Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended March 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ____________ to _____________
Commission file number 1-8680
High Plains Corporation
(Exact name of registrant as specified in its charter)
Kansas #48-0901658
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 W Douglas 67202
Suite #820 (Zip Code)
Wichita, Kansas
(Address of principal executive offices)
(316) 269-4310
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under plan
confirmed by a court.
Yes No
Common Stock, Par Value $.10 per share,
Outstanding at March 31, 2000 - 16,171,251
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheet 3 - 4
Statements of Operations 5
Statement of Stockholders' Equity 6 - 7
Statement of Cash Flows 8
Selected Notes to Financial Statements 9 - 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11 - 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes In Securities 13
Item 3. Defaults On Senior Securities 13
Item 4. Submission Of Matters To A Vote Of Security Holders 13
Item 5. Subsequent Events 13
Item 6. Exhibits and Reports on Form 8-K 13 - 15
<PAGE>
HIGH PLAINS CORPORATION
Balance Sheets
(Unaudited)
March 31, 2000 and June 30, 1999
<TABLE>
<CAPTION>
Assets March 31, 2000 June 30, 1999
(Unaudited) **
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,367,783 $ 330,672
Accounts receivable
Trade (less allowance of $50,000 and
$75,000 at March 31, 2000 and
June 30, 1999, respectively) 9,170,301 5,081,396
Production credits and incentives
(less allowance of $124,222) 345,347 917,717
Inventories 3,789,221 5,038,199
Notes receivable 0 1,000,000
Prepaid expenses 339,362 391,590
Total current assets 19,012,014 12,759,574
Property, plant and equipment, at cost:
Land and land improvements 450,403 450,403
Ethanol plants 93,432,710 92,994,900
Other equipment 573,911 573,911
Office equipment 334,003 308,699
Leasehold improvements 48,002 48,002
Construction in progress 1,398,219 892,664
Sub-total 96,237,248 95,268,579
Less accumulated depreciation (30,359,477) (27,563,913)
Net property, plant and equipment 65,877,771 67,704,666
Other assets:
Deferred loan costs (less accumulated
amortization of $71,488 and $75,181
at March 31, 2000 and June 30, 1999,
respectively) 901,424 122,116
Other 10,921 26,578
Total other assets 912,345 148,694
$ 85,802,130 $ 80,612,934
</TABLE>
[FN]
See accompanying notes to financial statements.
** From audited financial statements.
<PAGE>
HIGH PLAINS CORPORATION
Balance Sheets
(Unaudited)
March 31, 2000 and June 30, 1999
<TABLE>
<CAPTION>
Liabilities and Stockholders Equity March 31, 2000 June 30, 1999
(Unaudited) **
<S> <C> <C>
Current Liabilities:
Revolving lines-of-credit $ 0 $ 9,200,000
Current portion of long-term debt 2,062,503 0
Current maturities of capital leases 551,415 520,168
Accounts payable 6,860,766 6,693,746
Accrued interest 313,850 55,342
Accrued payroll and property taxes 785,011 721,463
Accrued income taxes payable 0 10,000
Total current liabilities 10,573,545 17,200,719
Revolving lines-of-credit 0 7,700,000
Long-term debt 17,437,496 0
Capital lease obligations, less
current maturities 1,073,560 1,477,534
Deferred income tax payable 1,770,033 945,845
Other 291,415 426,107
Total non-current liabilities 20,572,504 10,549,486
Stockholders' Equity:
Common stock, $.10 par value, authorized
50,000,000 shares; issued 16,448,098 and
16,410,622 shares at March 31, 2000 and
June 30, 1999, respectively, of which
276,847 and 411,178 were held as treasury
stock at March 31, 2000 and June 30, 1999,
respectively. 1,644,810 1,641,062
Additional paid-in capital 37,674,568 37,486,655
Retained earnings 16,079,225 14,705,578
55,398,603 53,833,295
Less:
Treasury stock-at cost (711,415) (863,911)
Deferred compensation (31,107) (106,655)
Total stockholders' equity 54,656,081 52,862,729
$ 85,802,130 $ 80,612,934
</TABLE>
[FN]
See accompanying notes to financial statements.
