HIGH PLAINS CORPORATION 1995 ANNUAL REPORT
Soaring on the wings of a new consciousness . . .
[Graphic: Flying eagle]
<PAGE>
Corporate Mission Statement
Our Goal: Provide a vital product, Ethanol, that improves the
quality of life, cleans our air, aids the American farmer and
decreases our dependence on foreign oil.
Corporate Profile
High Plains Corporation is the 6th largest in a U.S. field of
approximately 60 Ethanol manufacturers. The Company produces at two
state-of-the-art plants, one located in Colwich, Kansas and the
other located in York, Nebraska, each producing approximately 20
million and 40 million gallons per year respectively.
The Company converts grain into Ethanol, distiller's grains (DDGs
both wet and dry), and high purity carbon dioxide (CO2). The
Ethanol is sold for blending into gasoline nationwide. The Company
markets DDGs as livestock feed. High Plains was founded in 1980 and
is headquartered in Wichita, Kansas.
[GRAPHIC: Bar chart depicting Total Assets in Millions
for 1993 - $33.6, 1994 - 48.9, and 1995 - 67.5]
[GRAPHIC: Bar chart depicting Sales in Millions
for 1993 - $31.5, 1994 - 33.6, and 1995 - 52.8]
[GRAPHIC: Bar chart depicting Net Income in Millions
for 1993 - $.3, 1994 - (.9), and 1995 - 6.1]
Table of Contents
Selected Financial Data 1
Letter to Stockholders 2
Ethanol Outlook 3
Management's Discussion and Analysis 6
Financial Statements 10
Notes to Financial Statements 15
Auditors' Report 20
<PAGE>
<TABLE>
Five Year Summary of Selected Financial Data
<CAPTION>
For The Years Ended June 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
INCOME
Net Sales and Revenues $52,769,014 $33,566,271 $31,490,226 $30,226,939 $23,062,402
Net Earnings (Loss) $ 6,072,407 $ (933,453) $ 5,337,791 $ 2,051,936 $ 1,500,144
BALANCE SHEET
Working Capital $ (538,322) $(2,544,316) $ 2,960,512 $ 1,560,674 $ 934,048
Long-term Debt $19,052,272 $10,248,339 $ .00 $21,171,466 $22,801,510
Total Assets $67,517,031 $48,915,483 $33,622,311 $29,676,592 $28,157,777
Stockholders' Equity $40,250,738 $32,412,525 $32,331,610 $ 5,920,467 $ 3,595,981
OPERATIONS
Gallons of Ethanol Sold 33,576,788 18,449,822 16,741,131 17,332,896 13,002,838
Tons of DDG Sold 107,325 64,662 54,502 57,457 39,389
Sales per Employee $ 415,504 $ 302,399 $ 562,325 $ 686,976 $ 490,689
PER SHARE
Earnings (Loss) Per Common
And Dilutive Common
Equivalent Share:
Earnings (Loss) Before
Extraordinary Item $.39 $(.06) $.46 $.27 $.20
Extraordinary Item $.00 $.00 $.07 $.00 $.00
Net Earnings (Loss) $.39 $(.06) $.53 $.27 $.20
RATIOS
Book Value Per Share $2.60 $2.19 $2.19 $.71 $.36
Return on Total Assets .111 (.019) .141 .106 .103
<FN>
For comparative purposes, prior year financial ratios and earnings per share
have been restated to effect stock splits disclosed in these financial
statements.
No cash dividends were declared per common share during the years shown
above.
</TABLE>
<PAGE>
President's Letter
TO OUR STOCKHOLDERS AND BUSINESS ASSOCIATES:
Last year's projections included the completion of a 30 million gallon
plant in York, Nebraska and 20 million gallons of production from our
Colwich plant. At this time, we have exceeded that schedule, as we are
producing at a rate of almost 40 million gallons per year at our York
plant. This certainly places a positive light on our Company's
profitability and economies of scale. The York plant is the result of three
years of hard work, including planning and construction, and we are very
gratified to see it operating so well, and at current production levels. We
expect to continue to increase the production in York to a level between 50
and 60 million gallons a year. The timing of these expansions will coincide
with our ability to pay for them out of cash flow.
It always seems that there are new challenges with each new year, and
this year we have had certain political situations to attend to such as the
"Contract with America" by the Republicans in the House of Representatives.
We are concerned because of the effect this could have on the tax benefits
for Ethanol. These effects would be felt if a proposal from Representative
Bill Archer, a Texas Republican, is passed. This proposal seeks to limit
incentives for the Ethanol Industry by reduction and/or elimination of
Ethanol's excise tax exemption; and the elimination of the exemption for
ETBE, while not seeking any corresponding cuts in the heavy subsidies given
to domestic oil and gas that we compete against. We are fighting this
proposal with everything we have; and if not killed in the House, we hope
to kill it in the Senate. Additionally, Senator Bradley has proposed a bill
to reduce the tax benefits on Ethanol usage, but we do not believe that
this bill will proceed due to lack of support from one of its original
sponsors.
The other serious challenge that we face this year is the extraordinarily
high price for feedstock from which we manufacture Ethanol. To minimize
these costs and their effect on our profitability, we have initiated a
whole new grain buying program which includes an extensive hedging program
that is administered exclusively by Farmland Industries, Inc. We believe
these two changes in our operations will give us protection not only from
the unusually high corn and milo prices, but will give us the best industry
analysis and the insurance that we are buying at the lowest possible level
of corn prices. Farmland has 1500 sources of supply in the Midwest, and
they also have other national and international sources of supply which
would not otherwise be available to us, and which greatly enhance their
purchasing power.
I have saved the best news until now. That is the United States Treasury
Department's ruling that will insure an excise tax exemption in the
production and sale of ETBE. ETBE is an oxygenate made from Ethanol that
competes with MTBE, another oxygenate made from imported methanol and which
has been widely used by major oil companies. We believe ETBE is a far
superior product to MTBE. We also believe that our future growth will be
largely due to the advent of ETBE. At this time several major oil companies
have begun refining ETBE. We anticipate a significant increase in the
demand for Ethanol, due to its use in ETBE, because of the following
primary reasons. First, Ethanol has always had a higher vapor pressure than
MTBE, and this has limited its use in the summertime clean air programs.
MTBE has an 8.5 pounds per square inch (psi) vapor pressure while the vapor
pressure of ETBE is 3.5 psi. This enables the use of ETBE throughout the
complete driving season instead of just the primary use of Ethanol during
the Wintertime Oxygen Program. We hope to see the benefits from this ruling
in the summer of 1996. Second, ETBE is pipeline transportable or fungible;
this fact will dramatically lower the transportation cost from the Midwest
to both of the coasts. The competitiveness of pricing on the East and West
coast has not always been in favor of Ethanol due to the higher freight
costs incurred for shipment by rail or truck.
During the months of July, August, and September, High Plains has been
forward contracting a very large percentage of its Ethanol production for
the Wintertime Federal Oxygen program that runs from October through March.
The incentive for doing this is a higher price than we were receiving on
the spot market in the summertime. The majority of these shipments will go
to major oil companies, which indicates a strong trend from independent
retailers to major oil companies that now will be using Ethanol instead of
MTBE. We have held back a percentage of our summer production in order to
take advantage of what we think will be much higher demand and higher
prices during the wintertime oxygen program.
I also want to give you a progress report on the future construction of
one or two Ethanol plants in the State of Minnesota. We are reviewing
financing proposals at this point, and have just completed new exclusive
contracts with one Minnesota city granting us the right to build a plant up
to a size comparable to our recently completed York plant. Minnesota has
the strongest Ethanol program of any state, and we believe it is an ideal
location for a new plant. Minnesota has advantages that are unique to this
industry. They have mandated the use of oxygen throughout the full twelve
months of the year, and the legislature has passed a production payment
program ($.20 per gallon on the first fifteen million gallons produced per
year or $3 million per year, for ten years) to encourage the building of
plants in Minnesota. The corn crop is very adequate and, due to the
geographical location, has some of the lowest prices in the corn-belt along
with a good local market for Ethanol, which could reduce our transportation
costs on product produced. We will keep you informed as our progress on
these proposed plants continues.
Taking into consideration higher grain prices, the new grain purchasing
program, higher Ethanol prices, and the beginning of what we think will be
a strong ETBE demand, we feel the future of Ethanol is the strongest it has
ever been. We believe the potential for the growth and profitability of our
Company is greater than any year since its inception.
/Stanley E. Larson/
Chairman of the Board
President and CEO
September 24, 1995
[PHOTO: Stanley E. Larson, Chairman of the Board, President and CEO,
<PAGE>
ETHANOL OUTLOOK:
What is the "Fuel for the Heartland" program?
The "Fuel for the Heartland" project is an initiative to implement a fuel
oxygen standard throughout a fifteen state area that was designated as PADD
II (Petroleum Designation for Defense Districts) by the Federal government
in 1950. PADD II is made up of the following states: Illinois, Indiana,
Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North
Dakota, Ohio, Oklahoma, South Dakota, Tennessee, and Wisconsin.
Most of these states have a very heavy agricultural base, and the
Governors of most of these states belong to the Governor's Ethanol
Coalition, a coalition that has been very active and very successful in
advancing Ethanol use. These Governors recognize the benefits to the
citizens of their states if a uniform policy requiring a level of oxygen in
the fuels sold in their states is adopted. Not only would the air their
citizens breathe be significantly cleaner, but the likely choice of
oxygenate would be Ethanol or an Ethanol derivative such as ETBE. The
utilization of significant amounts of grain to fulfill the oxygen
requirements would add tremendous value to their locally grown grain crops;
this program would drive significant capital investment to be made in the
PADD; and economic development resulting in jobs for their citizenry would
flourish.
Much work on this program has been accomplished, and the proposal has
been well accepted in most areas. Legislation in some states is already
being drafted and is likely to resemble the language that Minnesota has
proposed for the statewide oxygen requirement planned for their state. If a
proposal similar to this is adopted within the PADD or even among several
of these or other interested states, a tremendous demand for Ethanol is
possible. Many feel that the economic benefits this type of program will
provide, will enable the fuel Ethanol industry to continue its growth as
Ethanol's excise tax exemption is phased out after the year 2000. Many also
feel that the environmental benefits of this type of program will attract
many other states and population centers who have air quality problems to
participate.
