Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 811K
2: EX-10.1 Material Contract HTML 60K
3: EX-10.2 Material Contract HTML 44K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
7: EX-32.2 Certification -- §906 - SOA'02 HTML 22K
13: R1 Cover Page HTML 70K
14: R2 Condensed Consolidated Balance Sheets HTML 137K
15: R3 Condensed Consolidated Balance Sheets HTML 24K
[Parenthetical]
16: R4 Condensed Consolidated Statements of Operations HTML 110K
(Unaudited)
17: R5 Condensed Statement of Changes in Members' Equity HTML 61K
Statement
18: R6 Condensed Consolidated Statements of Cash Flows HTML 92K
(Unaudited)
19: R7 Principal Activity and Significant Accounting HTML 41K
Policies
20: R8 Accounts Receivable HTML 41K
21: R9 Inventories HTML 30K
22: R10 Investments in Related Parties HTML 35K
23: R11 Property and Equipment HTML 45K
24: R12 Note Payable - Seasonal Loan HTML 23K
25: R13 Long-Term Debt HTML 38K
26: R14 Operating Leases (Notes) HTML 104K
27: R15 Member Distribution HTML 23K
28: R16 Derivative Instruments and Hedging Activities HTML 58K
29: R17 Fair Value HTML 54K
30: R18 Related Party Transactions (Notes) HTML 27K
31: R19 Commitments and Contingencies HTML 24K
32: R20 Subsequent Event HTML 23K
33: R21 Pay vs Performance Disclosure HTML 33K
34: R22 Insider Trading Arrangements HTML 27K
35: R23 Principal Activity and Significant Accounting HTML 36K
Policies (Policies)
36: R24 Principal Activity and Significant Accounting HTML 34K
Policies (Tables)
37: R25 Accounts Receivable (Tables) HTML 42K
38: R26 Inventories (Tables) HTML 30K
39: R27 Investments in Related Parties (Tables) HTML 31K
40: R28 Property and Equipment (Tables) HTML 44K
41: R29 Long-Term Debt (Tables) HTML 38K
42: R30 Operating Leases (Tables) HTML 105K
43: R31 Derivative Instruments and Hedging Activities HTML 58K
(Tables)
44: R32 Fair Value of Financial Instruments (Tables) HTML 49K
45: R33 Principal Activity and Significant Accounting HTML 39K
Policies - Additional Information (Details)
46: R34 Principal Activity and Significant Accounting HTML 33K
Policies - Disaggregation of Revenue (Details)
47: R35 Accounts Receivable - Aging of Past Due HTML 37K
Receivables (Details)
48: R36 Accounts Receivable - Allowance for Doubtful HTML 29K
Accounts Receivable (Details)
49: R37 Accounts Receivable (Details Textual) HTML 22K
50: R38 Inventories (Details) HTML 29K
51: R39 Investments in Related Parties - Schedule of HTML 33K
Investments (Details)
52: R40 Investments in Related Parties - Narrative HTML 45K
(Details)
53: R41 Property and Equipment (Details) HTML 52K
54: R42 Property and Equipment (Details Textual) HTML 23K
55: R43 Note Payable - Seasonal Loan (Details Textual) HTML 37K
56: R44 Long-Term Debt - Debt Schedule (Details) HTML 55K
57: R45 Long-Term Debt - Maturities of Long Term Debt HTML 38K
(Details)
58: R46 Long-Term Debt - Narrative (Details) HTML 57K
59: R47 Operating Leases - Additional Information HTML 46K
(Details)
60: R48 Operating Leases - Schedule of Operating Leases HTML 69K
(Details)
61: R49 Operating Leases - Components of Operating Lease HTML 31K
Costs (Details)
62: R50 Operating Leases - Supplemental Cash Flow HTML 26K
Information (Details)
63: R51 Operating Leases - Additional Lease Information HTML 25K
(Details)
64: R52 Operating Leases - Maturity Analysis of HTML 51K
Undiscounted Cash Flows of Operating Lease
Liabilities (Details)
65: R53 Member Distribution (Details Textual) HTML 29K
66: R54 Derivative Instruments and Hedging Activities HTML 26K
(Details Textual)
67: R55 Derivative Instruments and Hedging Activities HTML 37K
(Details)
68: R56 Derivative Instruments and Hedging Activities HTML 31K
(Details 1)
69: R57 Fair Value of Financial Instruments (Details) HTML 49K
70: R58 Related Party Transactions (Details) HTML 35K
71: R59 Commitments and Contingencies (Details) HTML 27K
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYesx No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). iYesx No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
¨
Large Accelerated Filer
¨
Accelerated
Filer
x
iNon-Accelerated Filer
i¨
Smaller Reporting Company
i¨
Emerging
Growth Company
(do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for company with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes ix No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On November 14, 2023, the registrant had i30,411,500
capital units outstanding.
