[TEST]
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
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 0-11431
New Energy Company of Indiana Limited Partnership
(formerly, New Energy Company of Indiana)
(Exact name of registrant as specified in its charter)
Indiana 52-1195762
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3201 West Calvert Street, South Bend, Indiana 46613
(Address of principal executive offices)
(Zip Code)
219-233-3116
(Registrant's telephone number, including area code)
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 __
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FORWARD-LOOKING INFORMATION
This document and other materials filed or to be filed by the Company (as
hereinafter defined) with the Securities and Exchange Commission (the
"Commission"), as well as information included in oral statements or other
written statements made or to be made by the Company, contain or will contain
or include, disclosures which are forward-looking statements. These
forward-looking statements address, among other things, strategic initiatives
(including plans for capital expenditure requirements and financing sources).
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Legal Proceedings". These forward-looking statements are
based upon our current plans or expectations and are subject to a number of
uncertainties and risks that could significantly affect current plans,
anticipated actions and our future financial condition and results. These
uncertainties and risks include, but are not limited to, those relating to
conducting operations in a competitive environment; delays, difficulties and
technological changes associated with production of ethanol; changes in
government regulation and taxation that may affect costs of production and/or
the competitiveness of ethanol compared to other oxygenates; leverage and debt
service requirements; general economic conditions; and changes or volatility
in corn, ethanol and distillers' dried grains and solubles ("DDGS") prices.
As a consequence, current plans, anticipated actions and future financial
condition and results may differ from those expressed in any forward-looking
statements made by or on behalf of the Company.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
- -------------------------------------------------
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
------------------ -----------------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 6,530,573 $ 3,765,950
Accounts receivable 5,336,496 6,879,774
Other receivables 186,353 150,783
Inventories 3,385,255 4,822,450
Spare parts 2,639,719 2,419,626
Prepaid expenses and other 976,280 361,918
------------ ------------
Total current assets 19,054,676 18,400,501
Property and equipment 161,495,931 159,520,406
Allowances for depreciation (138,302,033) (136,540,361)
------------ ------------
23,193,898 22,980,045
------------ ------------
Total assets $ 42,248,574 $ 41,380,546
------------ ------------
------------ ------------
Liabilities and Partners'
- ------------------------
Capital Deficit
- ---------------
Current liabilities:
Accounts payable $ 3,584,369 $ 2,992,298
Interest payable 51,908 42,505
Taxes payable 2,189,418 1,794,614
Other accrued liabilities 1,555,450 1,440,799
Working capital loan --- 1,200,000
Current portion of long-term debt 5,138,941 740,893
------------ ------------
Total current liabilities 12,520,086 8,211,109
Deferred management fees payable
to general partner 862,825 351,758
Long-term debt, less current portion 68,835,949 71,200,490
Partners' capital (deficit):
General partner (5,579,879) (5,421,131)
Limited partners (34,867,360) (33,438,633)
Special limited partner 5,000,000 5,000,000
Syndication costs (4,523,047) (4,523,047)
------------ ------------
Total partners' capital deficit (39,970,286) (38,382,811)
------------ ------------
Total liabilities and
partners' capital deficit $ 42,248,574 $ 41,380,546
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
3
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NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
- -------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(UNAUDITED) (UNAUDITED)
1997 1996 1997 1996
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales, ethanol $ 25,052,441 $ 19,431,172 $ 78,332,384 $ 68,087,691
By-product revenue 8,689,699 8,762,526 27,604,854 27,661,705
------------ ------------ ------------ ------------
33,742,140 28,193,698 105,937,238 95,749,396
Cost of goods sold 30,838,879 33,776,508 98,887,690 103,868,921
------------ ------------ ------------ ------------
Gross profit (loss) 2,903,261 (5,582,810) 7,049,548 (8,119,525)
Selling, general and
administrative
expenses 2,031,267 1,885,963 5,852,919 5,971,543
------------ ------------ ------------ ------------
Income (loss) from
operations 871,994 (7,468,773) 1,196,629 (14,091,068)
Interest income 85,528 81,816 240,262 319,607
Interest expense (1,012,190) (1,221,368) (3,024,366) (3,220,320)
------------ ------------ ------------ ------------
Net loss $ (54,668) $ (8,608,325) $ (1,587,475) $(16,991,781)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss
allocable to limited
partners $ (49,201) $ (7,747,493) $ (1,428,727) $(15,292,603)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Limited partner units
outstanding 6,399 6,400 6,399 6,400
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per unit $ (8) $ (1,211) $ (223) $ (2,389)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
4
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NEW ENERGY COMPANY OF INDIANA LIMITED PARTNERSHIP
- -------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
(UNAUDITED) (UNAUDITED)
------------------ ------------------
<S> <C> <C>
Operating activities
Net loss $ (1,587,475) $ (16,991,781)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,878,937 1,963,409
Increase in deferred
management fees payable to
general partner 511,067 172,766
Increase in interest expense
deferred and added to
