had no outstanding borrowings against the variable rate revolving loan.
F-13
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Minimum principal payments, through the maturity of the notes, follow:
Years Ending December 31, |
| Amount |
| |
|
|
|
| |
2005 |
| $ | 3,063,342 |
|
2006 |
| 3,279,203 |
| |
2007 |
| 13,108,295 |
| |
|
| $ | 19,450,840 |
|
Minimum principal payments for the year ending December 31, 2005 do not include any related additional principal to the Bank based on excess cash flow. U.S. Bank released the Company of any further excess cash flow payments as of December 31, 2004. Minimum principal payments for the year ending December 31, 2007 include balloon payments due at the maturity of the notes.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company and Broin Investments I, LLC, are the members of Northern Lights. The Company invested $12,500,000 and Broin Investments I, LLC invested $3,700,000 in Northern Lights Ethanol, LLC for their respective ownership interests of approximately 77% and 23%. In accordance with the Operating Agreement of Northern Lights, Broin Investments I, LLC, has the right to elect two of seven members of the Board of Managers of Northern Lights.
Northern Lights has a construction contract with Broin and Associates, Inc. (see Note 6). Amounts due to Broin and Associates, Inc. related to the construction contract as of December 31, 2004 and 2003 were $0 and $476,216 respectively. Payments on the construction contract through December 31, 2004, 2003 and 2002 were $47,615,981, $47,139,765 and $46,110,022, respectively.
During 2003, the Company entered into an agreement with Dakota Gold Marketing for the use of railcars to transport DDGS. The agreement provides for a flat rate per car, per shipment and can be terminated with 90 days notice by either party.
Additional agreements with related parties are included in Note 6.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the carrying amount of cash and cash equivalents approximates fair value due to the short maturity of these instruments.
The Company believes the carrying amount of long-term note payable obligations approximates fair value. For the construction and permanent financing, fair value approximates the carrying amount due to the variable interest rate feature of the debt.
The Company believes the carrying amount of short-term notes payable approximates their value due to the short maturity of these instruments. The Company believes the fair value of agreements for the purchase of utilities approximates the carrying value based on the variable terms of the agreements that follow local market rates.
F-14
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 6 - COMMITMENTS, CONTINGENCIES AND AGREEMENTS
Substantially all of the Company’s facilities are subject to federal, state and local regulations relating to the discharge of materials into the environment. Management believes that the current practices and procedures for the control and disposition of such wastes comply with the applicable federal, state and local requirements.
The Company has entered into contracts and agreements regarding the construction, operation and management of the ethanol plant.
Agreements with Broin Investments I, LLC, the minority member of Northern Lights, or parties related to the minority member through common ownership, are as follows:
Construction Contract — The Company had a construction contract with Broin and Associates, Inc., an affiliate of the minority member of Northern Lights. The contract, with change orders, totals $47,615,981, all of which is complete as of December 31, 2004.
Ethanol Marketing Contract — The Company has an agreement with Ethanol Products, LLC, a joint venture of ethanol producers, for the sale, marketing, billing and receipt of payment and other administrative services for all ethanol produced by the plant. The agreement expires on July 5, 2007, and is automatically renewed for successive five-year terms unless terminated three months prior to expiration.
Management Agreement — The Company has an agreement with Broin Management, LLC for the management and operation of the ethanol plant. In exchange for these services, Broin Management receives an annual fee plus an incentive bonus of 5% of net income. The annual fee is adjusted each year for changes in the consumer price index. The fees and bonus paid to Broin Management include the salary and benefits of the general manager and technical manager and certain other services related to operation of the ethanol plant. The agreement was executed on November 2, 2000 and payments began during February 2002, approximately six months prior to the projected start of plant operations. The term of this agreement continues until July 1, 2005, three years from the date the plant began processing corn and is renewable for successive three-year terms unless terminated 90 days prior to expiration of the agreement.
The Company has entered into an agreement with Broin Management, LLC for hedge and price risk management services related to corn requirements of the plant. The agreement expires in April 2005 and is renewable for successive one-year terms unless terminated 30 days prior to expiration.
DDGS Marketing Agreement — The Company has an agreement with Dakota Gold Marketing, a related party through ownership by entities related to the minority member, to provide marketing and administrative services for the sale of DDGS. The agreement commenced on May 10, 2002. The agreement provides for an agency relationship in that Dakota Gold Marketing does not take title to the DDGS but acts as a broker on behalf of Northern Lights. The agreement has a term of five years from commencement, and is renewable for five-year terms unless terminated by either party with 90 days notice.