Charges
and credits to net income not affecting cash:
Depreciation and amortization
i4,312,771
i2,767,194
Net
(gain) loss recognized on derivative activities
(i17,621,666)
(i12,864,652)
Loss
(gain) on sale of property and equipment
(i59,486)
i2,927
Non-cash
patronage dividends
(i32,313)
(i145,749)
Change
in current assets and liabilities
i31,445,697
(i59,254,520)
Net
cash provided by (used for) operating activities
i69,255,641
(i17,997,680)
Investing
activities
Increase in other assets
(i240,250)
(i96,250)
Proceeds
from sales of property and equipment
i147,718
i5,900
Purchase
of property and equipment
(i52,829,189)
(i3,293,497)
Net
cash used for investing activities
(i52,921,721)
(i3,383,847)
Financing
activities
Change in excess of outstanding checks over bank balances
(i6,520,474)
(i4,015,768)
Net
proceeds (payments) from seasonal borrowings
i590,668
i48,666,976
Proceeds
from issuance of capital units
i85,101,000
i—
Distributions
to members
(i36,493,800)
(i17,338,830)
Proceeds
from long-term debt
i14,766,774
i4,224,724
Principal
payments on long-term debt
(i12,216,118)
(i5,127,197)
Net
cash provided by financing activities
i45,228,050
i26,409,905
Net
change in cash and cash equivalents
i61,561,970
i5,028,378
Cash
and cash equivalents, beginning of period
i866,699
i833,738
Cash
and cash equivalents, end of period
$
i62,428,669
$
i5,862,116
Supplemental
disclosures of cash flow information
Cash paid during the period for:
Interest
$
i2,724,291
$
i1,400,459
Income
taxes
$
i—
$
i—
Noncash
investing activities:
Soybean meal contributed as investment in related party
$
i1,436,420
i1,436,420
The
accompanying notes are an integral part of these condensed consolidated financial statements.
8
South Dakota Soybean Processors, LLC
Notes to Condensed Consolidated Financial Statements
Note 1 - iPrincipal
Activity and Significant Accounting Policies
The unaudited condensed consolidated financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although South Dakota Soybean Processors, LLC (the “Company”, “LLC”, “we”, “our”, or “us”) believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. The results of operations and cash
flows for interim periods are not necessarily indicative of results for a full year due in part to the seasonal nature of some of the Company’s businesses. The balance sheet data as of December 31, 2022 has been derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2022, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March
30, 2023.
i
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, High Plains Partners, LLC, HPP SD Holdings, LLC, and High Plains Processing, LLC, after elimination of all material intercompany accounts, transactions, and profits.
i
Use
of estimates
The preparation of consolidated 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 at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
i
Revenue
The Company accounts for all
its revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers.