** From audited financial statements.
<PAGE>
HIGH PLAINS CORPORATION
Statement of Operations
(Unaudited)
Three Months Ended March 31, 2000 and 1999
and Nine Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales and revenues $ 27,601,410 $ 23,920,820 $ 75,619,229 $ 73,086,754
Cost of goods sold 24,607,512 21,869,382 69,939,162 68,629,971
Gross profit 2,993,898 2,051,438 5,680,067 4,456,783
Selling, general and
Administrative expenses 629,711 541,818 2,283,249 1,514,785
Operating income 2,364,187 1,509,620 3,396,818 2,941,998
Other income/(expense):
Interest expense (514,388) (402,180) (1,314,486) (1,300,587)
Interest and other income 61,452 15,541 95,115 283,658
Gain on sale of assets 0 0 20,388 233,143
(452,936) (386,639) (1,198,983) (783,786)
Net income before
income taxes 1,911,251 1,122,981 2,197,835 2,158,212
Income tax expense 716,719 415,503 824,188 797,831
Net earnings $ 1,194,532 $ 707,478 $ 1,373,647 $ 1,360,381
Diluted earnings per
share $ .07 $ .04 $ .08 $ .08
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
HIGH PLAINS CORPORATION
Statement of Stockholders' Equity
(Unaudited)
Nine Months Ended March 31, 2000
<TABLE>
<CAPTION>
Common Stock
(Issued)
Additional
Number of Paid-In Retained Treasury Deferred
Shares Amount Capital Earnings Stock Compensation Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1999 16,410,622 $ 1,641,062 $37,486,654 $14,705,579 $(863,911) $(106,655) $52,862,729
Re-issuance of
Treasury stock 121,027 108,008 229,035
Exercise of
stock options 17,476 1,748 70,742 72,490
Amortization of
deferred
compensation 22,746 22,746
Employee stock
purchase 36,249 36,249
Net loss for
quarter (613,621) (613,621)
Balance,
September 30,
1999 16,428,098 1,642,810 37,678,423 14,091,958 (755,903) (47,660) 52,609,628
Re-issuance of
Treasury Stock
adjustment (37,862) 42,808 4,946
Amortization of
deferred
compensation 3,989 3,989
Employee stock
purchase 8,352 8,352
Net earnings
for quarter 792,735 792,735
Balance,
December 31,
1999 16,428,098 1,642,810 37,640,561 14,884,693 (713,095) (35,319) 53,419,650
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
HIGH PLAINS CORPORATION
Statement of Stockholders' Equity
(Unaudited)
Nine Months Ended March 31, 2000
<TABLE>
<CAPTION>
Common Stock
(Issued)
Additional
Number of Paid-In Retained Treasury Deferred
Shares Amount Capital Earnings Stock Compensation Total
<S> <C> <C> <C> <C> <C> <C> <C>
Re-issuance of
Treasury Stock 2,570 1,680 4,250
Exercise of
stock options 20,000 2,000 31,437 33,437
Amortization of
deferred
compensation 4,212 4,212
Net earnings
for quarter 1,194,532 1,194,532
Balance,
March 31, 2000 16,448,098 $1,644,810 $37,674,568 $16,079,225 $(711,415) $ (31,107) $54,656,081
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
HIGH PLAINS CORPORATION
Statement of Cash Flows
(Unaudited)
Nine Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,373,647 $ 1,360,381
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,004,093 2,866,127
Amortization of deferred compensation (5,230) 31,215
Compensation expense on treasury stock grants 225,029 0
Provision for bad debt 27,473 124,222
Gain on sale of equipment (20,388) (233,143)
Debt forgiveness 0 (231,359)
Deferred income taxes 824,188 797,831
Change in operating assets and liabilities:
Accounts receivable (3,630,029) (1,351,569)
Notes receivable 1,000,000 31,307
Inventories 1,248,978 1,574,625
Income tax payable/receivable (10,000) 30,000
Prepaid expenses (17,772) (434,148)
Accounts payable 172,639 (1,044,602)
Accrued liabilities 415,662 99,370
Net cash provided by operating activities 4,608,290 3,620,257
Cash flows from investing activities:
Proceeds from sale of equipment 22,000 436,545
Acquisition of property, plant and equipment (956,869) (1,984,688)