What is ETBE and how could it affect our Company?
ETBE is an acronym for ethyl tertiary butyl ether, a high octane ether
derived from Ethanol and isobutylene. ETBE production began on a limited
scale over the past several years. However, due to a recent interpretive
ruling by the U.S. Treasury and the IRS, High Plains anticipates a
significant increase in its production.
Ethanol makes up about 45% of the volume of ETBE; and historically, this
Ethanol content has qualified for a proportional ratio of the same excise
tax exemption awarded to pure blended Ethanol. Ethanol and ETBE are
marketed differently; in as much as Ethanol is normally blended with the
fuel immediately prior to retail delivery, and ETBE is blended with
gasoline at the gasoline refinery. This difference in the blending point
created a problem in actually obtaining the excise tax exemption for ETBE,
since Ethanol content in the ETBE had to be traced and verified through all
of the ownership changes in the distribution system of the fuel past the
refinery. Due to this difficulty, it was estimated that only 15% of all the
qualifying ETBE would actually obtain the exemption.
The August 4, 1995 ruling by the Treasury moved the availability of the
tax exemption from the retail blender to the ETBE manufacturer, thus
insuring that the ETBE produced
[Photo: Raymond G. Friend, Executive Vice President, Chief Financial
Officer]
[GRAPH: ETHANOL SOLD in Millions of U.S. Gallons for 1993 - 16.7,
1994 - 18.4, and 1995 - 33.6]
[GRAPH - STOCKHOLDERS' EQUITY in Millions of U.S. Dollars for
1993 - $32.3, 1994 - $32.4, and 1995 - $40.3]
[GRAPH - TOTAL EMPLOYEES in 1993 - 69, 1994 - 111, and 1995 - 127]
<PAGE>
would receive the exemption. High Plains
management believes that this clarification to the exemption process for
ETBE will create a significant demand for ETBE blends, because the $.031
excise tax exemption for a gallon of ETBE blended reformulated gasoline
(RFG) will allow the ETBE blends to be cost-competitive with other RFG.
Other properties of ETBE blends, such as lower vapor pressure, higher
boiling point, and higher octane, are far superior to properties of RFG
made with MTBE, an ether consisting of imported methanol that is
manufactured and controlled mainly by the major oil companies.
Unlike Ethanol, ETBE is allowed into the pipelines owned by the major oil
companies; and shipping fuel products by pipeline instead of by truck
transport or railcar is less expensive, opening new markets for Ethanol
products by accessing distant markets more economically. In addition, new
ether production plants with dual capability of producing ETBE or MTBE can
be built for negligible increases in capital costs above current MTBE plant
construction costs. Existing MTBE plants are being converted into ETBE or
dual ETBE/MTBE production for nominal costs. Management believes that ether
plants that will be capable of producing ETBE by October 1, 1995, the date
the Treasury ruling is effective, will approximate 20% of the total
domestic ether production, or 70,000 barrels of ETBE per day. Due to
gasoline vapor pressure limitations in several areas of the country down to
as low as 7 pounds per square inch (psi), ETBE with its 3.5 psi rating will
be much preferred over MTBE with its 8.5 psi rating, and ETBE production in
relation to overall ether production could increase quickly to well over
the 20% level.
Gasoline vapor pressure limitations are more severe in the higher
temperature summer months, and the use of ETBE is definitely more likely in
those summertime periods. However, the RFG Program is a year-round program,
and oxygenate switching back to MTBE is not likely since gasoline marketers
will be able to capitalize on the lower vapor pressure benefits all year by
being able to blend their lower cost aromatics such as butanes into the
fuel mixture, reducing the fuel's overall cost. If 70,000 barrels per day
of ETBE production is achieved, this would equate to 500 million new
gallons of Ethanol demand into ETBE per year, and the increased demand for
Ethanol into ETBE in the summertime should eliminate some of the aspects of
seasonality that our Company has experienced in the past.
[PHOTO: Enzymatic Cook Process]
What is the status of Ethanol's excise tax exemption and how does it work?
Gasoline blends containing Ethanol qualify for an exemption from the $.18
per gallon Federal Excise Tax at the following per gallon levels: 10%
Ethanol blends provide a $.054 reduction from the tax; 7.7% Ethanol blends
provide a $.042 reduction from the tax; and 5.7% Ethanol blends provide a
$.031 reduction from the tax. Gasoline blends containing ETBE will most
commonly qualify for a $.031 reduction in the excise tax.
The exemption from excise tax is the reason that Ethanol has been able to
compete on a cost basis with oil and gas. The oil and gas industry receives
both Federal and State subsidies in
<PAGE>
several different forms such as
intangible drilling writeoffs, depletion allowance, and many other methods.
Oil and gas subsidies have traditionally been at much higher levels than
those received by the Ethanol industry and have continued for over half of
a century. Oil and gas subsidies are needed by their industry to compete
with foreign oil, and these subsidies allow them to sell their gasoline
products at prices that don't reflect their true cost.
The oil and gas industry has actively excluded Ethanol from their
gasoline markets, but the Ethanol exemption has allowed independent
gasoline marketers to profit from Ethanol additives. Consequently,
independent marketers sell significant quantities of Ethanol enriched fuel.
The manner in which they profit is summarized in the table below, using
current prices, and assuming a RFG clean air program marketing area:
<TABLE>
<CAPTION>
ETHANOL ETBE MTBE
REFORMULATED GASOLINE COMPONENTS BLEND BLEND BLEND
<S> <C> <C> <C>
Gasoline ($.55/gal wholesale)*
94.3% of each gal @ $.55 $.51865
87.5% of each gal @ $.55 $.48125 $.48125
Ethanol ($1.12/gal)*
5.7% of each gal @ $1.12 .06384
ETBE or MTBE ($.87/gal)*
12.5% of each gal @ $.87 .10875 .10875
Excise Tax Credit (.03078) (.03078)
Net Cost per Gallon $.55149 $.55922 $.59000
<FN>
*Prices as of September 29, 1995
</TABLE>
As can be seen from the table, a gasoline retailer, who sells
reformulated gasoline in which either pure Ethanol or ETBE have been
utilized as oxygenates, will profit by over three cents per gallon in this
instance. Pure Ethanol's higher vapor pressure could cost the marketer
about one cent of that additional margin, by requiring the marketer to
remove some of the excess and inexpensive volatiles from the pure Ethanol
blend. ETBE's lower vapor pressure should allow the marketer to profit by
an additional one cent per gallon, as lower cost volatiles can be added to
the ETBE blend, thereby cutting his overall fuel cost.
With this type of savings being achieved by independent marketers, the
larger oil companies have begun to utilize Ethanol blends, especially in
the oxy-fuel programs, in order to maximize their profitability.
Is the Company able to protect itself from higher grain prices?
The Company believes that it has protected itself from the effects of
additional increases in the cost of the grain feedstock that it will
utilize in its production of Ethanol.
The cost of corn/sorghum is the largest single cost that our Company
incurs in the production of Ethanol. The net cost of our grain feedstock,
after deducting the revenue generated from the grain residue, distiller's
grain (DDG), containing all of the protein, fat, and fiber not consumed in
Ethanol manufacture, equals approximately 60% of our gross revenues. When
the cost of grain increases, normally the cost of producing Ethanol
increases. However, the Company, through Farmland Industries, Inc.'s Grain
Division, has initiated a grain purchasing strategy to reduce the effects
of higher grain prices which are anticipated by the Company.
High Plains has forward contracted for approximately 50% of all its
anticipated feedstock requirements through September of 1996. Approximately
30% of expected feedstock requirements for the fourth quarter of calendar
year 1996 have also been forward contracted as well. Average prices that
the Company expects to pay through September of 1996 on these bushels are
in the range of $2.75 per bushel.
The Company believes that the 50% level is an appropriate level of price
protection due to the ability of the Company to sell its grain residue,
DDG, at higher prices. The Company's DDG prices normally move in the same
direction as grain prices, and accordingly now are providing the Company
with additional revenue, making it possible for the Company to cover
between 35% and 50% of the additional cost of upward grain price movement.
As a result of the effect of DDG prices covering about one-half of grain
cost increases and our grain strategies covering the other half of the
grain cost increases, the Company feels it has protected itself from
additional and significant upward grain movement for at least the next
twelve months.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
High Plains derives revenue from the sale of Ethanol and
Distiller's grain (DDG). The sales price of Ethanol historically
has varied directly with the wholesale price of gasoline, which
is primarily dependent upon the spot market for crude oil. In the
past, Ethanol producers have been able to obtain a higher price
per gallon than wholesale gasoline prices because of Federal
excise tax rate reductions available to customers who blend
Ethanol with gasoline and direct and indirect incentive payments
from state governments.
Recently, Ethanol sales prices have also reflected a premium
for the oxygenate and octane enhancing properties of Ethanol.
Demand for Ethanol products also affects price, and is influenced
by the cost and availability of alternative oxygenate products.
Two programs established by the Clean Air Act amendments of 1990
are increasing the demand for Ethanol. The Federal Oxygen
Program, the first of these two programs, became effective
November 1, 1992, and the second program the Reformulated
Gasoline (RFG) program was implemented on January 1, 1995. A
proposal under the RFG program, which would have mandated the use
of renewable oxygenates such as Ethanol, was eliminated from the
final version of the RFG program in April, 1995. However, the
Company believes that Ethanol and ETBE, an Ethanol based fuel
additive with a low vapor pressure, are competitive in the market
place without the benefit of this mandate and thus, demand is not
expected to be negatively affected.
In addition, the Company believes a recent ruling by the U.S.
Treasury Department, which will allow the production and sale of
ETBE to qualify for an excise tax exemption will result in an
increase in demand for ETBE and consequently Ethanol, its major
ingredient. However, recent legislative committee proposals are
attempting to reduce or eliminate Ethanol's excise tax exemption
and eliminate the exemption for ETBE. In addition, certain
proposals have been introduced which would reduce the tax
benefits of Ethanol usage. The Company does not believe these
legislative proposals will proceed due to a lack of support
currently demonstrated by the original sponsors, and thus, are
expected to be eliminated or withdrawn.