Software Maintenance — In July 2002, the Company entered into an agreement with Broin and Associates, Inc. for new revisions to the plant’s software. The agreement has a term of three years, beginning June 1, 2002.
F-15
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
On December 16, 2002, the Company entered into an agreement with Broin and Associates, Inc. for the purchase of certain software and data management services. The initial fee for purchase of the software is $40,000 payable upon execution of the agreement. The fee for the maintenance service ($20,000) shall be adjusted by the Consumer Price Index on an annual basis. The agreement has a term of two years, and it automatically renews for successive two-year terms unless terminated 60 days prior to expiration.
Revenues and expenses related to agreements with related parties for the years ended December 31, 2004 and 2003 are as follows:
|
| 2004 |
| 2003 |
| ||
|
|
|
|
|
| ||
Ethanol gross revenues |
| $ | 68,501,969 |
| $ | 51,913,676 |
|
Management fees expense |
| 995,458 |
| 791,659 |
| ||
Marketing fees expense - all products |
| 691,832 |
| 603,186 |
| ||
Agreements with unrelated parties are as follows:
Property Lease — The Company entered into a ninety-nine-year property lease (an operating lease) with Big Stone-Grant Industrial Development and Transportation, LLC. Rent is $2,400 for each of the first five years. The rent will be adjusted on January 1, 2006 and every five years thereafter. The rent will be increased 5% over the immediately preceding five-year period.
Steam — The Company has an agreement with the Big Stone Plant Co-Owners (the Big Stone Plant); Otter Tail Corporation, Montana-Dakota Utilities Co. and Northwestern Public Service, for steam in a specified amount for use in its ethanol manufacturing process at a base rate, adjusted annually for changes in the cost of energy. The agreement commenced on June 1, 2002 and has a term of ten years, renewable for two five-year periods, after which the agreement is renewable from year to year. Either party may terminate the agreement by providing notice one year prior to a renewal or expiration date.
Minimum payments related to the above agreements are summarized in the following table:
Water and Fuel Oil — The Company has an agreement with the Big Stone Plant with a rate schedule for a specified quantity of water and fuel oil for ten years, commencing January 1, 2002. The agreement is renewable for two five-year periods, after which the agreement renews for one-year periods. Either party may terminate the agreement with notice provided one year prior to a renewal or expiration date. No minimum purchase quantities are provided in the agreement, and the prices for these items are at local market prices.
F-16
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
The Company also has an agreement with the City of Big Stone City, South Dakota, with a rate schedule for water and sewer services for ten years, commencing January 1, 2002. The agreement is renewable for two 5-year periods, after which the agreement renews for one-year periods. Either party may terminate the agreement with notice provided one year prior to a renewal or expiration date. In addition to charges based on usage, the agreement requires a monthly fee of $1,500. No minimum purchase quantities are provided in the agreement and the prices for these services are at local market prices.
Expenses related to the property lease, steam, water and fuel oil agreements for the years ended December 31, 2004, 2003 and 2002 were $3,937,132, $3,392,378 and $303,802, respectively.
Please see Note 11 for further details on the steam agreement with the Big Stone Plant.
Each holder of capital units has entered into a member agreement with the Company. For each capital unit owned, one bushel of corn is required to be delivered annually. The price paid for the corn is the average corn price for the applicable four-month period (trimester) based on several local grain elevators’ cash corn price, or a negotiated price set before delivery of the bushels. Based on the number of capital units outstanding, 6,328,500 bushels of corn is scheduled to be delivered annually by the Company’s unit holders. This represents approximately 41% of the corn required for the operation of the plant at its 40,000,000 gallon name-plate capacity. Due to an amendment to the operating agreement, some unit holders are eligible to opt-out of their corn delivery requirement, subject to an annual approval of the opt-out requirements. Purchases of corn from corn delivery agreements and cash contracts from the Company’s unit holders totaled approximately $33,300,000 and $28,100,000 for the years ending December 31, 2004 and 2003, respectively, of which $2,139,294 and $3,382,203 was recorded as a liability at December 31, 2004 and 2003, respectively.