Decrease (increase) in other non-current assets (900,430) (4,357)
Net cash used in investing activities (1,835,299) (1,552,500)
Cash flows from financing activities:
Proceeds from long-term debt 20,000,000 0
Proceeds from revolving lines-of-credit 0 900,000
Proceeds from exercise of stock options 33,438 0
Payments on revolving lines-of-credit (16,900,000) (2,200,000)
Payments on long-term debt (500,001) 0
Payments on capital lease obligations (387,890) (372,169)
Increase (decrease) in other non-current
liabilities 18,573 43,916
Net cash provided (used) by
financing activities 2,264,120 (1,628,253)
Increase (decrease) in cash and
cash equivalents 5,037,111 439,504
Cash and cash equivalents:
Beginning of period 330,672 674,894
End of period $ 5,367,783 $ 1,114,398
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
HIGH PLAINS CORPORATION
Selected Notes to Financial Statements
1) Business Operations and Basis of Presentation
The accompanying financial statements have been prepared by High Plains
Corporation ("Company") without audit, unless otherwise noted. In the
opinion of management, all adjustments (which include only normally
occurring adjustments) necessary to present fairly the financial position,
results of operations and changes in financial position for the periods
presented, have been made.
In an effort to increase the Company's presence in both the fuel grade and
industrial/beverage grade markets and leverage its marketing resources,
the Company has intensified its efforts to broker or market other ethanol
manufacturers products. Typically, the Company acts as other
manufacturer's agent by selling the manufacturer's product to a third
party for a fee without taking title to the product. However, the Company
has and anticipates entering into more brokering/marketing agreements,
which require the Company to take title, and in some cases physical
possession, of the counterparty's product. These agreements increase the
Company's risk exposure, but the Company believes the related exposure is
mitigated through risk management programs and internal controls.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principals have been condensed or omitted. The results of
operations for the period ended March 31, 2000 are not necessarily
indicative of the operating results for the entire year.
2) 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.
<TABLE>
<CAPTION>
Inventories consist of: March 31, 2000 June 30, 1999
<S> <C> <C>
Raw materials $1,174,125 $1,280,676
Work-in-process 458,662 481,287
Finished goods 1,087,666 2,251,228
Spare parts 1,068,768 1,025,008
Total $3,789,221 $5,038,199
</TABLE>
3) Estimated Income Tax Provision
On its interim financial statements, the Company makes an estimated tax
provision, based on applicable state and federal tax rates, and
considering the prior year's detailed analysis of deferred tax assets and
reserves thereon. Annually, the Company updates its detailed analysis of
its deferred tax assets and the need, if any, for adjustments to the
reserves against such deferred tax assets.
4) Financial Arrangements
On December 3, 1999, the Company was able to obtain a $28 million credit
facility through Bank of America. The credit facility consisted of a $20
million term loan and a $8 million revolving line-of-credit. The credit
facility is for a five-year period, which may be extended for a series of
one-year renewals.
5) Stock Options
On January 31, 2000, 15,000 options were exercised by management
personnel, and another 5,000 options were exercised on March 31, 2000 by
former management personnel. Pursuant to the Company's 1992 employee
stock option plan, the 15,000 options exercised on January 31, 2000
reloaded, thus granting the excercisee 15,000 options at $2.188 per share.