long term debt 2,516,351 3,439,119
Increase (decrease) due to
changes in operating
assets and liabilities:
Accounts and other receivables 1,507,708 2,088,477
Inventories 1,437,195 462,671
Spare parts (220,093) 94,140
Prepaid expenses and other (614,362) 81,102
Accounts payable 592,071 (221,332)
Interest payable 9,403 (229,843)
Taxes payable 394,804 1,481,853
Other accrued liabilities 114,651 96,662
------------- -------------
Net cash provided by (used in)
operating activities 6,540,257 (7,562,757)
Investing activities
Purchase of property and equipment (2,092,790) ---
------------- -------------
Net cash used in investing activities (2,092,790) ---
Financing activities
Net change in working capital loan (1,200,000) 900,000
Payments on long-term debt (482,844) (1,077,113)
------------- -------------
Net cash used in financing activities (1,682,844) (177,113)
------------- -------------
Increase (decrease) in cash and cash
equivalents 2,764,623 (7,739,870)
Cash and cash equivalents,
beginning of period 3,765,950 11,460,672
------------- -------------
Cash and cash equivalents,
end of period $ 6,530,573 $ 3,720,802
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
5
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New Energy Company of Indiana Limited Partnership
Notes to Financial Statements
For the Quarter Ended September 30, 1997 (Unaudited)
----------------------------------------------------
1. Organization and Significant Accounting Policies
New Energy Company of Indiana Limited Partnership (the "Company"), the General
Partner of which is New Energy Corporation of Indiana (the "General Partner"),
operates an ethanol production facility in South Bend, Indiana. The Company
competes against several other ethanol producers some of which are larger and
operate out of flexibly integrated production facilities. The Company sells
ethanol to petroleum refiners, blenders and retailers on unsecured terms. To
a large extent, the Company's operations are dependent upon market factors
which are outside the Company's control. The Company's cost of production is
largely dependent upon the cost of corn, its principal raw material. In
addition, the Company's revenues are principally generated from the sale of
ethanol, the price of which can vary at times with the price of gasoline,
methyl tertiary butyl ether ("MTBE"), corn, and the value of state and federal
tax exemptions and credits; and from the sale of DDGS, the price of which
fluctuates with the agricultural by-product market. Because the Company is
unable to directly control the relationship of the corn, gasoline and
agricultural by-product markets, and is unable to assure the continuation of
state and federal tax exemptions and credits, changes in market conditions
could adversely affect the future operations of the Company.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1996.
On July 1, 1997, the Company entered into an agreement, as amended, subject to
certain conditions set forth therein, to sell all of its assets and business
to Corn Energy, Inc. ("Corn Energy"), an Indiana corporation organized by
affiliates of one of the shareholders of the General Partner.
2. Inventories
Inventories consist of raw materials (corn, coal, unleaded gasoline and
chemicals), work-in-process and finished goods (fuel grade ethanol and DDGS).
A summary of inventories by classification follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $ 1,770,068 $ 2,429,888
Work-in-process 522,038 542,018
Finished goods 1,093,149 1,850,544
------------ ------------
$ 3,385,255 $ 4,822,450
------------ ------------
------------ ------------
</TABLE>
6
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The Company had executed a contract for the period through September 30, 1997,
with a grain supplier to provide its expected corn requirements at a price
which fluctuated with the commodity prices or was fixed at the Company's
election. For periods subsequent to September 30, 1997, the Company has
decided to self-originate from various producers and suppliers its supply of
corn rather than contract exclusively with an outside supplier. As of the
date of this report, the Company has approximately 120 days of corn coverage
consisting of both cash and futures contracts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company originally financed the construction and startup of the Plant with
bank financing guaranteed by the United States Department of Energy ("DOE").
On December 31, 1986, the Company defaulted on its construction loan and the
consortium of banks that provided the original financing seized certain cash
collateral and called the DOE guarantee. Since 1987, the DOE has held a
promissory note or notes collateralized by essentially all of the Company's
assets.
On October 14, 1982, the Company and the Business Development Corporation of
South Bend, Mishawaka & St. Joseph County, IN ("BDC"), a not-for-profit
corporation organized and existing under the laws of the State of Indiana,
entered into a loan agreement (the "BDC Loan") whereby the BDC through a
grant the BDC received from the U.S. Department of Housing and Urban
Development, loaned $2,432,264 to the Company for the construction of the
plant.
On December 23, 1991, the Company restructured its loan with the DOE by the
execution of an Amended and Restated Loan Restructuring Agreement (the
"Restructuring Agreement") and two new promissory notes, Note A and Note B.
Note A, in the amount of $55,000,000, provides for 119 consecutive monthly
installments of interest and principal of $631,533 commencing April 30, 1992
and maturing on March 31, 2002. Note A provides for a fixed rate of interest
of 6.75% per annum. Note B, in the amount of $40,622,523, provides for a
fixed rate of interest of 4.00% per annum. Payments of Note B are based upon
monthly cash flow as defined by the Restructuring Agreement. Note B matures
on March 31, 2002. Accordingly, the fixed monthly payment required by the
Restructuring Agreement is $631,533.
