v2.3.0.11
Document and Entity Information
9 Months Ended
Jun. 30, 2011
Aug. 01, 2011
Entity Registrant Name Lincolnway Energy, LLC
Entity Central Index Key 0001350420
Current Fiscal Year End Date --09-30
Entity Filer Category Non-accelerated Filer
Document Type 10-Q
Document Period End Date Jun 30, 2011
Document Fiscal Year Focus 2011
Document Fiscal Period Focus Q3
Amendment Flag false
Entity Common Stock, Shares Outstanding 42,049
Entity Well-known Seasoned Issuer No
Entity Voluntary Filers No
Entity Current Reporting Status Yes
v2.3.0.11
Balance Sheets Statement (USD $)
Jun. 30, 2011
Sep. 30, 2010
CURRENT ASSETS
Cash and cash equivalents $ 667,558 $ 2,858,110
Due from broker 1,086,792 2,305,695
Trade and other accounts receivable (Note 6) 7,364,220 5,880,043
Inventories (Note 3) 7,659,711 3,951,079
Prepaid expenses and other 359,730 298,637
Total current assets 17,138,011 15,293,564
PROPERTY AND EQUIPMENT
Land and land improvements 7,630,868 7,580,868
Buildings and improvements 1,604,305 1,604,305
Plant and process equipment 76,005,989 75,463,973
Office furniture and equipment 409,357 411,177
Construction in progress 1,055,262 191,764
Property, Plant and Equipment, Gross 86,705,781 85,252,087
Accumulated depreciation (41,598,868) (35,430,641)
Property, Plant and Equipment, Net 45,106,913 49,821,446
OTHER ASSETS
Restricted cash 351,000 351,000
Financing costs, net of amortization of $241,344 and $209,165 230,618 262,797
Deposit 476,437 0
Investments 182,970 170,093
Other Assets, Noncurrent 1,241,025 783,890
Assets 63,485,949 65,898,900
CURRENT LIABILITIES
Accounts payable 1,207,129 1,088,299
Accounts payable, related party (Note 5) 624,714 460,958
Current maturities of long-term debt (Note 4) 3,782,324 76,373
Accrued expenses 1,137,411 982,432
Derivative financial instruments (Note 8) 350,750 1,191,867
Total current liabilities 7,102,328 3,799,929
NONCURRENT LIABILITIES
Long-term debt, less current maturities (Note 4) 5,632,387 9,409,711
Other 450,000 450,000
Total noncurrent liabilities 6,082,387 9,859,711
COMMITMENTS AND CONTINGENCY (Notes 6 and 9)    
MEMBERS' EQUITY
Member contributions, 42,049 units issued and outstanding 38,990,105 38,990,105
Retained Earnings 11,311,129 13,249,155
Members' Equity 50,301,234 52,239,260
Liabilities and Equity $ 63,485,949 $ 65,898,900
v2.3.0.11
Balance Sheets Parenthetical Statement (USD $)
9 Months Ended 12 Months Ended
Jun. 30, 2011
Sep. 30, 2010
OTHER ASSETS
Financing costs, net of amortization of $ 241,344 $ 209,165
MEMBER'S EQUITY
Units issued and outstanding 42,049 42,049
v2.3.0.11
Statements of Operations Statement (USD $)
3 Months Ended 9 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Jun. 30, 2011
Jun. 30, 2010
Revenues (Notes 2 and 6) $ 42,028,975 $ 25,067,784 $ 121,436,098 $ 85,666,633
Cost of goods sold 44,928,632 25,629,974 120,925,209 79,536,825
Gross profit (2,899,657) (562,190) 510,889 6,129,808
General and administrative expenses 641,728 599,335 1,965,052 1,908,384
Operating income (loss) (3,541,385) (1,161,525) (1,454,163) 4,221,424
Other income (expense):
Interest income 2,890 5,894 7,195 19,854
Interest expense (180,405) (189,363) (491,058) (620,168)
Other income 0 101,569
Other nonoperating income and expense (177,515) (183,469) (483,863) (498,745)
Net income (loss) $ (3,718,900) $ (1,344,994) $ (1,938,026) $ 3,722,679
Weighted average units outstanding 42,049 42,049 42,049 42,049
Net income (loss) per unit - basic and diluted $ (88.44) $ (31.99) $ (46.09) $ 88.53
v2.3.0.11
Statement of Cash Flows Statement (USD $)
9 Months Ended
Jun. 30, 2011
Jun. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,938,026) $ 3,722,679
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 6,289,241 6,256,363
Loss on disposal of property and equipment 62,696 434
Changes in working capital components:
Due from broker 1,218,903 (845,382)
Trade and other accounts receivable (1,484,177) 225,196
Inventories (3,708,632) (1,329,033)
Prepaid expenses and other (61,093) (110,706)
Deposits (476,437) 145,975
Accounts payable 108,339 (64,585)
Accounts payable, related party 163,756 104,306
Accrued expenses (710) (26,882)
Derivative financial instruments (841,117) 86,790
CASH FLOWS FROM OPERATING ACTIVITIES (667,257) 8,165,155
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,439,045) (346,079)
Purchase of investments (12,877) (19,057)
Net Cash Provided by (Used in) Investing Activities (1,451,922) (365,136)
CASH FLOWS FROM FINANCING ACTIVITIES
Member distributions 0 (2,102,450)
Payments on long-term borrowings (71,373) (6,320,358)
Net cash (used in) financing activities (71,373) (8,422,808)
Net increase in cash and cash equivalents (2,190,552) (622,789)
CASH AND CASH EQUIVALENTS
Beginning 2,858,110 5,824,947
Ending 667,558 5,202,158
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION, cash paid for interest 505,167 630,867
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Construction in progress included in accounts payable and accrued expenses $ 166,180 $ 135,926
v2.3.0.11
Nature of Business and Significant Accounting Policies
9 Months Ended
Jun. 30, 2011
Nature of Business and Significant Accounting Policies [Abstract]
Business Description and Accounting Policies
Nature of Business and Significant Accounting Policies