The Company's primary grain feedstock for fiscal 1995,
continues to be sorghum (also known as milo), however, the use of
corn represented approximately 34% of total grains utilized for
both plants. The Colwich, Kansas plant production relied almost
exclusively on sorghum as its grain feedstock, while production
at the York, Nebraska facility relied on a mixture of
approximately 70% corn and 30% sorghum. The cost of these grains
is primarily dependent upon factors unrelated to those affecting
the price of Ethanol. Sorghum prices generally vary directly with
corn prices, and both are influenced by local grain supplies and
market prices as well as world market conditions. The selling
price of DDG generally varies with sorghum and corn prices, so
that increases in grain costs are partially offset by increases
in DDG prices. DDG sales accounted for 22.7%, 25.0%, and 20.8% of
sales in fiscal 1993, 1994, and 1995 respectively.
High Plains attempts to control its major operating costs and
revenues by periodically employing certain strategies including
grain trading and forward contracting. As to the risk of
increased grain prices, the Company's DDG increases in price as
grain prices increase and normally offsets about one-half the
effect of grain price increases. During 1995, and in prior years,
in an attempt to secure favorable grain feedstock costs, the
Company has utilized forward grain purchase contracts with local
farmers.
On July 1, 1995, the Company entered into an exclusive grain
supply agreement with Farmland Industries, Inc. (Farmland) to
supply all grain needs for the Company's Colwich, Kansas and
York, Nebraska plants for one year with automatic renewal for
one-year terms. The agreement may be terminated by either party
at any time upon thirty days written notice.
The Company immediately began contracting with Farmland under
variable priced forward grain contracts for approximately 50% of
its feedstock requirements through September, 1996. An estimated
30% of the Company's grain requirements for the fourth quarter of
calendar 1996 have been placed under variable priced forward
contracts as well. The Company anticipates average prices for
grain procurement under these contracts through September 1996,
to be in the range of $2.75 per bushel.
The Company believes the Farmland agreement will contribute to
the Company's ability to minimize grain costs by providing
greater access to a larger number of grain sources and access to
more complete feedgrain analysis and forecast information.
The Company has traditionally sold a majority of its Ethanol
production based on spot market conditions during spring and
summer. However, during the winter the Company continues to sell
up to 80% of its Ethanol under fixed price forward contracts that
secure Ethanol deliveries for customers and help protect the
Company against spot market price changes.
The Company normally sells all of its production volume and
typically has less than two weeks inventory on hand. The increase
in sales volume in 1995 over prior fiscal years was primarily due
to the completion and successful start-up of the Company's York,
Nebraska facility. In fiscal 1995, the Colwich plant produced
17.8 million gallons, a 3.8% decrease in Ethanol production below
the 18.5 million gallons produced in fiscal 1994. The reduced
1995 production at the Colwich facility was primarily due to
downtime for equipment repairs at the plant. Fiscal 1995
production at the Colwich facility reflects a 6.6% increase over
the 16.7 million gallons produced at the facility in fiscal 1993.
Production began on a test basis, in November, 1994, at the York,
facility. Sustained economic production was achieved by January
1, 1995, and resulted in total production at the York plant of
15.7 million gallons for fiscal 1995.
The Company has expanded the Colwich plant to a production
capacity of approximately 20 million gallons per year, which
management has determined is its maximum efficient level of
production. The York plant was designed to produce 30 million
gallons annually and at the end of the 1995 fiscal year, the
plant was operating at this rate of capacity. Subsequent to
fiscal year ended 1995, the York facility achieved production
levels in excess of design capacity. Thus, management believes
the maximum efficient level of production as yet, has not been
achieved. Future volume growth beyond these maximum levels will
be dependent upon improvements to the York facility and
successful construction and operation of new Ethanol production
facilities.
Nonrecurring Events
Several events occurred in fiscal 1994 that had significant
impact on the Company's business and operations. The net effect
of these events has been separately disclosed in the financial
statements totaling $1,535,363.
During March and April, 1994 the Company inadvertently
processed undisclosed ingredients into one batch of its DDG, due
to those ingredients being contained in materials provided by a
vendor. With the ingredients inclusion in the DDG and when
coupled with specific other feed products, certain customers
experienced cattle losses which the Company's product liability
insurance is expected to fully cover. Other related expenses
totaling $859,848 in fiscal 1994 incurred in connection with this
incident, including costs of product recall, freight, legal fees
and inventory losses, were not covered by the Company's liability
insurance, and were provided for at June 30, 1994. For the year
ended June 30, 1995, $108,000 of additional charges in excess of
the original reserve estimate were incurred, primarily for legal
fees and freight.
The Company intends to vigorously pursue a claim against the
vendor for the full cost of the product recall caused by the
undisclosed ingredients, as well as related lost profits;
however, no provision has been made for any such recovery for
fiscal years ended 1995 or 1994.
A major customer of the Company with an outstanding trade
receivable balance of $675,515, filed for protection under
Chapter 11 of the Bankruptcy Code during June, 1994. A one-time
charge for the write-down of this receivable was recorded at June
30, 1994. The Company included no write-downs of trade
receivables for the same period ended June 30, 1995, or June 30,
1993. Historically, the Company's bad debt expense has been less
than .1% of sales.
<PAGE>
Results of Operations
The following table sets forth certain items in the Company's
statements of operations expressed as percentages of net sales
for the periods indicated:
<TABLE>
<CAPTION>
For the Years ended June 30, 1995 1994 1993
<S> <C> <C> <C>
Ethanol and incentive revenues 78.4% 73.5% 74.9%
Distillers grain and other 21.6 26.5 25.1
Net sales and revenues 100.0 100.0 100.0
Cost of sales 82.8 92.6 80.8
Gross profit 17.2 7.4 19.2
Selling, general and
administrative expenses 2.9 5.7 4.1
Operating income 14.3 1.7 15.1
Interest expense (2.4) 0.0 (1.3)
Non-recurring expense (0.2) (4.6) 0.0
Other operating income
(expense) 0.1 0.1 (0.1)
Net earnings before
income taxes and
extraordinary item 11.8 (2.8) 13.7
Income tax expense (benefit) 0.3 0.0 (1.2)
Net earnings before
extraordinary item 11.5 (2.8) 14.9
Extraordinary gain 0.0 0.0 2.1
Net earnings 11.5% (2.8)% 17.0%
</TABLE>
<TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994:
<CAPTION>
1995 1994
<S> <C> <C>
Ethanol and incentive revenues $41,355,707 $24,673,903
By-products and other 11,413,307 8,892,368
Total sales and revenues $52,769,014 $33,566,271
</TABLE>
Net sales and revenues for the year ended June 30, 1995 were
higher than sales for the same period ended June 30, 1994.
Ethanol production of 33,576,788 gallons, generated sales with an
average selling price of $1.23 per gallon for the year ended June
30, 1995, compared to 18,449,822 gallons sold during the same
period in fiscal 1994 at an average selling price of $1.34 per
gallon. Production and sales increased significantly in fiscal
1995 compared to fiscal 1994 primarily due to the start-up of the
York, Nebraska facility in fiscal 1995. Included in Ethanol sales
are amounts of $1,304,019 and $1,647,420 for fiscal 1995 and
1994, respectively, for Ethanol produced under the Kansas
production incentive program. These payments ranged from $.08 to
$.10 per gallon of Ethanol produced. The Kansas incentive program
is scheduled to expire July 1, 1997. The Company believes the
Kansas legislature will continue to support the incentive program
due to its economic benefits to agriculture, and thus, support an
extension for the incentive program. An additional $2,713,772 in
production tax credits from the State of Nebraska were recorded
as Ethanol sales for the year ended June 30, 1995. Under the
Nebraska program the Company receives an incentive in the form of
a transferrable production tax credit in the amount of $.20 per
gallon of Ethanol produced. Not less than two million gallons and
not more than twenty-five million gallons produced annually, at
the Nebraska facility, are eligible for this credit. The Company
is no longer eligible for this credit after December 31, 1999.
The selling price of Ethanol is influenced by several factors,
including crude oil and wholesale gasoline prices and product
demand. The Federal Oxygen Program, which replaced various state
winter fuel oxygen programs and covers approximately 40 separate
metropolitan areas and the RFG program, have also affected
Ethanol pricing due to demand for Ethanol's oxygen content.
For the year ended June 30, 1995, by-products and other sales
totaled $15,431,098. For the same period ended June 30, 1994,
by-products and other sales totaled $8,922,368 of which
$363,000 was from equipment sales.
Cost of sales as a percentage of total sales was 82.8% and
92.6% for fiscal 1995 and 1994, respectively. The decrease in
cost of sales as a percentage of sales was primarily due to lower
average grain costs in fiscal 1995. The Company's cost of grain
averaged $2.25 per bushel during the year ended June 30, 1995
compared to an average cost of $2.73 per bushel for the same
period ended June 30, 1994.
Selling, general and administrative expenses decreased by 20%
in 1995 over 1994. This decrease was primarily the result of
higher compensation expense related to stock options previously
granted, which were earned during the year ended June 30, 1994.
For the year ended June 30, 1995 no compensation expense related
to stock options was recognized.
The Company recorded net income of $6,072,407 for the year
ended June 30, 1995, compared to a net loss of $(933,453) for the
year ended June 30, 1994, with an increase in gross margin
percentage from 7.4% of net sales in fiscal 1994 to 17.2% of net
sales for the same period ended 1995. Net income for fiscal 1995
primarily improved as a result of lower cost of goods sold.
<TABLE>
FISCAL 1994 COMPARED TO FISCAL 1993:
<CAPTION>
1994 1993
<S> <C> <C>
Ethanol and incentive revenues $24,673,903 $23,590,019
By-products and other 8,892,368 7,900,207
Total sales and revenues $33,566,271 $31,490,226
</TABLE>
Net sales and revenues for the year ended June 30, 1994, were
higher than sales for the same period ended June 30, 1993.
Ethanol production of 18,449,822 gallons, from the Colwich
facility, generated sales with an average selling price of $1.34
per gallon for the year ended June 30, 1994, compared to
16,741,131 gallons sold during the same period in fiscal 1993 at
an average selling price of $1.41 per gallon. Included in Ethanol
sales are amounts of $1,647,420 and $1,605,777 for fiscal 1994
and 1993, respectively, for Ethanol production under the Kansas
production incentive program. These payments have ranged from
$.08 to $.10 per gallon of Ethanol produced. The Kansas incentive
program is scheduled to expire July 1, 1997. The selling price of
Ethanol is influenced by several factors, including crude oil and
wholesale gasoline prices and product demand. The Federal Oxygen
Program, which replaced various state winter fuel oxygen programs
and covers approximately 40 separate metropolitan areas, has also
affected Ethanol pricing due to demand for Ethanol's oxygen
content.