The Company receives an incentive payment from the United States Department of Agriculture (USDA) for the use of corn to produce ethanol. In accordance with the terms of this arrangement, revenue is recorded based on incremental production of ethanol compared to the prior year. The USDA has set the annual maximum not to exceed $7,500,000 for each eligible producer. The incentive is calculated on the USDA fiscal year of October 1 to September 30. Revenue of $1,303, $1,064,644 and $7,500,000 has been earned for the USDA program years ended September 30, 2005, 2004 and 2003, respectively. Incentive revenue of $932,477, $4,115,170 and $6,742,263 was recorded for the years ended December 31, 2004, 2003 and 2002, respectively, for this program.
The Company also receives an incentive payment from the State of South Dakota to produce ethanol. In accordance with the terms of this arrangement, revenue is recorded based on ethanol sold. The State of South Dakota has set a maximum of up to $1,000,000 per year for this program per qualifying producer. The Company has earned $583,334, $666,667 and $1,000,000 for the program years ended June 30, 2005, 2004 and 2003, respectively. Incentive revenue of $666,667, $1,184,770 and $398,564 was recorded for the years ended December 31, 2004, 2003 and 2002, respectively, for this program.
Legal Proceedings — The Company is involved in various legal actions arising in the normal course of business. Management is of the opinion that their outcome will not have a significant effect on the Company’s consolidated financial statements.
Capital Unit Trading - Effective March 8, 2004, trading of the Company’s Class A units began on Alerus Securities Corporation’s (Alerus) Alternative Trading System. Members and non-members were able to begin trading of capital units on March 8, 2004.
F-17
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 7 - DISTRIBUTIONS
During April 2003, Northern Lights distributed $1,750,000 of cash to its members. The Company received approximately $1,350,000, and the minority member received approximately $400,000. In conjunction with this cash distribution, the Company declared a distribution of $1,831,020 and paid a distribution to its members of approximately $1,100,000.
During September 2003, Northern Lights distributed $3,500,000 of cash to its members. The Company received approximately $2,700,000, and the minority member received approximately $800,000. In conjunction with this cash distribution, the Company declared a distribution of $1,819,575 and paid a distribution to its members of approximately $2,550,000.
During January 2004, the Northern Lights Board of Managers approved a $2,000,000 distribution, which it paid on February 10, 2004. The Company received approximately $1,543,000 and the minority member received approximately $457,000. In conjunction with this cash distribution, the Company paid a distribution to its members of approximately $1,343,000. The above distributions are recorded as a liability as of December 31, 2003.
During November 2004, the Northern Lights Board of Managers approved a $3,000,000 distribution, which it paid on November 12, 2004. The Company received approximately $2,315,000 and the minority member received approximately $685,000. In conjunction with this cash distribution, the Company paid a distribution to its members of approximately $2,215,000.
During January 2005, the Northern Lights Board of Managers approved a $5,000,000 distribution, which it paid on February 1, 2005. The Company received approximately $3,858,000 and the minority member received approximately $1,142,000. In conjunction with this cash distribution, the Company paid a distribution to its members of approximately $3,778,000. The above distributions are recorded as a liability as of December 31, 2004.
NOTE 8 - INCOME TAXES
As of December 31, 2004 and 2003 the book basis of assets exceeded their tax basis by approximately $12,100,000 and $8,050,000, respectively. There were no significant differences between the book basis and tax basis of liabilities as of December 31, 2004 or 2003.
NOTE 9 - 401(K) PLAN
On February 1, 2003, the Company set up a 401(k) plan for substantially all employees who work more than 1,000 hours per year. Employees can make voluntary contributions up to federally designated limits. The Company matches employee voluntary contributions at a 50% level up to an effective maximum of 2% of gross employee pay. Eligible employees are always fully vested in their account balances resulting from employee voluntary contributions. The Company 401(k) expense for the years ended December 31, 2004 and 2003 was $21,762 and $20,985, respectively.
