HIGH PLAINS CORPORATION 1997 ANNUAL REPORT
<PAGE>
Table of Contents (center, far left side of page)
Selected Financial Data Inside Front Cover
Letters to Stockholders. . . . . . . . . . . . . . . . . . 1
Ethanol Outlook. . . . . . . . . . . . . . . . . . . . . . 3
Management's Discussion and Analysis . . . . . . . . . . . 6
Financial Statements . . . . . . . . . . . . . . . . . . .10
Notes to Financial Statements. . . . . . . . . . . . . . .15
Auditors' Report. . . . . . . . . . . . . .Inside Back Cover
Corporate Information . . . . . . . . . . .Inside Back Cover
Investor Information. . . . . . . . . . . .Inside Back Cover
Picture of sun and clouds in center of page
Corporate Mission Statement (Overlayed on picture-center of page)
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 (placed on the far right hand side of page,
center)
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
both wet and dry (DDGs), 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.
Five Year Summary of Selected Financial Data (placed on inside
cover. Information on Income through Operations on top half of
page, Per Share Information through Ratios located on bottom half
of page)
<TABLE>
<CAPTION>
For The Years Ended June 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
INCOME
Net Sales and Revenues $63,121,510 $87,925,409 $52,769,014 $33,566,271 $31,490,226
Net Earnings (Loss) $ 1,733,290 $11,821,077 $ 6,072,407 $ (933,453) $ 5,337,791
BALANCE SHEET
Working Capital $ 70,117 $ 6,573,150 $ (538,322) $(2,544,316) $ 2,960,512
Long-term Debt $10,200,014 $14,460,274 $19,052,272 $10,248,339 $ .00
Total Assets $79,074,532 $75,096,095 $67,517,301 $48,915,483 $33,622,311
Stockholders' Equity $55,656,176 $53,581,343 $40,250,738 $32,412,525 $32,331,610
OPERATIONS
Gallons of Ethanol Sold 33,270,129 44,630,313 33,576,788 18,449,822 16,741,131
Tons of DDG Sold 78,241 130,082 107,325 64,662 54,502
PER SHARE
Earnings (Loss) Per
Common And Dilutive
Common Equivalent
Share:
Earnings (Loss)
Before Extra-
ordinary Item $ .11 $ .74 $ .39 $(.06) $ .46
Extraordinary Item $ .00 $ .00 $ .00 $ .00 $ .07
Net Earnings (Loss) $ .11 $ .74 $ .39 $(.06) $ .53
RATIOS
Book Value Per Share $3.40 $3.30 $2.60 $2.19 $2.19
Return on Total Assets .04 .19 .11 (.02) .14
<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>
1997 Chairman's Letter
Fiscal year 1997 was a time of change for High Plains. We successfully
re-started plant operations last fall after being shut down for several
months due to high grain prices. In this process we were fortunate to have
the understanding, cooperation and return of a large percentage of our
employees at both plants.
During the winter months we formulated our plans for production of
Industrial Grade Ethanol. Although revenues for fiscal 1997 do not reflect
Industrial Grade sales, production was achieved, contracts were in place
and deliveries were made by mid-July. Currently we are capturing a higher
price for this end product, while diversifying our Company into an area
that is a very good fit with our core Fuel Grade Ethanol business.
The spring of 1997 saw the retirement of our CEO and Chairman of the
Board, Stan Larson. His guidance brought our Company from 700,000 shares
outstanding to 16 million, increased street value from $250,000 to $60
million, and increased production from 8 million to approximately 60
million gallons (now roughly 50 million gallons of Fuel Grade, and 10
million gallons of Industrial Grade) of capacity annually. Fortunately,
Stan's experience is still available through a consulting agreement he
signed with High Plains, and he is currently assisting the newly formed
Mergers and Acquisitions Committee of our Board of Directors. While we are
not minimizing our core business, we have made an affirmative decision to
seek out and evaluate opportunities for strategic alliances which we feel
will further improve our diversity, increase our earnings, and add to
stockholder value. We are committed to structure a Company that will
provide the best possible long-term performance for our stockholders,
regardless of future legislative or seasonality issues.
Upon Stan Larson's retirement I was appointed Chairman of the Board of
Directors, and Raymond Friend was elected President of the Company, and to
the Board of Directors. Ray has been with High Plains for 12 years, most
recently as Executive Vice President and CFO, and his promotion solidifies
the continuity of our operation. For me, this presents a chance to
continue the leadership role with High Plains which my father started as
one of the first stockholders and directors of this Company. At the same
time, we have further expanded our board to add even more diversity,
expertise and experience to our decision-making process by electing Arthur
Greenberg and Ronald Offutt. Art Greenberg is a commercial and residential
land developer who also has extensive experience in the transportation
industry. He is a former president of World Seeds, a group of farmers and
agronomists committed to the development of varieties of disease resistant
wheat seed. Ron Offutt is chairman and chief executive officer of RDO
Equipment Co., a publicly traded company based in Fargo, North Dakota. RDO
operates the largest network of John Deere construction and agricultural
stores in the United States, and Ron is also personally involved in farming
and in the food processing industry.
As we experienced in the summer of 1996, the volatility of the grain
markets can have a significant effect on the operations of our Company.
Record high feedstock prices forced us to make some difficult, but also
very profitable decisions. We sold our forward contract grain positions
for a substantial profit, but had to temporarily shut down our plant
operations as a result. Because grain purchases are the largest single
component of our production costs, we have focused even more attention on
our risk management program in order to further smooth out the rise and
fall of our feedstock prices.
Currently we are looking forward to a good corn and milo crop, and
consequently lower feedstock prices which should help our profitability. A
good crop year should improve the return on investment for our
stockholders.
We are also encouraged by the continued federal support for the Ethanol
program and the fact that Ethanol supporters in Congress have overcome the
challenges to the tax incentive, which remains intact and in place through
the year 2000.
It has been an exciting and challenging year for High Plains and with
your continued support we look forward to a successful future
Sincerely,
Daniel O. Skolness
Chairman of the Board of Directors
(Picture of Dan located right hand column, top of page)
(Picture of corn stalk in center of page)
GRAPHS: 1995 1996 1997
----- ----- -----
(Millions of U.S. Dollars)
Sales $52.8 $87.9 $63.1
Total Assets $67.5 $75.1 $79.1
Net Earnings $ 6.1 $11.8 $ 1.7
(Graphs placed on far right side of page 1. Placed one on top of the
other, down entire page in a column)
<PAGE>
PRESIDENT'S LETTER
To Our Stockholders and Business Associates:
It has been a dramatic year in the existence of our Company. We've been
through a period of enormous challenges and have accomplished many of our
goals. As a result of the battles we have fought and the accomplishments
we have achieved during fiscal 1997, we think that we have positioned
ourselves for a much more lucrative future.
Due to the unavailability of economically priced grain, the fiscal year
started with both of our plants idled for our first fiscal quarter and the
majority of our employees furloughed. We dealt with the frustration that
accompanies plant startup at both of our plants. After a good measure of
difficulty that resulted from the plants sitting idle, both of our Fuel
Ethanol facilities are operating smoothly, and at optimal capacity.
With proceeds from the sale of our grain futures positions, we prepaid
our lender over $8.3 million during this year and as a result have enjoyed
reduced interest expense. In January of 1997, we were successful in
replacing our old lender with the National Bank of Canada who has provided
us with a much lower interest rate, relaxed loan covenants, and a better
working relationship.
We diversified our operation through the purchase and retrofit of an
idled Ethanol processing plant which we converted into a high quality
Industrial Grade production facility attached to our York, Nebraska plant.
This facility is capable of upgrading approximately one million gallons
per month from our Fuel Grade stream to a more refined Ethanol product.
From even our first gallons of production, this high quality product met
all content specifications required; however, it retained a slight odor
which made it unusable by our customer who had contracted for ten million
gallons per year. The product's odor and a governmental action in Russia
which limited Ethanol from entering that country created a temporary
oversupply situation and caused the customer to cancel that contract.
Since that time, we have modified our high quality processing equipment and
our production procedures, and in July of 1997 we started producing and
selling high quality Industrial Grades of Ethanol at prices that are
significantly higher than Fuel Grade prices.
In August of 1997 we received notice from the UNGDA, the renowned French
testing company that had previously ruled that our product was out of odor
and taste testing compliance, stating that our product now met all taste
and odor requirements necessary to be sold even as a beverage grade spirit.
This means that our product now qualifies for almost all types of Ethanol
usage and should bring even higher sales prices.
On the legislative front, the partial Federal excise tax exemption for
Ethanol blended fuel was attacked by oil and gasoline interests through
Republican U.S. Representative from Texas, Bill Archer. We survived his
attack to prematurely end the blender's incentive which retained its
current effective status through September 30, 2000. Additionally, we hope
for success in our efforts to extend Ethanol's incentive program to the
year 2007, through the Highway Reauthorization Bill which originally needed
to be completed by September 30th of this year. However, the deadline for
adoption of the Highway Reauthorization Bill has been extended for six
months from its original date. The Clinton Administration and many
powerful and influential leaders in Congress support the extension of the
incentive.
On the state legislative front, we were successful in extending the Kansas
State Agricultural Ethanol Incentive Program through July 1, 2001.
We are continuing to strengthen our Company by improving our personnel,
from the Board of Directors throughout all of the employee ranks, so that
we are not only able to formulate the best plant to achieve enhanced
stability and higher and more predictable earnings, but to have the best
people to carry that plan our. With Stan Larson's continued availability
and the recent promotion of Chris Standlee to Vice President and Dianne
Rice to CFO, we are poised to handle the challenges of management. Our
Directors are involved, and all of our employees have been fantastic.
We are working hard to expand Fuel Grade Ethanol opportunities,
especially in the immense fuel markets like California, by attempting to
remove oxygen caps and to implement other environmental policies favorable
to Ethanol use. Chrysler and Ford recently announced a major commitment to
the Ethanol Industry by agreeing to manufacture hundreds of thousands of E-
85 vehicles over the next 3 years (85 percent Ethanol fuel blend
compatible).
Our grain risk management program has been enhanced, helping to lower
our costs, while offering protection from potential runaway grain prices.
The Freedom to Farm legislation has allowed for great amounts of grain to
be planted. We expect good harvests and significant acreage planted in the
future. Our plant managers are providing the expertise and leadership
necessary to have our facilities operate as efficiently as possible,
Ethanol markets appear stable.
In the 1998 fiscal year, we intend to capitalize on our expertise of
efficient production and marketing of Fuel Grand Ethanol and by-products,
as well as to build Industrial Grade Ethanol relationships. We have been
encouraged by recent carbon dioxide opportunities and hope to begin
capturing and profiting through that gas by-product. In addition, we will
continue to explore for other strategic relationships that can enhance our
stability and our earnings.