On March 25, 1996, the Company and DOE entered into an agreement ("DOE Letter
Agreement") which allowed the Company to suspend payment of all Note A
principal and interest payments during the period January 1, 1996 through
September 30, 1996. As described above, Note A requires monthly principal and
interest payments totaling $631,533. Under the terms of the DOE Letter
Agreement, nine principal and interest payments totaling $5,683,797 have been
suspended on Note A. Suspended payments on Note A have been added monthly to
the outstanding principal balance of Note B and accrue interest at the Note B
interest rate of 4% per annum. Note B payments continue to be calculated and
paid on a cash flow basis as defined in the DOE Letter Agreement. The Company
estimates that the total of Note B payments, including principal and interest
for the 12 month period ending September 30, 1998, will be approximately
$25,000 based on the calculation defined in the DOE Letter Agreement. Because
the formula for DOE debt payment is based on company performance, there can be
no assurance that the estimate will be validated by history. Moreover, a
payment schedule for the DOE Loans after September 30, 1998, cannot be
determined with any certainty because Company performance for the longer term
cannot be projected with any certainty.
7
<PAGE>
On March 27, 1996, the Company and BDC entered into an agreement ("BDC Letter
Agreement") which allowed the Company to suspend payment of all principal and
interest payments under the BDC Loan during the period January 1, 1996 through
September 30, 1996. Principal and interest payments totaling $69,877 are due
BDC on each of February 1, May 1, August 1 and November 1. Under the terms
of the BDC Letter Agreement, three payments (due in February, May and August
1996), totaling $209,631 have been suspended. Suspended payments are
evidenced by a new note that accrues interest at a rate of 6% per annum and is
payable in 38 equal monthly payments of $6,194 beginning October 1, 1996.
On August 23, 1996, the Company and Great American Insurance Company ("GAIC"),
an entity related to Chiquita Brands International, Inc., a shareholder of
the General Partner of the Company, entered into a $10 million revolving
working capital loan facility (the "GAIC Loan") through December 31, 1997, or
such date that GAIC agrees to extend the maturity date, but, in no event later
than December 31, 1998, collateralized by a senior lien on the Company's
accounts receivable, inventory and certain other assets. The GAIC Loan
provides for interest at three percent over the "prime rate" of interest as
quoted daily in The Wall Street Journal and includes other terms customary in
the commercial loan market. As of the date of this report, no amounts are
outstanding under the GAIC Loan.
Also, in connection with the GAIC Loan, the DOE and BDC agreed to further
suspend the Company's obligation to make debt service payments from October 1,
1996 through December 31, 1997, and under certain circumstances, through
December 31, 1998. The further suspensions under the DOE Loan were accounted
for in the same manner as set forth above. The amounts accruing under the
deferral by the BDC are evidenced by a Note at 6% interest and maturing
November 1999. The suspension of payments on the DOE Loans and the BDC Loan
shall be all or partially terminated for any month that the Company is able to
generate earnings and cash flow sufficient to repay the GAIC Loan and have
cash in excess of $4,800,000 on deposit in its bank. As of September 30,
1997, the Company has paid in 1997, $890,085 and $29,886 to the DOE and BDC,
respectively, under this formula.
In 1982, as part of the original financing package for the construction of the
Plant, the General Partner was required to pledge a certificate of deposit in
the amount of $4 million and a $1.5 million letter of credit posted on the
General Partner's behalf as partial security for the Company's loan. On
December 30, 1986, as a result of the Company's failure to pay interest due
under the terms of the loan, a default was declared and the certificate of
deposit together with accrued interest thereon and the proceeds of the letter
of credit totaling $5,780,583, was immediately paid to the bank consortium
that provided the financing. This amount has been classified as a loan by the
General Partner to the Company. The General Partner did not charge interest
on the loan to the Company through July 31, 1987. Effective August 1, 1987,
interest began accruing at an annual rate of 8.5%. Recently, the General
Partner's Board of Directors (the "Board") reaffirmed the characterization of
these amounts as a loan and directed that the loan be evidenced by a demand
promissory note which contains a sixty (60) day notice period.
In December 1991, as a condition precedent to the DOE consenting to the
Restructuring Agreement, the General Partner was required to contribute
$578,832 to the Company's working capital reserves. This amount has also been
classified as a loan by the General Partner to the Company. Effective in 1996
the Board determined interest should accrue on outstanding balances at prime
plus 3% from the date of this loan. Likewise, as part of the August 23, 1996
restructuring and the GAIC Loan, the General Partner was required to loan
$500,000 to the Company. This loan accrues interest at prime plus 3%.
Subsequently, at the direction of the Board, the General Partner's senior
management undertook a study of expenditures to determine the appropriate
allocation of expenses between the Company and the General Partner. As a
result of this study, amounts totaling $1,436,028 were invoiced to the General
Partner and credited against selling, general and administrative expenses in
1996. This amount has been offset against amounts owed to the General
Partner.
8
<PAGE>
During the nine months ended September 30, 1997, the Company's average selling
price per gallon of ethanol was approximately 2% higher than the nine months
ended September 30, 1996. For the first nine months of 1997, the Company's
average corn prices have decreased by approximately 20% compared to the same
period in 1996. In addition, DDGS selling prices have decreased approximately
14% for the first nine months of 1997 compared to the same period in 1996.