F-18
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly results are as follows:
|
| First |
| Second |
| Third |
| Fourth |
| ||||
|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| ||||
Year Ended December 31, 2004 |
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ | 21,707,883 |
| $ | 20,958,695 |
| $ | 22,296,905 |
| $ | 21,624,102 |
|
Gross profit |
| 5,942,562 |
| (1,922,844 | ) | 2,327,681 |
| 8,960,303 |
| ||||
Operating income (loss) |
| 5,084,220 |
| (2,344,298 | ) | 1,669,817 |
| 7,913,726 |
| ||||
Income (loss) before minority interest |
| 4,711,367 |
| (2,700,009 | ) | 1,307,893 |
| 7,580,106 |
| ||||
Minority interest in subsidiary (income) loss |
| (1,092,583 | ) | 607,565 |
| (305,533 | ) | (1,737,475 | ) | ||||
Net income (loss) |
| 3,618,784 |
| (2,092,444 | ) | 1,002,360 |
| 5,842,631 |
| ||||
Basic earnings (loss) per unit |
| 0.57 |
| (0.33 | ) | 0.16 |
| 0.92 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year Ended December 31, 2003 |
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ | 19,123,755 |
| $ | 17,241,715 |
| $ | 16,110,060 |
| $ | 18,381,732 |
|
Gross profit |
| 4,427,581 |
| 1,584,621 |
| 1,822,589 |
| 4,101,554 |
| ||||
Operating income |
| 3,693,484 |
| 1,010,312 |
| 1,125,256 |
| 3,368,157 |
| ||||
Income before minority interest |
| 3,198,000 |
| 530,879 |
| 675,948 |
| 2,976,671 |
| ||||
Minority interest in subsidiary (income) |
| (761,395 | ) | (133,773 | ) | (186,367 | ) | (688,895 | ) | ||||
Net income |
| 2,436,605 |
| 397,106 |
| 489,581 |
| 2,287,776 |
| ||||
Basic earnings per unit |
| 0.39 |
| 0.06 |
| 0.08 |
| 0.36 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year Ended December 31, 2002 |
|
|
|
|
|
|
|
|
| ||||
Total revenues |
| $ | — |
| $ | — |
| $ | 13,708,731 |
| $ | 19,048,204 |
|
Gross profit |
| — |
| — |
| 3,743,136 |
| 4,339,085 |
| ||||
Operating income (loss) |
| (114,835 | ) | (542,297 | ) | 2,990,122 |
| 3,739,575 |
| ||||
Income (loss) before minority interest |
| (114,835 | ) | (542,251 | ) | 2,510,269 |
| 3,256,286 |
| ||||
Minority interest in subsidiary (income) loss |
| 18,017 |
| 104,911 |
| (584,405 | ) | (767,975 | ) | ||||
Net income (loss) |
| (96,818 | ) | (417,654 | ) | 1,906,178 |
| 2,488,311 |
| ||||
Basic earnings (loss) per unit |
| (0.02 | ) | (0.06 | ) | 0.30 |
| 0.39 |
|
The above quarterly financial data is unaudited, but in the opinion of management, all adjustments necessary for a fair presentation of the selected data for these interim periods presented have been included.
See Note 13 for further details on the effect of the settlement credit from the Big Stone Plant in relation to the quarterly financial data.
F-19
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 11 - COST OF REVENUES — SETTLEMENT CREDIT
In November 2004, Northern Lights received a credit from Big Stone Plant for approximately $1,450,000. Big Stone Plant is located adjacent to Northern Lights’ ethanol plant and supplies steam to Northern Lights for its ethanol production process. This credit was issued after an informal dispute between Northern Lights and Big Stone Plant regarding the reported volume of steam supplied from Big Stone Plant to Northern Lights. In March 2003, Northern Lights questioned Big Stone Plant about the reported volume of steam supplied from the Big Stone Plant to Northern Lights. Northern Lights believed the reported volume of steam supplied to the ethanol plant was excessive, compared to the volume of steam required for the ethanol production process. After testing and analysis by Big Stone Plant, Big Stone Plant concluded the reported volume of steam was accurate. After further testing and analysis in 2004, however, Big Stone Plant determined that the reported volume of steam was erroneous due to an error created by a metering instrument which was miscalibrated. As a result of this error, Big Stone Plant overcharged Northern Lights for the use of steam in 2003 and 2004. In November 2004, in an effort to resolve the dispute, Big Stone Plant notified Northern Lights that a settlement credit would be issued, which Northern Lights agreed to accept. At December 31, 2004, approximately $708,000 was outstanding from Big Stone Plant in relation to the settlement credit, and was recorded on the consolidated balance sheet as a component of other accounts receivable. See Note 13 for further details on the settlement credit in relation to the restatement of financial statements.
