##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM                      TO
 COMMISSION FILE NUMBER: 000-52033
 RED TRAIL ENERGY, LLC
  NORTH DAKOTA
(State or other jurisdiction 
of incorporation or organization)
    
    76-0742311
(IRS Employer
Identification No.)
 
 
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




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##### 



PagePART I  FINANCIAL INFORMATION
    
    1Item 1. Condensed Financial Statements (Unaudited)
    
    1Condensed Balance Sheets
    
    1Condensed Statements of Operations
    
    2Condensed Statements of Cash Flows
    
    3Notes to Unaudited Condensed Financial Statements
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Disclosure Regarding Forward-Looking Statements
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    26Item 4. Controls and Procedures
    
    28PART II  OTHER INFORMATION
    
    29Item 1. Legal Proceedings
    
    29Item 1A. Risk Factors
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    30Item 3. Defaults Upon Senior Securities
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    30Item 5. Other Information
    
    30Item 6. Exhibits
    
    31SIGNATURES
    
    32Exhibit Index
    
    3310.1   Renewal of $3.5 million Revolving Promissory Note10.2   Fifth Amendment to Construction Loan Agreement31.1   302 Certification of Chief Executive Officer31.2   302 Certification of Chief Financial Officer32.1   Section 906 Certification32.2   Section 906 Certification




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  
 RED TRAIL ENERGY, LLC
 September 30, 2008(Unaudited)
    
    
    December 31, 2007ASSETSCurrent AssetsCash and equivalents
    
    $
    10,409,198
    
    
    $
    8,231,709Accounts receivable
    
    
    2,557,141
    
    
    
    5,960,041Corn and ethanol derivative instruments, at fair value
    
    
    47,603
    
    
    
    3,190,790Inventory
    
    
    6,166,520
    
    
    
    8,297,356Prepaid expenses
    
    
    79,133
    
    
    
    53,411Total current assets
    
    
    19,259,595
    
    
    
    25,733,307Property, Plant and EquipmentLand
    
    
    351,280
    
    
    
    300,602Plant and equipment
    
    
    80,262,010
    
    
    
    78,139,237Land Improvements
    
    
    3,939,294
    
    
    
    3,918,766Buildings
    
    
    5,312,995
    
    
    
    5,312,995Construction in progress
    
    
    3,039
    
    
    
    89,868,618
    
    
    
    87,671,600Less accumulated depreciation
    
    
    10,040,971
    
    
    
    5,729,058Net property and equipment
    
    
    79,827,647
    
    
    
    81,942,542Other AssetsDebt issuance costs, net of amortization
    
    
    617,637
    
    
    
    768,405Investment in RPMG
    
    
    605,000
    
    
    
    Patronage equity
    
    
    116,296
    
    
    
    Deposits
    
    
    80,000
    
    
    
    80,000Total other Assets
    
    
    1,418,933
    
    
    
    848,405Total Assets
    
    $
    100,506,175
    
    
    $
    108,524,254LIABILITIES AND MEMBERS EQUITYCurrent LiabilitiesCurrent maturities of long-term debt
    
    $
    5,319,831
    
    
    $
    6,578,004Accounts payable
    
    
    6,187,667
    
    
    
    6,682,330Accrued expenses
    
    
    2,066,204
    
    
    
    2,502,936Accrued loss on firm purchase commitments
    
    
    3,140,000
    
    
    
    Interest rate swap, at fair value
    
    
    1,319,739
    
    
    
    1,044,191Total current liabilities
    
    
    18,033,441
    
    
    
    16,807,461Other LiabilitiesContracts payable
    
    
    275,000
    
    
    
    275,000Long-Term Debt
    
    
    39,023,895
    
    
    
    52,538,310Commitments and ContingenciesMembers Equity
    
    
    43,173,839
    
    
    
    38,903,483Total Liabilities and Members Equity
    
    $
    100,506,175
    
    
    $
    108,524,254
  1




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RED TRAIL ENERGY, LLC
 Quarter Ended
    
    
    Quarter Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)RevenuesEthanol, net of
derivative fair value
changes
    
    $
    30,314,248
    
    
    $
    24,327,857
    
    
    $
    89,483,214
    
    
    $
    68,673,065Distillers grains
    
    
    5,733,213
    
    
    