For the year ended June 30, 1994, by-products and other sales
totaled $8,922,368 of which $363,000 is from the completion of
the sale of an Ethanol dehydration facility manufactured by the
Company and sold to a company located in Central America. During
the same period ending
<PAGE>
June 30, 1993, the Company included in the
classification of by-products and other sales of $7,900,207,
revenue of $725,000 derived from the initial phases of the
manufacturing of the same facility.
Cost of sales as a percentage of total sales was 92.6% and
80.8% for fiscal 1994 and 1993, respectively. The increase in
cost of sales as a percentage of sales was due to higher average
grain costs. The Company's cost of milo averaged $2.73 per bushel
during the year ended June 30, 1994, compared to an average cost
of $2.19 per bushel for the same period ended June 30, 1993.
During fiscal 1994, the Company engaged in grain trading
activities to reduce the impact of fluctuating grain prices. The
net results of these trades were negligible, and the Company was
unsuccessful in protecting itself from higher grain costs.
Gross profit for the year ended June 30, 1994, includes no
gross profit realized from the sale of a dehydration facility to
a company located in Central America compared to approximately
$340,000 gross profit realized for the year ended June 30, 1993.
Selling, general and administrative expenses increased by 49%
in 1994 over 1993. This increase was primarily the result of
higher compensation expense related to stock options previously
granted, which were earned during the year ended June 30, 1994.
The Company recorded a net loss of $933,453 for the year ended
June 30, 1994, with a decline in gross margin percentage of
61.5%, from 19.2% of net sales in fiscal 1993 to 7.4% of net
sales for the same period ended 1994. The net loss is a result of
higher cost of goods sold, write-off of a trade receivable due to
customer's insolvency and the expenses incurred related to a DDG
product recall.
Seasonality
Historically, the Company's sales and gross profits have been
higher in its second and third fiscal quarters. Ethanol
production decreases somewhat during hot summer months because of
the difficulty of controlling higher temperature levels in the
Ethanol fermentation process. Therefore, the Company has had
higher levels of production to sell during the cooler months of
its second and third fiscal quarters. Traditionally, the
Company's cost of feedstock, and thus its cost of goods sold, has
been lowest during and shortly following the autumn grain harvest
in the second and third quarters of its fiscal year. Demand, and
therefore the sales price, for Ethanol has been higher in winter
months due to state and local government winter fuel oxygen
programs and, beginning in fiscal 1993, due to the Federal Oxygen
Program. Despite several cities in the Northeast opting out of
the Federal Oxygen Program during fiscal 1995, Ethanol demand
increased during this same period, in response to the continuing
success of the oxygenate program in the West and Northwest market
areas. In prior years, summer demand for Ethanol was not
influenced by oxygenate programs. However, as ETBE manufacturing
increases in response to expected summertime use of ETBE as an
oxygenate, it is anticipated that Ethanol demand will increase
and prices will not be as negatively impacted as in prior summer
seasons. In addition, summer Ethanol demand has been influenced
somewhat by increased automobile use and fuel consumption and the
withdrawal from the Ethanol market of certain producers who
operate wet milling facilities and during the summer months
choose to produce high fructose corn syrup for use in beverages
rather than producing Ethanol. With the implementation of the RFG
program which began on January 1, 1995, the Company experienced a
small increase in demand. A stronger year-round demand for
oxygenates such as Ethanol is anticipated in response to the RFG
program implementation. However, at this time, the Company is
unable to fully determine the impact of the RFG program on the
future demand, seasonality of the demand, or price of Ethanol.
During fiscal 1995, several cities optioned not to participate in
the RFG program. However, other cities such as San Antonio and
Corpus Christi, Texas, are pursuing voluntary submission into
this program. Currently, nine major metropolitan areas are
required to participate in the Reformulated Gasoline Program with
an additional 14 states or portions there of and the District of
Columbia voluntarily submitting to its requirements.
Income Taxes
Based upon the net operating loss and tax credit carryforwards
available to the Company as of June 30, 1995, the Company expects
that, at current rates, subject to the possible Section 382
limitation discussed below, up to $7,700,000 of earnings before
income taxes after June 30, 1995, may be substantially shielded
from future federal income tax expense for financial reporting
purposes. See Note 8 to the Financial Statements for additional
information.
If changes in the stock ownership of the Company cause the
Company to undergo an "ownership change," as broadly defined in
Section 382 of the Internal Revenue Code (a "Section 382 Event"),
utilization of the Company's net operating loss and tax credit
carryforwards may be subject to an annual limitation. The Company
does not expect this annual limitation to necessarily limit the
total net operating loss and tax credit carryforwards utilized in
the future. However, this annual limitation could defer
recognition of these tax benefits. The Company believes that a
Section 382 Event has not occurred during the last three years.
However, application of the complex provisions of Section 382 may
be subject to differing interpretations by taxing authorities.
The Company has no current plans which are expected to result in
a Section 382 Event in the immediate future. However, large
purchases of the Company's stock by a single stockholder could
create a Section 382 Event and would be beyond the Company's
control.
Liquidity and Capital Resources
The Company has obtained funds during the last three fiscal
years from several sources, cash provided from operations, the
March 26, 1993 public stock offering, and proceeds from long-term
and short-term debt. Cash provided from operating activities
amounted to $4,507,424 in fiscal 1995 compared to $5,320,769 in
fiscal 1994. In fiscal 1993 cash provided from operating
activities amounted to $4,783,224. The decrease in cash provided
from operating activities in 1995 was primarily attributable to
the increase in trade accounts receivable and inventories
resulting from the start-up operations of the York, Nebraska
plant.
Cash and cash equivalents amounted to $600,381 at June 30,
1995, compared to $131,105 at June 30, 1994, and $230,773 at June
30, 1993. At June 30, 1995, the Company had a working capital
deficit of $(485,834) compared to working capital deficit of
$(2,544,316) at June 30, 1994, and a working capital surplus of
$2,960,512 at June 30, 1993. This significant improvement in
working capital deficit during fiscal 1995 was largely due to the
increase in trade accounts receivable and inventories resulting
from operations of the York, Nebraska facility and the exercise
of stock options.
Due to the volatility in the selling price of Ethanol, as well
as the cost of the Company's raw materials, the Company continues
to be exposed to liquidity risk. However, since 1992, Ethanol
pricing has been influenced by its oxygenate and octane value
which have contributed to higher prices and stronger demand.
Increases in demand and pricing help to offset some liquidity
risk.
With Ethanol's expanded role in the fuel markets as an
oxygenate under the Federal Oxygen Program and the Reformulated
Gasoline Program, and should this trend continue, the Company
anticipates it will be able to satisfy its liquidity needs
through operating activities. However, if the Company experiences
an increase in the costs of its feedstocks, decrease in the
demand for oxygenates, or instability in the oil markets results
in decreased prices for gasoline, then the Company's liquidity
and cash reserves could be potentially inadequate on a long-term
basis.
Capital expenditures in fiscal 1995 amounted to $17,015,408
compared to $17,389,618 in fiscal 1994, and $6,202,496 in fiscal
1993. In fiscal 1995, $16,159,518 of the expenditures were for
construction-in-progress, compared to $16,075,737 in 1994 and
$3,030,000 in 1993, for the York, Nebraska plant. The York
facility was completed in November, 1994, any additional
expenditures on the facility are expected to be funded by cash
flow from operations. The balance of expenditures were for
improvements at the Colwich, Kansas facility.
<PAGE>
The Company believes that capital expenditures at the Colwich
plant are for relatively minor, ongoing capital improvements. No
further expansion of the plant's Ethanol production capacity is
considered practicable, due to cost. However, improvements may be
made to the plant to improve efficiency or to improve the
recoverability of by-products. Examples of these possible future
improvements would be carbon dioxide recovery and co-generation
of electricity. No such improvements are planned at this time.
The Company does not have any material cash commitments to
acquire capital assets as of June 30, 1995, other than those made
in connection with the completion of the York, Nebraska facility.
In fiscal 1993 the Company began the construction of a 30
million gallon per year Ethanol production facility in York,
Nebraska. A significant portion of equipment needed for this
plant was acquired through a purchase of a facility located in
New Iberia, Louisiana owned by the Department of Energy (DOE) for
$3,000,000. The acquisition of this plant equipment was financed
by cash flow from operations and a portion of the proceeds from
the sale of common stock over long-term debt repayment.
During fiscal 1994, the Company purchased a substantial amount
of additional equipment required for the York, Nebraska plant
when it bought a portion of the Kentucky Agrifuels' plant in
Franklin, Kentucky, for approximately $1.5 million. The Company
financed the dismantling and moving of the New Iberia plant, the
purchase of equipment from the Kentucky Agrifuels plant, the site
preparation work, and concrete work for the York, Nebraska plant
through cash flow from operations and a $3,000,000, 5-year,
8-1/2% loan from General Electric Capital Corporation (GECC).
In December, 1993, the Company entered into a credit agreement
with Bank One, Indianapolis, N.A. for a construction loan for the
financing of the York, Nebraska plant. Advances from the loan
were used to retire the GECC note and to fund the construction
and equipping of the Ethanol facility in Nebraska. The
construction loan provided for monthly draws up to a total of
$25,000,000. Interest on the loan was at the rate of 1.25% over
the Bank One prime rate.
The construction loan converted to a term loan in the amount of
$25,000,000 on October 31, 1994. The term loan provided for
monthly installments of $297,619, plus interest at a two-year
fixed rate equal to 1.5% over the Bank One prime rate, with a
final payment due September, 2000. At June 30, 1995, the interest
rate was 9.7%. The Bank One notes are secured by both the
Colwich, Kansas and York, Nebraska Ethanol plants, land, all
equipment, accounts receivable and inventory.
