v2.4.0.6
Document and Entity Information
6 Months Ended
Mar. 31, 2012
May 01, 2012
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 Mar. 31, 2012  
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   42,049
v2.4.0.6
Balance Sheets Statement (USD $)
Mar. 31, 2012
Sep. 30, 2011
CURRENT ASSETS    
Cash and cash equivalents $ 1,606,156 $ 34,135
Due from broker 32,666 227,670
Derivative financial instruments (Note 8) 30,008 292,375
Trade and other accounts receivable (Note 6) 6,620,149 8,041,523
Inventories (Note 3) 8,240,416 6,350,544
Prepaid expenses and other 292,693 328,881
Total current assets 16,822,088 15,275,128
PROPERTY AND EQUIPMENT    
Land and land improvements 6,949,062 7,633,650
Buildings and improvements 1,604,305 1,604,305
Plant and process equipment 79,479,786 76,014,786
Office furniture and equipment 409,485 407,725
Construction in progress 81,875 2,562,694
Property, Plant and Equipment, Gross 88,524,513 88,223,160
Accumulated depreciation (47,404,172) (43,529,798)
Property, Plant and Equipment, Net 41,120,341 44,693,362
OTHER ASSETS    
Restricted cash 351,000 351,000
Financing costs, net of amortization of $279,557 and $252,070 192,405 219,891
Deposit 298,350 476,437
Investments 190,488 182,970
Other Assets, Noncurrent 1,032,243 1,230,298
Assets 58,974,672 61,198,788
CURRENT LIABILITIES    
Accounts payable 1,202,536 1,359,836
Accounts payable, related party (Note 5) 944,016 1,179,981
Current maturities of long-term debt (Note 4) 1,550,436 1,452,409
Accrued expenses 1,730,300 879,232
Total current liabilities 5,427,288 4,871,458
NONCURRENT LIABILITIES    
Long-term debt, less current maturities (Note 4) 212,671 2,738,021
Other 450,000 450,000
Total noncurrent liabilities 662,671 3,188,021
COMMITMENTS AND CONTINGENCY (Notes 6 and 9) 0 0
MEMBERS' EQUITY    
Member contributions, 42,049 units issued and outstanding 38,990,105 38,990,105
Retained Earnings 13,894,608 14,149,204
Members' Equity 52,884,713 53,139,309
Liabilities and Equity $ 58,974,672 $ 61,198,788
v2.4.0.6
Balance Sheets Parenthetical Statement (USD $)
6 Months Ended 12 Months Ended
Mar. 31, 2012
Sep. 30, 2011
OTHER ASSETS    
Financing costs, net of amortization of $ 279,557 $ 252,070
MEMBER'S EQUITY    
Units issued and outstanding 42,049 42,049
v2.4.0.6
Statements of Operations Statement (USD $)
3 Months Ended 6 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Mar. 31, 2012
Mar. 31, 2011
Revenues (Notes 2 and 6) $ 42,079,889 $ 45,570,522 $ 85,341,365 $ 79,407,123
Cost of goods sold 43,033,139 42,581,533 83,565,094 75,996,577
Gross profit (loss) (953,250) 2,988,989 1,776,271 3,410,546
General and administrative expenses 727,450 648,483 1,400,592 1,323,324
(Gain) on sale of property (Note10)     (496,098) 0
Operating income (loss) (1,680,700) 2,340,506 871,777 2,087,222
Other income (expense):        
Interest income 2,038 2,020 4,287 4,305
Interest expense (30,947) (130,168) (79,435) (310,653)
Other nonoperating income and expense (28,909) (128,148) (75,148) (306,348)
Net income (loss) $ (1,709,609) $ 2,212,358 $ 796,629 $ 1,780,874
Weighted average units outstanding 42,049 42,049 42,049 42,049
Net income (loss) per unit - basic and diluted $ (40.66) $ 52.61 $ 18.95 $ 42.35
v2.4.0.6
Statement of Cash Flows Statement (USD $)
6 Months Ended
Mar. 31, 2012
Mar. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 796,629 $ 1,780,874
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 3,906,716 4,228,418
(Gain) loss on sale or disposal of property (496,098) 42,550
Changes in working capital components:    
Due from broker 195,004 995,547
Trade and other accounts receivable 1,421,374 (2,438,009)
Inventories (1,889,872) (730,928)
Prepaid expenses and other 36,188 33,825
Deposits 178,087 0
Accounts payable (157,300) (467,621)
Accounts payable, related party (235,965) 540,307
Accrued expenses (200,157) 4,432
Derivative financial instruments 262,367 (1,639,933)
Net cash provided by operating activities 3,816,973 2,349,462
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchase of property and equipment (991,111) (915,046)
Proceeds from sale of property 1,181,000 0
Purchase of investments (7,518) (12,877)
Net cash provided by (used in) investing activities 182,371 (927,923)
CASH FLOWS FROM FINANCING ACTIVITIES    
Payments on long-term borrowings (2,427,323) (39,309)
Net cash (used in) financing activities (2,427,323) (39,309)
Net increase in cash and cash equivalents 1,572,021 1,382,230
CASH AND CASH EQUIVALENTS    
Beginning 34,135 2,858,110
Ending 1,606,156 4,240,340
SUPPLEMENTAL DISCLOSURE OF CASH FLOW    
INFORMATION, cash paid for interest net of amount capitalized 106,008 333,686
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES    
Construction in progress included in accounts payable 0 60,823
Distributions included in accrued expenses $ 1,051,225 $ 0
v2.4.0.6
Nature of Business and Significant Accounting Policies
6 Months Ended
Mar. 31, 2012
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, 2011 was derived from the Company's audited balance sheet as of that date.  The accompanying financial statements as of and for the three and six months ended March 31, 2012 and 2011 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, 2011 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.
v2.4.0.6
Revenue by product
6 Months Ended
Mar. 31, 2012
Revenue by product [Abstract]  
Revenue by product
Revenue