The Company principally generates revenue from merchandising and transporting manufactured agricultural products used as ingredients in food, feed, energy, and industrial products. Revenue is measured based on the consideration specified in the contract with a customer and excludes any amounts collected on behalf of third parties (e.g. - taxes). The Company follows a policy of recognizing
revenue at a single point in time when it satisfies its performance obligation by transferring control over a product to a customer. Control transfer typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Shipping and handling costs related to contracts with customers for the sale of goods are accounted for as a fulfillment activity and are included in the cost of revenues. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Payments received in advance to the transfer of goods, or "contract liabilities", are included in "Deferred liabilities - current" on the
Company's condensed consolidated balance sheets. These customer prepayments totaled $i436,489 and $i1,074,059 as of September 30, 2023 and December 31, 2022, respectively. Of the $i1,074,059
balance as of December 31, 2022, the Company recognized $i154,705 and $i982,950
as revenues for the three and nine months ended September 30, 2023, respectively. Of the $i1,347,409 customer prepayments as of December 31, 2021, the Company recognized $i0
and $i1,342,478 of contract liabilities as revenues during the three and nine months ended September 30, 2022, respectively.
/
9
South
Dakota Soybean Processors, LLC
Notes to Condensed Consolidated Financial Statements
i
The following table presents a disaggregation of revenue from contracts with customers for the three and nine-month periods ended September 30, 2023 and 2022,
by product type:
Any recent accounting pronouncements are not expected to have a material impact on our condensed financial statements.
Note 2 - iAccounts Receivable
Accounts receivable are considered past due when payments are not received on a timely basis in accordance with the
Company’s credit terms, which are generally 30 days from invoice date. Accounts considered uncollectible are written off. The Company’s estimate of the allowance for credit losses is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.
In
general, cash received is applied to the oldest outstanding invoice first, unless payment is for a specified invoice. The Company, on a case-by-case basis, may charge a late fee of i1.5% per month on past-due receivables.
10
South Dakota Soybean Processors, LLC
Notes
to Condensed Consolidated Financial Statements
Finished
goods and raw materials are valued at estimated market value, which approximates net realizable value. Supplies and other inventories are stated at the lower of cost or net realizable value.
The
Company measures its investments in Prairie AquaTech, LLC, Prairie AquaTech Investments, LLC, Prairie AquaTech Manufacturing, LLC and High Plains Partners, LLC at their cost less any impairment plus or minus any observable price changes in orderly transactions since these equity investments do not have readily determinable fair values.
The Company invested $i1,436,420 and $i1,436,420
of soybean meal in Prairie AquaTech Manufacturing, LLC for the nine months ended September 30, 2023 and 2022, respectively.
In February 2022, the Company announced its plans to construct a multi-seed processing plant near Mitchell, South Dakota. In September 2023, the Company entered into a capital contribution and commitment agreement with High Plains Partners, LLC. Per the agreement, the Company will transfer to High Plains Partners, LLC all rights, title and interest to all of the tangible and intangible development rights, including engineering, permitting, studies,
records, etc., totaling $i5.0 million in value in exchange for i2,615
Class B units in High Plains Partners, LLC. The Company also committed to investing up to another $i106.3 million for i24,438
Class B capital units in the entity. As of September 30, 2023, the Company had contributed $i19.0 towards the project. Operation of the facility is expected to begin in late 2025, subject to permitting and other contingencies.
Effective September 30, 2023, the Company began
consolidating the accounts of High Plains Processing, LLC, HPP SD Holdings, LLC, and High Plains Partners, LLC, formerly unconsolidated entities, into its financial statements . The Company and other regional investors committed to investing a total of $i192.0 million into High Plains Partners. In September 2023, High Plains Partners created a joint venture with another partner to create High Plains Processing, LLC, to build a new multi-seed crush facility near Mitchell, South Dakota. Construction of the facility
is estimated to be completed in late 2025. The consolidation is due to the Company's entering into a management agreement with the new processing facility along with its ability to appoint a majority of the board members of each entity. The financial data for previous periods has not been restated to reflect the consolidation of the three entities. The consolidation is not material to the financial position or results of operations for the periods
11
South Dakota Soybean Processors, LLC
Notes to Condensed Consolidated Financial Statements
presented
and had no effect on previously reported net income. As of September 30, 2023, High Plains Partners, HPP SD Holdings, and High Plains Processing, LLC received a total of $i85.1 million in proceeds from the issuance from capital units.
Depreciation
of property and equipment was $i1,457,816 and $i1,389,920 for the three months ended September 30, 2023 and 2022, respectively, and $i4,309,110
and $i4,154,674 for the nine months ended September 30, 2023 and 2022, respectively.