Expected future tax deferrals - As mentioned above, under
"Income Taxes", the Company expects that at current rates, up to
$7,700,000 of future earnings before income taxes may be
substantially shielded from future tax expense for financial
reporting purposes. However, the tax expense expected to be
incurred by the Company after approximately $7,700,000 of
earnings is expected to be deferred tax expenses, not currently
payable. Accordingly, the Company expects to defer its tax
obligations, making use of its NOL and tax credit carryforwards,
for a period of time after such earnings are achieved, providing
additional capital resources for working capital or plant
expansion. Based upon the net operating loss and tax credit
carryforwards available to the Company as of June 30, 1995, the
Company expects that, at current rates, up to $24,300,000 of
earnings before income taxes after June 30, 1995, may be
substantially shielded from tax payments. Thus, while $7,700,000
of future income may be shielded from tax expense, an additional
$16,600,000 of future pre-tax earnings is expected to be subject
to deferred tax expense, but the cash flow from such pretax
earnings should be available for working capital or plant
expansion without impairment by current tax payments.
Inflation
General inflation increased slightly, but continued to be
moderate during the years ended June 30, 1995, 1994 and 1993.
Management of the Company believes that inflation has a
relatively minor direct impact on its results of operations.
While certain types of costs (such as salaries) are affected by
inflation, the items which most affect the Company's operations
are Ethanol prices and the cost of grain, which are influenced by
a variety of factors. The impact of inflation on these items is
not readily determinable.
Other
In March, 1994 the EPA issued new regulations which implement
certain requirements of the 1990 Clean Air Act requiring
significant reductions in toxic air emissions over the next three
years. The Company does not expect any material adverse impact on
its financial condition, results of operations, or liquidity due
to additional capital expenditures necessary to comply with such
regulations.
<PAGE>
<TABLE>
Statement of Operations
Years Ended June 30, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales and revenues $ 52,769,014 $ 33,566,271 $ 31,490,226
Cost of sales 43,698,552 31,098,523 25,433,391
Gross profit 9,070,462 2,467,748 6,056,835
Selling, general and administrative
expenses 1,519,615 1,900,032 1,287,604
Operating income 7,550,847 567,716 4,769,231
Other income (expense):
Interest and other income 151,511 1,705 11,674
Interest expense (1,268,354) -- (414,860)
Gain (loss) on sale of equipment (112,024) 36,937 (33,525)
Non-recurring expenses (108,196) (1,535,363) --
(1,337,063) (1,496,721) (436,711)
Net earnings (loss) before
income taxes and
extraordinary item 6,213,784 (929,005) 4,332,520
Income tax expense (benefit) 141,377 4,448 (363,200)
Net earnings (loss) before
extraordinary item 6,072,407 (933,453) 4,695,720
Extraordinary item:
Extraordinary gain on
extinguishment of debt,
less income tax effect of
$465,848 and bonus effect
of $119,000 -- -- 642,071
Net earnings (loss) $ 6,072,407 $ (933,453) $ 5,337,791
Earnings (loss) per common and dilutive
common equivalent share:
Earnings (loss) before
extraordinary item $ .39 $ (.06) $ .46
Extraordinary item -- -- .06
$ .39 $ (.06) $ .52
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Stockholders' Equity
Years Ended June 30, 1995, 1994, and 1993
<CAPTION>
Preferred Stock Common Stock
Number Number Additional Retained Earnings
of of Paid-in (Accumulated Deferred Treasury
Shares Amount Shares Amount Capital Deficit) Compensation Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 25,000 $150,000 2,837,404 $ 283,740 $12,190,039 $(6,267,485) $ (191,450) $(244,377) $ 5,920,467
Exercise of
stock options 70,000 7,000 140,200 147,200
Issuance of stock
options to officers
and employees in lieu
of additional
compensation 1,523,750 (1,443,750) 80,000
Amortization of
deferred compensation (303,750) 535,200 231,450
Deferred offering costs (571,298) (571,298)
Net earnings for year 5,337,791 5,337,791
Issuance of 2,200,000
shares common stock,
$.10 par value 2,200,000 220,000 20,966,000 21,186,000
Balance, June 30, 1993 25,000 150,000 5,107,404 510,740 33,944,941 (929,694) (1,100,000) (244,377) 32,331,610
Six for five stock split 1,021,478 102,148 (102,148)
Six for five stock split 1,225,777 122,578 (122,578)
Three for two stock
split 3,677,329 367,733 (367,733)
Amortization of deferred
compensation 1,014,368 1,014,368
Change in valuation of
deferred compensation (85,632) 85,632
Net loss for year (933,453) (933,453)
Balance, June 30, 1994 25,000 150,000 11,031,988 1,103,199 33,266,850 (1,863,147) -- (244,377) 32,412,525
Exchange of preferred
stock for common stock (25,000) (150,000) 36,918 3,692 146,308 --
Exercise of stock options 615,479 61,548 1,704,258 1,765,806
Four for three split 3,786,562 378,656 (378,656) --
Net earnings for year 6,072,407 6,072,407
Balance, June 30, 1995 -- $ -- 15,470,947 $1,547,095 $34,738,760 $ 4,209,260 $ -- $(244,377) $40,250,738
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Balance Sheets
June 30, 1995 and 1994
ASSETS
<CAPTION>
1995 1994
<S> <C> <C>
Current assets:
Cash $ 600,381 $ 131,105
Trade accounts receivable (less allowance of
$110,000 and $100,000 in 1995 and 1994) 3,948,761 2,067,572
Inventories 2,645,277 941,862
Current portion of long-term notes receivable 96,691 --
Refundable income taxes -- 107,825
Prepaid expenses 384,859 461,939
Total current assets 7,675,969 3,710,303
Property, plant and equipment, at cost:
Land and land improvements 142,283 177,783
Ethanol plant 72,387,277 37,502,487
Other facilities and equipment 300,210 249,662
Office equipment 231,284 248,983
Leasehold improvements 48,002 43,798
Construction-in-progress -- 19,105,781
73,109,056 57,328,494
Less accumulated depreciation 14,806,417 12,949,388
Net property, plant and equipment 58,302,639 44,379,106
Other assets:
Property and equipment held for resale 798,763 310,842
Deferred loan costs less accumulated
amortization of $65,857 in 1995 411,610 446,819
Long-term notes receivable 265,711 --
Other 62,609 68,413
Total other assets 1,538,693 826,074
$ 67,517,301 $ 48,915,483
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1995 1994
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 3,876,972 $ 2,083,333
Accounts payable 3,796,048 3,858,686
Accrued interest 185,163 79,464
Accrued payroll and property taxes 356,108 233,136
Total current liabilities 8,214,291 6,254,619
Long-term debt, excluding current
maturities 19,052,272 10,248,339
Stockholders' equity:
Cumulative preferred stock -- 150,000
Common stock, $.10 par value, authorized
50,000,000 shares and 14,000,000 shares
at June 30, 1995 and 1994, respectively;
issued 15,470,947 shares and 11,031,988
shares at June 30, 1995 and 1994,
respectively, of which 289,440 and 217,080
shares were held as treasury stock at
June 30, 1995 and 1994 1,547,095 1,103,199
Additional paid-in capital 34,738,760 33,266,850
Retained earnings (accumulated deficit) 4,209,260 (1,863,147)
40,495,115 32,656,902
Less:
Treasury stock - at cost (244,377) (244,377)
Total stockholders' equity 40,250,738 32,412,525
$ 67,517,301 $ 48,915,483
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
Statement of Cash Flows
Years Ended June 30, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) before extraordinary item $ 6,072,407 $ (933,453) $ 5,337,791
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 2,084,469 2,077,796 1,822,067
Provision for bad debt 68,487 100,000 --
Issuance of stock options to
directors, officers and employees -- -- 80,000
(Gain) loss on sale of equipment 112,024 (36,937) 33,525
Gain on extinguishment of debt -- -- (1,226,918)
Amortization of deferred compensation -- 1,014,368 231,450
Reduction of interest expense as a result
of amortization of debt forgiveness -- -- (752,303)
Payments received on notes receivable 37,598 -- --
Changes in operating assets and liabilities:
Trade accounts receivable (1,949,675) 209,426 517,739
Inventories (1,703,415) 54,908 100,936
Equipment held for resale (487,921) 35,000
Costs and estimated earnings in excess
of billings on uncompleted contracts -- 100,000 (100,000)
Refundable income taxes 107,825 (107,825)
Prepaid expenses 52,080 (73,099) (99,526)
Accounts payable (62,638) 2,772,874 (1,110,795)
Accrued liabilities 228,671 107,711 (50,742)
Net cash provided by operating activities 4,559,912 5,320,769 4,783,224
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 586,237 86,937 14,743
Acquisition of property, plant and equipment (16,519,158) (17,389,618) (6,020,496)
Increase in other non-current assets 5,804 (449,428) (23,034)
Net cash used in investing activities (15,927,117) (17,752,109) (6,028,787)
Cash flows from financing activities:
Payments on long-term debt (2,567,006) (3,000,000) (19,324,666)
Proceeds from long-term debt 12,668,328 15,331,672 --
Payments on short-term debt (1,000,000) -- --
Proceeds from short-term debt 1,000,000 -- --
Increase in other non-current assets (30,648) -- --
Proceeds from issuance of common stock
net of deferred offering costs -- -- 20,614,702
Proceeds from exercise of options 1,765,807 -- 147,200
Net cash provided by financing activities 11,836,481 12,331,672 1,437,236
Increase (decrease) in cash and cash equivalents 469,276 (99,668) 191,673
Cash and cash equivalents:
Beginning of year 131,105 230,773 39,100
End of year $ 600,381 $ 131,105 $ 230,773
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories - Inventories are stated at the lower of cost
(first-in, first-out) or market.
Property, Plant and Equipment and Depreciation - Property, plant
and equipment are recorded at cost. The cost of
internally-constructed assets includes direct and allocable
indirect costs. Interest costs during plant construction
capitalized during 1995 and 1994 were $889,211 and $391,801,
respectively. Plant improvements are capitalized, maintenance
and repair costs are charged to expense as incurred.
Periodically, a plant or a portion of a plant's equipment is
shut-down and up to 12 months of maintenance performed; such
maintenance is included in prepaid expenses and amortized over
the future 12-month period benefited.
Provisions for depreciation of property, plant and equipment are
computed by use of the straight-line method over the following
estimated useful lives:
Ethanol plants 5 - 40 years
Other facilities and equipment 5 - 10 years
Office equipment 3 - 10 years
Leasehold improvements 5 years
See Note 16 for discussion of change in estimated depreciable
lives of the ethanol plant.