    3,001,522
    
    
    
    15,676,567
    
    
    
    7,839,118Total Revenue
    
    
    36,047,461
    
    
    
    27,329,379
    
    
    
    105,159,781
    
    
    
    76,512,183Cost of Goods SoldCost of goods sold, net of
derivative fair value
changes and effects of
firm purchase
commitments
    
    
    37,206,054
    
    
    
    23,295,497
    
    
    
    92,501,261
    
    
    
    61,449,700Depreciation
    
    
    1,438,264
    
    
    
    1,408,299
    
    
    
    4,270,804
    
    
    
    4,234,860Total Cost of Goods Sold
    
    
    38,644,318
    
    
    
    24,703,796
    
    
    
    96,772,065
    
    
    
    65,684,560Gross Margin (Deficit)
    
    
    (2,596,857
    )
    
    
    2,625,583
    
    
    
    8,387,716
    
    
    
    10,827,623General and Administrative
    
    
    666,866
    
    
    
    568,223
    
    
    
    2,332,795
    
    
    
    2,297,129Operating Income (Loss)
    
    
    (3,263,723
    )
    
    
    2,057,360
    
    
    
    6,054,921
    
    
    
    8,530,494Interest Expense
    
    
    1,116,343
    
    
    
    2,087,460
    
    
    
    3,493,487
    
    
    
    4,220,487Other income, net
    
    
    835,179
    
    
    
    262,979
    
    
    
    1,693,922
    
    
    
    298,860Net Income (Loss)
    
    $
    (3,544,887
    )
    
    $
    232,879
    
    
    $
    4,255,356
    
    
    $
    4,608,867Wtd Avg Units Outstanding   Basic
    
    
    40,187,995
    
    
    
    40,373,973
    
    
    
    40,178,681
    
    
    
    40,373,973Net Income (Loss) Per Unit   Basic
    
    $
    (0.09
    )
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    0.11Wtd Avg Units Outstanding   Diluted
    
    
    40,187,995
    
    
    
    40,413,973
    
    
    
    40,223,681
    
    
    
    40,413,973Net Income (Loss) Per Unit   Diluted
    
    $
    (0.09
    )
    
    $
    0.01
    
    
    $
    0.11
    
    
    $
    0.11
  2




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RED TRAIL ENERGY, LLC
 Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007(Unaudited)
    
    
    (Unaudited)Cash Flows from Operating ActivitiesNet income
    
    $
    4,255,356
    
    
    $
    4,608,867Adjustment to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    4,311,913
    
    
    
    4,279,338Amortization of debt financing costs
    
    
    150,768
    
    
    
    158,660Change in fair value of derivative instruments
    
    
    3,143,187
    
    
    
    312,699Change in fair value of interest rate swap
    
    
    9,703
    
    
    
    192,454Equity-based compensation
    
    
    15,000
    
    
    
    15,000Noncash patronage equity
    
    
    (116,296
    )
    
    
    Grant income applied to long-term debt
    
    
    (59,874
    )
    
    
    Unrealized loss on firm purchase commitments
    
    
    3,140,000
    
    
    
    Changes in assets and liabilitiesAccounts receivable
    
    
    3,402,900
    
    
    
    (3,463,464
    )Inventory
    
    
    2,130,836
    
    
    
    979,547Prepaid expenses
    
    
    (25,722
    )
    
    
    (29,255
    )Accounts payable
    
    
    (975,575
    )
    
    
    1,133,302Accrued expenses
    
    
    (436,732
    )
    
    
    (53,248
    )Cash settlements on interest rate swap
    
    
    265,845
    
    
    
    Net cash provided by operating activities
    
    
    19,211,309
    
    
    
    8,133,900Cash Flows from Investing ActivitiesInvestment in RPMG
    
    
    (354,087
    )
    
    
    Capital expenditures
    
    
    (1,967,019
    )
    
    
    (3,971,532
    )Net cash used in investing activities
    
    
    (2,321,106
    )
    
    
    (3,971,532
    )Cash Flows from Financing ActivitiesDebt repayments
    
    
    (17,873,214
    )
    