Note 6 - iNote
Payable – Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires on iOctober 1, 2024. The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company could borrow up to $i85
million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (i7.55% on September 30, 2023). The Company pays a i0.20%
annual commitment fee on any funds not borrowed. There were advances outstanding of $i728,833 and $i138,165 on September 30, 2023 and December 31, 2022, respectively. The remaining available funds to borrow under the terms
of the revolving credit agreement were $i84.3 million as of September 30, 2023.
Revolving term loan from CoBank, interest at variable rates (i7.85% and i6.85%
on September 30, 2023 and December 31, 2022, respectively), secured by substantially all property and equipment. The loan matures on March 20, 2026.
$
i11,400,000
$
i8,849,344
Note
payable to CoBank, interest at variable rates (i7.85% and i6.85% at September 30, 2023 and December 31, 2022, respectively), secured by substantially
all property and equipment. Note matures March 20, 2028.
Notes to Condensed Consolidated Financial Statements
The Company entered into an agreement as of September 20, 2023, with CoBank to amend and restate its Credit Agreement, which includes the revolving term loan, note payable, and seasonal loan. Under the terms and conditions of the Credit Agreement, CoBank agreed to make advances to the Company for up to $i12,000,000
on the revolving term loan with a variable effective interest rate of i7.85%. The amount available for borrowing on the revolving term loan will decrease by $i600,000 every isix
months until the loan's maturity date of iMarch 20, 2028. The Company pays a i0.40% annual commitment fee on any funds not borrowed. The
debt issuance costs of $i24,000 paid by the Company were amortized over the term of the loan. The principal balance outstanding on the revolving term loan was $i11,400,000 and $i8,849,344
as of September 30, 2023 and December 31, 2022, respectively. There were ino remaining commitments available to borrow on the revolving term loan as of September 30, 2023.
Under this agreement, the Company is subject to compliance with standard financial covenants and the maintenance of certain financial ratios. The
Company was in compliance with all covenants and conditions with CoBank as of September 30, 2023.
i
The following are minimum principal payments on long-term debt obligations for the twelve-month periods ending September 30:
2024
$
i1,200,000
2025
i1,200,000
2026
i1,200,000
2027
i1,200,000
2028
i6,600,000
Total
$
i11,400,000
/
Note
8 - iOperating Leases
The Company has several operating leases for railcars. These leases have terms ranging from i3-i12
years and most do not have renewal terms provided. The leases require the Company to maintain the condition of the railcars, restrict the use of the railcars to specified products, such as soybean meal, hulls or oil, limit usage to the continental United States, Canada or Mexico, require approval to sublease to other entities and require the Company's submission of its financial statements. Lease expense for all railcars was $i1,145,549 and $i755,494
for the three months ended September 30, 2023 and 2022, respectively, and $i3,176,709 and $i2,101,770 for the nine months ended September 30,
2023 and 2022, respectively.
Notes to Condensed Consolidated Financial Statements
Lessor
Quantity
of Railcars
Commencement Date
Maturity Date
Monthly Payment
Farm Credit Leasing
i23
7/1/2022
6/30/2034
i13,863
Farm
Credit Leasing
i30
8/1/2022
7/31/2034
i30,422
Farm
Credit Leasing
i20
10/1/2022
9/30/2034
i21,668
Farm
Credit Leasing
i100
4/1/2023
3/31/2035
i81,466
GATX
Corporation
i14
7/1/2020
6/30/2024
i4,200
Trinity
Capital
i29
11/1/2020
10/31/2023
i17,255
Trinity
Capital
i20
11/1/2020
10/31/2023
i11,900
Trinity
Capital
i2
6/1/2021
5/31/2026
i980
Wells
Fargo Rail
i109
3/1/2022
2/28/2027
i51,775
Wells
Fargo Rail
i7
5/1/2022
4/30/2027
i2,765
Wells
Fargo Rail
i15
5/1/2022
4/30/2027
i5,925
Wells
Fargo Rail
i105
1/1/2023
12/31/2029
i49,875
i626
$
i364,313
The
Company also has a number of other operating leases for machinery and equipment. These leases have terms ranging from i3-i7 years; however, most of these leases have automatic renewal terms. These leases require monthly payments of $i3,824.
