Note 3 - Investment In Joint Ventures

6 Months Ended

Dec. 31, 2011

Interest in Unincorporated Joint Ventures or Partnerships, Policy [Policy Text Block]

NOTE 3:                       INVESTMENT IN JOINT VENTURES

As of December 31, 2011, the Company’s investments accounted for on the equity method of accounting consist of the following: (1) 50 percent interest in Illinois Corn Processing, LLC (“ICP”), which operates a distillery, and (2) 50 percent interest in D.M. Ingredients, GmbH, (“DMI”), which produces certain specialty starch and protein ingredients.   

On February 1, 2012, Illinois Corn Processing Holdings (“ICP Holdings”), an affiliate of SEACOR Energy, Inc., exercised its option to purchase an additional 20 percent of the membership interest in ICP.  The sales price was $9,103 and was determined in accordance with the LLC Interest Purchase Agreement.  Following its exercise, ICP Holdings owns 70 percent of ICP, is entitled to name 4 of ICP’s 6 advisory board members, and generally has control of ICP’s day to day operations.  Processing owns 30 percent of ICP and is entitled to name 2 of ICP’s 6 advisory board members.   See Note 22. Subsequent Events for further discussion.

Formation of ICP Joint Venture

Processing completed a series of related transactions on November 20, 2009 pursuant to which Processing contributed its Pekin plant and certain maintenance and repair materials to a newly-formed company, ICP, and then sold 50 percent of the membership interest in ICP to ICP Holdings for proceeds of $15,000, less closing costs of $1,049.  ICP reactivated distillery operations at the Pekin facility during the third quarter of fiscal 2010.  Processing purchases food grade alcohol products manufactured by ICP, and SEACOR Energy Inc. purchases fuel grade alcohol products manufactured by ICP.

In connection with these transactions, Processing entered into various agreements with ICP and ICP Holdings, including a Contribution Agreement, an LLC Interest Purchase Agreement, a Limited Liability Company Agreement and a Marketing Agreement. The discussion below details the contractual terms in place as of December 31, 2011 as well as changes that were made in connection with ICP Holdings’ option exercise.

·   Pursuant to the Contribution Agreement, Processing contributed the Pekin plant to ICP at an agreed value of $30,000, consisting of land and fixed assets valued at $29,063 and materials and supply inventory valued at $937.

·   Under the LLC Interest Purchase Agreement, Processing sold ICP Holdings 50 percent of the membership interest in ICP for a purchase price of $15,000.  This agreement gave ICP Holdings the option to purchase up to an additional 20 percent of the membership interest in ICP at any time between the second and fifth anniversary of the closing date for a price determined in accordance with the agreement.  As discussed above, on February 1, 2012, ICP Holdings exercised its option and purchased an additional 20 percent of ICP.  

·   Pursuant to the Limited Liability Company Agreement, each joint venture party initially had 50 percent of the voting and equity interests in ICP.  Control of day to day operations generally is retained by the members, acting by a majority in interest.  Following its exercise of its option referred to above, ICP Holdings owns 70% of ICP and generally is entitled to control its day to day operations. However, if SEACOR Energy were to default under its marketing agreement, referred to below, Processing could assume sole control of ICP's daily operations until the default is cured.

The Limited Liability Company Agreement also provides for the creation of an advisory board consisting of three advisors appointed by Processing and three advisors appointed by ICP Holdings. As a result of its option exercise subsequent to December 31, 2011, this board now consists of two advisors appointed by Processing and four advisors appointed by ICP Holdings.  All actions of the advisory board require majority approval of the entire board, except that any transaction between ICP and ICP Holdings or its affiliates must be approved by the advisors appointed by Processing.

The Limited Liability Company Agreement generally provides for distributions to members to the extent of net cash flow, as defined, to provide for taxes attributable to allocations to them of tax items from ICP.  Any distributions of net cash flow in excess of taxes may be distributed at such time as the Board of Advisors determines; however, ICP’s loan agreements restrict cash dividends except for tax distributions.