    
    (945,396
    )Proceeds from long-term debt
    
    
    3,160,500
    
    
    
    11,154,049Net cash provided by (used in) financing activities
    
    
    (14,712,714
    )
    
    
    10,208,653Net Increase in Cash and Equivalents
    
    
    2,177,489
    
    
    
    14,371,021Cash and Equivalents  Beginning of Period
    
    
    8,231,709
    
    
    
    421,722Cash and Eqivalents  End of Period
    
    $
    10,409,198
    
    
    $
    14,792,743Supplemental Disclosure of Cash Flow InformationInterest paid
    
    $
    3,252,713
    
    
    $
    2,779,961SUPPLEMENT DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIESCapital expenditures included in accounts payable
    
    $
    230,000
    
    
    $
    3,938,670Investment in RPMG expenditures included in accounts payable
    
    $
    250,913
    
    
    $
    
  3




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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Fiscal Reporting Period
  Accounting Estimates
  Reclassifications
  Cash and equivalents
   Accounts Receivable and Concentration of Credit Risk
  4




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Revenue Recognition
   Debt Issuance Costs
  Grants
   5




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Earnings (Loss) Per Unit
  Environmental Liabilities
  Recently Issued Accounting Pronouncements
    2. NATURE OF CURRENT OPERATIONS
  6




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3. CONCENTRATIONS
  4. DERIVATIVE INSTRUMENTS
   7




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5. INVENTORY
  Inventory balances at:
    
    September 30, 2008
    
    
    December 31, 2007Raw materials, including corn,
chemicals and supplies
    
    $
    4,421,270
    
    
    $
    5,576,077Work in process
    
    
    1,066,425
    
    
    
    902,560Finished goods, including
ethanol and distillers grains
    
    
    678,825
    
    
    
    1,818,719Total Inventory
    
    $
    6,166,520
    
    
    $
    8,297,356
 6. BANK FINANCING
  As of
    
    September 30, 2008
    
    
    December 31, 2007Notes under loan agreement payable to bank, see details below
    
    $
    38,703,780
    
    
    $
    53,437,367Subordinated notes payable, see details below
    
    
    5,525,000
    
    
    
    5,525,000Capital lease obligations (Note 8)
    
    
    114,946
    
    
    
    153,947Total Long-Term Debt
    
    
    44,343,726
    
    
    
    59,116,314Less amounts due within one year
    
    
    5,319,831
    
    
    
    6,578,004Total Long-Term Debt Less Amounts Due Within One Year
    
    $
    39,023,895
    
    
    $
    52,538,310
  Estimated maturities for the twelve months ended September 302009
    
    $
    5,319,8312010
    
    
    4,912,4192011
    
    
    3,404,4982012
    
    
    30,685,3532013
    
    
    21,625Thereafter
    
    
    Total
    
    $
    44,343,726
  Construction Loan
  Fixed Rate Note
  8




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Variable Rate Note
  Long-Term Revolving Note
  December 2007 Fixed Rate Note
   Revolving Line of Credit
  Interest Rate Swap Agreements
   Letters of Credit
  Subordinated Debt
  9




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7. FAIR VALUE MEASUREMENTS
     Carrying Amount as of
    
    Fair Value as of
    
    Fair Value Measurement UsingSeptember 30, 2008
    
    September 30, 2008
    
    Level 1
    
    Level 2
    
    Level 3Money market funds
    
    $
    5,917,016
    
    
    $
    5,917,016
    
    
    $
    5,917,016
    
    
    $
    
    
    
    $
    Corn and ethanol
related derivative
instruments
    
    $
    47,603
    
    
    $
    47,603
    
    
    $
    47,603
    
    
    $
    
    
    
    $
    Interest rate swap
liability
    
    $
    1,319,739
    
    
    $
    1,319,739
    
    
    $
    
    
    
    $
    1,319,739
    
    
    $
    
  8. LEASES
  10




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September 30, 2008
    
    
    December 31, 2007Equipment
    
    $
    216,745
    
    
    $
    216,745Accumulated amortization
    
    
    40,321
    
    
    
    23,296Net equipment under capital lease
    
    $
    176,424
    
    
    $
    193,449
  Operating Leases
    
    
    Capital Leases2009
    
    $
    489,660
    
    
    $
    61,7012010
    
    
    489,660
    
    
    