Lease expense under these other operating leases was $i13,263 and $i9,446 for the three months ended September 30, 2023 and 2022, respectively, and $i37,451
and $i70,521 for the nine-month periods ended September 30, 2023 and 2022, respectively.
On March 19, 2020, the Company entered into an agreement with an entity in the western United States to provide storage and handling services for the Company's soybean meal. The
Company paid the entity $i3,300,000 after the entity's construction of additional storage and handling facilities. The agreement began on May 1, 2021 and will mature on April 30, 2027 but includes an additional iseven-year
renewal period at the sole discretion of the Company. Lease expense under this agreement was $i58,929 and $i58,929 for the three months ended September 30,
2023 and 2022, respectively, and $i176,786 and $i176,796 for the nine months ended September 30, 2023 and 2022, respectively.
Operating
leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the Company's condensed balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company's secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the condensed balance sheet.
Lease expense for these operating leases is recognized on a straight-line basis over the lease terms. iThe
components of lease costs recognized within our condensed statements of operations for the three and nine-month periods ended September 30, 2023 and 2022 were as follows:
Cash paid for amounts included in the measurement of lease liabilities
$
i1,024,713
$
i667,523
$
i3,100,471
$
i1,948,114
Supplemental
non-cash information:
Right-of-use assets obtained in exchange for lease liabilities
$
i41,523
$
i3,511,694
$
i8,956,408
$
i8,440,866
The
following summarizes the weighted-average remaining lease term and weighted-average discount rate as of September 30, 2023:
Weighted-average remaining lease-term - operating leases (in years)
i9.5
Weighted-average
discount rate - operating leases
i4.2
%
i
The following is a maturity analysis of the undiscounted cash
flows of the operating lease liabilities as of September 30, 2023:
Railcars
Other
Total
Twelve-month periods ended September 30:
2024
$
i4,009,844
$
i45,675
$
i4,055,519
2025
i3,885,689
i29,800
i3,915,489
2026
i3,847,869
i22,796
i3,870,665
2027
i3,241,704
i19,910
i3,261,614
2028
i2,913,749
i9,209
i2,922,958
Thereafter
i14,001,813
i—
i14,001,813
Total
lease payments
i31,900,668
i127,390
i32,028,058
Less
amount of lease payments representing interest
(i5,617,760)
(i11,846)
(i5,629,606)
Total
present value of lease payments
$
i26,282,908
$
i115,544
$
i26,398,452
/
Note
9 - iMember Distribution
On iJanuary 31, 2023, the Company’s Board of Managers approved a cash distribution of approximately
$i36.5 million, or $i1.20 per capital unit. The distribution was paid in accordance with the
Company’s operating agreement and distribution policy on iFebruary 2, 2023.
Note 10 - iDerivative
Instruments and Hedging Activities
In the ordinary course of business, the Company enters into contractual arrangements as a means of managing exposure to changes in commodity prices and, occasionally, foreign exchange and interest rates. The Company’s derivative instruments primarily consist of commodity futures, options and forward contracts, and interest rate swaps, caps and floors. Although these contracts may be effective economic hedges of specified risks, they are not designated as, nor accounted for, hedging instruments. These contracts
are recorded on the Company’s condensed balance sheets at fair value as discussed in Note 11, Fair Value.
During
the three and nine-month periods ended September 30, 2023 and 2022, net realized and unrealized gains (losses) on derivative transactions were recognized in the condensed statements of operations as follows:
Net Gain (Loss) Recognized on Derivative Activities for the
Net Gain (Loss) Recognized on
Derivative Activities for the
The
Company recorded gains (losses) in cost of goods sold related to its commodity derivative instruments of $i6,825,096 and $i5,591,580
for the three months ended September 30, 2023 and 2022, respectively, and $i17,621,666 and $i12,864,652
for the nine-month periods ended September 30, 2023 and 2022, respectively.