These options were issued at the fair market value of the stock on the
grant date.
<PAGE>
6) Stock-Based Compensation
The Company continues to account for stock-based compensation for
employees using the intrinsic value method prescribed in APB No. 25.
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.
Had compensation cost for the stock-based compensation been determined
based on the fair value grant date, consistent with the provisions of FAS
123, the Company's net earnings and diluted earnings per share above would
have been reduced to pro forma amounts below:
<TABLE>
<CAPTION>
For the three months ending
March 31, 2000 1999
<S> <C> <C>
Net earnings
As reported $ 1,194,532 $ 707,478
Pro forma 1,170,422 691,087
Diluted earnings per share
As reported $ .07 $ .04
Pro forma .07 .04
For the nine months ending
March 31,
Net earnings
As reported $ 1,373,647 $ 1,360,381
Pro forma 1,168,039 1,213,683
Diluted earnings per share
As reported $ .08 $ .08
Pro forma .07 .07
</TABLE>
The Company's basic earnings per share for the pro forma information noted
above is the same as the Company's diluted earnings per share for all the
periods disclosed.
7) Earnings Per Share
The Company, as required under FASB Statement No. 128 Earnings Per Share
(FAS 128) has replaced the presentation of primary earnings per share
(EPS) with Basic EPS and Diluted EPS. Under FAS 128 both the basic and
diluted must be presented in the financial statements. Also, under the
FAS 128 all prior period EPS data presented in the financial statements
must be restated for comparative purposes.
The diluted earnings per share for the three months ended March 31, 2000
and 1999 have been calculated based on 16,316,561 and 16,014,717 diluted
shares outstanding, respectively. The diluted earnings per share for the
nine months ended March 31, 2000 and 1999 have been calculated based on
16,169,130 and 16,012,508, respectively.
8) Recently Issued Accounting Standards
In June 1998, FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133), effective for the Company
for all fiscal quarters and fiscal years beginning after June 15, 2000.
FAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The effect of this pronouncement has
not been determined.
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.
<PAGE>
Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2.
Forward-looking Statements
Forward-looking statements in this Form 10-Q, future filings including but
not limited to, the Company's annual 10K, Proxy Statement, and 8K filings
by the Company with the Securities and Exchange commission, the Company's
press releases and oral statements by authorized officers of the Company
are intended to be subject 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, including
without limitation, the risk of a significant natural disaster, the
inability of the Company to ensure against certain risks, the adequacy of
its loss reserves, fluctuations in commodity prices, change in market
prices or demand for motor fuels and ethanol, legislative changes
regarding air quality, fuel specifications or incentive programs, as well
as general market conditions, competition and pricing. The Company
believes that forward-looking statements made by it are based upon
reasonable expectations. However, no assurances can be given that actual
results will not differ materially from those contained in such forward-
looking statements. The words "estimate", "anticipate", "expect",
"predict", "believe" and similar expressions are intended to identify
forward-looking statements.
Nine Months Ended March 31, 2000 and 1999
Net Sales and Operating Expenses.
Net sales and revenues for the nine months ended March 31, 2000, were 3.5%
higher than net sales for the same period ended March 31, 1999. During
the nine months ended March 31, 2000, approximately 48.9 million gallons
of fuel grade ethanol were sold at an average price of $1.03 per gallon
compared to approximately 49.1 million gallons sold at an average price of
$1.07 per gallon, for the same period ended March 31, 1999.
Industrial/beverage grade sales were approximately 4.2 million gallons at
an average price of $1.38 per gallon for the nine month period ended March
31, 2000 compared to sales of approximately 1.3 million gallons at an
average price of $1.30 per gallon for the same period ended March 31,
1999. Brokered fuel grade sales, which is product marketed on behalf of
other ethanol manufacturers, for the nine month period ended March 31,
2000 were approximately 2.4 million gallons at an average price of $1.02
per gallon compared to sales of approximately 1 million gallons at an
average price of $1.09 per gallon for the same period ended March 31,
1999. Industrial/beverage grade brokered sales for the nine month period
ended March 31, 2000 were approximately 1.4 million gallons at an average
price of $1.47 per gallon compared to sales of 29,000 gallons at an
average price of $1.45 per gallon same period ended March 31, 1999.