    59,5052011
    
    
    481,710
    
    
    
    2,5552012
    
    
    423,310
    
    
    
    2013
    
    
    138,800
    
    
    
    Total minimum lease commitments
    
    $
    2,023,140
    
    
    
    123,761Less amount representing interest
    
    
    
    
    
    
    8,815Present value of minimum lease
commitments included in the preceding
long-term liabilities
    
    
    
    
    
    $
    114,946
 9. MEMBERS EQUITY
  10. EQUITY-BASED COMPENSATION
 2006 Equity-Based Incentive Plan
  11. COMMITMENTS AND CONTINGENCIES
 Design-Build Agreement
  11




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Marketing Agreements
   Leases
  Coal Transloading Facility
  Firm Purchase Commitments for Corn
  12. RELATED-PARTY TRANSACTIONS
  12




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September 30, 2008
    
    December 31, 2007Balance SheetAccounts receivable
    
    
    
    
    
    
    
    
    
    $
    1,768,080
    
    
    $
    2,757,476Accounts payable
    
    
    
    
    
    
    
    
    
    
    1,075,898
    
    
    
    2,088,561Notes payable
    
    
    
    
    
    
    
    
    
    
    1,525,000
    
    
    
    1,525,000
 For the three
    
    
    For the three
    
    
    For the nine
    
    
    For the ninemonths ended
    
    
    months ended
    
    
    months ended
    
    
    months endedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007Statement of OperationsRevenues
    
    $
    28,310,003
    
    
    $
    23,050,828
    
    
    $
    93,056,622
    
    
    $
    68,672,965Cost of goods sold
    
    
    708,659
    
    
    
    518,890
    
    
    
    2,057,626
    
    
    
    2,150,169General and
administrative
    
    
    170,988
    
    
    
    204,662
    
    
    
    948,728
    
    
    
    632,040Inventory Purchases
    
    $
    5,958,496
    
    
    $
    1,039,632
    
    
    $
    8,652,958
    
    
    $
    3,183,489
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
   13




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
    
    Projected growth, overcapacity or contraction in the ethanol market in which we operate;
    
    Fluctuations in the price and market for ethanol and DDGs;
    
    Changes in Plant production capacity, variations in actual ethanol and
distillers grains production from expectations or technical
difficulties in operating the Plant;
    
    Availability and costs of products and raw materials, particularly corn and coal;
    
    Changes in our business strategy, capital improvements or development
plans for expanding, maintaining or contracting our presence in the
market in which we operate;
    
    Costs of equipment;
    
    Changes in interest rates and the availability of credit to support
capital improvements, development, expansion and operations;
    
    Our ability to market and our reliance on third parties to market our products;
    
    Our ability to distinguish ourselves from our current and future competition;
    
    Changes to infrastructure, including:
 
    
    expansion of rail capacity;
    
    possible future use of ethanol dedicated pipelines for transportation;
    
    increases in truck fleets capable of transporting ethanol within localized markets;
    
    additional storage facilities for ethanol, expansion of refining and blending facilities to handle ethanol;
    
    growth in service stations equipped to handle ethanol fuels; and
    
    growth in the fleet of flexible fuel vehicles capable of using E85 fuel;
 
    
    Changes in or elimination of governmental laws, tariffs, trade or
other controls or enforcement practices such as:
 
    
    national, state or local energy policy;
    
    federal ethanol tax incentives;
    
    legislation mandating the use of ethanol or other oxygenate additives;
 14




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
    
    state and federal regulation restricting or banning the use of MTBE;
    
    environmental laws and regulations, specifically carbon regulation,
that apply to our plant operations and their enforcement; or
    
    reduction or elimination of tariffs on foreign ethanol.
 