Raymond G. Friend
President & CEO
August 18, 1997
(Picture of Ray at top of page, right hand column)
(Picture of mountains and highway in center of page)
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ETHANOL OUTLOOK
(Picture of cattle feeding on far right hand side at top of page with the
caption: Dried distiller's grains and other solubles provide an excellent
protein and fat source to cattle, both in feedyards and in dairies.)
(Picture of clouds in center of page)
(Picture of woman applying makeup at bottom of left hand column with the
caption: Industrial Grade Ethanol is utilized in many cosmetic products.)
ETHANOL FACTS: FOR THE RECORD
Fuel Ethanol affects us in so many ways, through many areas of our
economy, our daily lifestyles, our environment and long into our future.
As a result, there are both industry supporters and opponents who are
affected by Ethanol fuel decisions. This report contains a summary of most
of the positives and negatives of Ethanol so that the reader will be able
to develop a more clear understanding of the issues and make a more
independent determination of the degree of their support.
ECONOMIC IMPACT
The cost of the partial Federal excise tax incentive for Ethanol blended
fuel is about $500 million per year. This benefit is received by the
blenders of Ethanol and gasoline, by making Ethanol enriched fuel, thereby
qualifying to deduct up to $.054 per gallon from the $.183 Federal excise
tax per gallon on motor fuel. The cost occurs since this portion of the
excise tax is never collected by the Federal Treasury from the blender.
This incentive is available only to the blenders of the fuel and is not
paid to the Ethanol manufacturer. The Ethanol manufacturer benefits
indirectly from this incentive, since the price for his Ethanol reflects a
portion of the excise tax savings the blender anticipates.
The economic benefits that the partial Federal excise tax exemption
provides to the economy allow for a payback to the Treasury of over 300
percent per year of the annual cost of the excise tax exemption. A partial
listing of the methods in which economic benefits flow from Ethanol
production are as follows:
- - Fuel Ethanol production consumes over 600 million bushels of feedgrains
such as corn annually, which is about 8 percent of the entire annual crop.
Without this market for farmer's corn, prices of corn have been projected
to drop as much as $.40 per bushel on the entire output, costing farmer
about $3.2 billion per year. This would create both a significant
reduction in U.S. Treasury income tax receipts from farmers as well as an
increased need to provide farmer subsidation in order to avoid mass farmer
bankruptcies.
- -Over 200,000 jobs held by taxpayers, who pay both Federal and State taxes,
have been created in the U.S. due to Ethanol production.
- - Ethanol plant construction provided construction jobs, and, in addition,
allows for taxable income from profitable plant operation, as well as local
property taxes. These taxes reduce the need for Federal funding for
economic development projects in rural areas. In calendar 1997 alone, the
top ten corn growing states reported a $465 million boost in tax receipts
as a direct result of income tax and sales tax on Ethanol producers.
- - In addition to these above items that help reduce our Federal budget
deficit, Ethanol production helps to reduce our foreign trade deficit by
displacing imported oil, finished gasoline, and methanol based oxygenates
that are imported. Petroleum imports account for 45 percent of America's
trade deficit. This accounts for a monetary transfer of over $60 billion
annually. These are dollars that no longer remain in the U.S. and are only
available for payment through increased national debt or increased taxes.
Over the next 10 to 20 years, petroleum imports are expected to rise to 70
percent of the foreign trade deficit, increasing the deficit even further.
If Clean Air Act fuel standards are expanded to a national scale, Ethanol
could displace up to 9 percent of projected fuel consumption by the year
2000 and beyond.
- - One of the by-products of Ethanol production is dried distiller grains.
This product contains all of the fat and protein of corn, but in only one-
third of the mass of corn. This fact allows U.S. producers the opportunity
to export this high protein product overseas at one-third of the freight
cost of corn, expanding our foreign trade.
ENERGY SECURITY IMPACT
Many people consider that the costs of a curtailment of oil from the
Middle East are limited to the military disadvantages of inadequate fuel
supplies and the limitations on travel that would occur here in the U.S..
However, few consider the effect that fuel curtailment would have on our
Gross National Product (GNP). The previous fuel supply disruptions that
have occurred in the past cost our country over $3 trillion in GNP that we
will never recoup. The American economy runs on its people, information,
and energy. Without the continuity of our energy supply, our economy and
our country falters.
The cost of U.S. military and foreign trade programs in the Persian Gulf
from 1980 - 1990 is estimated at $365 billion. The current energy security
cost to the U.S. of maintaining the
<PAGE>
uninterrupted flow of oil from the Middle East (without considering the
tremendous cost of war that we have seen once in this decade already with
the invasion of Kuwait) is $57 billion per year, or $9.19 per barrel of oil
used in the U.S.. The true cost of oil from that area of the world,
including military and energy security expenses, is as high as $100 per
barrel.
Ethanol is the only proven commercial scale renewable transportation
fuel currently available in the marketplace, and it has the potential to
replace about 10 percent of the nation's gasoline supply. Since Ethanol
increases the octane of the fuel, it also increases gasoline yields from a
barrel of oil at the refinery. Consequently, for every barrel of Ethanol
produced, 1.2 barrels of petroleum is displaced at the refinery.
(Picture in center of page contains the collage of pictures and beaker from
front cover)
(Picture in lower right hand corner of Governor Ben Nelson at an E-85
fueling station with caption: Governor Ben Nelson of Nebraska fills a Ford
Taurus at one of Nebraska's new E-85 fueling stations.)
ENVIRONMENTAL IMPACT
Gasoline is the largest source of man-made carcinogens. The combined
emissions from evaporation of and burning gasoline and diesel fuel account
for 56 percent of all outdoor air pollution. Ethanol blended fuel helps
reduce automobile pollution, since Ethanol contains twice as much oxygen by
weight as any other approved oxygenate. The additional oxygen allows the
fuel to burn more completely, resulting in the benefits of both lower
emissions and increased power.
The EPA indicates that Ethanol blends reduce carbon monoxide emissions
by up to 30 percent. This benefit allowed carbon monoxide emission
violation occurrences to be reduced by 90 percent in the first year of the
Federal oxy-fuel program. Fuel Ethanol is utilized in approximately 90
percent of the carbon monoxide oxy-fuel areas.
Ethanol is utilized in over 50 percent of the reformulated gasoline
program areas. Reformulated gasoline has helped reduce harmful air toxic
pollution by over 25 percent and has reduced the compounds that create smog
by 17 percent. This has resulted in a reduced cancer risk in those areas
of 20 to 30 percent. Since 1995, the reformulated gasoline program has
reduced toxic gasoline emissions by over 500,000 tons from American skies.
Ethanol is organic, and therefore, if spilled, is not nearly as damaging
a source of pollution as oil or any of the refined products that result
from processing of oil.
Burning fossil fuels contributes to greenhouse gases. The combustion of
Ethanol does not. Fossil fuels are extracted from the earth, and when
burned, emit new sources of carbon into the air (primarily carbon dioxide).
Emissions of these greenhouse gases have already altered the chemical
composition of the atmosphere. This is creating an enhanced greenhouse
effect, akin to an atmospheric blanket trapping gases beneath it. In
contrast, the production and combustion of Ethanol releases into the
atmosphere the same quantity of carbon dioxide that was extracted from the
atmosphere and utilized by the corn plant in its growth process. The net
effect of Ethanol production and combustion in regard to greenhouse gas
emissions is neutral.
AUTOMOBILE COMPATIBILITY
All automobile manufacturers approve of the use of Ethanol/gasoline
blends. General Motors, Ford, Chrysler/Jeep Eagle all state in their
owner's manual that they recommend fuel oxygenates such as Ethanol.
Ethanol blends, including reformulated gasoline blends with Ethanol, work
in all engine types. In addition to passenger vehicles, Ethanol fuel
blends are approved by manufacturers in motorcycles, small engines, boats,
and portable power equipment by renowned names such as Yamaha, Mercury
Marine, Harley Davidson, Briggs and Stratton, and Sears, to name but a few.
FREQUENTLY ASKED QUESTIONS ABOUT ETHANOL
Isn't Ethanol more expensive to produce than gasoline? No. The
wholesale price of gasoline does not reflect its true cost. In addition to
the costs of exploring for and extracting the oil, transportation to
refineries, and the expenses to refine and distribute gasoline, there are a
multitude of other costs that are not included in gasoline's price. The
direct and indirect Federal and State subsidies such as foreign tax
credits, depletion allowances, intangible drilling expense write-offs, tax
exclusions, credits for alternative recovery methods, and access to low
cost reserves on public land are all costs to the taxpayers that are never
included in the prices paid at the pump for gasoline. When we add in the
$50 billion per year of military costs to preserve the oil supply channels
from the Middle East, the environmental costs from contamination, spills,
and air pollution, and the increased health care costs from the dirty air,
the total hidden costs per gallon exceed $1.00 per gallon of gasoline.
This makes the total wholesale cost of gasoline add up to over $1.50 per
gallon, instead of the current wholesale price of $.65 per gallon.
Ethanol can be manufactured for about $1.00 per gallon. Improved
technological advances such as molecular sieves, thermal heat recovery
procedures and improved enzymes are expected to lower the cost of Ethanol
production even further in the future. Major developments are being
accomplished everyday in cellulose conversion to Ethanol.
<PAGE>
(Picture of a technician filling a bottle with a medicine dropper in center
of page with the caption, "High Quality Ethanol also provides many medicinal
and pharmaceutical uses.)
Although technology is not yet perfected, cellulitic conversion of
municipal solid waste into Ethanol has the potential to lower Ethanol's
production costs to $.60 per gallon, remove 50 percent of the waste
currently going into overflowing landfills, and at the same time provide a
renewable energy source that could provide a majority of our country's
energy needs.
What is the net energy increase created by converting grain into
Ethanol? Corn Ethanol production is energy efficient. Recent reports
indicate that the national average net energy gain of Fuel Ethanol
production is 24 percent. We disagree. To evaluate Ethanol production on
a BTU-in to a BTU-out basis, the by-products of Ethanol production need to
be included also. The 7.5 pounds of DDG that is produced with every gallon
of Ethanol at our plants carries a value of 85,000 BTUs, making the energy
produced almost three times the energy consumed in growing and harvesting
the crops, Ethanol plant construction, (prorated over the useful life of
the plant), converting the grain into Ethanol, and transporting the product
to market.
Ethanol's net energy value is actually even higher if one considers that
Ethanol's combustion characteristics allow it to replace carcinogenic
octane enhancers that require substantially more BTUs to produce than
Ethanol.
Does Ethanol production affect our nation's food supplies? No. The
production of Ethanol does not translate into less corn available for food.
About 90 percent of the corn grown in the U.S. is fed directly to animals.