The spread between ethanol and corn prices improved significantly for the
first nine months of 1997 as compared to the same period in 1996, resulting in
an operating gain for the nine month period ended September 30, 1997. There
can be no assurance that in the future the spread, if any, will continue at
the same rate or be more positive for the Company.
As a result of the rise in corn prices in the first nine months of 1996, the
Company decreased production by approximately 30% during the period May
through September 1996. The Company is returning to production at prior
levels, but has not yet attained such levels because of technical difficulties
confronted in ramping up production. The Company presently is producing at
approximately 97% of prior May 1996 levels. There, however, can be no
assurance that such technical difficulties will be surmounted or that
production will return to historical levels.
Based on revenues during the first nine months of 1997, as well as present and
contracted ethanol sales and corn costs through December 1997, the Company
expects 1997 to show significant improvement over 1996. However, based upon
the following variable factors, among others, affecting the ethanol industry
generally, and the Company specifically, including, but not limited to: (1)
availability and amount of federal and state tax incentives for ethanol
production and use; (2) environmental regulations; (3) gasoline prices
generally and the comparative prices of regular unleaded gasoline versus
alcohol/gasoline mixtures; (4) market prices of corn, the principal raw
material used in the production of ethanol; (5) the level of refiners' crude
oil and gasoline inventories; (6) competition among domestic ethanol
producers; (7) availability of low-cost foreign ethanol; (8) the familiarity
of jobbers and retailers with tax and octane benefits of ethanol blends; (9)
marketing support of retailers by major refinery/blenders, and (10)
competition with other oxygenates, such as MTBE, there can be no assurance
that the Company's 1997 expectations will be realized.
On a longer term basis, the Company is faced with significant hurdles to
profitability. Among them are corn supply issues, loss of federal and state
ethanol production incentives, and capital expenditures that may be required
by recently issued environmental regulations. The regional corn supplier
market has consolidated in the last few years to approximately three suppliers
with the capability to supply the Company's corn needs. As a result of a
joint venture in 1996, one of the largest regional corn suppliers is related
to or affiliated with one of the Company's competitors. In the past year, one
other regional supplier has declined a long term supply arrangement with the
Company. One other regional supplier whom the Company had contracted with has
sold its grain business to another competitor. Consequently, further
consolidation or shrinkage of the regional corn supplier market could endanger
existing supply relationships and result in supply shortages or higher
procurement costs. Such a result could negatively impact the Company's
operations and revenues. The Company has examined its alternatives, and has
determined that the best alternative is to self-originate from producers and
various suppliers its corn supply rather than contract exclusively with an
outside supplier. The Company estimates that additional capital of
approximately $4.3 million will be required during the next two years to
adequately address the corn supply issues by building additional storage
facilities, purchasing additional inventory and obtaining a grain buyer's
license. In addition, the Company estimates it needs access to approximately
a $15 million working capital line of credit (in lieu of the GAIC Loan ending
December 31, 1997 absent extension by GAIC) to handle general operating
requirements and margin and other requirements under the Company's corn
purchasing program. As of August 1, 1997, the Company's exclusive purchasing
contract was terminated effective September 30, 1997.
9
<PAGE>
Reduction or loss of federal and state ethanol production incentives also
could have a materially negative impact on the Company's revenue and continued
operations. While the present Congress has not yet adjourned, legislative
efforts to reduce the ethanol credit and limit the amounts of production
subject to it, as well as to extend the credit apparently have been curtailed.
The Company, through its membership in ethanol industry organizations,
continues its efforts to educate state and federal policy makers respecting
ethanol's benefits and to effect pro-ethanol production policies. There can
be no assurance that these industry efforts will be successful and that future
efforts to reduce, terminate, or to extend the ethanol tax credits past the
year 2000 will be successful.
The Company is subject to federal, state and local laws and regulations
designed to protect the environment. The Company does not believe or expect
that compliance with such existing laws and regulations regarding the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has had or will have a material adverse effect
upon the Company. However, in December of 1996, the EPA proposed tougher
standards relating to air emissions which could require significant investment
in compliance and monitoring equipment. Under present technology available,
however, it is questionable whether the proposed rules can be implemented by
industry generally, and the Company specifically. The EPA's current proposal
is to change the existing ozone rule from a standard that sets a one-hour
average concentration limit of 0.12 parts per million to one that sets an
eight-hour average limit of 0.08 parts per million. The EPA also proposed a
new standard for regulating fine particles or particles that are 2.5 microns
or less in diameter. The EPA's final rules on these issues were issued July
18, 1997. Although these final rules do not contain an implementation
schedule, documents released by the White House on June 25, 1997, indicate
that the new standards will be implemented in a flexible manner in an attempt
to allow businesses ample time to find cost-effective pollution controls.
There can be no assurance that these regulations will be implemented in a
manner that will allow the Company to find cost-effective pollution controls.
Moreover, additional working capital required to address environmental
concerns, if any, is presently not determinable.