    
    Increased competition in the ethanol and oil industries;
    
    Fluctuations in U.S. oil consumption and petroleum prices;
    
    Changes in general economic conditions or the occurrence of certain
events causing an economic impact in the agriculture, oil or
automobile industries;
    
    Anticipated trends in our financial condition and results of operations;
    
    The availability and adequacy of our cash flow to meet our
requirements, including the repayment of debt and the observance of
our loan covenants;
    
    Our liability resulting from litigation;
    
    Our ability to retain key employees and maintain labor relations;
    
    Changes and advances in ethanol production technology;
    
    Gains or losses from derivative activities, including hedging corn, ethanol and other commodities; and
    
    Competition from alternative fuels and alternative fuel additives.
 Summary
  Results of Operations
  15




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Three months ended
    
    
    Three months ended
    
    
    Nine months ended
    
    
    Nine months endedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentRevenuesEthanol, net of
derivative fair value
changes
    
    $
    30,314,248
    
    
    
    84.10
    %
    
    $
    24,327,857
    
    
    
    89.02
    %
    
    $
    89,483,214
    
    
    
    85.09
    %
    
    $
    68,673,065
    
    
    
    89.75
    %Distillers grains
    
    
    5,733,213
    
    
    
    15.90
    %
    
    
    3,001,522
    
    
    
    10.98
    %
    
    
    15,676,567
    
    
    
    14.91
    %
    
    
    7,839,118
    
    
    
    10.25
    %Total Revenue
    
    
    36,047,461
    
    
    
    100.00
    %
    
    
    27,329,379
    
    
    
    100.00
    %
    
    
    105,159,781
    
    
    
    100.00
    %
    
    
    76,512,183
    
    
    
    100.00
    %Cost of Goods SoldCost of Goods Sold, net
of derivative fair
value changes and
effects of firm purchase commitments
    
    
    37,206,054
    
    
    
    103.21
    %
    
    
    23,295,497
    
    
    
    85.24
    %
    
    
    92,501,258
    
    
    
    87.96
    %
    
    
    61,449,700
    
    
    
    80.31
    %Depreciation
    
    
    1,438,264
    
    
    
    3.99
    %
    
    
    1,408,299
    
    
    
    5.15
    %
    
    
    4,270,804
    
    
    
    4.06
    %
    
    
    4,234,860
    
    
    
    5.53
    %Total Cost of Goods Sold
    
    
    38,644,318
    
    
    
    107.20
    %
    
    
    24,703,796
    
    
    
    90.39
    %
    
    
    96,772,062
    
    
    
    92.02
    %
    
    
    65,684,560
    
    
    
    85.85
    %Gross Margin (Deficit)
    
    
    (2,596,857
    )
    
    
    -7.20
    %
    
    
    2,625,583
    
    
    
    9.61
    %
    
    
    8,387,719
    
    
    
    7.98
    %
    
    
    10,827,623
    
    
    
    14.15
    %General and Administrative
    
    
    666,866
    
    
    
    1.85
    %
    
    
    568,223
    
    
    
    2.08
    %
    
    
    2,332,796
    
    
    
    2.22
    %
    
    
    2,297,129
    
    
    
    3.00
    %Operating Income (Loss)
    
    
    (3,263,723
    )
    
    
    -9.05
    %
    
    
    2,057,360
    
    
    
    7.53
    %
    
    
    6,054,923
    
    
    
    5.76
    %
    
    
    8,530,494
    
    
    
    11.15
    %Interest Expense
    
    
    1,116,343
    
    
    
    3.10
    %
    
    
    2,087,460
    
    
    
    7.64
    %
    
    
    3,493,487
    
    
    
    3.32
    %
    
    
    4,220,487
    
    
    
    5.52
    %Other Income, net
    
    
    835,179
    
    
    
    2.32
    %
    
    
    262,979
    
    
    
    0.96
    %
    
    
    1,693,920
    
    
    
    1.61
    %
    
    
    298,860
    
    
    
    0.39
    %Net Income (Loss)
    
    $
    (3,544,887
    )
    
    
    -9.83
    %
    
    $
    232,879
    
    
    
    0.85
    %
    
    $
    4,255,356
    
    
    
    4.05
    %
    
    $
    4,608,867
    
    
    
    6.02
    %
 Three Months ended
    
    Three Months ended
    
    Nine Months ended
    
    Nine Months endedAdditional Data
    
    September 30 , 2008
    
    September 30 , 2007
    
    September 30, 2008
    
    September 30 , 2007Ethanol sold (thousands of gallons)
    
    
    13,392
    
    
    