Principal business activity:  Lincolnway Energy, LLC (the Company), located in Nevada, Iowa, was formed in May 2004 to pool investors to build a 50 million gallon annual production dry mill corn-based ethanol plant.  The Company began making sales on May 30, 2006 and became operational during the quarter ended June 30, 2006.


Basis of presentation and other information: The balance sheet as of September 30, 2010 was derived from the Company's audited balance sheet as of that date.  The accompanying financial statements as of and for the three and nine months ended June 30, 2011 and 2010 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods.  These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the year ended September 30, 2010 contained in the Company's Annual Report  on Form 10-K.  The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.


Use of estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.


Trade accounts receivable: Trade accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering customers financial condition, credit history and current economic conditions. Receivables are written off when deemed uncollectible. Recoveries of receivables written off are recorded when received. A receivable is considered past due if any portion of the receivable is outstanding more than 90 days.
  
Income taxes:  The Company is organized as a partnership for federal and state income tax purposes and generally does not incur income taxes.  Instead, the Company's earnings and losses are included in the income tax returns of the members.  Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.


Earnings per unit:  Basic and diluted earnings per unit have been computed on the basis of the weighted average number of units outstanding during each period presented.


Fair Value of financial instruments:  The carrying amounts of cash and cash equivalents, due from broker, derivative financial instruments, trade and other accounts receivable, accounts payable and accrued expenses approximate fair value.  The carrying amount of long-term debt approximates fair value because the interest rates fluctuate with market rates or the fixed rates approximate current rates offered to the Company for debt with similar terms and maturities.


v2.3.0.11
Revenue by product
9 Months Ended
Jun. 30, 2011
Revenue by product [Abstract]
Revenue by product
Revenue


Components of revenue are as follows:


(Excludes hedging activity)
 
Three Months
 
Three Months
 
Nine months
 
Nine months
 
 
 Ended
 
 Ended
 
Ended
 
Ended
(In thousands)
 
June 30, 2011
 
June 30, 2010
 
June 30, 2011
 
June 30, 2010
Ethanol
 
$
32,846


 
$
19,808


 
$
97,282


 
$
69,390


Distillers' Grains
 
7,906


 
4,833


 
22,464


 
14,507


Other
 
1,025


 
435


 
2,381


 
1,248


v2.3.0.11
Inventories
9 Months Ended
Jun. 30, 2011
Inventories [Abstract]
Inventory Disclosure
Inventories


Inventories consist of the following as of:
 
June 30,

2011
 
September 30,

2010
 
 
 