The Company believes these new Clean Air Regulation rules, if enacted, may
have a positive effect on ethanol demand as more geographic regions are
required to meet the tougher air quality standards. Although regions may
become reformulated gasoline ("RFG") regions as a result of the new Clean Air
Regulations, other regulations beginning January 1, 2000 may significantly
limit ethanol's participation in the RFG market. The Clean Air Act requires
the Environmental Protection Agency to promulgate standards for reformulated
gasoline. The rules address, among other things, Volatile Organic Compounds
(VOCs) emissions performance reduction. Compliance with the standards are
divided into two distinct phases. The first phase commences January 1, 1998
and ends December 31, 1999, and establishes a per-gallon VOC emission
performance standard. The second phase, which commences January 1, 2000,
incorporates much more stringent standards. Because adding ethanol to
gasoline increases its volatility and thus raises VOC emissions, the stringent
second phase requirements may prove difficult for the ethanol industry, as
adding ethanol to gasoline may cause difficulty in complying with the
regulations. The Company, through an industry association, is seeking
alteration of these regulations to accommodate use of ethanol, in recognition
of ethanol's other purported environmental benefits. There can be no
assurance that the Company's efforts to alter these regulations will be
effective or that the new Clean Air Regulation will result in greater demand
for ethanol.
10
<PAGE>
Thus on a long term basis, the Company's ability to maintain sufficient
liquidity to meet its debt service and other obligations will depend on a
combination of factors which include, among others, further concessions by the
DOE and BDC, obtaining additional financing, and/or upon favorable market
price levels for corn and ethanol, factors over which the Company has little
control. However, through its corn purchasing agreement (terminated September
30, 1997) and subsequently, its efforts to hedge corn costs, and its strategy
to execute multiple month ethanol sales contracts with fixed or floor prices,
the Company is attempting to minimize its exposure to fluctuations in the corn
and gasoline/MTBE markets. There can be no assurance, however, that any or
all of the foregoing factors will obtain so as to permit the Company to
maintain sufficient liquidity to meet its debt service and other obligations
in the longer term.
On July 1, 1997, the Company entered into an agreement as amended from time to
time (the "Asset Purchase Agreement" together with all related agreements the
"Asset Sale Transaction") subject to certain conditions outlined below, to
sell all of its assets and business to Corn Energy.
The purchase price for the Company is in excess of $70 million including the
assumption of certain liabilities. The transaction is subject to approval by
a majority in interest of the limited partners of the Company and to
compliance with certain regulatory and other conditions including the ability
of Corn Energy to negotiate new terms for the DOE indebtedness acceptable to
Corn Energy. Of the cash proceeds payable to the Company, $2.5 million will
be paid to the BDC in settlement of the Company's obligations to it. It is
estimated that those limited partners of the Company entitled to share in the
liquidation distribution will receive approximately $400 per limited partner
unit as a result of the Asset Sale Transaction.
Corn Energy has indicated that it intends to continue to operate the business
in substantially its present form. No changes are anticipated in the
Company's current workforce of approximately 137 persons, all of whom are
employed at the South Bend facility.
The General Partner has called a Special Meeting of Limited Partners on
December 3, 1997 at 11:00 a.m. at the Century Center/Recital Hall, South Bend,
Indiana to consider and vote upon the approval of the Asset Sale Transaction.
On or about October 28, 1997, the General Partner filed with the Commission,
its Definitive Proxy Statement on Schedule 14A in connection with its
solicitation of proxies respecting the Special Meeting of Limited Partners, a
copy of which is incorporated herein by reference. The Proxy Statement and
form of Proxy were first mailed to Limited Partners on or about October 30,
1997.
RESULTS OF OPERATIONS
- ---------------------
For the three months ended September 30, 1997 the Company generated a loss of
$54,668 as compared to a loss of $8,608,325 for the three months ended
September 30, 1996. The loss reduction from the same period in the prior year
was primarily due to a decrease in the price of corn, an increase in the
volume of ethanol and DDGS sold, offset by a decrease in the average selling
prices of ethanol and DDGS.
Revenue from the sale of ethanol increased during the three months ended
September 30, 1997 to $25,052,441 from $19,431,172 during the three months
ended September 30, 1996. This increase was primarily due to an increase in
the volume of ethanol produced and sold, offset by a decrease in the average
selling price per gallon.
Revenue from the sale of by-products decreased during the three months ended
September 30, 1997, to $8,689,699 from $8,762,526 during the three months
ended September 30, 1996. This decrease in by-product revenue was primarily
due to a decrease in the average selling price per ton of DDGS, offset by an
increase in the volume of DDGS produced and sold.
11
<PAGE>
Ethanol production totaled 20,983,984 gallons for the three months ended
September 30, 1997 as compared to 15,085,659 gallons for the three months
ended September 30, 1996. This increase is primarily due to an increase in
production beginning in October 1996 as corn prices returned to historical
levels. The plant also produced 66,373 tons of distillers dried grains and
37,339 tons of gaseous carbon dioxide for the three months ended September 30,
1997 as compared to 51,340 tons of distillers dried grains and 34,023 tons of
gaseous carbon dioxide for the three months ended September 30, 1996.