    13,685
    
    
    
    41,515
    
    
    
    36,297Dried distillers grains sold (tons)
    
    
    29,706
    
    
    
    32,901
    
    
    
    77,934
    
    
    
    60,413Modified distillers grains sold
(tons)
    
    
    23,067
    
    
    
    16,629
    
    
    
    87,330
    
    
    
    73,659Ethanol avg price/gallon (a)
    
    $
    2.26
    
    
    $
    1.78
    
    
    $
    2.16
    
    
    $
    1.89Dried distillers grains avg price/ton
    
    $
    139.25
    
    
    $
    72.62
    
    
    $
    136.65
    
    
    $
    82.67Modified distillers grains avg
price/ton
    
    $
    68.90
    
    
    $
    36.75
    
    
    $
    57.29
    
    
    $
    36.55Corn costs per bushel (a)
    
    $
    5.89
    
    
    $
    4.23
    
    
    $
    4.93
    
    
    $
    3.87
 
 (a)
    
     shown net of hedging activity Results of Operations for the Three and Nine Months Ended September 30, 2008 as Compared to the
Three and Nine Months Ended September 30, 2007
 Summary
  Revenues
 Three Months Ended September 30, 2008 and 2007
  16




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##### Table of Contents



Ethanol revenue
  Distillers grains revenue
  Nine Months Ended September 30, 2008 and 2007:
  Ethanol revenue
  Distillers grains revenue
  17




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##### Table of Contents



Revenues  Prospective Information
   Cost of Sales
   Three Months Ended September 30, 2008 and 2007
 
    
    Corn costs  our corn costs per gallon, excluding hedging activities, were
approximately $.77 per gallon higher (or approximately $2.00 per bushel) during the three
months ended September 30, 2008 as compared to the same period for 2007 ($2.26 per gallon
vs. $1.49 per gallon). This increase in corn cost more than offset the increase in revenue
that occurred during the three months ended September
30, 2008. Including our corn hedging gains, our corn costs per gallon were $0.65 higher
when compared to the same period as the previous year. We recognized gains from hedging
activities during the three months ended September 30, 2008 and 2007 of approximately $1.7
million and $26,000, respectively.
 18




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##### Table of Contents




    
    Other cost of goods sold, excluding depreciation  our other cost of goods sold, the
main components of which are energy and utilities, chemicals, and labor, for the three
months ended September 30, 2008 and 2007 were $0.51 per gallon and $0.44 per gallon,
respectively. The increase is primarily related to price increases for some of our major
chemicals, increased coal transportation costs and higher repairs and maintenance expense
due to our scheduled fall outage which occurred in September offset in part by lower
denaturant usage and prices.
 Nine Months Ended September 30, 2008 and 2007
 
    
    Corn costs  our corn costs per gallon, excluding hedging activities, were
approximately $0.51 per gallon higher (or $1.47 per bushel) during the nine months ended
September 30, 2008 as compared to the same period for 2007 ($1.92 per gallon vs. $1.41 per
gallon). This increase in corn cost more than offset the increase in revenue during this
time period. This is a direct reflection of how corn costs have risen during the past
year. Including our corn hedging gains, our corn costs per gallon were $0.36 higher when
compared to the same period as the previous year, as we recognized gains from hedging
activities during the nine months ended September 30, 2008 and 2007 of approximately $6.8
million and $673,000, respectively.
    
    Other cost of goods sold, excluding depreciation  our other cost of goods sold, the
main components of which are energy and utilities, chemicals, and labor, for the nine
months ended September 30, 2008 and 2007 were $0.49 per gallon and $0.45 per gallon,
respectively. The increase is primarily related to the price increases for some of our
major chemicals, increased repair and maintenance expense and increased coal transportation
costs.
 Cost of Sales and Gross Margin  Prospective Information
  Corn cost
  Energy and chemical needs
  Coal cost
  19




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##### Table of Contents



Chemical and Denaturant costs
  General and Administrative
 Three Months Ended September 30, 2008 and 2007
  Nine Months Ended September 30, 2008 and 2007
  General and Administrative  Prospective
  Interest Expense
 Three Months Ended September 30, 2008 and 2007
  Nine Months Ended September 30, 2008 and 2007
   20