 
Raw materials, including corn, coal, chemicals and supplies
$
4,012,764


 
$
2,496,681


Work in process
1,395,044


 
796,409


Ethanol and distillers grains
2,251,903


 
657,989


Total
$
7,659,711


 
$
3,951,079






v2.3.0.11
Long-Term Debt
9 Months Ended
Jun. 30, 2011
Long-term Debt, Unclassified [Abstract]
Debt Disclosure
Long-Term Debt


Long-term debt consists of the following as of:


 
June 30,

2011
 
September 30,

2010
 
 
 
 
Construction term loan. (A)
$
6,500,000


 
$
6,500,000


 
 


 
 


Construction/revolving term loan. (C)


 


 
 


 
 


Note payable to contractor, interest-only quarterly payments at 5% due through maturity date of November 2014, secured by real estate and subordinate to financial institution debt commitments. (B )
1,216,781


 
1,216,781


 
 


 
 


Note payable to contractor, unsecured, interest-only quarterly payments at 4% due through maturity date of May 2021
1,250,000


 
1,250,000


 
 


 
 


Note payable to Iowa Department of Economic Development. (D)
160,000


 
182,500


 
 


 
 


Note payable to Iowa Department of Transportation. (E)
287,930


 
336,803


 
 
 
 


 
9,414,711


 
9,486,084


Less current maturities
(3,782,324
)
 
(76,373
)
 
$
5,632,387


 
$
9,409,711






(A)
The Company has a construction and term loan with a financial institution.  Borrowings under the term loan include a variable interest rate based on the one-month LIBOR index rate plus 3.30%.  The rate will be reset automatically without notice to the Company, on the first “US Banking Day” of each succeeding week, and each change shall be applicable to all outstanding balances as of that date.  The agreement requires principal payments of $1,250,000 per quarter commencing in December 2006 through March 2013. In order to alleviate some of the interest rate risk, the Company on July 25, 2008, fixed a portion of the loan or $7,750,000 at an interest rate of 6.62%, through July 2011. Upon maturity the fixed portion of the loan will revert back to a variable rate.  The same payment amortization schedule will apply. As of June 30, 2011, the entire balance outstanding is at a fixed rate.  The agreement requires the maintenance of certain financial and nonfinancial covenants.   Borrowings under this agreement are collateralized by substantially all of the Company's assets.  As of June 30, 2011, the Company has made principal payments of $32,500,000, since the inception of the loan, which under the terms of the agreement have been applied to scheduled payments in order of their maturity. The Company's next scheduled payment under the agreement is due in December 2011.


(B)
The Company has a $1,100,000 subordinated note payable dated November 17, 2004 to an unrelated third party.  Quarterly interest payments began on March 31, 2007.  The third party allowed the Company to include the accrued interest of $116,781 through December 2006 into the principal of the note. Principal is due in full at maturity on November 17, 2014.


(C)
The Company has a $10,000,000 construction/revolving term credit facility with a financial institution which expires on September 1, 2016.  Borrowings under the credit facility agreement include a variable interest rate based on the one-month LIBOR index rate plus 3.30%.  The rate will be reset automatically without notice to the Company, on the first “US Banking Day” of each succeeding week, and each change shall be applicable to all outstanding balances as of that date.  Borrowings are subject to borrowing base restrictions as defined in the agreement.  The credit facility and revolving credit agreement require the maintenance of certain financial and nonfinancial covenants.  The variable interest rate will be based on the borrowings under this agreement are collateralized by substantially all of the Company's assets.  There was no balance outstanding as of June 30, 2011.


(D)
The Company also has a $300,000 loan agreement with the Iowa Department of Economic Development (IDED).  The $300,000 loan is noninterest-bearing and due in monthly payments of $2,500 beginning December 2006 and a final payment of $152,500 due November 2012.  Borrowings under this agreement are collateralized by substantially all of the Company's assets and subordinate to the above financial institution debt and construction and revolving loan/credit agreements included in (A) and (C).