Distillers dried grains and gaseous carbon dioxide are by-products of the
ethanol production process.
Cost of goods sold decreased by $2,937,629 during the three months ended
September 30, 1997 compared to the same period in 1996, primarily due to an
approximate 38% decrease in the average price of corn per bushel, offset by an
increase in the number of bushels of corn processed.
For the nine months ended September 30, 1997, the Company generated a loss of
$1,587,475 as compared to a loss of $16,991,781 for the nine months ended
September 30, 1996. The loss reduction from the same period in the prior year
was primarily due to a decrease in the price of corn, an increase in the
volume of ethanol and DDGS sold, partially offset by a decrease in the average
selling prices of ethanol and DDGS.
Revenue from the sale of ethanol increased during the nine months ended
September 30, 1997 to $78,332,384 from $68,087,691 during the nine months
ended September 30, 1996. This increase was primarily due to an increase in
the volume of ethanol produced and sold, offset by a decrease in the average
selling price per gallon of ethanol.
Revenue from the sale of by-products decreased during the nine months ended
September 30, 1997 to $27,604,854 from $27,661,705 during the nine months
ended September 30, 1996. This decrease in by-product revenue was primarily
due to a decrease in the average selling price per ton of DDGS, offset by an
increase in the volume of DDGS produced and sold.
Ethanol production totaled 62,530,615 gallons for the nine months ended
September 30, 1997 as compared to 53,775,121 gallons for the nine months ended
September 30, 1996. This increase was primarily due to a return to normal
production levels as corn prices returned to historical levels. The plant
also produced 198,234 tons of distillers dried grains and 114,354 tons of
gaseous carbon dioxide for the nine months ended September 30, 1997 as
compared to 174,394 of distillers dried grains and 110,391 tons of gaseous
carbon dioxide for the nine months ended September 30, 1996.
Cost of goods sold decreased by $4,981,231 during the nine months ended
September 30, 1997 compared to the same period in 1996 primarily due to an
approximate 20% decrease in the average price of corn per bushel, offset by an
increase in the number of bushels of corn processed.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Except as set forth below, reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, or the Corporation's Definitive
Schedule 14A, copies of which are incorporated herein by reference, the
Company is not a party to any material legal proceedings other than routine
litigation incidental to its business. Moreover, on October 30, 1997, the
EEOC dismissed the previously reported claim of Bobby J. Clark, Jr. Also, on
October 10, 1997, the following matter was filed with the South Bend Human
Rights Commission ("SBHRC") and the Equal Employment Opportunity Commission
("EEOC"):
12
<PAGE>
A. Patrick Dillard v. New Energy Company of Indiana Ltd. Partnership
-----------------------------------------------------------------
Court/Agency: SBHRC
EEOC
SBHRC Charge No.: 97-134
EEOC Cause No.: 24M980012
Date Filed: October 10, 1997
Nature of the litigation, claim or assessment: Mr. Dillard has filed
a charge of discrimination with the SBHRC alleging that the Company
discriminated against him on the basis of his race. Specifically,
Mr. Dillard alleges the Company failed to provide him with a raise
when he assumed a position with a higher rate of pay. Mr. Dillard
alleges white employees were provided with the higher rate of pay in
the position.
Progress to date: At this stage, the Company is gathering
information in order to prepare a position statement to provide to
the South Bend Human Rights Commission. The position statement will
respond to the allegations in the charge.
Partnership's position: The Company intends to vigorously defend its
position.
Evaluation of probability of an unfavorable outcome: Remote.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
4.1 Restated and amended Limited Partnership Agreement of the
Company dated October 26, 1982 (filed as Exhibit 12 to the Form 8-K
amending the Company's quarterly report on Form 10-Q for the nine
months ended September 30, 1982, and incorporated herein by
reference).
13
<PAGE>
4.2 Form of Assumption Agreement (filed as Exhibit B-3 to the
Prospectus dated April 28, 1982, contained in the Company's
registration Statement on form S-1, No. 2-74254, and incorporated
herein by reference).
4.3 Form of Assumption Agreement (filed as Exhibit B-3 to the
Prospectus dated April 28, 1982, contained in the Company's
Registration Statement on Form S-1, No. 2-74254, and
incorporated herein by reference).
10.1 Credit Agreement, dated as of October 26, 1982, among the
Company, the First National Bank of Chicago, in its individual
capacity and as agent (the "Agent"), 1st Source Bank, in its
individual capacity and as collateral trustee (the "Collateral
Trustee"), and the banks listed on the signature pages thereof
(the "Banks") (filed as Exhibit 2 to the Company's quarterly report
on form 10-Q for the nine months ended September 30, 1982, and
incorporated herein by reference).
10.2 Guarantee Agreement, dated as of October 26, 1982, among the
Company, the United States of America, acting by and through the
Secretary of Energy (the "Secretary"), the Agent, and 1st Source
Bank, as Collateral Trustee and Servicer for the Secretary (filed
as Exhibit 17 to form 8-K amending the Company's quarterly report
on Form 10-Q for the nine months ended September 30, 1982, and
incorporated herein by reference).