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##### Table of Contents



Other Income (Expense), Net
  Liquidity and Capital Resources
 For the three months
    
    For the three months
    
    For the nine months
    
    For the nine monthsended
    
    ended
    
    ended
    
    endedStatement of Cash Flows
    
    September 30, 2008
    
    September 30, 2007
    
    September 30, 2008
    
    September 30, 2007Cash flows provided by operating
activities
    
    $
    6,504,415
    
    
    $
    4,251,662
    
    
    $
    19,211,309
    
    
    $
    8,133,900Cash flows used in investing activities
    
    
    (1,333,305
    )
    
    
    (81,018
    )
    
    
    (2,321,106
    )
    
    
    (3,971,532
    )Cash flows provided by (used in)
financing activities
    
    
    (1,541,641
    )
    
    
    (918,723
    )
    
    
    (14,712,714
    )
    
    
    10,208,653
 Cash Flows
    Three Months Ended September 30, 2008 and 2007
 Operating activities
  21




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##### Table of Contents



Investing activities
  Financing activities
  Nine Months Ended September 30, 2008 and 2007
 Operating activities
  
    
    A net increase in cash flow of approximately $8.3 million from normal changes in working
capital items, the value of our interest rate swaps and the value of our corn and ethanol
hedge instruments. When compared to the nine months ended September 30, 2007 a portion of
the working capital change was also due to the Plant becoming operational during January of
2007 when there was significant cash outflows to build inventories and receivables. The
working capital changes occurring during the nine months ended September 30, 2008 were the
result of normal Plant operations.
    
    An increase in net income, excluding the effects of the accrual of a $3.1 million
unrealized (non-cash) loss on firm purchase commitments, of approximately $2.8 million.
 Investing activities
  Financing activities
  Capital Expenditures
  Capital Resources
  22




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Short-term Debt Sources
  Long-Term Debt Sources
  Fixed Rate Note
  Variable Rate Note
  Long-Term Revolving Note
  23




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##### Table of Contents



December 2007 Fixed Rate Note
   
    
    Providing the Bank with current and accurate financial statements;
    
    Maintaining certain financial ratios, minimum net worth, and working capital;
    
    Maintaining adequate insurance;
    
    Not making, or allowing to be made, any significant change in our business tax
structure; and
    
    Limiting our ability to make distributions to members.
    Interest Rate Swap Agreements
    Letters of Credit
  Subordinated Debt
  24




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Contractual Obligations
    
    Total
    
    
    Less than 1 Yr
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    More than 5 YrsLong-term debt
obligations *
    
    $
    54,438,638
    
    
    $
    8,433,551
    
    
    $
    13,123,699
    
    
    $
    32,881,388
    
    
    $
    Capital leases
    
    
    123,761
    
    
    
    61,702
    
    
    
    62,059
    
    
    
    
    
    
    
    Coal transloading facility
    
    
    231,000
    
    
    
    231,000
    
    
    
    
    
    
    
    
    
    
    
    Operating lease
obligations
    
    
    2,023,140
    
    
    
    489,660
    
    
    
    971,370
    
    
    
    562,110
    
    
    
    Corn Purchases **
    
    
    36,700,000
    
    
    
    36,700,000
    
    
    
    
    
    
    
    
    
    
    
    Coal purchases
    
    
    1,620,675
    
    
    
    1,288,800
    
    
    
    331,875
    
    
    
    
    
    
    
    Water purchases
    
    
    3,286,800
    
    
    
    398,400
    
    
    
    796,800
    
    
    
    796,800
    
    
    
    1,294,800Total
    
    $
    98,424,014
    
    
    $
    47,603,113
    
    
    $
    15,285,803
    
    
    $
    34,240,298
    
    
    $
    1,294,800
 
 *
    
     Amounts determined assuming current interest rates as disclosed above in the Long-Term Debt
Sources section for the Long-Term Revolving Note and Variable Rate Note. Used the rates fixed in
the interest rate swap agreements (see Interest Rate Swap Agreements section above) for the Fixed
Rate Note and December 2007 Fixed Rate Note, respectively which should account for possible net
cash settlements on the interest rate swaps. Also assumed permanent repayment of $9.6 million in
unscheduled principal payments applied to the Long-Term Revolving Note as we cannot accurately
anticipate when these funds will be needed although we believe we will need them in the future to
fund operations based on current market conditions. If we do need to issue these funds for
operations, our long-term debt obligations will increase accordingly with interest computed at the
rates stated above.**
    