Ethanol production creates a market for the farmers grain, allowing them
to remain profitable, thereby helping to ensure adequate food supplies for
the future. The process of producing Ethanol utilizes only the starch
portion of the grain, leaving behind high-value, high-protein, high-vitamin
content feed products such as distiller's grains or corn gluten feed.
How does the existence of Ethanol keep the cost of fuel down for
consumers? Several major gasoline marketing companies oppose Ethanol since
Ethanol captures market share from gasoline and from oxygenate markets.
Ethanol takes market share from MTBE, an oxygenate which is made from
methanol and which is controlled by gasoline refiners and marketers. By
competing with MTBE, Ethanol availability has eliminated the possibility of
a monopoly of the oxygenate market by imported MTBE and has eliminated the
possibility of runaway prices that sometimes occur with monopolization of a
product stream.
Many independent gasoline marketers consider that one of the primary
reasons that they still exist, to compete with the majors is their ability
to remain competitive through the utilization of Ethanol in their fuel mix.
They have utilized Ethanol for octane enhancement, and in that manner have
been able to remain competitive, even when gasoline supply strategies and
pricing from the major refiners has been detrimental to the independents.
Oil companies contend that Ethanol increases the volatility of gasoline.
Is that correct? Vapor pressure is the propensity to evaporate. When
fuel evaporates, volatile organic compounds (VOCs) are released into the
air, reacting with sunlight, and forming smog. The volatility of Ethanol
is much less than several of the components that gasoline marketers
routinely add to their gasoline mix. Denatured Ethanol's natural vapor
pressure of between one and three pounds converts into a blending vapor
pressure of seventeen pounds when reacting to the various components of
gasoline. However, the blending vapor pressure of butane, which is
commonly added in excess of its desirable combustion ratio due to its low
cost, has blending vapor pressures as high as sixty pounds. Pentane, also
added by refiners, has a blending vapor pressure as high as twenty-two
pounds. If Ethanol's cousin, methanol, is ever added to gasoline in its
natural form, its blending vapor pressure is seventy pounds.
When refiners produce gasoline at the highest level of volatility
allowed by law by adding these butanes and pentanes in any quantities that
they desire, it is impossible to add Ethanol to this mix and have an
overall vapor pressure that does not exceed the legal limit. Ethanol
blending at this point normally causes the volatility of the Ethanol
enriched fuel to increase by about one-half pound. In 1978, the EPA issued
a full one pound vapor pressure waiver for Ethanol blends due to the
reduction in tailpipe emissions resulting from Ethanol use. This vapor
pressure waiver for Ethanol blends currently remains in effect with the
exception that it has not been available for Ethanol blends sold into the
Reformulated Gasoline Program areas since 1995, when that program began.
Currently, the National Academy of Sciences is reviewing this issue and we
are hopeful that they will enact this vapor pressure waiver for those
Reformulated Gasoline Program areas.
<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), a by-product of the Ethanol production process. 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, in
addition to direct and indirect incentive payments from state governments.
Ethanol sales prices also reflect a premium due to its oxygenate and
octane enhancing properties. Demand for Ethanol products also affects
price. Ethanol demand is influenced primarily by the cost and availability
of alternative oxygenate products. Consequently, Federal programs
established by the Clean Air Act amendments of 1990, (1) the Federal Oxygen
Program, and (2) the Reformulated Gasoline (RFG) Program, have, in general,
increased the demand for Ethanol.
The Company believes that Ethanol and ETBE, an Ethanol based fuel
additive with a low vapor pressure, are normally competitive in the market
place. However, during the spring and summer of calendar 1996, grain costs
increased to record levels which caused many Ethanol producers, including
the Company, to curtail their Ethanol production, making Ethanol more
expensive and thus, inhibiting the manufacture of ETBE. During fiscal 1997,
grain costs began to decline from these record highs, which allowed Ethanol
production to increase to levels sufficient to provide competitively priced
Ethanol, for use as an oxygenate, either as Ethanol or in the form of ETBE.
In 1995, the Company believed a ruling by the U.S. Treasury Department,
allowed the production and sale of ETBE to qualify for an excise tax
exemption, which, at the time, would result in an increase in demand for
ETBE and Ethanol, ETBE's major ingredient. However, it was later determined
that the excise tax savings generated by the blending of ETBE was subject
to both Federal and state income taxes, which has limited the overall
benefit of the excise tax exemption. Currently, several legislators are
proposing legislation which would make ETBE's excise tax benefit
nontaxable. If this should occur, the Company believes demand for ETBE
will increase. In addition, during fiscal 1996 and early fiscal 1997 the
production costs of Ethanol increased due to high grain prices, which
resulted in higher production costs for ETBE. These higher ETBE production
costs prevented ETBE from being priced competitively with MTBE, a petroleum
based fuel additive, which is a primary ETBE competitor.
The Company's primary grain feedstocks during fiscal 1997 were sorghum
(also known as milo) and corn. Production at the Company's Colwich, Kansas
plant relied almost exclusively on sorghum as its grain feedstock, while
production at the Company's York, Nebraska facility relied on a mixture of
approximately 25% corn and 75% sorghum. The cost of these grains is
dependent upon factors which are generally unrelated to those affecting the
price of Ethanol. Sorghum prices generally vary directly with corn prices,
and both are influenced by regional grain supplies as well as world grain
market conditions.
High Plains attempts to control the market risk associated with grain
prices, the Company's major operating cost, by periodically employing
certain strategies including grain trading and forward contracting. To this
end, on January 7, 1997, the Company entered into an exclusive grain supply
agreement with Centennial Trading, LLC, a grain brokerage company, for the
procurement of all the grain requirements for the Company's Colwich, Kansas
and York, Nebraska plants for one year with automatic renewal for one-year
terms. This agreement may be terminated by either party at any time upon
thirty days written notice. The Company believes the Centennial agreement
has contributed to the Company's ability to minimize grain costs by
providing access to a large number of grain sources, and has provided the
Company with access to valuable feedgrain analysis and forecast
information.
At June 30, 1997, the Company had forward contracts to purchase
approximately 1.7 million bushels of grain feedstock at an average price of
$2.56 per bushel. In addition, 679,000 bushels of grain feedstock were
held under contracts for delivery, however, at June 30, 1997 no prices had
been set for these contracts.
The selling price of DDG, the primary by-product of the Company's
production process, generally varies in accordance with sorghum and corn
prices. Traditionally, as grain prices have increased, the Company's DDG
prices also increased, which has resulted in an offset of up to one-half of
the grain price increase. DDG sales accounted for 20.8%, 17.9% and 20.4% of
the Company's sales in fiscal 1995, 1996 and 1997, respectively.
The Company has traditionally sold a majority of its spring and summer
Ethanol production based on spot market conditions. However, during the
winter the Company sells up to 80% of its Ethanol production under fixed
price forward contracts that secure Ethanol deliveries for customers and
allow the Company to control its operating revenues by protecting the
Company against spot market price changes. The ability to forward contract
Ethanol sales at fixed prices during the winter months is a direct result
of greater demand for Ethanol during these months, which is attributable to
the Federal Oxygen Program, a recurring wintertime program.
The Company normally sells all of its production volume of Ethanol and
typically has less than two weeks inventory on hand. In fiscal 1997, the
Colwich plant produced 12.9 million gallons of Ethanol, a 9.8% decrease in
production from the 14.3 million gallons produced in fiscal 1996. The
reduced 1997 production at the Colwich facility was primarily due to the
temporary shutdown of the plant in May 1996 through September 1996 (See
"Temporary Shutdown of Plant Operations" below). Ethanol production at the
Colwich facility for fiscal 1997 reflects a 27.5% decrease from the 17.8
million gallons produced at the facility in fiscal 1995. In fiscal 1997,
the Company's York facility produced 20.8 million gallons of Ethanol, a
28.8% decrease in Ethanol production below the 29.2 million gallons
produced in fiscal 1996. The decreased 1997 production at the York plant
was primarily due to the May 1996 through October 1996 temporary shutdown
(See "Temporary Shutdown of Plant Operations" below). Production at the
York facility for fiscal 1997 reflects a 24.5% increase from the 15.7
million gallons produced in fiscal 1995.
The Company has expanded the Colwich plant to a production capacity of
approximately 20 million gallons per year. The York plant has achieved
production levels in excess of initial design capacity and, during certain
periods, has produced at an annualized rate approaching 40 million gallons
per year.
During the temporary shutdown of the York facility, the Company began
construction of an additional distillation facility at the York Plant,
which gave the Company the ability to produce an Industrial Grade Ethanol,
in addition to its production of Fuel Grade Ethanol. In January 1997, the
Company completed construction of this facility and began initial testing
of the new processing equipment. Modifications and test runs of the
equipment continued into June 1997.
This new Industrial Grade Ethanol distillation facility has a production
capacity of approximately one million gallons per month. This new facility
allows the Company to produce Fuel Grade Ethanol and to further refine, on
a more limited scale, a portion of its Fuel Grade Ethanol production into
Industrial Grade Ethanol. Although Industrial Grade Ethanol does not
qualify for the federal excise tax credit granted to Fuel Grade Ethanol
blenders, the Company believes that the addition of the Industrial Grade
product will provide the Company with a measure of diversification and
access to new market places at higher margins compared to Fuel Grade
Ethanol. Inventories at June 30, 1997 included approximately 400,000
gallons of Industrial Grade Ethanol which were sold subsequent to year end.
<PAGE>
Future growth in the Company's Ethanol production capacity beyond the
levels noted above will be dependent upon improvements to the York
facility. Additionally, production volume growth will depend on the success
of any future expansions or the construction and operation of new Ethanol
production facilities.
Temporary Shutdown of Plant Operations
During the spring of fiscal 1996, corn and milo feedstock prices
increased substantially compared to prior years, reaching record level
highs. Consequently, both the Colwich, Kansas and York, Nebraska plants
were temporarily shutdown in May 1996. As grain prices began to decline in
response to the onset of the 1996 autumn harvest, the Company prepared to
re-open its production facilities. During September 1996 the Colwich,
Kansas facility became operational. By late October 1996 the York,
Nebraska plant was producing as well.