10.3 Security and Collateral Application Agreement, dated as of
October 26, 1982, among the Company, the General Partner, the Agent,
The Collateral Trustee and the Secretary (filed as Exhibit 4 to the
Company's quarterly report on Form 10-Q for the nine months ended
September 30, 1982, and incorporated herein by reference).
10.4 General Partner Agreement, dated as of October 26, 1982, among
the Company, the General Partner, the Collateral Trustee and the
Agent (filed as Exhibit 5 to the Company's Quarterly report on Form
10-Q for the nine months ended September 30, 1982, and incorporated
herein by reference).
10.5 Cash Pledge Escrow Agreement dated as of October 26, 1982,
among the Company, the General Partner, the Collateral Trustee and
the Agent (filed as Exhibit 6 to the Company's Quarterly report on
form 10-Q for the nine months ended September 30, 1982, and
incorporated herein by reference).
10.6 Loan Agreement, dated October 14, 1982, between the Company and
South Bend Development Corporation (filed as Exhibit 8 to the
Company's quarterly report on Form 10-Q for the nine months ended
September 30, 1982, and incorporated herein by reference).
10.7 Subordinated Security Agreement, dated as of October 26, 1982,
between the Company and South Bend Development Corporation (filed as
Exhibit 10 to the Company's quarterly report on Form 10-Q for the
nine months ended September 30, 1982, and incorporated herein by
reference).
10.8 Subordinated Real Estate Mortgage, dated as of October 26,
1982, between the Company and South Bend Development Corporation
(filed as Exhibit 11 to the Company's quarterly report on form 10-Q
for the nine months ended September 30, 1982, and incorporated herein
by reference).
14
<PAGE>
10.9 Mortgage, dated as of October 26, 1982, between the Company and
1st Source Bank (filed as Exhibit 13 to Form 8-K amending the
Company's quarterly report on Form 10-Q for the nine months ended
September 30, 1982, and incorporated herein by reference).
10.10 Promissory Note, dated October 26, 1982, in the principal
amount of $1,769,057 executed by the Company and payable to the
United States Department of Energy (filed as Exhibit 14 to Form 8-K
amending the Company's quarterly report on Form 10-Q for the nine
months ended September 30, 1982, and incorporated herein by
reference).
10.11 First Amended Agreement for Engineering, Procurement and
Construction Services, dated June 11, 1982, between the General
Partner and Davy McKee Corporation, as amended by letter agreements
dated September 21, 1982 and October 26, 1982 (filed as Exhibit 16
to form 8-K amending the Company's quarterly report on Form 10-Q for
the nine months ended September 30, 1982, and incorporated herein by
reference).
10.12 Agreement for Sale of Carbon Dioxide, dated February 4, 1983,
between the General Partner and Airco Industrial Gases, a Division
of Airco, Inc. (filed under Confidential Treatment as Exhibit 10.16
to the Company's annual report on Form 10-K for the year ended
December 31, 1982, and incorporated herein by reference).
10.13 Letter agreement dated August 17, 1982, between the General
Partner and Ethanol Services, Inc. (filed as Exhibit 10(cc) to the
Company' Registration Statement on Form S-1, No. 2-74254, and
incorporated herein by reference).
10.14 Promissory Note, dated October 24, 1984, in the principal
amount of $2,272,903.31, executed by the Company and payable to
Business Development Corporation of South Bend (filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1985, and incorporated herein by reference).
10.15 Promissory Note, dated October 24, 1985, in the principal
amount of $159,360.95, executed by the Company and payable to
Business Development Corporation of South Bend (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1985, and incorporated herein by reference.
10.16 Principal Assistance Agreement dated as of November 25, 1986,
by and among the United States of America, acting by and through the
Secretary of Energy, the Company and the General Partner (filed as
Exhibit 10.20 to the Company's Annual Report on Form 10K for the year
ended December 31, 1985, and incorporated herein by reference).
10.17 Loan Restructuring Agreement dated July 31, 1987, by and among
the United States of America, acting by and through the Secretary of
Energy, the Company and the General Partner (filed as Exhibit 19.1 to
the Company's Form 10-Q for the quarter ended September 30, 1987, and
incorporated herein by reference).
10.18 Loan Agreement dated July 20, 1987, by and between the Indiana
Energy Development Board and the Company (filed as Exhibit 19.2 to
the Company's Form 10-Q for the quarter ended September 30, 1987, and
incorporated herein by reference).
15
<PAGE>
10.19 Receivables and Inventory Loan and Security Agreement dated
January 29, 1988, by and between First Interstate Commercial
Corporation and the Company (filed as Exhibit 10.19 to the Company's
Form 10-K for the year ended December 31, 1989, and incorporated
herein by reference).
10.20 Agreement dated December 20, 1989, by and between the Indiana
Energy Development Board and the Company (filed as Exhibit 10.20 to
the Company's Form 10-K for the year ended December 31, 1989, and
incorporated herein by reference).