Aggregate (non-brokered and brokered) fuel grade sales volume increased by
approximately 2.4% compared to the same period ended March 31, 1999, while
aggregate (non-brokered and brokered) industrial/beverage grade gallons
sold during the similar period increased 321% compared to the same period
in 1999. The increase in fuel grade volumes is attributed to the increase
in brokered fuel grade sales volume, which was partially offset by
increased industrial/beverage grade production at the York, Nebraska
facility. Industrial/beverage grade gains are the direct result of
increased marketing efforts in that segment of the Company's business and
brokering activities. Higher net sales revenue was the result of strong
third quarter fuel grade prices and increased industrial beverage grade
sales volume. Year-to-date average fuel grade ethanol prices are still
running below prior year-to-date levels because of low fuel ethanol prices
experienced in the first quarter of fiscal 2000. (see Seasonality below
for more details).
Cost of products sold as a percentage of net sales and revenues was 92.5%
and 93.9% for the nine months ended March 31, 2000 and 1999, respectively.
The decrease in the cost of products sold as a percentage of net sales and
revenues was primarily due to a decrease in the average grain prices which
was partially offset by the decrease in average sales price for fuel grade
ethanol. The average cost of grain for the nine months ended March 31,
2000 was $1.95 per bushel, which was down from $2.14 per bushel for the
same period in 1999.
Selling, general and administrative expenses increased 51% for the nine
months ended March 31, 2000, compared to the same period ended March 31,
1999. This increase is the result of an increase in administrative
salary and benefit expenses resulting from an increase in staff, stock
grants to key management personnel, increased professional fees resulting
from side-stream research and tax planning, increased investor relations,
timing difference on bonus accruals, and increased Board of Director fees
and expenses.
<PAGE>
Net Earnings.
Net earnings for the nine months ended March 31, 2000 rebounded from the
strength of second and third quarter earnings to move 1% ahead of net
earnings for the same period ended March 31, 1999. Net earnings as a
percentage of net sales and revenues decreased from 1.9% to 1.8%. The
slight decrease is due to increased selling, general and administrative
expenses, and decreased other income for the period ended March 31, 2000
compared to the same period ended March 31, 1999. Diluted earnings per
share at March 31, 2000, were level with diluted earnings per share for
the same period ended March 31, 1999.
Three Months Ended March 31, 2000 and 1999
Net Sales and Operating Expenses.
Net sales and revenues for the three months ended March 31, 2000,
increased 15% compared to the same period ended March 31, 1999. During
the quarter ended March 31, 2000, approximately 16.3 million gallons of
fuel grade ethanol were sold at an average price of $1.11 per gallon
compared to approximately 16.4 million gallons sold at an average price of
$1.07 per gallon, for the same period ended March 31, 1999.
Industrial/beverage grade sales were approximately 2.2 million gallons at
an average price of $1.37 per gallon for the three month period ended
March 31, 2000 compared to sales of 74,692 gallons at an average price of
$1.31 per gallon for the same period ended March 31, 1999. Brokered fuel
grade sales for the three month period ended March 31, 2000 were
approximately .8 million gallons at an average price of $1.10 per gallon
while there were no brokered fuel grade sales for the same period ended
March 31, 1999. Industrial/beverage grade brokered sales for the three
month period ended March 31, 2000 were approximately .6 million gallons at
an average price of $1.42 per gallon compared to sales of 29,000 gallons
at an average price of $1.45 per gallon for the same period ended March
31, 1999. Aggregate (non-brokered and brokered) fuel grade sales volume
increased by approximately 4% compared to the same period ended March 31,
1999, while aggregate (non-brokered and brokered) industrial/beverage
grade gallons sold during the similar period increased by 2592% compared
to the same period ended March 31, 1999. The increase in fuel grade
gallons was driven by continued strong demand across the industry, which
allowed for the brokering of an additional .8 million gallons compared to
the same period ended March 31, 1999. Industrial/beverage grade gallons
increased as a result of increased marketing efforts in that segment of
the Company's business and an additional .5 million gallons of brokered
volume compared to the same period ended March 31, 1999. The higher net
sales and revenues were due to the combination of higher sales volume
coupled with stronger sales prices in both the fuel grade and
industrial/beverage segments.