Results of Operations
The following table sets forth certain items in the Company's Statements
of Income expressed as percentages of net sales and revenues for the
periods indicated:
<TABLE>
<CAPTION>
For the Years Ended June 30, 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Ethanol and incentive revenues 73.4% 65.1% 78.4%
By-products and other sales 26.6 19.0 21.6
Revenue from forward contracts 0.0 15.9 0.0
----- ----- -----
Net sales and revenues 100.0 100.0 100.0
Cost of products sold 94.1 79.0 82.8
(Recovery) expense from forward
contracts ( .9) 2.8 0.0
----- ----- -----
Gross profit 6.8 18.2 17.2
Selling, general and
administrative expenses 2.6 2.3 2.9
----- ----- -----
Operating income 4.2 15.9 14.3
Interest expense (2.1) (2.5) (2.4)
Non-recurring expense 0.0 0.0 (0.2)
Other operating income 0.6 0.4 0.1
----- ----- -----
Net earnings before
income taxes 2.7 13.8 11.8
Income tax expense 0.0 0.4 0.3
----- ----- -----
Net earnings 2.7% 13.4% 11.5%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 COMPARED TO FISCAL 1996:
1997 1996
------------ ------------
<S> <C> <C>
Ethanol and incentive revenues $ 46,345,112 $ 57,256,397
By-products and other sales 16,776,398 16,663,699
Revenues from forward contracts -0- 14,005,313
------------ ------------
Net sales and revenues $ 63,121,510 $ 87,925,409
============ ============
</TABLE>
Net sales and revenues for the year ended June 30, 1997 were
28.2% lower than net sales and revenues for the same period ended
June 30, 1996. The Company sold 33,298,424 gallons of Ethanol
which generated sales of $41,165,387 with an average selling
price of $1.24 per gallon for the year ended June 30, 1997.
During the same period in fiscal 1996, 44,630,313 gallons of
Ethanol were sold generating sales of $51,701,573 at an average
selling price of $1.19 per gallon. Production and sales were
significantly lower in fiscal 1997 compared to fiscal 1996 as a
result of decreased production. This decline in production was
due to the temporary shutdown of the Company's plants and the
inefficiencies in production experienced as part of the re-
opening of the plants. For additional information regarding the
temporary shutdown of the production facilities see "Temporary
Shutdown of Plant Operations" section above.
Included in Ethanol and incentive revenues are amounts of
$1,160,141 and $1,126,386 for fiscal 1997 and 1996, respectively,
for Ethanol produced under the Kansas production incentive
program. These payments ranged from $.08 to $.17 per gallon of
Ethanol produced. The Kansas incentive program was recently
extended and is currently scheduled to expire July 1, 2001. The
Company believes the Kansas legislature will continue to support
the incentive program in the future, due to its economic benefits
to agriculture. The Company maintains on-going efforts to extend
the program beyond the current expiration date.
Additional amounts of $4,019,584 and $4,428,437 in
production tax credits from the State of Nebraska were recorded
as incentive revenues for the years ended June 30, 1997 and 1996,
respectively. Under the Nebraska program, the Company receives
over a five year period, 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 will no longer be eligible for this credit after December
31, 1999.
For the year ended June 30, 1997, by-products and other
sales totaled $16,776,398 of which $3,128,676 is from the
Company's sale of certain processing equipment for the production
of Industrial Grade Ethanol. In connection with this sale, the
equipment was simultaneously leased back to the Company under a
capital lease. See Note 7 to the Financial Statements for
additional information.
Cost of products sold as a percentage of net sales and
revenues were 94.1% and 79.0% for fiscal 1997 and 1996,
respectively. The fiscal 1997 increase in cost of products sold
as a percentage of net sales and revenues was primarily due to a
decrease in revenues in fiscal 1997 since the Company did not
sell any forward grain contracts. In the fourth quarter of
fiscal 1996, the Company sold all of its forward grain contracts,
net of commissions for approximately $14.0 million, due to record
level grain prices in excess of the forward grain contract
prices. For the fiscal year ended June 30, 1997 no revenue from
the sale of forward grain contracts was recognized. The
Company's cost of grain averaged $2.61 per bushel during the year
ended June 30, 1997 compared to an average cost of $2.90 per
bushel for the same period ended June 30, 1996.
Selling, general and administrative expenses decreased by
18% in 1997 over 1996. This decrease was primarily the result of
lower compensation expense related to lower net earnings.
The Company recorded net earnings of $1,733,290 for the year
ended June 30, 1997, compared to $11,821,077 for the year ended
June 30, 1996, with a decrease in gross profit percentage from
18.2% of net sales and revenues in fiscal 1996 to 6.8% of net
sales and revenues for the same period ended 1997. Net earnings
for fiscal 1997 decreased compared to fiscal year 1996 primarily
as a result of higher revenues generated from the sale of forward
contracts during the year ended June 30, 1996. For the year
ended June 30, 1997 no revenue from the sale of forward contracts
was recognized.
<PAGE>
<TABLE>
<CAPTION>
FISCAL 1996 COMPARED TO FISCAL 1995:
1996 1995
------------ ------------
<S> <C> <C>
Ethanol and incentive revenues $ 57,256,397 $ 41,355,707
By-products and other sales 16,663,699 11,413,307
Revenues from forward contracts 14,005,313 --
------------ ------------
Net sales and revenues $ 87,925,409 $ 52,769,014
============ ============
</TABLE>
Net sales and revenues for the year ended June 30, 1996 were
66.7% higher than net sales and revenues for the same period
ended June 30, 1995. The Company sold 43,333,305 gallons of
Ethanol which generated sales of $51,701,573 with an average
selling price of $1.19 for the year ended June 30, 1996. During
the same period in fiscal 1995, 33,576,788 gallons of Ethanol
were sold generating sales of $37,337,916 at an average selling
price of $1.11 per gallon. Production and sales increased
significantly in fiscal 1996 compared to fiscal 1995 primarily
due to the increased production provided by the York, Nebraska
facility and higher per gallon prices. 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 the RFG program have also affected Ethanol pricing due to
demand for Ethanol's oxygen content.
Included in Ethanol and incentive revenues are amounts of
$1,126,387 and $1,304,019 for fiscal 1996 and 1995, 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 was recently
extended and is scheduled to expire July 1, 2001. The Company
believes the Kansas legislature will continue to support the
incentive program due to its economic benefits to agriculture,
and thus, believes there is a good possibility that the program
will be extended beyond the current expiration date. Additional
amounts of $4,428,437 and $2,713,772 in production tax credits
from the State of Nebraska were recorded as incentive revenues
for the years ended June 30, 1996 and 1995, respectively. 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 will no longer be eligible for this credit after
December 31, 1999.
For the year ended June 30, 1996, by-products and other sales
totaled $16,663,699. For the same period ended June 30, 1995, by-
products and other sales totaled $11,413,307. In addition, during
the fourth quarter of fiscal year 1996, the Company recorded
revenues from the sale of all of its forward grain contracts net
of commissions for approximately $14.0 million, due to record
level grain prices in excess of the forward grain contract
prices.
Cost of products sold as a percentage of net sales and
revenues were 79.0% and 82.8% for fiscal 1996 and 1995,
respectively. The decrease in cost of products sold as a
percentage of net sales and revenues was primarily due to the
increase in revenues from the sale of forward contracts, net of
the increase in average grain costs. As a result of the sale of
its forward grain contracts, the Company incurred approximately
$2.5 million in additional expenses related to filling
undelivered contract commitments for the sale of Ethanol and DDG.
The Company's cost of grain averaged $2.90 per bushel during the
year ended June 30, 1996 compared to an average cost of $2.25 per
bushel for the same period ended June 30, 1995.
Selling, general and administrative expenses increased by 33%
in 1996 over 1995. This increase was primarily the result of
higher compensation expense related to higher net earnings.
The Company recorded net earnings of $11,821,077 for the year
ended June 30, 1996, compared to $6,072,407 for the year ended
June 30, 1995, with an increase in gross profit percentage from
17.2% of net sales and revenues in fiscal 1995 to 18.2% of net
sales and revenues for the same period ended 1996. Net earnings
for fiscal 1996 increased primarily as a result of revenue
generated from the sale of forward contracts.
Seasonality
Historically, the Company's gross profits have been higher
during its second and third fiscal quarters (October through
March). Ethanol production efficiencies increase during the
cooler months of the year avoiding the difficulties associated
with controlling temperature levels in the fermentation process
during the hot summer months. In addition, the Company's cost of
grain, it's primary cost of production, traditionally decreases
during and shortly following the autumn grain harvest.
Historically, demand, and thus the sales price for Ethanol, has
been higher in winter months due to state and local government
winter fuel oxygen programs and the Federal Oxygen Program.
Summer demand for Ethanol has not yet been materially influenced
by oxygenate programs. However, summer Ethanol demand continues
to be somewhat influenced by increased automobile use, fuel
consumption and the withdrawal from the Ethanol market of certain
manufacturers who elect to produce high fructose corn syrup
during the summer months rather than Ethanol.
With the implementation of the Reformulated Gasoline Program
in January 1995, the Company experienced a small increase in
Ethanol demand. Since then, a stronger year-round demand for
oxygenates has occurred in response to the RFG program.
Ethanol's role in the RFG program has been somewhat limited due
to the program's maximum vapor pressure standards for oxygenates.
Ethanol is blended with gasoline and the result is a slightly
higher vapor pressure than the gasoline by itself. Gasoline
refiners and marketers typically produce and sell gasoline that
is at the legal limit for vapor pressure. In order for Ethanol
to be utilized as an RFG program oxygenate, gasoline marketers
need to provide a gasoline blendstock that has a vapor pressure
slightly less than the upper regulatory limit, or the economics
of ETBE, a low vapor pressure oxygenate made from Ethanol, needs
to be improved to make ETBE more competitive. To date, limited
amounts of ETBE have been utilized in the RFG Program, but the
quantities produced and utilized are difficult to determine.
Other traditional Ethanol markets have indirectly benefited from
the RFG programs, because quantities of MTBE, the most commonly
used oxygenate, have been drawn to RFG markets and thus, are not
available to compete against Ethanol in the existing non-RFG
markets. The National Academy of Sciences is currently comparing
Ethanol's increased vapor pressure with Ethanol's greater
reduction of tailpipe emissions. If they determine, as other
scientists have, that the reduction in tailpipe emissions more
than offsets the increased evaporative emissions from Ethanol
blend's higher vapor pressure, they may allow a vapor pressure
waiver for Ethanol blends, opening previously closed RFG markets
to Ethanol.
<PAGE>
Income Taxes
The Company expects to recognize income tax expense for
financial reporting purposes for substantially all pre-tax
earnings after June 30, 1997. However, the Company will be able
to utilize a limited portion of its tax credit carryforwards to
reduce the amount of taxes actually paid to the 20% alternative
minimum tax rate, deferring the balance of the tax expense into
future periods. In the event certain tax credit carryforwards
expire, the Company would receive a deduction equal to 50% of any
expired investment tax credits and 100% of the small ethanol
producers credit in the year of expiration and the difference
between the future tax benefit of the tax credit and the future
tax benefit of the deduction would become an immediate additional
deferred tax expense in the year of expiration. See Note 9 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 tax credit carry forwards may be
subject to an annual limitation. The Company does not expect this
annual limitation to necessarily limit the total 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 fiscal 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 obtained funds during the last three fiscal years
from several sources, including cash from operations, exercise of
stock options, and proceeds from revolving lines-of-credit and
long-term debt. Cash from operating activities amounted to
$3,660,535 in fiscal 1997 compared to $14,793,769 in fiscal 1996.
