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generally less volatile than the futures component of grain market prices, significant unfavorable basis movement on grain
positions as large as ours may significantly impact our profitability.
Our debt level could negatively impact our financial condition, results of operations and business prospects.
As of December 31, 2011, our total debt was $636.8 million. Our level of debt could have significant consequences to
our shareholders, including the following:
requiring the dedication of a substantial portion of cash flow from operations to make payments on debt, thereby
reducing the availability of cash flow for working capital, capital expenditures and other general business activities;
requiring a substantial portion of our corporate cash reserves to be held as a reserve for debt service, limiting our
ability to invest in new growth opportunities;
limiting the ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions
and general corporate and other activities;
limiting the flexibility in planning for, or reacting to, changes in the business and industry in which we operate;
increasing our vulnerability to both general and industry-specific adverse economic conditions;
being at a competitive disadvantage against less leveraged competitors;
being vulnerable to increases in prevailing interest rates;
subjecting all or substantially all of our assets to liens, which means that there may be no assets left for shareholders
in the event of a liquidation; and
limiting our ability to make business and operational decisions regarding our business and subsidiaries, including,
among other things, limiting our subsidiary’s ability to pay dividends, make capital improvements, sell or purchase
assets or engage in transactions deemed appropriate and in our best interest.
Most of our debt bears interest at variable rates, which creates exposure to interest rate risk. If interest rates increase, our
debt service obligations with respect to the variable rate indebtedness would increase even though the amount borrowed
remained the same, and our net income would decrease.
Our ability to make scheduled payments of principal and interest, or to refinance our indebtedness, depends on our future
performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may
not continue to generate cash flow in the future sufficient to service our debt because of factors beyond our control, including
but not limited to the spread between corn prices and ethanol and distillers grains prices. If we are unable to generate
sufficient cash flows, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or
obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness
will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these
activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Despite our current debt levels, we and our subsidiaries may incur substantially more debt or take other actions which would
intensify the risks discussed above.
Despite our current debt levels, we and our subsidiaries may incur additional debt in the future, including secured debt.
We and certain of our subsidiaries are not currently restricted under the terms of our debt from incurring additional debt,
pledging assets, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the debt but
that could diminish our ability to make payments thereunder.
We operate in capital intensive businesses and rely on cash generated from operations and external financing. Limitations on
access to external financing could adversely affect our operating results.
Some ethanol producers have faced financial distress, culminating with bankruptcy filings by several companies over the
past four years. This, in combination with continued volatility in the capital markets has resulted in reduced availability of
capital for the ethanol industry generally. Construction of our plants and anticipated levels of required working capital were
funded under long-term credit facilities. Increases in liquidity requirements could occur due to, for example, increased
commodity prices. Our operating cash flow is dependent on our ability to profitably operate our businesses and overall
commodity market conditions. In addition, we may need to raise additional financing to fund growth of our businesses. In