(E)
The Company entered into a $500,000 loan agreement with the Iowa Department of Transportation (IDOT) in February 2005.  The proceeds were disbursed upon submission of paid invoices.  Interest at 2.11% began accruing on January 1, 2007.  Principal payments will be due semiannually through July 2016.  The loan is secured by all rail track material constructed as part of the plant construction.  The debt is subordinate to the above $39,000,000 financial institution debt and construction and revolving loan/credit agreements included in (A) and (C).


v2.3.0.11
Related-Party Transactions
9 Months Ended
Jun. 30, 2011
Related Party Transactions [Abstract]
Related Party Transactions Disclosure
Related-Party Transactions


The Company has an agreement with the Heart of Iowa Coop , dba Key Cooperative (Key), a member of the Company, to provide 100% of the requirement of corn for use in the operation of the ethanol plant.  The Company purchased corn totaling $35,466,965 and $91,196,046 for the three months and nine months ended June 30, 2011.  There were corn purchases of $16,106,675 and $52,642,565 for the three months and nine months ended June 30, 2010. As of June 30, 2011, the Company had several corn cash contracts with Key amounting to approximately 3,092,787 bushels, for a commitment of $19,889,825 and several basis contracts representing 1,000,000 bushels of corn.  The contracts mature on various dates through September 2011.  The Company also has made some miscellaneous purchases from Key (storage fees, fuel, and propane costs) amounting to $34,094 and $68,570 for the three months and nine months ended June 30, 2011 , respectively.  There were miscellaneous purchases of $25,809 and $73,195 for the three months and nine months ended June 30, 2010. As of June 30, 2011 the amount due to Key is $624,133.


The Company is also purchasing propane from Prairie Land Cooperative, a member of the Company.  Total purchases for the three months and nine months ended June 30, 2011 is $580 and $15,003, respectively. Total purchases for the three months and six months ended June 30, 2010 is $6,013 and $20,451, respectively. As of June 30, 2011 there is $580 due to Prairie Land Cooperative.
v2.3.0.11
Commitments and Major Customer
9 Months Ended
Jun. 30, 2011
Commitments and Major Customer [Abstract]
Commitments and Major Customer
Commitments and Major Customer


On September 25, 2009, the Company entered into a agreement with an unrelated entity. The agreement became effective on October 1, 2009. The unrelated entity is responsible for marketing and purchasing all of the ethanol produced by the Company. For the three months and nine months ended June 30, 2011 the Company has expensed $159,529 and $518,300 respectively, under this agreement for marketing fees. For the three and nine months ended June 30, 2010 the Company has expensed $172,803 and $513,278, respectively. Revenues with this customer were $32,845,845 and $97,281,863 for the three and nine months ended June 30, 2011 , respectively. For the three and nine months ended June 30, 2010, revenues with this customer were $19,807,584 and $69,318,982, respectively. Trade accounts receivable of $5,034,356 was due from the customer as of June 30, 2011.


The Company has an agreement with an unrelated entity for marketing, selling and distributing the distiller's grains. For the three months and nine months ended June 30, 2011, the Company has expensed marketing fees of $134,117 and $377,814, respectively, under this agreement. The company has expensed marketing fees of $70,402 and $218,159 for the three months and nine months ended June 30, 2010, respectively. Revenues with this customer were $7,906,409 and $22,464,052 for the three months and nine months ended June 30, 2011 , respectively. For the three months and nine months ended June 30, 2010, revenues with this customer were $4,832,580 and $14,506,222, respectively. Trade accounts receivable of $1,551,960 was due from the customer as of June 30, 2011.


The Company has an agreement with an unrelated party to provide the coal supply for the ethanol plant. The agreement expires on January 1, 2013. The agreement is subject to a minimum purchase requirement. For the calendar year 2011 and 2012 the estimated purchase commitments total $5,091,200 and $5,171,200, respectively. For the three months and nine months ended June 30, 2011 the company has purchased $1,672,384 and $5,041,505, respectively, of coal under this contract. For the three months and nine months ended June 30, 2010 is $1,371,536 and $4,366,471, respectively.


The Company has entered into a variable contract with a supplier of denaturant. The variable contract is for a minimum purchase of 234,000 gallons at the average of the OPIS Conway In-Well Natural Gasoline High and Low price plus $.1175/usg. The term of the contract is from July 1, 2011 through August 30, 2011. The minimum future purchase commitment is $538,434.


The Company has entered into a fixed contract with a supplier of anhydrous ammonia. The contract is for a minimum purchase of 120 tons at the rate of $700 delivered ton. The term of the contract is from June 22, 2011 through August 10, 2011. The minimum future purchase commitment is $84,000.


On October 15, 2010, the Company entered into an agreement with an unrelated entity to perform the dirt work for the additional rail spur that is going to be added to the Company's existing track. The total future purchase commitment is $635,874.


On June 30, 2011 the Company entered into an agreement with an unrelated entity to perform the rail work for the additional rail spur that is going to be added to the Company's existing track. The total future purchase commitment is $1,611,603.