In fiscal 1995 cash from operating activities amounted to
$4,559,912. The decrease in cash from operating activities in
1997 was primarily attributable to the decrease in net earnings
and the increase in trade accounts receivables and inventories
related to the temporary shutdown of both of the Company's
production facilities in late fiscal 1996 and early fiscal 1997.
(See "Temporary Shutdown of Plant Operations" above.)
Cash and cash equivalents amounted to $2,389,758 at June 30,
1997, compared to $8,889,246 at June 30, 1996, and $600,381 at
June 30, 1995. At June 30, 1997, the Company had a working
capital surplus of $70,117 compared to a working capital surplus
of $6,573,150 at June 30, 1996, and a working capital deficit of
$(538,322) at June 30, 1995. Working capital decreased during
fiscal 1997 compared to fiscal 1996 primarily due to the decrease
in net earnings and the decrease in long-term debt.
Due to the volatility in both the selling price of Ethanol and
the cost of the Company's raw materials, the Company continues
to be exposed to liquidity risk. However, due to Ethanol's role
in the fuel markets as an oxygenate under the Federal Oxygen
Program and the RFG, 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, a decrease in the
demand for oxygenates, or if 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. If any of these events should occur and cash
reserves proved insufficient, the Company would have to seek
additional funding through the sale of stock, exercise of options
held by directors and officers or additional financing.
Capital expenditures in fiscal 1997 amounted to $7,819,604
compared to $4,947,663 in fiscal 1996 and $17,015,408 in fiscal
1995. In fiscal 1997, $7,634,995 of the capital expenditures were
related to modifications made for Industrial Grade Ethanol
production capabilities at the York, Nebraska plant. In fiscal
1996, $4,341,962 of the capital expenditures were related to
modifications and upgrades for the York, Nebraska plant. In
fiscal 1995, $16,159,518 of the capital expenditures were for
construction-in-progress at the York, Nebraska plant. The balance
of capital expenditures in each of fiscal 1997, 1996 and 1995
were for improvements at the Colwich, Kansas facility.
No further expansions of the Company's Ethanol production
capacity at either of its plants are anticipated at this time.
However, improvements may be made to the plants to improve
efficiency or to improve the recoverability of by-products. The
Company does not have any material cash commitments to acquire
capital assets as of June 30, 1997.
Inflation
General inflation increased slightly, but continued to be
moderate during the years ended June 30, 1997, 1996 and 1995. The
Company's management 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.
Any forward-looking statements made above are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that all forward-
looking statements involve risks and uncertainty. Among the
factors that could cause actual results to differ materially from
those anticipated by certain of the above statements are the
following: 1) legislative changes regarding air quality, fuel
specifications or incentive programs; 2) changes in cost of grain
feedstock; 3) changes in market prices or demand for motor fuels
and Ethanol. Additional information concerning those and other
factors is contained in the Company Securities and Exchange
Commission filings, including but not limited to, its annual 10K,
Proxy Statement, quarterly 10Q filings, and press releases,
copies of which are available from the Company without charge.
<PAGE>
<TABLE>
STATEMENTS OF INCOME
Years Ended June 30, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Product sales and revenues $63,121,510 $73,920,096 $52,769,014
Revenues from forward contracts -- 14,005,313 --
----------- ----------- -----------
Net sales and revenues 63,121,510 87,925,409 52,769,014
----------- ----------- -----------
Cost of products sold 59,414,514 69,414,221 43,698,552
(Recovery) expense from forward
contracts (610,069) 2,524,235 --
----------- ----------- -----------
Total costs and expenses 58,804,445 71,938,456 43,698,552
----------- ----------- -----------
Gross profit 4,317,065 15,986,953 9,070,462
Selling, general and
administrative expenses 1,653,681 2,022,095 1,519,615
----------- ----------- -----------
Operating income 2,663,384 13,964,858 7,550,847
----------- ----------- -----------
Other income (expense):
Interest and other income 276,345 175,296 151,511
Interest expense (1,354,983) (2,220,427) (1,268,354)
Gain (loss) on sale of equipment 129,649 256,606 (112,024)
Non-recurring expenses -- -- (108,196)
----------- ----------- -----------
(948,989) (1,788,525) (1,337,063)
----------- ----------- -----------
Net earnings before
income taxes 1,714,395 12,176,333 6,213,784
Income tax benefit (expense) 18,895 (355,256) (141,377)
----------- ----------- -----------
Net earnings $ 1,733,290 $11,821,077 $ 6,072,407
=========== =========== ===========
Earnings per common and dilutive
common equivalent share $ .11 $ .74 $ .39
=========== =========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1997, 1996 and 1995
<CAPTION>
Preferred Stock Common Stock
------------------ -------------------- Retained
Number Number Additional Earnings
of of Paid-In (Accumulated Treasury Deferred
Shares Amount Shares Amount Capital Deficit) Stock Compensation Total
------- --------- ---------- ---------- ----------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 stock 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
Exercise of stock options 776,342 77,634 1,897,884 1,975,518
Purchase of common stock (493,283) (493,283)
Employee stock purchase (141,937) (141,937)
Amortization of deferred
compensation 53,230 53,230
Income tax benefit from the
exercise of stock options 116,000 116,000
Net earnings for year 11,821,077 11,821,077
------- --------- ---------- ---------- ----------- ----------- --------- --------- -----------
Balance, June 30, 1996 -- -- 16,247,289 1,624,729 36,752,644 16,030,337 (737,660) (88,707) 53,581,343
Exercise of stock options 149,333 14,933 516,560 531,493
Purchase of common stock (126,251) (126,251)
Employee stock purchase (273,750) (273,750)
Amortization of deferred
compensation 131,183 131,183
Compensation expense on
stock options granted 78,868 78,868
Net earnings for year 1,733,290 1,733,290
------- --------- ---------- ---------- ----------- ----------- --------- --------- -----------
Balance, June 30, 1997 -- $ -- 16,396,622 $1,639,662 $37,348,072 $17,763,627 $(863,911) $(231,274) $55,656,176
======= ========= ========== ========== =========== =========== ========= ========= ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
BALANCE SHEETS
June 30, 1997 and 1996
<CAPTION>
ASSETS
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,389,758 $ 8,889,246
Accounts receivable:
Trade (less allowance of $75,000 and
$100,000 in 1997 and 1996) 4,102,173 1,266,497
Production credits and incentives 1,536,541 573,312
Inventories 4,246,783 1,680,843
Current portion of long-term notes receivable 117,417 106,552
Prepaid expenses 309,350 545,171
Refundable income tax 145,328 410,259
------------ ------------
Total current assets 12,847,350 13,471,880
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land and land improvements 323,496 142,283
Ethanol plants 85,055,215 77,217,199
Other equipment 393,683 417,559
Office equipment 202,135 237,085
Leasehold improvements 48,002 48,002
------------ ------------
86,022,531 78,062,128
Less accumulated depreciation (20,444,381) (17,573,003)
------------ ------------
Net property, plant and equipment 65,578,150 60,489,125
------------ ------------
OTHER ASSETS
Equipment held for resale 427,432 451,090
Deferred loan costs (less accumulated
amortization of $10,857 and $164,644
in 1997 and 1996) 103,623 312,823
Long-term notes receivable, less
current portion 41,742 314,159
Other 76,235 57,018
------------ ------------
Total other assets 649,032 1,135,090
------------ ------------
$ 79,074,532 $ 75,096,095
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Revolving lines-of-credit $ 6,200,000 $ --
Current maturities of long-term debt -- 4,897,619
Current maturities of capital
lease obligations 519,384 30,999
Accounts payable 5,114,452 692,135
Estimated contract commitments -- 629,093
Accrued interest 298,551 156,294
Accrued payroll and property taxes 644,846 492,590
------------ ------------
Total current liabilities 12,777,233 6,898,730
------------ ------------
Revolving line-of-credit 7,700,000 2,000,000
Long-term debt, less current maturities -- 12,447,619
Capital lease obligations, less current
maturities 2,500,014 12,655
Other 441,109 155,748
------------ ------------
10,641,123 14,616,022
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized
50,000,000 shares; issued 16,396,622
shares and 16,247,289 shares at
June 30, 1997 and 1996, respectively, of
which 411,178 and 391,178 shares were
held as treasury stock at June 30, 1997
and 1996, respectively 1,639,662 1,624,729
Additional paid-in capital 37,348,072 36,752,644
Retained earnings 17,763,627 16,030,337
------------ ------------
56,751,361 54,407,710
Less:
Treasury stock - at cost (863,911) (737,660)
Deferred compensation (231,274) (88,707)
------------ ------------
Total stockholders' equity 55,656,176 53,581,343
------------ ------------
$ 79,074,532 $ 75,096,095
============ ============
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,733,290 $11,821,077 $ 6,072,407
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 3,405,364 2,869,699 2,084,469
Provision for bad debt -- -- 68,487
(Gain) loss on sale of equipment (129,649) (256,606) 112,024
Amortization of deferred
compensation 107,923 53,230 --
Compensation expense on stock
options granted 78,868 -- --
Payments received on notes
receivable 236,552 96,691 37,598
Changes in operating assets
and liabilities:
Accounts receivable (3,773,905) 1,953,952 (1,949,675)
Inventories (2,565,940) 964,434 (1,703,415)
Equipment held for resale 105,794 606,353 (487,921)
Refundable income tax 264,931 (294,259) 107,825
Prepaid expenses 235,821 (160,312) 52,080
Accounts payable 4,422,317 (3,103,913) (62,638)
Estimated contract
commitments (629,093) 629,093 --
Accrued liabilities 168,262 (385,670) 228,671
------------ ----------- ------------
Net cash provided by
operating activities 3,660,535 14,793,769 4,559,912
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from sale of property,
plant and equipment 43,620 54,477 586,237
Acquisition of property,
plant and equipment (4,802,664) (4,947,663) (16,519,158)
(Increase) decrease in other
non-current assets (19,217) 5,591 5,804
------------ ----------- ------------
Net cash used in
investing activities (4,778,261) (4,887,595) (15,927,117)
------------ ----------- ------------
Cash flows from financing activities:
Payments on long-term debt (17,345,238) (5,273,810) (2,380,952)
Proceeds from long-term debt -- -- 12,668,328
Payments on revolving
line-of-credit (3,100,000) (1,000,000) (1,000,000)
Proceeds from revolving
lines-of-credit 15,000,000 3,000,000 1,000,000
Payments on capital lease
obligations (295,330) (332,828) (186,054)
Increase in other non-current
assets (207,558) -- (30,648)
Increase in other non-current
liabilities 97,996 13,811 --
Issuance of common stock 49,500 -- --
Proceeds from exercise of options 418,868 1,975,518 1,765,807
------------ ----------- ------------
Net cash (used in)
provided by financing
activities (5,381,762) (1,617,309) 11,836,481
------------ ----------- ------------
(Decrease) increase
in cash and
cash equivalents (6,499,488) 8,288,865 469,276
Cash and cash equivalents:
Beginning of year 8,889,246 600,381 131,105
------------ ----------- ------------
End of year $ 2,389,758 $ 8,889,246 $ 600,381
============ =========== ============
<FN>
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents - High Plains Corporation, the "Company,"
considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts. The Company
believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Inventories - Inventories are stated at the lower of cost
(first-in, first-out) or market. To the extent practical, the
Company follows a policy of hedging certain commodity
transactions related to anticipated production requirements.