Deferred Loan Costs - High Plains Corporation (the Company)
incurred certain costs with the financing obtained during the
years ended June 30, 1995 and 1994. The Company is amortizing
these costs over fifty-eight months, the life of the debt.
Income Taxes - The Company uses an asset and liability approach
to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established
when considered necessary to reduce deferred tax assets to the
estimated amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
Under FASB Statement No. 109, Accounting for Income Taxes, the
tax benefit from utilization of loss carryforwards is not
reflected as an extraordinary item.
Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents.
Deferred Compensation - Deferred compensation represents stock
options granted to directors, officers and employees in lieu of
directors' fees or additional compensation to be earned in
future periods. Deferred compensation was amortized during 1993
and 1994 over the period the directors' fees and compensation
were to be earned. See Note 11 and the Statements of
Stockholders' Equity.
Reclassifications - Certain items have been reclassified on the
1994 and 1993 income statements and the 1994 balance sheet to be
consistent with the classifications in 1995.
2. DESCRIPTION OF BUSINESS AND RELATED PARTIES
Ethanol Production Business - The Company was formed February
28, 1980 for the purpose of constructing and operating a plant
in Colwich, Kansas for the distillation and production of power
grade ethanol for sale to customers concentrated primarily in
the Western United States for mixture with gasoline to be used
as a motor fuel. The Company's operations are dependent upon
state governmental incentive payments. Kansas production
incentive payments recorded as ethanol sales in the accompanying
financial statements were $1,605,777 for fiscal 1993, $1,647,420
for fiscal 1994 and $1,304,019 for fiscal 1995. The Kansas
incentive program is currently scheduled to expire July 1, 1997.
The Company began similar operations at a second plant in York,
Nebraska in November 1994. The State of Nebraska offers a
transferable production tax credit in the amount of $.20 per
gallon of ethanol produced for a period of sixty months from
date of first eligibility. The credit is only available to
offset Nebraska motor fuels excise taxes. The Company
transferred these credits to a Nebraska gasoline retailer during
1995 which then reimbursed the Company for the credit amounts
less a handling fee. The Company will no longer be eligible for
this credit after December 31, 1999. Not less than two million
gallons and not more than twenty-five million gallons of ethanol
produced annually at the Nebraska facility are eligible for the
tax credit. Nebraska production tax credit amounts recorded as
revenues in the accompanying financial statements were
$2,713,772 in fiscal 1995.
The market for the Company's ethanol product is affected by the
Federal government's excise tax incentive program scheduled to
expire on September 30, 1999. Under this program, gasoline
distributors who blend gasoline with ethanol receive a federal
excise tax rate reduction for each blended gallon, resulting in
an indirect pricing incentive to ethanol. Expiring on September
30, 1999, this tax rate reduction is $.054 per blended gallon
containing 10% or more ethanol by volume. Alternatively,
blenders may claim an income tax credit of $.54 per gallon of
ethanol mixed with gasoline. The market for the Company's
product is also affected through Federal regulation by the
Environmental Protection Agency under the Clean Air Act and the
Reformulated Gasoline Program.
Ethanol Equipment Sales - In 1993, the Company began to market
its services to design, build, and sell ethanol processing
equipment. In some cases, the equipment and other services such
as design and installation were sold under a long-term contract,
and the related revenues accounted for under the
percentage-of-completion method. In other cases, the equipment
was sold under a purchase order that is not a long-term
contractual arrangement. In such cases, the equipment was
fabricated and the related revenue recognized upon shipment.
Revenue from all equipment sales included in net sales amounted
to $363,000 and $725,000 for 1994 and 1993, respectively. There
was no revenue from equipment sales included in net revenue for
1995.
Property and Equipment Held for Resale - Included in the costs
of construction-in-progress at June 30, 1994 is $3,005,109 of
initial costs to acquire land and ethanol processing equipment
located in New Iberia, Louisiana. Most of this equipment was
utilized in connection with the York facility; however, at June
30, 1995 a portion of the cost of acquiring the New Iberia
ethanol plant ($332,820) has been allocated to land and
equipment which will not be utilized in Nebraska but, instead,
is expected to be sold. Another $465,943 of costs has been
allocated to equipment which will either be utilized in the
construction of future facilities or sold. The allocations are
recorded as property and equipment held for resale at June 30,
1995. Management expects a gain upon its ultimate disposition
and, accordingly, no loss has been provided for.
Disposal of Engineering Division - With the completion of the
York facility in December, 1994, the engineering and
construction operations were no longer cost effective. The
Company determined that it should substantially dispose of its
engineering and construction division to focus management and
financial resources on plant operations. In January 1995, the
Company entered into a number of agreements with its Vice
President, David J. Vander Griend. Mr. Vander Griend's primary
responsibilities immediately prior to that time had been to
oversee the design and construction of the York facility. Mr.
Vander Griend had employment agreements with the Company that
extended through June 30, 1997, providing for his salary, a
bonus arrangement of approximately 1.5% of net profits, and his
continuation as an officer of the Corporation.
As a result of the January 1995 agreements with Mr. Vander
Griend, the following matters occurred: Mr. Vander Griend
resigned as an officer on
<PAGE>
January 19, 1995, and terminated his
employment as of April 15, 1995; Mr. Vander Griend agreed to
furnish 1,350 hours (up to 100 hours per month) of future
engineering consulting services to the Company, at the Company's
direction and during the 45 months after January 1995; the
Company agreed to continue to pay Mr. Vander Griend a quarterly
payment based on 1.5% of Net Profits as previously provided for
by his employment agreement through the year ended June 30,
1997; certain property assets associated with the Company's
engineering and construction division, which the Company had
acquired or developed primarily for the construction of the York
facility, were transferred to Mr. Vander Griend's company; this
company and Mr. Vander Griend agreed to pay $300,000 and
$100,000, respectively, in notes, plus interest at 9.75%, over
45 months. The remaining balances due on these notes receivable
at June 30, 1995 are $271,802 and $90,600, respectively, and are
secured by the property transferred and Mr. Vander Griend's
personal guarantee.
The difference between the then book value of the engineering
and construction assets disposed of (estimated to be $816,000),
and the $400,000 of consideration received, was an additional
cost of constructing the York facility.
Although the Company has disposed of its engineering and
construction division, it may still enter into arrangements to
assist third parties in the construction of ethanol plants. In
such cases, the Company may contract for engineering and
construction services from third parties.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: June 30,
1995 1994
<S> <C> <C>
Raw materials $ 814,210 $ 352,677
Work-in-process 425,127 155,696
Finished goods 750,649 201,216
Spare parts 655,291 232,273
$ 2,645,277 $ 941,862
</TABLE>
4. LONG-TERM DEBT
<TABLE>
Long-term debt consisted of:
<CAPTION>
1995 1994
<S> <C> <C>
Term loan payable to bank in monthly installments of $297,619
plus interest at a two-year fixed rate equal to 1.5% above prime
rate (9.7% at June 30, 1995) with a final payment due September
2000. $ 22,619,048 $ --
Various financing agreements payable in monthly installments of
$33,057 including interest with a final payment due April 1996;
secured by a boiler, economizer and two photo copiers with a
book value of $483,390 at June 30, 1995. 310,196 --
Construction loan payable to bank with a maximum available
principal of $25,000,000; interest is payable monthly at a rate
of 1.25% above prime; proceeds from the loan must be used to pay
costs of constructing and equipping an ethanol production
facility in York, Nebraska; the loan is convertible into a term
loan within ten days following the earlier of the construction
completion date or October 31, 1994.
-- 12,331,672
Less current maturities 22,929,244 3,876,972
12,331,672 2,083,333
$ 19,052,272 $ 10,248,339
</TABLE>
Both the construction loan and the term loan are secured by all
equipment, inventory, accounts receivable, Kansas and Nebraska
real estate and general intangibles of the Company. Also
secured are the Company's rights to payment under any present or
future production incentive contracts with the State of Kansas
and the Ethanol Production Credit Agreement with the State of
Nebraska and all similar contracts entered into in the future.
Within 30 days following the bank's receipt of audited financial
statements, the Company must also pay an amount equal to 75% of
the excess cash flow (as defined) of the Company for each fiscal
year. At June 30, 1995 excess cash flow was zero. The
financing agreement contains various restrictions, including the
maintenance of certain financial ratios and fulfilling certain
net worth and indebtedness tests. At June 30, 1995, the Company
was in violation of covenants restricting capital leases,
requiring timely receipt of one of the monthly financial
statements, and debt service coverage requiring minimum net
equity. The bank has waived its rights to declare the debt due
and payable based on these covenant violations through June 30,
1996.
<TABLE>
Aggregate minimum maturities are as follows:
<CAPTION>
<S> <C>
1996 $ 3,876,972
1997 3,573,934
1998 3,573,576
1999 3,571,429
2000 8,333,333
$ 22,929,244
</TABLE>
Debt Forgiveness - In May 1989, the Company restructured its
then outstanding debt. As a result of the restructuring, the
effective interest on the debt which was legally forgiven is
being accounted for under the provisions of SFAS 15 and is
reduced from 6.52% to 5.17%. During the year ended June 30,
1993, interest expense was reduced by $610,356 as a result of
amortization of the debt forgiveness.
Debt Extinguishment and Gain - In March 1993, the Company paid
off all debt remaining at that date, using the proceeds from a
stock offering. Net proceeds of $17,689,244 from the stock
offering were applied against the note principal and interest
balance plus the balance of debt and accrued interest forgiven
by lender totaling $18,916,163. This resulted in an
extraordinary gain of $1,226,919.
Interest Payments - Interest paid on long-term debt in 1995,
1994 and 1993 amounted to $2,051,866, $391,801, and $1,283,598,
respectively. The Company capitalized $889,211 and $391,801 in
interest in 1995 and 1994, respectively, as part of the cost of
constructing the York, Nebraska facility.