Cost of products sold as a percentage of net sales and revenues was 89.2%
and 91.4% for the three months ended March 31, 2000 and 1999,
respectively. The cost of products sold as a percentage of net sales and
revenues for the quarter ended March 31, 2000 decreased 2.2% compared to
the same period ended March 31, 1999. The decrease was due to a decrease
in average grain prices combined with higher per unit sales prices in both
fuel grade and industrial/beverage grade segments for the comparable
period. The average cost of grain for the three-month period ended March
31, 2000 was $1.96 per bushel, which was down from $2.14 per bushel for
the same period in 1999.
Selling, general and administrative expenses increased 16.2% for the three
months ended March 31, 2000, compared to the same period ended March 31,
1999. This increase is the result of an increase in administrative
salary and benefit expenses resulting from an increase in staff, increased
professional fees resulting from tax research, increased investor
relations, and increased travel expense related to increased marketing
efforts.
Net Earnings.
Net earnings increased 68.8% for the three months ended March 31, 2000,
compared to net earnings for the same period in 1999. Net earnings as a
percentage of net sales and revenues increased from 3% to 4.3% for the
comparable period. The increase is the net result of increased gross
profit, which resulted from increased volume and average ethanol sales
prices coupled with lower average grain prices, increased selling, general
and administrative expenses, increased other expense related to interest
on long-term debt, and increased deferred tax expense for the period
ended March 31, 2000 compared to the same period ended March 31, 1999.
Diluted earnings per share at March 31, 2000, were 175% higher than
diluted earnings per share for the same period in 1999 due to the
increased earnings.
<PAGE>
Liquidity and Capital Resources
The Company's primary source of funds during the third quarter of fiscal
2000 was cash flow from operating activities. At March 31, 2000, the
Company had working capital of approximately $8.4 million compared to
negative working capital of approximately $4.4 million for the period
ended June 30, 1999. The increase in working capital was primarily due to
increases in cash and cash equivalents, trade receivables, and current
portion of long term debt netted against decreases in notes receivable and
revolving lines-of-credit.
Capital expenditures for the first nine months of fiscal 2000 amounted to
approximately $1 million for modifications to the Company's three plants
compared to approximately $2 million for the same period in fiscal 1999.
On December 3, 1999, the Company was able to refinance its revolving-
lines-of credit into term debt. The Company obtained a $28 million credit
facility, which consisted of $20 million term loan and $ 8 million
revolving line-of-credit. The revolving line-of-credit was undrawn as of
March 31, 2000. The Company used the term debt proceeds to pay off its
existing $16.9 million dollar revolving-line-of credit and strengthen its
working capital position. The Company believes it has adequate short-term
working capital and borrowing availability under its new financing
arrangement to meet its operating cash needs. However, in the event the
Company encounters unforeseen changes in market conditions that adversely
affect its ability to generate cash flow from operations, the Company
could seek to raise additional funds through the sale of stock, or
issuance of debt and/or equity securities.