Components of revenue are as follows:

(Excludes hedging activity)
 
Three Months
 
Three Months
 
Six months
 
Six months
 
 
 Ended
 
 Ended
 
Ended
 
Ended
(In thousands)
 
March 31, 2012
 
March 31, 2011
 
March 31, 2012
 
March 31, 2011
Ethanol
 
$
31,428

 
$
36,454

 
$
65,141

 
$
64,436

Distillers' Grains
 
9,713

 
8,170

 
17,851

 
14,558

Other
 
976

 
918

 
2,386

 
1,356

v2.4.0.6
Inventories
6 Months Ended
Mar. 31, 2012
Inventories [Abstract]  
Inventory Disclosure
Inventories

Inventories consist of the following as of:
 
March 31,
2012
 
September 30,
2011
 
 
 
 
Raw materials, including corn, coal, chemicals and supplies
$
3,814,258

 
$
3,956,604

Work in process
1,191,087

 
1,303,654

Ethanol and distillers grains
3,235,071

 
1,090,286

Total
$
8,240,416

 
$
6,350,544

v2.4.0.6
Long-Term Debt
6 Months Ended
Mar. 31, 2012
Long-term Debt, Unclassified [Abstract]  
Debt Disclosure
Long-Term Debt

Long-term debt consists of the following as of:

 
March 31,
2012
 
September 30,
2011
 
 
 
 
Construction term loan. (A)
$
1,500,000

 
$
1,500,000

 
 

 
 

Construction/revolving term loan. (B)

 
1,000,000

 
 

 
 

Note payable to contractor (C)

 
1,250,000

 
 

 
 

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

 
152,500

 
 

 
 

Note payable to Iowa Department of Transportation. (E)
263,107

 
287,930

 
 
 
 

 
1,763,107

 
4,190,430

Less current maturities
(1,550,436
)
 
(1,452,409
)
 
$
212,671

 
$
2,738,021

 
 
 
 
(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.  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 March 31, 2012, the Company has made principal payments of $37,500,000, 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 2012.

(B)
The Company has a $10,000,000 construction/revolving term credit facility with a financial institution which expires on September 1, 2015.  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.  Borrowings under this agreement are collateralized by substantially all of the Company's assets.  There was no balance outstanding as of March 31, 2012.

(C)
The Company had a $1,125,000 subordinated note payable dated May 22, 2006 to an unrelated third party. The note payable was paid in full during the quarter ended December 31, 2011.

(D)
The Company also had a $300,000 loan agreement with the Iowa Department of Economic Development (IDED).  The $300,000 loan was noninterest-bearing and due in monthly payments of $2,500 beginning December 2006 and a final payment of $152,500 due November 2011.  Borrowings under this agreement were 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 (B). On October 5, 2011 the final payment of $152,500 was made by the Company.

(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 financial institution debt and construction and revolving loan/credit agreements included in (A) and (B).
v2.4.0.6
Related-Party Transactions
6 Months Ended
Mar. 31, 2012
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure
Related-Party Transactions

The Company entered into an agreement on January 24, 2006 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 agreement may be terminated before the end of the term by providing six months' notice of termination and paying the other party $2,000,000, reduced by $50,000 for each completed year of the agreement.  The Company purchased corn totaling $34,667,303 and $64,458,716 for the three months and six months ended March 31, 2012.  There were corn purchases of $32,477,180 and $55,729,082 for the three months and six months ended March 31, 2011. As of March 31, 2012, the Company had several basis contracts with Key representing approximately 3,442,000 bushels of corn.  The contracts mature on various dates through July 2012.  The Company also has made some miscellaneous purchases from Key (storage fees, fuel, and propane costs) amounting to $14,128 and $44,197 for the three months and six months ended March 31, 2012 , respectively.  There were miscellaneous purchases of $18,333 and $34,475 for the three months and six months ended March 31, 2011. As of March 31, 2012 the amount due to Key is $943,338.