This is done to reduce risk due to market price fluctuations.
Readily marketable exchange-traded futures contracts are the
designated hedge instruments since there is a high correlation
between the market value changes of such contracts and the price
changes on grain commodities. Gains or losses arising from open
and closed hedging transactions are included as an adjustment to
the value of inventories and reflected in cost of sales in the
statements of income when the underlying purchase contracts are
fulfilled.
Property, Plant and Equipment - Property, plant and equipment
are recorded at cost. The cost of internally-constructed assets
includes direct and allocable indirect costs. Plant
improvements are capitalized, while maintenance and repair costs
are charged to expense as incurred. Periodically, a plant or a
portion of a plant's equipment is shut down to perform certain
maintenance projects which are expected to improve the operating
efficiency of the plant over the next year. These expenses are
generally incurred once a year and thus are capitalized and
amortized over the future 12-month period benefited. Included
in prepaid expenses at June 30, 1997 and 1996 were $220,523 and
$429,207, respectively, of these expenditures.
Provisions for depreciation of property, plant and equipment are
computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Ethanol plants 5 - 40 years
Other equipment 5 - 10 years
Office equipment 3 - 10 years
Leasehold improvements 5 years
</TABLE>
Whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be fully
recoverable, the Company reviews that asset for impairment.
Scheduled future expirations of state incentive payments and
federal fuel tax incentive programs are not considered to be
such an event or change because of the government's history of
extending the expirations of these incentives.
Equipment Held for Resale - The Company acquired ethanol
processing equipment located in New Iberia, Louisiana to be
utilized in the construction of the York, Nebraska facility.
Amounts allocated for equipment not utilized for the Nebraska
facility are recorded as equipment held for resale and these
amounts are decreased as sales occur. Management expects a gain
upon its ultimate disposition and, accordingly, no loss has been
provided for.
Deferred Loan Costs - The Company incurred certain costs in
connection with obtaining financing. The Company is amortizing
these costs over sixty months, the life of the debt.
Fair Value of Financial Instruments - The fair values of
financial instruments recorded on the balance sheet are not
significantly different from the carrying amounts.
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, (FAS
109) the tax benefit from utilization of loss carryforwards is
not reflected as an extraordinary item.
Deferred Compensation - Under the Employee Stock Purchase Plan
(Note 12), compensation is recognized as an expense in the
period in which the employee performs the services, which is
generally the period over which the stock appreciation is vested
or earned. With the exception of certain officers, the
employees must continue to work for five years to acquire the
full amount of the stock. Compensation expense attributable to
future services has been recorded as deferred compensation in
the equity section of the balance sheets and is amortized over
the period of future services. Officers who have ten years of
continuous service are allowed to prepay their obligation and
receive the stock immediately and thus, the compensation
attributable to their election is recognized upon their election
to participate in the plan.
Stock-Based Compensation - The Company has chosen to continue to
account for stock-based compensation for employees using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. However,
the Company accounts for stock-based compensation for
non-employees as provided under FASB Statement No. 123,
Accounting for Stock-Based Compensation (FAS 123). The fair
value of the option grant is estimated on the date of grant
using the Black-Scholes option pricing method.
Recently Issued Accounting Standards - In February 1997, FASB
issued Statement No. 128, Earnings Per Share (FAS 128),
effective for the Company for the interim periods and years
ended after December 15, 1997. FAS 128 replaces the
presentation of primary earnings per share (EPS) with a
presentation of "basic" EPS. Basic EPS excludes the dilutive
effects of common stock equivalent shares in its calculation. A
diluted EPS will still be required, and will be computed
similarly to the current fully diluted EPS (see Note 14). Under
FAS 128, both the basic and diluted EPS amounts will be
presented in the financial statements. Also, the statement will
require restatement of all prior period EPS data presented in
the financial statements. EPS as calculated at June 30, 1997,
1996, and 1995 would not be materially different if calculated
using basic EPS.
Other pronouncements issued by the Financial Accounting
Standards Board with future effective dates are either not
applicable or not material to the financial statements of the
Company.
Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect: 1) the reported amounts of assets and liabilities, 2)
disclosures such as contingencies, and 3) the reported amounts
of revenues and expenses included in such financial statements.
Actual results could differ from those estimates.
<PAGE>
Contingencies - In the normal course of business, the Company
becomes party to litigation and other contingencies that may
result in loss or gain contingencies. The Company follows
Statement of Financial Accounting Standards No. 5, Accounting
for Contingencies. Under FAS No. 5, loss contingencies are
accrued if available information indicates that it is probable
that a loss is incurred and the amount of such loss can be
reasonably estimated.
Reclassifications - Certain items have been reclassified on the
1996 balance sheet to be consistent with the classifications in
1997.
2. DESCRIPTION OF BUSINESS
Ethanol Production Business - The Company's principal business
is the operation of two plants in Kansas and Nebraska for the
distillation and production of industrial and fuel 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 product sales and revenues in the
accompanying financial statements were $1,304,019 for fiscal
1995, $1,126,386 for fiscal 1996 and $1,160,141 for fiscal 1997.
The Kansas incentive program is currently scheduled to expire
July 1, 2001.
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 transfers these credits to a Nebraska
gasoline retailer which then reimburses the Company for the
credit amounts less a handling fee. 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. The Company will no longer be eligible for this
credit after December 31, 1999. Nebraska production tax credit
amounts recorded as revenues in the accompanying financial
statements were $2,713,772 in fiscal 1995, $4,428,437 in fiscal
1996 and $4,019,584 in fiscal 1997.
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, 2000. 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. This tax rate
reduction equals $.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.
Shut Down of Plant Operations - Due to increasing corn and
milo-feedstock prices, management temporarily suspended
operations at both its York and Colwich facilities in May 1996.
The Company had forward contracted grain purchases to insure the
availability of grain needed for its production process at a
fixed price. These contracts would have allowed continued
operations through approximately August 1997. Due to grain
prices rising to record levels in excess of the forward
contracted levels, the Company sold all of its forward grain
contracts for approximately $14 million after commissions. See
Note 8 for details on the Company's outstanding commitments at
June 30, 1996 related to undelivered contracts for the sale of
ethanol and dried distiller's grain (DDG). Expenses incurred
prior to the year ending June 30, 1996 to fill these contracts
were estimated to be approximately $2.5 million.
The Colwich facility reopened in September 1996, and the York
facility reopened in October 1996. During the shutdown period,
the Company began modifying the York facility to produce a
higher-quality industrial grade ethanol as well as the fuel
grade ethanol it already produced. In January 1997, the Company
completed construction and began initial testing of the new
industrial grade processing equipment. Modifications and test
runs of the new equipment continued into June 1997 while the
Company pursued customers for the sale of its higher quality
product.
3. NOTES RECEIVABLE
In January 1995, the Company disposed of its engineering
division, and certain property assets associated with the
division were transferred to the former officer who took over
the operations under a separate, unrelated company. This
company and former officer agreed to pay $300,000 and $100,000,
respectively, in notes, plus interest at 9.75% over 45 months.
The remaining balance on these notes receivable were $119,370
and $39,789 at June 30, 1997 and $199,283 and $66,428 at June 30,
1996, respectively. These notes are secured by the property
transferred and the former officer's personal guarantee.
4. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $ 957,894 $ 157,939
Work-in-process 396,747 --
Finished goods 2,149,904 821,481
Spare parts 664,530 701,423
Adjustment to market for
hedged grain inventory 77,708 --
---------- ----------
$4,246,783 $1,680,843
========== ==========
</TABLE>
5. REVOLVING LINES-OF-CREDIT
On January 10, 1997, the Company entered into a credit agreement
with a bank to refinance the Company's existing long-term debt
and revolving line-of-credit. Under the new credit agreement,
the Company has two revolving lines-of-credit. The
lines-of-credit have an interest rate option equal to the bank's
prime rate or the LIBOR rate, whichever the Company elects. On
one credit line, the Company may borrow up to a maximum of
$4,000,000. At June 30, 1997, $2,300,000 of the outstanding
balance bears interest at a LIBOR-based rate of 8.14% through
January 8, 1998; the remaining $1,700,000 bears interest at the
prime rate of 8.5% at June 30, 1997. This revolving
line-of-credit has an initial maturity of January 10, 1998.
The Company may borrow up to a maximum of $9,900,000 on the
other revolving line-of-credit, which has a maturity of December
31, 2002. At June 30, 1997, $9,350,000 bears interest at a
LIBOR-based rate of 8.14%, expiring January 8, 1998. The
remaining balance of $550,000 bears interest at a LIBOR-based
rate of 8.02%, expiring September 30, 1997.
The maximum availability under the lines-of-credit is limited so
that the amount of collateral securing the lines at all times
exceeds the outstanding balances by a ratio of at least 2 to 1.
Collateral on the lines includes all eligible receivables,
inventory, general intangibles, property and equipment located
at the York, Nebraska plant, and the Company's
<PAGE>
rights to payments under present or future production incentive
contracts from the Ethanol Plant Production Credit Agreement
with the State of Nebraska. The maximum availability under the
$9,900,000 line-of-credit decreases each calendar quarter
by $550,000. Therefore, the Company can expect to pay at least
$2,200,000 on this line-of-credit in the next fiscal year. This
amount is included in the current maturities of the
lines-of-credit on the balance sheet.
The financing agreement contains various restrictions, including
the maintenance of certain financial ratios, fulfilling certain
net worth and indebtedness test, and capital expenditure
limitations. At June 30, 1997, the Company was in violation of
a certain covenant; however, the bank has waived its rights to
declare the debt due and payable based on this covenant
violation through June 30, 1998.