On June 23, 2011 the Company entered into an purchase and sale agreement with an unrelated party. The agreement is to sell approximately 57.75 acres of the Company's property to the west of the plant for $20,000 per acre. It is anticipated that the closing will occur within 75 days of the date of the agreement.
v2.3.0.11
Risk Management
9 Months Ended
Jun. 30, 2011
Risk Management [Abstract]
Derivative Instruments and Hedging Activities Disclosure
Risk Management


The Company's activities expose it to a variety of market risks, including the effects of changes in commodity prices.  These financial exposures are monitored and managed by the Company as an integral part of its overall risk management program.  The Company's risk management program focuses on the unpredictability of commodity markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.


The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market fluctuations.  The Company's specific goal is to protect the Company from large moves in the commodity costs.


To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange-traded futures and options contracts to minimize its net position of merchandisable agricultural commodity inventories and forward purchases and sales contracts.  Exchange traded futures and options contracts are designated as non-hedge derivatives and are valued at market price with changes in market price recorded in operating income through cost of goods sold for corn derivatives and through revenue for ethanol derivatives. The effects on operating income from derivative activities is as follows:


 
Three Months
 
Three Months
 
Nine Months
 
Nine Months
 
Ended
 
Ended
 
Ended
 
Ended
 
June 30, 2011
 
June 30, 2010
 
June 30, 2011
 
June 30, 2010
 
 
 
 
 
 
 
 
Increase (decrease) in revenue due to derivatives related to ethanol sales:
 
 
 
 
 
 
 
Realized
$
(288,507
)
 
$
501,480


 
$
(953,648
)
 
$
516,600


Unrealized
539,847


 
(508,897
)
 
262,500


 
77,073


Total effect on revenue
251,340


 
(7,417
)
 
(691,148
)
 
593,673


 
 
 
 


 
 
 
 
(Increase) decrease in cost of goods sold due to derivatives related to corn costs:
 
 
 
 
 
 
 
Realized
(1,149,338
)
 
(18,613
)
 
(3,062,963
)
 
(48,388
)
Unrealized
(1,343,663
)
 
59,988


 
(313,250
)
 
25,638


Total effect on cost of goods sold
(2,493,001
)
 
41,375


 
(3,376,213
)
 
(22,750
)
 
 
 
 


 
 
 
 
Total increase (decrease) to operating income due to derivative activities
$
(2,241,661
)
 
$
33,958


 
$
(4,067,361
)
 
$
570,923




Unrealized gains and losses on forward contracts, in which delivery has not occurred, are deemed “normal purchases and normal sales”, and therefore are not marked to market in the Company's financial statements but are subject to a lower of cost or market assessment.
v2.3.0.11
Fair Value Measurements
9 Months Ended
Jun. 30, 2011
Fair Value Measurements [Abstract]
Fair Value Disclosures
Fair Value Measurements


Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market-corroborated, or generally unobservable inputs.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.  The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:


Level 1 -
Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 -
Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3 -
Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
A description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company's financial assets and financial liabilities carried at fair value.
 
Derivative financial instruments:  Commodity futures and exchange-traded commodity options contracts are reported at fair value utilizing Level 1 inputs.  For these contracts, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CME and NYMEX markets.  The fair value measurements consider observable data that may include dealer quotes and live trading levels from the over-the-counter markets. 


The following table summarizes the financial liabilities measured at fair value on a recurring basis as of June 30, 2011 and September 30, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


 
 
June 30, 2011
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Liabilities, derivative financial instruments
 
$
350,750


 
$
350,750


 
$


 
$


 
 
 
 
 
 
 
 
 
 
 
September 30, 2010
 
 
Total


 
Level 1


 
Level 2


 
Level 3


Liabilities, derivative financial instruments
 
$
1,191,867


 
$
1,191,867


 
$


 
$


v2.3.0.11
Contingency
9 Months Ended
Jun. 30, 2011
Contingency [Abstract]
Legal Matters and Contingencies
Contingency


In May 2010, a lawsuit was filed against the Company and approximately 20 other ethanol plants by an unrelated party claiming the Company's operation of the corn oil extraction system is a patent infringement. The plaintiff seeks injunctive relief, an award of damages with interest and any other remedies available under certain patent statutes or otherwise under law.  The Company is currently reviewing the lawsuit with legal counsel.  The Company is unable to determine at this time if the lawsuit will have a material adverse affect on the Company.