CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,” “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include:
Ÿ
Fluctuations in the price and market for ethanol and distillers grains;
Availability and costs of products and raw materials, particularly corn and coal;
Changes in or lack of availability of credit;
Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;
Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;
Our ability to generate and maintain sufficient liquidity to fund our operations, meet debt service requirements and necessary capital expenditures;
Our ability to continue to meet our loan covenants;
Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
Results of our hedging transactions and other risk management strategies;
Changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices that currently benefit the ethanol industry including:
Ÿ national, state or local energy policy - examples include legislation already passed such as the
California low-carbon fuel standard as well as potential legislation in the form of carbon cap and trade;
Ÿ federal and state ethanol tax incentives;
Ÿ legislation mandating the use of ethanol or other oxygenate additives;
Ÿ environmental laws and regulations that apply to our plant operations and their enforcement; or
Ÿ tariffs on foreign ethanol.
Changes and advances in ethanol production technology; and
Competition from alternative fuels and alternative fuel additives.
Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this report. We are not under any duty to update the forward-looking statements contained in this report. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.
AVAILABLE INFORMATION
Information about us is also available at our website at www.redtrailenergyllc.com, under “SEC Compliance,” which includes links to reports we have filed with the Securities and Exchange Commission. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K.
Change in Fiscal Year End
On January 1, 2011, our board of governors approved the change in our fiscal year end from December 31 to September 30, effective January 1, 2011. As a result of this change, this Annual Report on Form 10-K is a transition report and includes
financial information for the nine-month transition period from January 1, 2011 to September 30, 2011, or Transition Period. References in this Transition Report on Form 10-K to fiscal year 2010 or fiscal 2010 refer to the period of January 1, 2010 through December 31, 2010 and references to fiscal year 2009 or fiscal 2009 referred to the period of January 1, 2009 through December 31, 2009. Subsequent to this Transition Report on Form 10-K, our reports on Form 10-K will cover the fiscal year from October 1 to September 30 with historical periods remaining unchanged.
ITEM 1. BUSINESS
Business Development
Red Trail Energy, LLC was formed as a North Dakota limited liability company in July of 2003, for the purpose of constructing, owning and operating a fuel-grade ethanol plant (the "Plant") near Richardton, North Dakota in western North Dakota. References to “we,” “us,” “our” and the “Company” refer to Red Trail Energy, LLC. Since January 2007, we have been engaged in the production of ethanol and distillers grains at the plant.
The Company signed a Design-Build Agreement with Fagen, Inc. (“Fagen”) in September 2005 to design and build the ethanol plant at a total contract price of approximately $77 million. The Company has remaining payments under this Design-Build Agreement of approximately $3.9 million. This payment has been withheld pending satisfactory resolution of a punch list of items including a major issue with the coal combustor experienced during start up. In November 2010, the Company executed a Mediated Settlement Agreement (the Agreement) with Fagen whereby the terms of the Agreement become enforceable upon the Company's ability to pass a Required Emissions Test (the Test) as defined in the Agreement. The Company did not pass the Test in the nine month period ended September 30, 2011 and is currently working towards meeting the terms of the Test during the first or second quarter of the Company's 2012 fiscal year. Additionally, there will be certain payments to third parties and releases received by the Company from third parties once the Test is achieved. At September 30, 2011 and December 31, 2010, an amount equal to the $3.9 million withheld from Fagen has been applied towards the Company's long-term debt and has been restricted by the Company's senior lender until such time that the financial terms of the Agreement become effective.
On June 1, 2011, the Company executed a Ninth Amendment of Construction Loan Agreement with its senior lender to extend the maturity date of the Company's $7,000,000 revolving loan from June 1, 2011 to April 16, 2012, and to modify certain covenants within the Construction Loan Agreement. The modified covenants included the annual capital expenditure threshold which was increased from $500,000 to $1,600,000. Also modified was the Working Capital covenant which was modified to reflect the impact of the Company's senior debt maturing on April 16, 2012 and therefore being 100% current. The final covenant modified was the Net Worth covenant which was modified to reflect a calculation that is consistent with the financial terms of the Mediated Settlement Agreement entered into in November 2010 between the Company and the original plant design/build contractor.
The Company's senior debt has a maturity date of April 16, 2012 and is therefore classified as fully current in the liability section of the Company's balance sheet as of September 30, 2011. The Company plans to refinance this debt and is currently negotiating the refinance terms with its senior lender. The Company's senior lender has indicated they do not foresee any problems in refinancing this debt and the Company anticipates to receive a commitment letter with refinance terms from its senior lender in the second quarter of the Company's 2012 fiscal year.
Financial Information
Please refer to “ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” for information about our revenue, profit and loss measurements and total assets and liabilities and “ITEM 8. Financial Statements and Supplementary Data” for our financial statements and supplementary data.