6. LONG-TERM DEBT
Long-term debt consisted of:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<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 (9.75% at June 30, 1996) with a
final payment due September 2000. $ -- $ 17,345,238
---------- ------------
-- 17,345,238
Less current maturities -- 4,897,619
---------- ------------
$ -- $ 12,447,619
========== ============
</TABLE>
7. LEASES
Sale - Leaseback Transaction - On December 12, 1996, the Company
sold certain processing equipment for the production of
industrial grade ethanol for $3,128,676 and concurrently entered
into an agreement to lease the property back at $54,191 per
month through December 12, 2002. The sale of equipment was
recorded resulting in a gain of $87,447 which was deferred and
will be recognized over the six-year term of the lease
agreement. The lease has been classified as a capital lease.
The equipment under lease is included in ethanol plants totaling
$3,128,676, less accumulated depreciation of $7,838, for a net
book value of $3,120,838 at June 30, 1997.
Other Capital Leases - The Company also leases various
processing equipment, a forklift, and two photo copiers under
long-term agreements which have been classified as capital
leases. The leases have terms of two to three years, and
expire through September 1999. As of June 30, 1997, cost and
accumulated depreciation on equipment under capital leases
amounted to $284,068 and $29,568, for a net book value of
$254,500. At June 30, 1996, cost and accumulated depreciation
on equipment under capital leases amounted to $103,960 and
$15,725, for a net book value of $88,235.
Operating Leases - The Company leases 100 railroad cars under an
operating lease expiring in fiscal year ending June 30, 1999.
Annual rentals are $618,000 for all 100 cars. The Company also
leases 32 cars under an operating lease expiring in June 30,
2002. Annual rentals are $213,120 for all 32 cars. The Company
leases an additional 52 railroad cars under various operating
leases expiring through fiscal year ending June 30, 2001. Rent
paid during the years ended June 30, 1997, 1996 and 1995 was
$977,449, $865,941, and $806,942, respectively.
Future Minimum Lease Payments - The following is a schedule of
future minimum lease payments for capital leases and operating
leases as of June 30, 1997:
<TABLE>
<CAPTION>
Capital Operating
Year Ending June 30 Leases Leases
------------------- ----------- -----------
<S> <C> <C>
1998 $ 727,674 $ 1,132,020
1999 671,194 960,040
2000 656,532 250,200
2001 650,290 225,480
2002 650,290 213,120
Thereafter 325,145 --
----------- -----------
Total minimum lease payments 3,681,125 $ 2,780,860
Less amount representing interest 661,727 ===========
-----------
Present value of net minimum
lease payments 3,019,398
Less current maturities 519,384
-----------
$ 2,500,014
===========
</TABLE>
The Company has subleased 20 of the above railroad cars under
various short-term noncancelable operating leases. The total
minimum future rentals to be received in fiscal year ended June
30, 1998 is $94,500.
Interest Payments - Interest paid on long-term debt, the
revolving lines-of-credit and capital leases in 1997, 1996 and
1995 amounted to $1,328,310, $2,249,297 and $2,051,866,
respectively. The Company capitalized $115,585 and $889,211 in
interest in 1997 and 1995, respectively, as part of the cost of
construction at the York, Nebraska facility. No interest was
capitalized in 1996.
8. COMMITMENTS
Forward and Futures Contracts - The Company periodically enters
into forward contracts with suppliers and customers on both the
purchase of grain and the sale of ethanol and DDG. At June 30,
1997, the Company had forward contracts to purchase
approximately 1,728,000 bushels of milo and corn at fixed prices
totaling $4,432,000 with delivery dates of July through August
1997. An additional 679,000 bushels were held under contracts
for delivery, however, at June 30, 1997, no prices had been set.
The unpriced contracts are for deliveries from July through
December 1997. At June 30, 1997, the Company had also purchased
futures contracts on approximately 1,250,000 bushels. These
contracts had been purchased at prices ranging from $2.66 to
$2.74 per bushel, while the fair market value of the futures was
approximately $2.38 per bushel at June 30, 1997, resulting in
unrealized losses at year-end. The Company had forward
contracts to sell 32,600 tons of DDG at fixed prices totaling
approximately $2,585,000. No losses were expected on these
contracts. At June 30, 1996, the Company had no forward
contracts to purchase grain. No material forward contracts for
purchases or sales existed at June 30, 1995.
The Company sells DDG and certain condensed distiller's solubles
(CDS), the by-products of its ethanol production, through
merchandisers. At June 30, 1996 one merchandiser had certain
unfilled contracts for DDG. The Company also had two unfilled
contracts to sell ethanol at June 30, 1996. Due to the shutdown
of plant operations (See Note 2), the Company was liable for the
difference in the contracted sales prices and the costs to
purchase the necessary product to fill these contracts. The
Company's liability for this difference at June 30, 1996 was
approximately $292,000 for DDG and $629,093 for ethanol. The
$292,000 was recorded as an offset to a receivable from the DDG
merchandiser and the $629,093 was recorded as a liability.
These contracts mostly extended through September 1996,
<PAGE>
and final settlements were dependent on fluctuations in the price
the Company had to pay to fill the contracts while the plants
were not in production. Final settlements during the year ended
June 30, 1997 resulted in a $610,069 recovery of the expense
recorded at June 30, 1996.
Retirement and Consulting Agreement - On April 11, 1997, the
Company entered into an agreement with the former President and
Chairman of the Board to provide a retirement benefit package
and consulting agreement for future services. As part of the
retirement package, the Company agreed to grant (on August 1,
1997) 14,000 non-qualified options at an exercise price equal to
one-half of the lowest closing price achieved by the Company's
stock between May 1, 1997 and August 1, 1997.
In consideration for future consulting services to be provided
by the former President, the Company agreed to make payments
equal to the amounts required under his former employment
contract, which would have expired July 1, 2000. At June 30,
1997, this totaled $401,979 plus annual bonuses of 2% of net
income before taxes. The Company also agreed to grant the
former President 50,000 nonqualified stock options on each April
11, 1997, 1998 and 1999 at the then closing stock price.
9. INCOME TAXES
For Federal income tax purposes at June 30, 1997, the Company
had a net operating loss carryforward of approximately
$13,334,000 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>
1998 $ -- $ 1,000
1999 -- 1,263,000
2000 -- 7,000
2001 -- 86,000
2002 78,000 --
2003 6,430,000 4,500,000
2004 453,000 --
2005 992,000 --
2008 3,000 --
2009 485,000 --
2012 4,893,000 --
------------ ------------
$ 13,334,000 $ 5,857,000
============ ============
</TABLE>
The general business credits expiring in fiscal 1998-2001 are
investment tax credits and the credits expiring in fiscal 2003
are small ethanol producer tax credits. In the event these
credits would expire, the Company would receive a deduction of
50% of the investment tax credit and 100% deduction of the small
ethanol producer credit in the year of expiration.
The Company also has a Nebraska investment credit carryforward
of $4,528,000, expiring in fiscal 2003, 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 FAS 109 totaling $16,379,000 at June
30, 1997 (see below). The book basis of property, plant and
equipment in excess of its tax basis results in an offsetting
deferred tax liability of $13,318,000, and the valuation
allowance offsets an additional $3,061,000, leaving no net
deferred tax assets at June 30, 1997. 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).
Income taxes consisted of:
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Current tax (benefit) expense $ (18,895) $ 355,256 $ 141,377
Tax effect of changes in deferred
tax assets and liabilities:
Book basis of plant and
equipment in excess of tax
basis 3,354,000 2,652,000 1,216,000
Nondeductible accrued expenses 239,000 (303,000) --
(Increase) decrease in net
operating loss carryforward (2,979,000) 1,588,000 1,195,000
(Increase) decrease in tax
credits carryforward (80,000) 80,000 --
Increase in Nebraska investment
credit carryforward (931,000) (170,000) (3,427,000)
AMT credit carryforward and
other 258,000 (230,000) (179,000)
Change in asset valuation
allowance 139,000 (3,617,000) 1,195,000
------------ ----------- -----------
Deferred tax expense -0- -0- -0-
------------ ----------- -----------
Income tax (benefit) expense $ (18,895) $ 355,256 $ 141,377
============ =========== ===========
</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,
--------------------------------------------
1997 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
Computed income tax expense,
at 34% $ 582,894 $ 4,139,953 $ 2,112,687
Utilization of net operating
loss carryforwards (582,894) (4,139,953) (2,112,687)
Alternative minimum tax -- 239,256 141,377
Other, net (18,895) 116,000 --
---------- ------------ ------------
Total income tax
(benefit) expense $ (18,895) $ 355,256 $ 141,377
========== ============ ============
</TABLE>
The Company has deferred income tax liabilities and assets arising from
the following temporary differences and carryforwards:
<TABLE>
<CAPTION>
June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Book basis of property, plant and
equipment in excess of tax basis $ 13,318,000 $ 9,964,000
============ ============
Deferred tax assets:
Net federal and state operating loss
carryforwards $ 5,510,000 $ 2,531,000
Nebraska investment credit carryforward 4,528,000 3,597,000
General business credit carryforward 5,857,000 5,777,000
AMT credit carryforward and other 420,000 678,000
Nondeductible accrued expenses 64,000 303,000
------------ ------------
16,379,000 12,886,000
Less: Valuation allowance 3,061,000 2,922,000
------------ ------------
$ 13,318,000 $ 9,964,000
============ ============
Net deferred income taxes $ -0- $ -0-
============ ============
</TABLE>
<PAGE>
10. 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.
11. COMMON STOCK SPLIT
On February 22, 1995, the Company issued 3,786,562 additional
shares of common stock necessary to effect a 4-for-3 common
stock split. The earnings per common share for the year ended
June 30, 1995 has been retroactively adjusted for the above
splits as if they had occurred on July 1, 1994.
12. STOCK-BASED COMPENSATION
The Company has three stock-based compensation plans which are
described below. Grants to employees under those plans are
accounted for following APB Opinion No. 25. Accordingly, no
compensation cost has been recognized for options granted to
employees in the financial statements, except under the employee
stock purchase plan where compensation expense equals the excess
of the fair market value of the shares over the exercise price
on the grant date. Grants to non-employees under the plans are
accounted for under FAS 123. For the 50,000 options granted to
non-employees in the year ended June 30, 1997, $78,868 was
recognized as compensation expense. Had compensation cost for
all the stock-based compensation plans been determined based on
the fair value grant date, consistent with the provisions of FAS
123, the Company's net earnings and earnings per share would
have been reduced to the proforma amounts below:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Net earnings:
As reported $ 1,733,290 $ 11,821,077
Pro forma 1,381,750 10,302,658
Earnings per share:
As reported $ .11 $ .74
Pro forma .09 .65
</TABLE>
The pro forma requirements of FAS 123 have been applied only to
options granted after June 30, 1995.