5. OPERATING LEASES
The Company leases 100 railroad cars under an operating lease
expiring in fiscal year ending June 30, 2000. Annual rentals
are $618,000 for all 100 cars. The Company leases an additional
74 railroad cars under various operating leases expiring through
fiscal year ending June 30, 1999. The total minimum rental
commitment at June 30, 1995 under these leases are due as
follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending
June 30,
<S> <C>
1996 $ 1,011,120
1997 943,795
1998 791,370
1999 660,430
2000 618,000
$ 4,024,715
</TABLE>
<PAGE>
6. NON-RECURRING EXPENSES
The Company has included in its Statements of Operations for the
years ended June 30, 1995 and 1994 charges totaling $108,000 and
$859,848, respectively, for expenses that were not expected to
be covered by insurance in association with the dried distillers
grain product recall. The additional $108,000 incurred during
the year ended June 30, 1995 was in excess of the original
estimate.
An additional one-time charge is included in the year ended June
30, 1994 due to the write-down of a trade receivable of $675,515
from a major customer that occurred as a result of an ethanol
customer's Chapter 11 bankruptcy filing.
7. COMMITMENTS
The Company periodically enters into forward contracts with
suppliers and customers on both the purchase of milo and the
sale of DDG. At June 30, 1994, the Company had forward
contracts to purchase 777,050 bushels of milo at fixed prices
totaling $2,056,093 with delivery dates of July and August 1994.
The Company had forward contracts to sell 10,506 tons of DDG at
fixed prices totaling $1,231,593. No losses were expected on
these contracts. No material forward contracts for purchases or
sales existed at June 30, 1995.
8. INCOME TAXES
For Federal income tax purposes at June 30, 1995, the Company
had a net operating loss carryforward of $10,160,000 and
approximately $5,857,000 of federal general business tax credit
carryforwards, which, if not used, will expire as follows:
<TABLE>
<CAPTION>
Net
Expires in Operating General
Fiscal Year Loss Amount Business Credit
Ending Carryforward Carryforward
<S> <C> <C>
1997 $ -- $ 1,000
1998 -- 1,000
1999 -- 1,263,000
2000 -- 7,000
2001 -- 85,000
2002 2,920,000 --
2003 6,430,000 --
2004 -- 4,500,000
2005 807,000 --
2008 3,000 --
$ 10,160,000 $ 5,857,000
</TABLE>
The general business credits expiring in fiscal 1997-2001 are
investment tax credits and the credits expiring in fiscal 2004
are small ethanol producer tax credits.
The Company also has a Nebraska investment credit carryforward
of $3,427,000, expiring in fiscal 2009, which may be used to
offset taxes in the state of Nebraska.
The tax net operating loss carryforward and federal tax credit
carryforwards discussed above and other matters result in
deferred tax assets under FASB 109 totaling $13,851,000 at June
30, 1995 (see below). The book basis of property, plant and
equipment in excess of its tax basis results in an offsetting
deferred tax liability of $7,312,000, and the valuation
allowance offsets an additional $6,539,000, leaving no net
deferred tax assets at June 30, 1995. Future tax expenses, if
any, may be offset, at least in part, by net increases in future
tax assets (including changes in the valuation allowance) to the
extent that such assets exceed the amounts of future deferred
tax liabilities. The Company expects to continue annually to
provide for a reasonable valuation allowance, to reduce deferred
tax assets to zero until such time as future taxable income is
generated or assured (if ever).
<TABLE>
Income taxes consisted of:
<CAPTION>
June 30,
1995 1994 1993
<S> <C> <C> <C>
Current tax expense $ 141,377 $ 4,448 $ 102,657
Tax effect of changes in deferred
tax assets and liabilities:
Book basis of plant
and equipment in
excess of tax basis 1,216,000 (351,807) (512,509)
Debt forgiven by lender -- -- 282,406
Reduction of net operating
loss carryforward 1,195,000 151,602 2,555,554
Increase in tax credits
carryforward -- (1,500,000) (1,500,000)
Nebraska investment credit
carryforward (3,427,000) -- --
AMT credit carryforward
and other (179,000) (58,044) (102,845)
Change in asset valuation
allowance 1,195,000 1,758,249 (1,188,463)
Deferred tax benefit -- -- (465,857)
Income tax expense (benefit) $ 141,377 $ 4,448 $ (363,200)
</TABLE>
A reconciliation between the actual income tax expense and
income taxes computed by applying the statutory Federal income
tax rate to earnings before income taxes is as follows:
<TABLE>
<CAPTION>
June 30,
1995 1994 1993
<S> <C> <C> <C>
Computed income taxes, at 34% $ 2,112,687 $(315,861) $ 1,473,057
Utilization of net operating
loss carryforwards (2,112,687) -- (1,960,201)
Alternative minimum tax 141,377 -- 102,059
Other, net -- 320,309 21,885
Total income tax expense (benefit) $ 141,377 $ 4,448 $ (363,200)
</TABLE>
The Company has deferred income tax liabilities and assets
arising from the following temporary differences and
carryforwards:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Deferred tax liabilities:
Book basis of property, plant and equipment
in excess of tax basis $ 7,312,000 $ 6,096,164
Deferred tax assets:
Net federal and state operating
loss carryforwards $ 4,119,000 $ 5,314,278
Nebraska investment credit carryforward 3,427,000 --
General business credit carryforward 5,857,000 5,854,450
AMT credit carryforward and other 448,000 271,198
13,851,000 11,439,926
Less: Valuation allowance 6,539,000 5,343,762
$ 7,312,000 $ 6,096,164
Net deferred income taxes $ -0- $ -0-
</TABLE>
The extraordinary gain on extinguishment of debt for the year
ended June 30, 1993, was reduced by $465,848 of taxes because
the deferred tax asset related to this item was not previously
reduced by the valuation allowance.
<PAGE>
9. PREFERRED STOCK
The Company had 25,000 shares authorized of no par value
cumulative preferred stock at June 30, 1994. All 25,000 shares
were designated 11.5% cumulative preferred stock and were
outstanding. Cumulative dividends on the outstanding preferred
stock aggregating $174,200 ($6.98 per share) had not been
declared or provided for at June 30, 1994. During the fiscal
year ended June 30, 1995, the preferred stock was converted into
36,918 shares of common stock.
10. COMMON STOCK SPLITS
On January 28, 1994, the Company resolved to initiate a Common
Stock Split program increasing the number of outstanding shares.
The stock splits were effected in the form of stock dividends.
Beginning with the January 31, 1994 declaration and ending with
the final stock split on February 22, 1995, the Company
increased the total outstanding common stock shares from
5,107,404 to 15,557,347.
Declared Payable Split
1/31/94 2/18/94 6 shares for 5
4/29/94 5/27/94 6 shares for 5
7/19/94 8/22/94 3 shares for 2
1/10/95 2/22/95 4 shares for 3
The earnings per common share for the years ended June 30, 1995,
1994 and 1993 have been retroactively adjusted for the above
splits as if they had occurred on July 1, 1992.
11. STOCK OPTIONS
<TABLE>
The following summarizes the Company's stock option transactions:
<CAPTION>
Original Shares
Shares Exercise Compensation and Directors' Remaining
Granted Price as Fees Recorded as Selling Under
Adjusted Adjusted General and Administrative Option at
Grant for Stock for Stock Expenses June 30, Expiration
Date Splits Splits 1994 1993 1995 Date
<S> <C> <C> <C> <C> <C> <C>
07/90 316,800 $ 0.6076 $ -- $ -- 43,200 07/96
02/92 28,800 0.6076 -- -- -- 02/96
02/92 86,400 1.8889 -- -- 57,600 02/98
05/92 115,200 0.6076 -- 96,750 28,800 04/98
05/92 144,000 1.4653 -- 56,000 57,600 04/98
05/92 57,600 0.6076 -- 38,700 12,275 05/98
07/92 115,200 2.0833 -- 80,000 115,200 07/98
12/92 302,400 0.6076 1,014,366 40,000 216,000 12/02
12/92 504,000 5.3819 -- -- 382,000 12/02
08/93 36,000 5.3819 -- -- 36,000 12/02
12/93 576,000 3.3438 -- -- 333,333 12/02
09/94 66,667 5.3480 -- -- 66,667 09/04
12/94 576,000 8.3440 -- -- 576,000 12/04
05/95 15,000 5.2500 -- -- 15,000 04/05
05/95 25,000 5.6300 -- -- 25,000 05/05
$ 1,014,366 $ 311,450 1,964,675
</TABLE>
The Company granted 226,800 options during fiscal year 1993 in
lieu of compensation to be earned in fiscal years 1993 and 1994.
Compensation expense of $40,000 was recorded for the year ended
June 30, 1993 for 5,000 options which vested during that year.
The Company recorded compensation expense of $1,014,366 in the
year ended June 30, 1994 for the remaining options. The 31,493
shares not yet exercisable at June 30, 1994 represent the
options which were earned but did not yet vest until December
1994.
The Company granted 522,000 and 459,000 shares under option
during fiscal years 1995 and 1994, respectively, at the then
fair market prices and no compensation expense was recognized.
During the year ended June 30, 1993, options to purchase 60,000
shares were exercised at an option price of $1.75 per share, and
options to purchase 10,000 shares were exercised at an option
price of $4.22 per share.
During the year ended June 30, 1995, the following options were
exercised:
<TABLE>
<CAPTION>
Prior to February 22, 1995 Stock Split After the February 22, 1995 Stock Split
Number Price Number Price
of Shares Per Share of Shares Per Share
<C> <C> <C> <C>
162,600 $ .8100 44,518 $ .6080
74,000 4.4580 57,586 1.4640
54,000 7.1760 28,793 1.9000
143,982 3.3450
50,000 5.3820
</TABLE>
The Company's 1990 and 1992 Stock Option Plans, under which all
of the previously-discussed options were granted, were approved
for modification at the Company's November, 1994 stockholder
meeting. The approved amendments provide that when optionees
exercise their options, above, and remit the exercise payment to
the Company, they may be granted a one-time option to purchase a
like quantity of Common Shares as those options exercised
(Reload Options). The Reload Options shall have an exercise
price equal to the closing sales price of the Company's Common
Stock on the day in which the original options were exercised,
and shall have an exercise period that extends to the later of
one year from the date of grant of the Reload Option or the
expiration date of the originally exercised option.
The implementation of the above amendments to the 1990 and 1992
plans was delayed by the Directors until August 2, 1995. On
that date, 366,746 options were granted to optionees who had
exercised their options prior to August 2, but after November,
1994, as compensation for the delay in implementation of the
"Reload" amendments. The exercise price of these options was
$5.25, the closing sales price on August 2, 1995. Further, on
August 4, 1995, options totaling 331,342 were exercised;
accordingly, Reload Options in the same amount were granted at
that day's closing price, also $5.25 per share. These 698,088
options are not subject to further "Reload" provisions.