NOTE 12 - SUBSEQUENT EVENTS
On March 30, 2005, Northern Lights entered into an amended Loan Agreement with the Bank. The purpose of the Agreement was to refinance existing debt and to finance the planned $1 million rail expansion project at the plant. Effective March 30, 2005 there will be five loans and notes with the Bank: a $15.8 million fixed rate note; a $3.9 million variable-rate, non-revolving note; a $5 million variable-rate, revolving note; a $3.0 million variable rate, revolving note and a $1.2 million note. The $ 15.8 million note and $3.9 million note will retire the original $15 million and $11.1 million note and loans. The terms and conditions of the Loan Agreement dated March 30, 2005 remain the same as the original Loan Agreement, except as noted below.
The $15.8 million fixed rate note bears an interest rate at 6.38% percent. This note requires quarterly payments of interest and amortized principal of $537,500 on the basis of a ten-year term, the first payment being due on June 30, 2005. The loan is subject to maturity on March 31, 2012.
The $3.9 million variable rate, non-revolving note bears interest at the Bank’s prime rate. This note requires quarterly payments of interest and amortized principal on the basis of a ten-year term, the first payment being due on June 30, 2005. The first payment of principal and interest will be $153,600. Like the fixed rate note, the note matures on March 31, 2012.
The $5 million variable-rate, revolving note bears interest at the Bank’s prime rate and carries an unused commitment fee of 0.375%, assessed quarterly. This note requires quarterly interest-only payments and matures on March 31, 2012.
The $1.2 million note for the thermal oxidizers bears interest at a fixed rate of 4.7%, with slightly lower quarterly payments being due until maturity in April, 2007.
F-20
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
As part of the refinancing, Northern Lights obtained a new $3.0 million variable rate, revolving note. This note requires quarterly interest payments when drawn, the first potential payment starting on June 30, 2005 if money is drawn. The maturity of this note is March 31, 2008. The interest rate is equal to the Bank’s prime rate and carries an unused commitment fee of 0.375%, assessed quarterly. The note is tied to the borrowing base and cannot be used until the existing $5 million variable rate, revolving note is fully drawn.
Some of the covenants under the amended Loan Agreement are now modified. The amendment increases minimum working capital requirement from $2 million to $4 million; eliminates the excess cash flow payment; changes the fixed charge coverage ratio; and changes the number of allowable distributions to members to more than one each year, provided all other covenants are complied with under the loan.
NOTE 13 - RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated its consolidated financial statements for the year ended December 31, 2004, to correct an accounting misclassification error under its consolidated statement of operations and to reflect the corresponding changes described below.
In November 2004, Northern Lights received a credit from the Big Stone Plant for approximately $1,450,000. This credit was issued after an informal dispute between Northern Lights and Big Stone Plant regarding the reported volume of steam supplied from Big Stone Plant to Northern Lights. In March 2003, Northern Lights questioned Big Stone Plant about the reported volume of steam supplied from the Big Stone Plant to Northern Lights. Northern Lights believed the reported volume of steam supplied to the ethanol plant was excessive, compared to the volume of steam required for the ethanol production process. After testing and analysis by Big Stone Plant, Big Stone Plant concluded the reported volume of steam was accurate. After further testing and analysis in 2004, however, Big Stone Plant determined that the reported volume of steam was erroneous due to an error created by a metering instrument which was miscalibrated. As a result of this error, Big Stone Plant overcharged Northern Lights for the use of steam in 2003 and 2004. In November 2004, in an effort to resolve the dispute, Big Stone Plant notified Northern Lights that a settlement credit would be issued, which Northern Lights agreed to accept. Because of the nature and timing of the resolution between Northern Lights and Big Stone Plant, the Company determined that the entire $1,450,000 credit should be recorded in the 2004 consolidated statement of operations.
Initially, the credit was recorded as settlement income in the other income (expense) section of the consolidated statement of operations in order to make the disclosure of the settlement credit as transparent as possible and in reliance on certain accounting information management believed was applicable. On May 4, 2005, however, the Company’s audit committee was advised by management that an accounting error was made because the settlement credit was misclassified. Management misclassified the credit as other income, rather than as a reduction in cost of revenues. Because cost of revenues includes all production expenses, including steam expense, and the overcharge from Big Stone Plant adversely affected Northern Lights’ steam expenses in 2003 and 2004, the credit should have been classified as a reduction in cost of revenues. The restatement of our consolidated financial statements is made to correct for the misclassification and to reclassify the $1,450,000 settlement credit as a reduction in cost of revenues.