The Limited Liability Company Agreement gives either member certain rights to shut down the plant if it operates at a loss.  Such rights are conditional in certain instances but absolute if EBITDA losses aggregate $1,500 over any three consecutive quarters or if ICP's net working capital is less than $2,500.  ICP Holdings also has the right to shut down the plant if ICP is in default under its loan agreement for failure to pay principal or interest for two months.  For the three consecutive quarters ending both September 30, 2011 and June 30, 2011, ICP experienced an EBITDA loss in excess of the $1,500 aggregate loss threshold amount permitted over any three consecutive quarters, however both partners have agreed to waive rights related to EBITDA losses through September 30, 2011.

The Limited Liability Company Agreement contains various buy/sell provisions and restrictions on transfer of membership interests. These include buy/sell provisions relating to a member's entire interest that may be exercised by any member at any time.

·   Under the Marketing Agreement, ICP manufactures and supplies food-grade and industrial-use alcohol products for Processing and Processing purchases, markets and sells such products for a marketing fee.  The Marketing Agreement provides that Processing will share margin realized from the sale of the products under the agreement with ICP.

The Marketing Agreement has an initial term of one year but automatically renews for one year terms thereafter, subject to specified exceptions, including the following:  (i) there is an uncured breach by one of the parties, (ii) Processing gives timely notice of termination, (iii) Processing or an affiliate ceases to be a member of the joint venture, or (iv) the parties are unable to mutually agree to modifications to the Marketing Agreement that are proposed in good faith by one of the parties as necessary or desirable to further the purposes of the parties' respective expectations of economic benefits to be derived under the Marketing Agreement and their interests in ICP.  For six months following expiration or termination of the Marketing Agreement, ICP will provide Processing with reasonable assistance to transition production of the products it makes for the Company to another producer that Processing designates.   SEACOR Energy Inc. has entered into a similar agreement with ICP with respect to the marketing of fuel grade alcohol.

An affiliate (sister company) of SEACOR Energy, Inc. has provided funding to ICP through two loans secured by all of the assets of ICP, including the Pekin Plant. Among other matters, losses or working capital deficiencies that would entitle a member of ICP to shut down the plant are events of default under these loan agreements which, upon any requisite notice and/or lapse of time, would entitle the lender to exercise its remedies, including foreclosing on ICP’s assets and, in the case of the working capital deficiency or successive losses, enforcing the plant closure provisions in the Limited Liability Company Agreement referred to above.  The loans are non-recourse to Processing.  During the transition period ended December 31, 2011, ICP experienced an EBITDA loss in excess of the $500 threshold amount in the quarter ended September 30, 2011.  During fiscal year 2011, ICP experienced EBITDA losses in excess of the $500 threshold amount in the quarters ended December 31, 2010 and June 30, 2011.  An affiliate of SEACOR Energy, Inc. permanently waived rights for covenant violations related to these EBITDA losses through September 30, 2011.

The LLC Agreement permits Processing to pledge its interest in ICP to secure the Company’s obligations under its credit facility with Wells Fargo Bank, National Association, and Processing has done so.

The Contribution Agreement and the LLC Interest Purchase Agreement require Processing to indemnify ICP and ICP Holdings from and against any damages or liabilities arising from a breach of the Company’s representations and warranties in the Contribution Agreement and the LLC Interest Purchase Agreement and also with respect to certain environmental damages or liabilities related to the recommencement of production at the Pekin plant or to operations at the Pekin plant prior to the closing.  The amount of damages, with the exception of taxes and environmental matters, is limited to a maximum of $30,000.

The Company recognized a pre-tax charge of $2,294 related to the completion of these transactions that has been included in the Company’s Consolidated Statements of Operations as Loss on joint venture formation for the year ended June 30, 2010.  The charge consists of $1,245 to adjust the book value of the Pekin plant balance sheet assets contributed to the joint venture to the implied value and $1,049 for professional fees associated with the transaction.