On April 10, 2012, the Company delivered notice to Key to terminate the Amended and Restated Grain Handling Agreement they hold with Key. The termination of the agreement will be six months from the date of the notice, effective October 10, 2012. The Company will begin to originate corn in house at the time of the termination. The Company expects to incur a termination cost as required under the agreement, which will be expensed in the fiscal 2012 third quarter and is payable over a four year period with interest at the prime rate on the date of termination.

The Company is also purchasing propane from Innovative Ag Services, formerly, Prairie Land Cooperative, a member of the Company.  Total purchases for the three months and six months ended March 31, 2012 is $1,633 and $16,520, respectively. Total purchases for the three months and six months ended March 31, 2011 is $1,859 and $14,422, respectively.  As of March 31, 2012 there is $678 due to Innovative Ag Services.
v2.4.0.6
Commitments and Major Customer
6 Months Ended
Mar. 31, 2012
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 six months ended March 31, 2012 the Company has expensed $181,836 and $352,219, respectively, under this agreement for marketing fees. For the three and six months ended March 31, 2011 the Company has expensed $195,461 and $358,771, respectively. Revenues with this customer were $31,427,345 and $65,140,803 for the three and six months ended March 31, 2012 , respectively. For the three and six months ended March 31, 2011, revenues with this customer were $36,454,373 and $64,436,018, respectively. Trade accounts receivable of $4,596,093 was due from the customer as of March 31, 2012.

The Company has an agreement with an unrelated entity for marketing, selling and distributing the distiller's grains. For the three months and six months ended March 31, 2012, the Company has expensed marketing fees of $161,596 and $299,884, respectively, under this agreement. The company has expensed marketing fees of $142,977 and $243,697 for the three months and six months ended March 31, 2011, respectively. Revenues with this customer were $9,712,956 and $17,851,289 for the three months and six months ended March 31, 2012 , respectively. For the three months and six months ended March 31, 2011, revenues with this customer were $8,170,072 and $14,557,643, respectively. Trade accounts receivable of $1,377,020 was due from the customer as of March 31, 2012.

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 2012 the estimated purchase commitments totals $5,930,400, respectively. For the three months and six months ended March 31, 2012 the company has purchased $2,001,518 and $3,746,023, respectively, of coal under this contract. For the three months and six months ended March 31, 2011 is $1,800,956 and $3,369,122, respectively.

The Company has entered into a variable contract with a supplier of denaturant. The variable contract is for a minimum purchase of 648,000 gallons at the average of the OPIS Conway In-Well Natural Gasoline High and Low price plus $.1925/usg. The term of the contract is from January 1, 2012 through June 30, 2012. The minimum future purchase commitment is $837,555.

The Company has entered into a fixed contract with a supplier of anhydrous ammonia. The contract is for a minimum purchase of 315 tons at the rate of $585 delivered ton. The term of the contract is from February 20, 2012 through May 31, 2012. The minimum future purchase commitment is $115,853.
v2.4.0.6
Risk Management
6 Months Ended
Mar. 31, 2012
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
 
Six Months
 
Six Months
 
Ended
 
Ended
 
Ended
 
Ended
 
March 31, 2012
 
March 31, 2011
 
March 31, 2012
 
March 31, 2011
 
 
 
 
 
 
 
 
Increase (decrease) in revenue due to derivatives related to ethanol sales:
 
 
 
 
 
 
 
Realized
$

 
$
271,161

 
$

 
$
(665,141
)
Unrealized
(36,842
)
 
(243,364
)
 
(36,842
)
 
(277,347
)
Total effect on revenue
(36,842
)
 
27,797

 
(36,842
)
 
(942,488
)
 
 
 
 

 
 
 
 
(Increase) decrease in cost of goods sold due to derivatives related to corn costs:
 
 
 
 
 
 
 
Realized
164,650

 
863,338

 
244,213

 
(1,913,625
)
Unrealized
475,000

 
(24,162
)
 
66,850

 
1,030,413

Total effect on cost of goods sold
639,650

 
839,176

 
311,063

 
(883,212
)
 
 
 
 

 
 
 
 
Total increase (decrease) to operating income due to derivative activities
$
602,808

 
$
866,973

 
$
274,221

 
$
(1,825,700
)

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.
v2.4.0.6
Fair Value Measurements
6 Months Ended
Mar. 31, 2012
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 March 31, 2012 and September 30, 2011, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 
 
March 31, 2012
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets, derivative financial instruments
 
$
30,008

 
$
30,008

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
September 30, 2011
 
 
Total

 
Level 1

 
Level 2

 
Level 3

Assets, derivative financial instruments
 
$
292,375

 
$
292,375

 
$

 
$

v2.4.0.6
Contingency
6 Months Ended
Mar. 31, 2012
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 defending 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.
v2.4.0.6
Sale of Property
6 Months Ended
Mar. 31, 2012
Sale of Property [Abstract]  
Sale of Property [Text Block]
Sale of Property

On October 5, 2011, the Company completed the sale of a land parcel adjacent to its primary site for a sales price of $1,181,000. A gain of $496,098 was recognized for the sale of the property for the six months ending March 31, 2012.