The Company received its last production incentive payment under its
original agreement with the state of Nebraska in the second quarter of
fiscal 2000. The impact of the second quarter loss of the Nebraska
incentive on the Company's liquidity was mitigated by increased
profitability and the refinancing. However, in the future the lack of the
incentive could substantially and negatively impact the Company's
liquidity position. The Company continues to improve efficiencies, to
implement cost controls, and focus efforts on expanding its presence in
the higher margin industrial/beverage grade markets to assist in improving
the Company's liquidity and earnings.
Seasonality
Fuel ethanol prices are historically stronger during the winter months of
September through March due to the mandated markets of the Federal Oxygen
Program. Prices typically increase in the weeks before September, and
decrease by March due to shipping schedules. These seasonal price
increases were delayed, but did ultimately occur as fuel ethanol prices
increased substantially in the winter of fiscal 2000. The Company
believes this increase was primarily due to increases in the price of
gasoline, tightening of ethanol supplies, and increased purchases by
customers who may have been waiting for a resolution of certain political
issues affecting ethanol demand (such as the possible waiver of oxygen
requirements due to MTBE contamination of water supplies, and modification
of RFGII vapor pressure requirements discussed in the Company's most
recent 10K filing). Although these political issues still have not been
resolved, the EPA, the Department of Agriculture, and the Clinton
Administration have all recently supported a replacement of the oxygenate
requirement of the Clean Air Act with a renewable fuel standard, which
management believes would be likely to provide an increase in overall
ethanol demand.
With oil and gasoline prices remaining higher than normal, and the
potential for an increase in ethanol demand, fuel ethanol pricing has not
seen its typical decline going into the summertime season. Although
prices are somewhat lower than the peaks seen in January and February,
both expected ethanol prices and buyer's interest remain significantly higher
than last year at this time for the upcoming fiscal fourth quarter, and even
into the fall.
Grain feedstock prices continue to be favorable for the ethanol industry.
Corn and Milo prices have increased somewhat over the prior quarter (and
as compared to the same fiscal quarter of last year) but are still at
levels well below historical averages. As of May 1 planting of this years
crop is slightly ahead of last years at this time, and market fundamentals
appear to indicate another good grain crop. However, rumors of drought,
other typical weather issues, and fund trading could make the grain
markets more volatile during the fiscal fourth quarter. As always, grain
prices are subject to significant changes due to weather patterns, crop
projections, carryouts, exports and other market factors, especially until
harvest is complete. As a part of its risk management program, the
Company has taken various market positions to limit its exposure to
feedstock cost increases on almost all of its grain needs through the
fiscal fourth quarter. These positions carry a corresponding limit to the
benefit the company would experience in the event of decline in feedstock
costs.
Prices for the Company's distillers grain by-products (DDGS) historically
fluctuate with the price of corn, and provide the Company with some
protection against the possibility of higher grain feedstock prices. Although
the feed ingredient market has strengthened somewhat from the previous
quarter, it is still soft compared to historical averages due to a
continued oversupply of competing protein feeds in the marketplace.
Although the Company is still emphasizing sales of a wet distillers grain
product at its Nebraska and New Mexico facilities in an effort to
stabilize its feed markets, feed prices could still soften further during
the summer months.
<PAGE>
Year 2000
The Company had no significant issues arise relative to Year 2000 (Y2K)
compliance issues.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
No new legal proceedings were instigated during the quarter ended March 31,
2000 which would be considered other than in the ordinary course of the
Company's business.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. SUBSEQUENT EVENTS
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibit 27-1 Financial Data Schedule
b). Reports on Form 8-K. During the quarter for which this report is
filed, the company filed the following Form 8-K's:
January 11, 2000 Company announced Chief Financial Officer's
resignation to pursue career opportunity in
not-for-profit organization.
January 18, 2000 Company announced Fiscal 2000 second quarter
earnings.
February 7, 2000 Company announced Board of Directors
approval to move to next phase of
glycerol project.
February 24, 2000 Company announced update on glycerol
economics.
March 9, 2000 Company comments on strength in oil and fuel
prices.
March 29, 2000 Company comments on EPA's move to ban MTBE.
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