The Company does not have the power to direct or control the activities of ICP that most significantly determine the economic performance of this investment.  These responsibilities have historically been shared equally with the Company’s joint venture partner. In addition, Management has determined that the Company does not have the power to direct the activities of ICP that most significantly impact ICP’s economic performance and accordingly the Company should not consolidate ICP.  The significant judgments and assumptions made by Management in reaching this conclusion include consideration of 1) the economics to the Company and SEACOR Energy, Inc. related to the marketing agreements, 2) the buy-out provisions by Processing and SEACOR Energy, Inc. and 3) the financing provided by SEACOR Energy, Inc.’s affiliate.  The Company has not provided other financial explicit or implicit support to ICP during the six month transition period ended December 31, 2011 and does not intend to provide financial or other support at this time, other than as discussed below.

On January 29, 2010, ICP acquired the steam facility that services the Pekin plant for $5,000, of which approximately $2,000 remains payable at December 31, 2011.  On January 19, 2012, $1,000 was paid, equally by the Company and SEACOR Energy Inc., leaving $1,000 payable.  The Company’s portion of the remaining commitment plus the Company’s investment balance is the maximum exposure to losses.  A reconciliation from the Company’s investment in ICP to the entity’s maximum exposure to loss is as follows:

	December 31, 2011		June 30, 2011		June 30, 2010
Company’s investment balance in ICP	$	11,777	$	12,233	$	13,974
Plus:
Funding commitment for capital improvements		1,000		1,000		1,500
The Company’s maximum exposure to loss related to ICP	$	12,777	$	13,233	$	15,474

Related Party Transactions

See Note 17. Related Party Transactions for discussion related to related party transactions with ICP.

Summary Financial Information

Condensed financial information of the Company’s non-consolidated equity method investment in ICP is shown below.  Fiscal 2010 operating results include ICP’s results for the period from inception (November 21, 2009) to June 30, 2010.

	Six Months Ended December 31, 2011			Year Ended June 30, 2011			Inception to June 30, 2010
ICP’s Operating results:
Net sales (a)	$	131,181		$	193,825		$	36,092
Cost of sales and expenses (b)		(132,421	)		(196,964	)		(40,144	)
Net loss	$	(1,240	)	$	(3,139	)	$	(4,052	)

	December 31, 2011		June 30, 2011		June 30, 2010
ICP’s Balance Sheet:
Current assets	$	30,483	$	30,729	$	20,567
Noncurrent assets		24,769		27,474		30,898
Total assets	$	55,252	$	58,203	$	51,465
Current liabilities	$	12,769	$	7,105	$	12,729
Noncurrent liabilities		18,929		25,602		10,788
Equity		23,554		25,496		27,948
Total liabilities and equity	$	55,252	$	58,203	$	51,465

(a)   Includes related party sales of $40,159 for the six month transition period ended December 31, 2011, $57,482 for the year ended June 30, 2011 and $17,342 for the period from inception to June 30, 2010, respectively.

(b)   Includes depreciation and amortization of $2,709 for the six month transition period ended December 31, 2011, $5,103 for the year ended June 30, 2011 and $2,958 for the period from inception to June 30, 2010.

The Company’s equity in earnings (loss) of joint ventures is as follows:

	Six Months Ended December 31, 2011			Year Ended June 30,
				2011			2010			2009
ICP (50% interest)	$	(620	)	$	(1,570	)	$	(2,026	)	$	n/a
DMI (50% interest)		69			30			(147	)		(114	)
	$	(551	)	$	(1,540	)	$	(2,173	)	$	(114	)

The Company’s investment in the non-consolidated subsidiary is as follows:

	December 31, 2011		June 30, 2011		June 30, 2010
ICP (50% interest)	$	11,777	$	12,233	$	13,974
DMI (50% interest)		370		342		292
	$	12,147	$	12,575	$	14,266