     Amounts determined assuming prices, including freight costs, at which corn had been contracted
for cash corn contracts and current market prices as of September 30, 2008 for basis contracts that
had not yet been fixed. Grants
  North Dakota Ethanol Incentive Program
  Corn Price
 
    
    For every cent that the average quarterly price per bushel of corn exceeds $1.80, the
state shall add to the amounts payable under the program $.001 multiplied by the number of
gallons of ethanol produced by the facility during the quarter.
    
    If the average quarterly price per bushel of corn is exactly $1.80, the state shall not
add anything to the amount payable under the program
    
    For every cent that the average price per bushel of corn is below $1.80, the state shall
subtract from the amounts payable under the program $.001 multiplied by the number of
gallons produced by the facility during the quarter.
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##### Table of Contents



Ethanol Price
 
    
    For every cent that the average quarterly rack price per gallon of ethanol is above
$1.30, the state shall subtract from the amounts payable under the program $.002 multiplied
by the number of gallons of ethanol produced by the facility during the quarter.
    
    If the average quarterly price per gallon of ethanol is exactly $1.30, the state shall
not add anything to the amount payable under the program.
    
    For every cent that the average quarterly rack price per gallon of ethanol is below
$1.30, the state shall add to the amounts payable under the program $.002 multiplied by the
number of gallons of ethanol produced by the facility during the quarter.
  Critical Accounting Estimates
  Off-Balance Sheet Arrangements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Commodity Price Risk
  26




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27




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##### Table of Contents



Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  Inherent Limitations on the Effectiveness of Controls
   28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  The Company has withheld $3.9 million from its Plant design-builder, Fagen, Inc., related to the
coal combustor.
  We have received Notice of Violation Letters from the North Dakota Department of Health (NDDH).
 Our average contracted price of corn for the rest of 2008 and January 2009 is approximately $1.90
higher than market prices as of November 11, 2008.
 29




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##### Table of Contents



If current market conditions do not improve we may be in violation of our loan covenants.
 The global financial crisis may have impacts on our business and financial condition that we
currently cannot predict.
 Our level of indebtedness may adversely affect our ability to react to changes in our business, and
we may be limited in our ability to refinance our existing debt or use debt to fund future capital
needs.
 Ethanol prices may be impacted by wholesale gasoline prices through the economics of discretionary
blending. Lower wholesale gasoline prices tend to discourage discretionary blending which could
lead to an imbalance in the capacity utilization of ethanol leading to lower ethanol prices.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
 30




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ITEM 6. EXHIBITS
  31




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##### Table of Contents



SIGNATURES
  RED TRAIL ENERGY, LLCDate: November 14, 2008
    By:
    /s/ Mick J. MillerMick J. MillerPresident and Chief Executive OfficerDate: November 14, 2008
    By:
    /s/ Mark E. KlimpelMark E. KlimpelChief Financial Officer 32




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##### Table of Contents



EXHIBIT INDEX
RED TRAIL ENERGY, LLC
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2008
 10.1*
    
    $3,500,000 Revolving Promissory Note given by the Company to First
National Bank of Omaha dated July 19, 2008.10.2*
    
    Fifth Amendment to Construction Loan Agreement by and between the
Company and First National Bank of Omaha dated July 19, 2008.10.3
    
    Amended and Restated Operating Agreement of Red Trail Energy, LLC.
Filed as exhibit 3.1 to our Current Report on Form 8-K filed with
the SEC on August 6, 2008 (000-52033) and incorporated by reference
herein.10.4
    
    Employment Agreement dated August 8, 2008 by and between Red Trail
Energy, LLC and Mark Klimpel. Filed as exhibit 99.1 to our Current
Report on Form 8-K filed with the SEC on August 13, 2008 (000-52033)
and incorporated by reference herein.31.1*
    
    Certification by Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934).31.2*
    
    Certification by Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934).32.1*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 33