10.21 Amendment to Loan and Security Agreement dated January 29,
1990, by and between First Interstate Commercial Corporation and the
Company (filed as Exhibit 10.21 to the Company's Form 10-K for the
year ended December 31, 1989, and incorporated herein by reference).
10.22 Amended and Restated Loan Restructuring Agreement dated
December 23, 1991, by and among the Company, the General Partner and
the United States of America, acting by and through the Secretary of
Energy (filed as Exhibit 10.22 to the Company's form 10-K for the
year ended December 31, 1991, and incorporated herein by reference).
10.23 Letter Agreement dated January 14, 1994, by and between
Interamerican Investments, Inc. and Ethanol Services, Inc. (filed as
Exhibit 10.23 to the Company's Form 10-K for the year ended December
31, 1994, and incorporated herein by reference).
10.24 Agreement dated December 17, 1993, by and between the Company
and Countrymark Cooperative, Inc. (filed as Exhibit 10.24 to the
Company's Form 10-K for the year ended December 31, 1993, and
incorporated herein by reference).
10.25 Agreement dated January 16, 1996, by and between the Company
and Frick Services, Inc. referenced in Part I, Item I, "Raw
Materials", page 4 of the Company's Form 10-K for the year ended
December 31, 1995.
10.26 DOE Letter Agreement dated March 25, 1996, by and among the
Company, the General Partner and the United States of America, acting
by and through the Secretary of Energy, referenced in Part II, Item 7
"Liquidity and Capital Resources", page 14 of the Company's form 10-K
for the year ended December 31, 1995.
10.27 BDC Letter Agreement dated March 27, 1996, by and among the
Company, the General Partner and the South Bend Development
Corporation, referenced in Part II, Item 7 "Liquidity and Capital
Resources", page 15 of the Company's Form 10-K for the year ended
December 31, 1995.
10.28 Letter Agreement dated August 23, 1995, by and between
Interamerican Investments, Inc. and Ethanol Services, Inc. (filed as
Exhibit 10.28 to the Company's Form 10-K for the year ended December
31, 1995, and incorporated herein by reference).
10.29 Loan and Security Agreement between New Energy and Great
American Insurance Company.
10.30 Amendment No. 1 to Amended and Restated Loan Restructuring
Agreement between New Energy and the DOE.
16
<PAGE>
10.31 Endorsements to Note "A" and Note "B" to the DOE.
10.32 Third Amendment to Loan Agreement between New Energy and
the BDC.
10.33 Note No. 4 to the BDC.
10.34 Promissory Note dated as of December 31, 1996, between the
Company and the General Partner.
10.35 Asset Purchase Agreement, dated as of July 1, 1997, between
Corn Energy, Inc. and the Company, attached as Exhibit "A" to the
Company's Definitive Schedule 14A filed on October 28, 1997, and
incorporated herein by reference.
10.36 Agreement dated May 30, 1997, between the Company and the BDC,
attached as Exhibit "D" to the Company's Definitive Schedule 14A
filed on October 28, 1997, and incorporated herein by reference.
10.37 Transaction Assurance Agreement dated June 1997, between Corn
Energy, Inc. and Interamerican Investments, Inc., Ethanol Services,
Inc. and Chiquita Brands International, Inc., attached as Exhibit "E"
to the Company's Definitive Schedule 14A filed on October 28, 1997,
and incorporated herein by reference.
19.1 On October 28, 1997, the Company filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 in connection with the Asset Sale
Transaction, and is incorporated herein by reference.
19.2 On October 28, 1997, the Company through its General Partner
filed a Definitive Schedule 14A, a copy of which is incorporated
herein by reference.
27.1 Financial Data Schedule
B.) Reports on Form 8-K:
On July 1, 1997, the Company filed a Report on Form 8-K
containing the press release issued July 1, 1997, by the
Company announcing the execution of the Asset Purchase
Agreement, dated July 1, 1997 and certain other related
transactions. A copy of that Report on Form 8-K is
incorporated herein by reference.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEW ENERGY COMPANY OF INDIANA
LIMITED PARTNERSHIP
By: New Energy Corporation of Indiana,
General Partner
Dated: November 13, 1997 By:S/___________________________________
Larry W. Singleton
President & Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance statement and consolidated statement of operations of New
Energy Company of Indiana Limited Partnership as of and for the fiscal year
ended September 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,530,573
<SECURITIES> 0
<RECEIVABLES> 5,336,496
<ALLOWANCES> 0
<INVENTORY> 3,385,255
<CURRENT-ASSETS> 19,054,676
<PP&E> 161,495,931
<DEPRECIATION> (138,302,033)
<TOTAL-ASSETS> 42,248,574
<CURRENT-LIABILITIES> 12,520,086
<BONDS> 68,835,949
0
0
<COMMON> 0
<OTHER-SE> (39,970,286)
<TOTAL-LIABILITY-AND-EQUITY> 42,248,574
<SALES> 33,742,140
<TOTAL-REVENUES> 33,827,668
<CGS> 30,838,879
<TOTAL-COSTS> 30,838,879
<OTHER-EXPENSES> 2,031,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,012,190
<INCOME-PRETAX> (54,668)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,668)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,668)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
