Ethanol plant lost $21.5 million in 2009

Operating losses increased nearly 150 percent in 2009 for Otter Tail Ag Enterprises, the operator of a Fergus Falls-based ethanol plant.

Otter Tail Ag posted an operating loss of $21.5 million according to its annual report, filed Dec. 31, 2009 with the Security and Exchange Commission.

The company had revenues of $95.95 million in 2009 compared to revenue of $70.09 million in 2008. But a cost of sales of $96.68 million, plant equipment valued at $12.5 million, operating expenses of $2.25 million resulted in an operating loss of $15.46 million. Add additional expenses of $6.05 million and Otter Tail Ag’s net loss hit more than $21.5 million.

What’s that mean to shareholders of the ethanol production company?

A second consecutive year of million-dollar losses — and a loss of 90 cents per share during the 2009 fiscal year ending Sept. 30, 2009.

Losses were up 150 per cent from the year-earlier period, when the company reported a net loss of USD 8.5 million, or .36 per share.

The financial report casts doubt on the future of the ethanol plant.

Financial challenges are such that Otter Tail Ag’s own accounting firm has expressed doubt about the company’s ability to continue operating. As a matter of fact, the company’s existing working capital is not sufficient to meet the cash requirements to fund operations, capital expenditures and working capital through the end of its current fiscal year, which ends Sept. 30, 2010, the report states.

The plant commenced ethanol production in March 2008 and two months later turned a profit in May 2008, as well as June and July of 2008. Soaring corn prices in the summer of 2008 were at the root of some of Otter Tail Ag’s problems.

“However, since that time we have not been profitable and we may not be able to achieve profitability in the near future or at all,” company officials state in the report.

The fact that the company has lost millions of dollars over the past 16 months played a role in an Oct. 30, 2009 bankruptcy filing. The bankruptcy filing came after Otter Tail Ag reached a negotiated agreement with its senior lenders that allowed day-to-day operations of the plant to continue and set in motion efforts to present a reorganization plan to the bankruptcy court.

The losses are also a concern as the company sets out in the coming weeks to attract new investors and addition investments from the initial shareholders who have lost nearly all their investments in the company.

To date, Otter Tail Enterprises does not have a reorganization plan in place. The company acknowledges in its annual report that there is no guarantee that when a plan is presented that it will be accepted by the court.

“A major component of this plan will be the restructuring of our indebtedness as well as raising a minimum of $10 million of additional equity,” company officials state. “But there can be no assurance that we will be able to obtain any sources of funding on acceptable terms, or at all.”

That has created concerns for the company, which states in its annual report, “We cannot be certain that cash on hand, together from operations, will by itself be sufficient to meet our cash and liquidity needs. If we are unable to generate enough cash to meet our liquidity needs, we could be forced to discontinue some or all of our operations.”

Otter Tail Ag’s 2009 annual report suggests that all concerns at the ethanol plant do not revolve around finances.

First, there is no succession plan at Otter Tail if Chief Executive Officer Anthony Hicks (who also serves as the financial officer) were to leave the company. There are currently no successors who could implement the business and restructuring plans of Otter Tail Ag, the report states.

Additionally, Hicks nor any of the company Board of Governors have the experience in financial accounting and preparation of reports required by the SEC. A lack of diversification is also hurting Otter Tail Ag due to the fact that the company’s business consists solely of the production and sale of ethanol and distillers grains.

Otter Tail Ag Enterprises manufactures ethanol and in 2009 sold a near-capacity 55 million gallons of the fuel. By-products included 135,500 tons of dried distillers grains and 65,500 tons of distillers grains.

The plant plays an important role in the Fergus Falls region.

There are 33 people currently employed at the plant — five in management and administration and 28 in general plant operations.

The plant purchases all of its corn from local farmers through a contract with New Horizons Ag Services, also known as CHS. In fiscal year 2009 approximately 20 million bushels of corn were purchased by Otter Tail Ag to produce 55 million gallons of ethanol.

source: fergusfallsjournal