F-21
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
The reclassification of the settlement credit had no effect on the consolidated balance sheet, statement of changes in members’ equity, or statement of cash flows. The originally reported and restated statement of operations for the year ended December 31, 2004 is shown below:
|
| Year Ended |
| Year Ended |
| ||
|
| December 31, 2004 |
| December 31, 2004 |
| ||
|
| As Originally Reported |
| As Restated |
| ||
REVENUES |
|
|
|
|
| ||
Sales related party |
| $ | 68,501,969 |
| $ | 68,501,969 |
|
Sales |
| 16,486,472 |
| 16,486,472 |
| ||
Incentive |
| 1,599,144 |
| 1,599,144 |
| ||
Total revenues |
| 86,587,585 |
| 86,587,585 |
| ||
|
|
|
|
|
| ||
COST OF REVENUES |
|
|
|
|
| ||
Cost of revenues |
| 72,729,131 |
| 72,729,131 |
| ||
Settlement credit - see Note 11 |
| — |
| (1,449,248 | ) | ||
Total cost of revenues |
| 72,729,131 |
| 71,279,883 |
| ||
|
|
|
|
|
| ||
GROSS PROFIT |
| 13,858,454 |
| 15,307,702 |
| ||
|
|
|
|
|
| ||
EXPENSES |
|
|
|
|
| ||
Startup expenses |
| — |
| — |
| ||
General and administrative |
| 2,984,237 |
| 2,984,237 |
| ||
Total operating expenses |
| 2,984,237 |
| 2,984,237 |
| ||
|
|
|
|
|
| ||
INCOME FROM OPERATIONS |
| 10,874,217 |
| 12,323,465 |
| ||
|
|
|
|
|
| ||
OTHER INCOME (EXPENSES) |
|
|
|
|
| ||
Interest income |
| 10,780 |
| 10,780 |
| ||
Interest expense |
| (1,500,438 | ) | (1,500,438 | ) | ||
Settlement income - see Note 11 |
| 1,449,248 |
| — |
| ||
Other |
| 65,551 |
| 65,551 |
| ||
Total other income (expenses) |
| 25,141 |
| (1,424,107 | ) | ||
|
|
|
|
|
| ||
INCOME BEFORE MINORITY INTEREST |
| 10,899,358 |
| 10,899,358 |
| ||
|
|
|
|
|
| ||
MINORITY INTEREST IN SUBSIDIARY INCOME |
| (2,528,026 | ) | (2,528,026 | ) | ||
|
|
|
|
|
| ||
NET INCOME |
| $ | 8,371,332 |
| $ | 8,371,332 |
|
|
|
|
|
|
| ||
BASIC AND DILUTED EARNINGS PER UNIT |
| $ | 1.32 |
| $ | 1.32 |
|
|
|
|
|
|
| ||
BASIC AND DILUTED WEIGHTED AVERAGE UNITS OUTSTANDING |
| 6,328,500 |
| 6,328,500 |
| ||
|
|
|
|
|
| ||
DISTRIBUTIONS PER UNIT DECLARED |
| $ | 0.95 |
| $ | 0.95 |
|
|
|
|
|
|
| ||
DISTRIBUTIONS PER UNIT PAID |
| $ | 0.56 |
| $ | 0.56 |
|
F-22
NORTHERN GROWERS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Since the settlement credit was recorded in the fourth quarter of 2004, only that quarter is affected by the restatement regarding Note 10 — Quarterly Financial Data (Unaudited). That comparison is set forth below.
Year Ended December 31, 2004 |
| Fourth Quarter 2004 |
| Fourth Quarter 2004 |
| ||
|
| As Originally Reported |
| As Restated |
| ||
|
|
|
|
|
| ||
Total revenues |
| $ | 21,624,102 |
| $ | 21,624,102 |
|
Gross profit |
| 7,511,055 |
| 8,960,303 |
| ||
Operating income (loss) |
| 6,464,477 |
| 7,913,726 |
| ||
Income (loss) before minority interest |
| 7,580,106 |
| 7,580,106 |
| ||
Minority interest in subsidiary (income) loss |
| (1,737,475 | ) | (1,737,475 | ) | ||
Net income (loss) |
| 5,842,631 |
| 5,842,631 |
| ||
Basic earnings (loss) per unit |
| 0.92 |
| 0.92 |
| ||
F-23