Fixed Stock Option Plans - The Company has two fixed option
plans under which it may grant options to key employees,
officers and directors to purchase common stock, with a maximum
term of 10 years, at the market price on the date of grant.
Options up to 1,200,000 shares may be granted under the 1990
plan and options up to 3,000,000 shares may be granted under the
1992 plan. All options are 100% vested at the date of grant.
The fair value under FAS 123 of each option granted is estimated
on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions for 1997
and 1996: dividend rate of 0% for all years; price volatility
of 51.47% and 51.49%; risk-free interest rates of 6.6% and
6.26%; and expected lives of 5 years and 4 years.
A summary of the status of the two fixed plans at June 30, 1997,
1996, and 1995 and changes during the years then ended is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- -------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding and
exercisable
at beginning
of year 2,175,154 $5.7334 1,964,675 $4.7652 1,495,800 $3.8410
Granted 204,333 3.9377 986,821 5.1525 522,000 7.8381
Net effect of
stock split -- -- 562,354 n/a
Exercised:
Prior to stock
split -- -- 290,600 2.9219
After stock
split 124,333 3.3689 776,342 2.5447 324,879 2.8200
Expired or
surrendered 436,961 5.8665 -- --
--------- --------- ---------
Outstanding and
exercisable at
end of year 1,818,193 5.6612 2,175,154 5.7334 1,964,675 4.7652
========= ====== ========= ====== ========= ======
Weighted-average
fair value per
option of
options granted
during the year
under FAS 123 $ 2.04 $ 2.38 n/a
====== ====== ======
</TABLE>
The following table summarizes information about the outstanding
options at June 30, 1997:
<TABLE>
<CAPTION>
Weighted- Weighted
Average Average
Number Remaining Remaining
Range of Exercise Prices Outstanding Life Life
------------------------ ----------- --------- -----------
<S> <C> <C> <C>
$3.19 to $5.00 443,000 6.1 years $ 3.6480
$5.12 to $6.12 943,193 5.1 years 5.3779
$8.34 432,000 7.4 years 8.3440
---------
1,818,193
=========
</TABLE>
The Company's 1990 and 1992 Stock Option Plans were approved for
modification at the Company's November 1994 annual meeting of
stockholders. 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. Options
subject to reload included in total outstanding options at June
30, 1997 totaled 975,000 shares. These have a weighted-average
exercise price of $6.31.
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 264,675 were exercised;
accordingly, Reload Options in the same amount were granted at
that day's closing price, also $5.25 per share. These 631,421
options are not subject to further "Reload" provisions.
Employee Stock Purchase Plan - In August, 1995 the Company
adopted a compensatory Employee Stock Purchase Plan, effective
for a 3-year period, to provide employees of the Company with an
incentive to remain with the Company and an opportunity to
participate in the growth of the Company. The plan is
administered by the Company's Board of Directors. Employees
with one year of service are able to elect annually to purchase
shares of the Company's common stock at a price equal to 50% of
its lowest market value recorded between May 1 and August 1 of
each calendar year. The aggregate number of shares which may be
purchased under the plan shall not exceed 80,000 as adjusted for
stock splits or stock dividends.
Employees must elect to purchase a designated number of shares
on or before May 15 of each calendar year, except that the
election for the first year may be made on or before January 31,
1996. The number of shares that may be purchased by each
employee is limited to 100 shares per year of service. The
shares are paid for by the participating employees
<PAGE>
through payroll deductions ratably over a five-year period and
prepayment is not permitted. The employee vests in the shares
over the same five-year period based on the amounts paid.
Shares are transferred to the employee only at the end of the
five-year period. Compensation cost is measured on August 1 of
each year, which is the first date that both the purchase price
and the number of shares are known. The amount of compensation
measured on the measurement date is recorded as deferred
compensation and charged to expense over the periods in which
the employee performs the related services, which is the same as
the vesting period.
The Company also adopted a stock purchase plan for certain key
management personnel, which is similar to the above plan, except
that the aggregate number of shares available shall not exceed
250,000 and the employee is limited to 1,000 shares plus an
additional 1,000 shares for each year of service. Vesting is
the same as above except that any employee who is also an
officer of the Company and who has achieved at least ten
continuous years of employment shall have the option to prepay
any balance due for shares purchased under the plan. At that
time, the Company will immediately transfer said shares to the
employee. The amount of compensation measured for this key
management employee plan is on the same measurement date as set
forth above for the employee plan. Deferred compensation is
recorded and charged to expense over the five-year vesting
period except for those officers eligible to prepay. For those
officers, the expense is recognized immediately upon the
measurement date.
Employees and key management personnel elected to purchase
shares through the stock purchase plan as noted below:
<TABLE>
<CAPTION>
Number
of Exercise Deferred
Year Shares Per Share Compensation
---- ------ --------- ------------
<S> <C> <C> <C>
1997 87,600 $ 1.50 $ 273,750
1996 75,700 2.50 141,937
</TABLE>
Amortization of the deferred compensation recognized in the
income statement was $107,923 and $53,230 for the period ending
June 30, 1997 and 1996, respectively. Forfeitures of shares in
1997 from employee terminations totaled 13,539 shares under the
1996 year purchase. The fair value under FAS 123 of each
purchased share is estimated on the date of grant using the
Black-Scholes option pricing model with the following
assumptions: expected life of 5 years for all years; dividend
rate of 0% for all years; risk-free interest rates of 6.8% and
5.6% in 1997 and 1996, and price volatility of 53% in 1997 and
1996. The weighted average fair value per share granted would
be $3.09 in 1997 and $2.91 in 1996.
13. MAJOR CUSTOMERS
Sales to individual customers of 10% or more of net sales and
revenues are as follows:
<TABLE>
<CAPTION>
Sales During the Year Trade Accounts Receivable
Ended June 30, Balance at June 30,
-------------------------------------- ------------------------
Customer 1997 1996 1995 1997 1996
-------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
A $12,532,761 $ -- $ -- $ 421,759 $ --
B 8,653,840 11,356,458 8,871,672 594,879 568,016
C 6,460,989 8,553,353 8,384,212 425,999 587,508
D -- -- 9,345,425 -- --
E -- 13,917,311 -- -- --
----------- ----------- ----------- ----------- ----------
$27,647,590 $33,827,122 $26,601,309 $ 1,442,637 $1,155,524
=========== =========== =========== =========== ==========
</TABLE>
14. EARNINGS PER SHARE
Earnings per common and dilutive common equivalent share
(primary earnings per share) are computed by dividing net
earnings 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, 1997.
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.
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>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Earnings per common
and dilutive common
equivalent share:
Weighted average
common shares 15,933,157 15,736,310 14,760,967
Stock options 90,323 192,095 908,134
---------- ---------- ----------
Average common and
common dilutive
shares outstanding 16,023,480 15,928,405 15,669,101
Earnings per common share
assuming full dilution:
Additional dilutive
effect of
stock options -- -- --
---------- ---------- ----------
Common stock outstanding
assuming full
dilution 16,023,480 15,928,405 15,669,101
========== ========== ==========
</TABLE>
15. ADDITIONAL INFORMATION FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid $ 1,328,310 $ 2,249,297 $ 2,051,866
Income taxes paid -- 645,000 145,813
</TABLE>
The Company had the following non-cash transactions:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Purchase of plant and equipment
in exchange for debt $ 3,271,074 $ 66,286 $ 496,250
Increase in accrued compensation
costs at implementation of
employee stock purchase plan 273,750 141,937 --
Surrender of common stock in
lieu of employee payroll tax
obligations 126,251 493,283 --
Increase in additional
paid-in-capital from tax
benefit of exercise of
stock options -- 116,000 --
Decrease in deferred
compensation from
employee terminations 23,260 -- --
Acceptance of notes receivable
in exchange for sale of property,
plant and equipment -- -- 400,000
Exchange of preferred stock for
common stock -- -- 150,000
</TABLE>
16. 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, 1997, 1996 and 1995
were $27,822, $27,100 and $29,165, respectively.
<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, 1997 and 1996, and the related
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1997.
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 audits 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, 1997 and 1996, and the
results of their operations and cash flows for each of the three
years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles.
s/ ALLEN, GIBBS & HOULIK, L.C.
August 7, 1997
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 1997 and fiscal
1996. These prices do not include retail mark-ups, mark-downs or
commissions and may not necessarily represent actual
transactions.
PRICE PRICE
FISCAL --------------- FISCAL -------------
1997 HIGH LOW 1996 HIGH LOW
- ----------- ------- ----- ----------- ----- -----
1ST QUARTER 4-15/16 3 1ST QUARTER 6-3/8 4-7/8
2ND QUARTER 6-3/8 4-3/4 2ND QUARTER 6-1/8 4
3RD QUARTER 5-3/4 3-1/2 3RD QUARTER 5 3-1/4
4TH QUARTER 4-3/8 3-1/8 4TH QUARTER 4-3/4 3-1/4
CORPORATE INFORMATION
BOARD OF DIRECTORS
John F. Chivers (2)(5)
Chivers Realty
Raymond G. Friend (4)(5)
President and CEO of High Plains Corporation
Arthur Greenberg (4)(5)
Ronald D. Offutt (1)(5)
CEO of RDO Equipment Company
H.T. Ritchie (1)(4)
Secretary of High Plains Corporation
President of Ritchie Corporation
Donald D. Schroeder (2)(3)
Treasurer of High Plains Corporation
Daniel O. Skolness (1)(3)
Chairman of the Board of Directors
Donald M. Wright (2)(3)
(1) Policy and Compensation Committee Member
(2) Nominating Committee Member
(3) Budget and Audit Committee Member
(4) Finance and Capital Expenditure Committee Member
(5) Merger and Acquisition Committee Member
OFFICERS
Raymond G. Friend
President and Chief Executive Officer
Christopher G. Standlee
Vice President and General Counsel
H.T. Ritchie / Secretary
Donald D. Schroeder / Treasurer
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
December 16, 1997
Hyatt Regency
400 W. Waterman
Wichita, Kansas
Grand Eagle Ballroom / 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
www.NASDAQ.com
www.ctaonline.com/ir/hipc.htm
Information Contact
High Plains Corporation
Raymond G. Friend
Christopher G. Standlee
Availability of 10-K
A copy of the Company's fiscal 1997
annual report on Form 10-K filed with
the Securities and Exchange Commission
will be made available to interested stock-
holders without charge upon written
request to the Chief Financial Officer at
the above Corporate Headquarters.
<PAGE>
Picture of Industrial Grade Ethanol Distillation System
York, Nebraska
LOGO: (COLORED) e t h a n o l Better Gas. Cleaner Air.
High Plains Corporation Logo
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
High Plains Internet Home Page:
http://www.ctaonline.com/ir/hipc.htm
http://www.nasdaq.com