12. MAJOR CUSTOMERS
Sales to individual customers of 10% or more of net sales are
as follows:
<TABLE>
<CAPTION>
Sales During the Fiscal Trade Accounts Receivable
Ended June 30, Balance at June 30,
Customer 1995 1994 1993 1995 1994
<S> <C> <C> <C> <C> <C>
A $ -- $ 3,810,141 $ 5,030,095 $ -- $ --
B -- 6,215,607 6,250,436 -- --
C 8,871,672 8,505,444 8,598,030 305,445 --
D 8,384,212 -- -- 65,521 --
E 9,345,425 -- -- 1,049,577 33,021
$ 26,601,309 $ 18,531,192 $ 19,878,561 $ 1,420,543 $ 33,021
</TABLE>
13. EARNINGS PER SHARE
Earnings per common and dilutive common equivalent share are
computed by dividing net earnings, less (plus) cumulative
dividends (undeclared) on the 11-1/2% cumulative preferred
stock, by the weighted average number of common stock and common
stock equivalent shares with a dilutive effect.
Share and per share information have been adjusted to give
effect to stock splits in the three years ended June 30, 1995.
Earnings per common share assuming full dilution assume, in
addition to the above, the additional dilutive effect of stock
options whenever the period end stock price of the Company is
higher than the average stock price of the Company during the
period. Such per share amounts are not separately presented
since they are equal to earnings per common and dilutive common
equivalent share.
<PAGE>
The weighted average number of common stock and common stock
equivalent shares used in the computation of net earnings per
share of common stock is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Earnings per common and dilutive
common equivalent share:,
Weighted average common shares 14,760,967 14,419,877 9,464,955
Stock options 908,134 1,139,847 766,761
Average common and common
dilutive shares
outstanding 15,669,101 15,559,724 10,231,716
Earnings per common share
assuming full dilution:
Additional dilutive effect of
stock options -- -- 6,677
Common stock outstanding
assuming full dilution 15,669,101 15,559,724 10,238,393
</TABLE>
14. ADDITIONAL INFORMATION FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Rent paid $ 806,942 $ 422,569 $ 409,907
Interest paid 2,051,866 391,801 1,283,598
Income taxes paid 145,813 167,825 58,623
</TABLE>
The Company had the following non-cash transactions:
<TABLE>
<CAPTION>
1995
<S> <C>
Acceptance of notes receivable in exchange
for sale of property, plant and equipment $ 400,000
Purchase of property, plant and equipment
in exchange for debt 496,250
Exchange of preferred stock for common stock 150,000
</TABLE>
15. 401(k) PLAN
The Company adopted a 401(k) Plan on June 1, 1991. All
employees who are over the age of 19 and have one year (1,000
hours) of service are eligible to participate. Employees may
contribute from 1% to 12% of their pay. The Company matches
100% of the first 1% of employee salary deferrals and 50% of the
next 5% of employee salary deferrals. The Company contributions
to the Plan for the years ended June 30, 1995, 1994 and 1993
were $29,165, $22,614 and $16,579, respectively.
16. CHANGE IN ACCOUNTING ESTIMATE
Effective July 1, 1994, the Company revised its estimate of the
useful lives of various components of the Colwich ethanol
production facility for financial statement purposes.
Previously, the facility was depreciated over 20 years. The
change involved the Company separating the ethanol facility into
various components and changing the estimated lives to 5 - 40
years, depending on the component. The Company is depreciating
the net book value of the various components over their
estimated remaining lives of 3 - 30 years. These changes were
made to better reflect the estimated period during which the
various components will remain in service. The change had the
effect of reducing depreciation expense and increasing net
income for the fiscal year ended June 30, 1995 by approximately
$660,000 or $.04 per share.
17. OUTSTANDING CLAIMS
During March and April of 1994, the Company processed material
received from a vendor containing undisclosed ingredients.
These undisclosed ingredients were not detected by normal
testing of the Company's products and were ultimately included
in a batch of the Company's dried distillers grain (DDG)
products sold to customers for cattle feed. These ingredients
were suspected of causing cattle deaths at various customer feed
lots during April and May of 1994. The Company immediately
recalled the product and cooperated in testing conducted by the
FDA as well as hiring independent laboratories, including Kansas
State University, to conduct independent testing of the
products. The independent testing confirmed that these
ingredients, when coupled with other specific feed products,
resulted in cattle deaths. The Company has had numerous claims
made against it by customers who suffered losses as a result of
this batch of DDG. The full amount of potential claims and
related expenses was not determinable at June 30, 1994 or 1995
since a two-year statute of limitations exists. However, the
Company expects its product liability and catastrophic insurance
to cover these product liability claims. The estimated costs of
the product recall, including reimbursement to the customers of
their purchase price, freight, inventory losses, and legal fees
were provided for at June 30, 1994 (Note 6).
The Company intends to vigorously pursue a claim against the
vendor for the full cost of the product recall caused by the
undisclosed ingredients, as well as related lost profits;
however, no provision has been made at June 30, 1994 or 1995,
for any such recovery.
18. OTHER COMMITMENTS
On June 13, 1995 the Company entered into a letter of intent
with the City of Appleton, Minnesota (the Appleton Letter of
Intent) to construct and operate a 15-million gallon capacity
ethanol production facility in Appleton. Under the Appleton
Letter of Intent, the City of Appleton is responsible to secure
adequate financing (estimated at $25 million). The Company
would then construct and lease the facility from the City of
Appleton Economic Development Authority over a period of 10
years with a purchase option at the end of the lease. The
Company is responsible for collateralizing up to 30% of total
project costs with either stock and/or equity rights. The
Company was required to deposit in escrow $50,000 to defray
legal and other costs should the transaction not be completed.
Additionally, on June 7, 1995, the Company entered into an
exclusive agreement with the City of Dawson, Minnesota for the
construction of an ethanol plant with an approximate cost of
$26.5 million. This agreement terminates on September 1, 1995
unless extended by mutual agreement.
<PAGE>
Independent Auditors' Report
The Stockholders and Board of Directors
High Plains Corporation
We have audited the accompanying balance sheets of High Plains
Corporation as of June 30, 1995 and 1994, and the related
statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1995.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of High Plains Corporation as of June 30, 1995 and 1994, and the
results of their operations and cash flows for each of the three
years in the period ended June 30, 1995 in conformity with
generally accepted accounting principles.
/ALLEN, GIBBS & HOULIK, L.C./
August 11, 1995
Wichita, Kansas
Market For The Registrant's Common Equity
The Company is traded on the NASDAQ National Market under the symbol
HIPC.
The table below sets forth the range of high and low market prices for
the Company's shares during fiscal 1995 and fiscal 1994. These prices have
been adjusted to reflect the stock splits effected in the form of a stock
dividend payable on February 22, 1995, and August 19, 1994. These prices do
not include retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL PRICE FISCAL PRICE
1995 HIGH LOW 1994 HIGH LOW
<S> <C> <C> <S> <C> <C>
1ST QUARTER 6-3/4 5-1/4 1ST QUARTER 4-1/2 3-5/16
2ND QUARTER 10-1/2 5-7/8 2ND QUARTER 4-1/2 2-1/4
3RD QUARTER 10-1/8 5-3/4 3RD QUARTER 5-3/8 3-1/4
4TH QUARTER 7-1/2 4-1/4 4TH QUARTER 5-5/8 3-7/16
</TABLE>
<PAGE>
CORPORATE INFORMATION
[PHOTO: Board of Directors
Sitting from left to right: H.T. Ritchie, John Chivers
Standing from left to right: Roger Skaer, Stan Larson,
Dan Skolness, Don Wright]
[PHOTO: Evaporator Unit]
BOARD OF DIRECTORS
Stanley E. Larson (2)
Chairman of the Board
President of High Plains Corporation
John F. Chivers (2)
Chivers Realty
H. T. Ritchie (1)
Secretary of High Plains Corporation
President of Ritchie Corporation
Roger D. Skaer (3)
Treasurer of High Plains Corporation
Daniel O. Skolness (1)(3)
President of Skolness, Inc.
Donald M. Wright (2)(3)
[FN]
(1) Policy and Compensation Committee Member
(2) Nominating Committee Member
(3) Budget and Audit Committee Member
OFFICERS
Stanley E. Larson
President and Chief Executive Officer
H. T. Ritchie
Secretary
Roger D. Skaer
Treasurer
Raymond G. Friend
Executive Vice President
Chief Financial Officer
Corporate Headquarters
High Plains Corporation
O. W. Garvey Building
200 W. Douglas, Suite #820
Wichita, Kansas 67202
(316)269-4310, fax: 269-4008
Ethanol Facility - Colwich
412 N. First St.
P.O. Box 427
Colwich, Kansas 67030
(316)796-1234, fax: 796-1523
Ethanol Facility - York
Rural Route 2, Box 60
York, Nebraska 68467
(402)362-2285, fax: 362-7041
Annual Meeting
November 17, 1995
Wichita Airport Hilton
2098 Airport Road
Wichita, Kansas
The Salon Room
10:00 a.m.
Certified Public Accountants
Allen, Gibbs & Houlik, L.C.
Wichita, Kansas
Registrar & Transfer Agent
American Stock Transfer Co.
40 Wall Street, 46th Floor
New York, NY 10005
(718)921-8206
Stock Information
High Plains Corporation stock is traded on
NASDAQ under the symbol HIPC
Information Contact
Stanley E. Larson, High Plains Corporation
Raymond G. Friend, High Plains Corporation
Availability of 10-K
A copy of the Company's fiscal 1995 annual report on Form 10K
filed with the Securities and Exchange Commission will be made
available to interested stockholders without charge upon written
request to the Chief Financial Officer at the above Corporate
Headquarters.
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[LOGO: (COLORED) e t h a n o l Better Gas. Cleaner Air.]
HIGH PLAINS CORPORATION
O. W. Garvey Building
200 W. Douglas, Suite #820
Wichita, Kansas 67202
(316)269-4310 fax: 269-4008
TRADING SYMBOL
NASDAQ = HIPC