Note 11 - iFair Value
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a comprehensive framework for measuring fair value and expands disclosures that are required about fair value measurements. Specifically,
this guidance establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. The three levels of hierarchy and examples are as follows:
•Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange and commodity derivative contracts listed on the Chicago Board of Trade (“CBOT”).
16
South
Dakota Soybean Processors, LLC
Notes to Condensed Consolidated Financial Statements
•Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs, such as commodity prices using forward future prices.
•Level 3 – Significant inputs to pricing that are unobservable as of the reporting
date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
i
The following tables set forth financial assets and liabilities measured at fair value in the condensed balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of September 30,
2023 and December 31, 2022:
The
Company enters into various commodity derivative instruments, including futures, options, swaps and other agreements. The fair value of the Company’s commodity derivatives is determined using unadjusted quoted prices for identical instruments on the CBOT. The Company estimates the fair market value of their finished goods and raw materials inventories using the market price quotations of similar forward futures contracts listed on the CBOT and adjusts for the local market adjustments derived from other grain terminals in our area.
The Company considers the carrying amount of
significant classes of financial instruments on the balance sheets, including cash, accounts receivable, and accounts payable, to be reasonable estimates of fair value due to their length or maturity. The fair value of the Company’s long-term debt approximates the carrying value. The interest rates on the long-term debt are similar to rates the Company would be able to obtain currently in the market.
The Company has patronage investments in other cooperatives and common and preferred stock holdings in privately held entities. There is no market for their patronage credits or the entity’s common and preferred holdings, and it is impracticable to estimate the fair value
of the Company’s investments. These investments are carried on the balance sheet at the original cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
Note 12 - iRelated Party Transactions
The
Company has equity investments in Prairie AquaTech, LLC, Prairie AquaTech Manufacturing, LLC and Prairie AquaTech Investments, LLC. The Company sold soybean products to Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC totaling $i2,914,118 and $i4,976,885
for the three months ended September 30, 2023 and 2022, respectively, and $i8,146,985 and $i13,126,037 during the nine months ended September 30, 2023 and 2022,
respectively. As of September 30, 2023 and December 31, 2022, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $i1,133,759 and $i1,433,551,
respectively.
17
South Dakota Soybean Processors, LLC
Notes to Condensed Consolidated Financial Statements
Note 13 - Commitments and iContingencies
As
of September 30, 2023, the Company had unpaid commitments of approximately $i115,000,000 for construction and acquisition of property and equipment, all of which are expected to be incurred by March 31, 2024.
The Company has
entered into an agreement with High Plains Partners, LLC to commit up to $i111.3 million into High Plains Partners to facilitate the construction of a multi-seed processing facility near Mitchell, South Dakota.
From time to time in the ordinary course of our business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. The
Company carries insurance that provides protection against general commercial liability claims, claims against our directors, officers and employees, business interruption, automobile liability, and workers' compensation. The Company is not currently involved in any material legal proceedings and is not aware of any potential claims.
Note 14 - iSubsequent Event
The
Company evaluated all of its activities and concluded that no subsequent events have occurred that would require recognition in its financial statements or disclosed in the notes to its financial statements.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The information in this quarterly report on Form 10-Q for the nine-month period ended September 30, 2023, (including reports filed with the Securities and Exchange Commission (the “SEC”
or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the financial statements and Annual Report on Form 10-K for the year ended December 31, 2022. Forward-looking statements may include statements which use words such as “believe,”“expect,”“anticipate,”“intend,”“plan,”“estimate,”“predict,”“hope,”“will,”“should,”“could,”“may,”“future,”“potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the
forward-looking statements are identified in our Form 10-K for the year ended December 31, 2022.
We are not under any duty to update the forward-looking statements contained in this report, nor do we guarantee future results or performance or what future business conditions will be like. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.
Executive Overview and Summary
During the nine months ending on September 30, 2023, we reported a net income of $50.9 million, compared to $51.5 million during the same period in 2022. During the third quarter, we transitioned from managing a tight soybean supply to one of abundant supply. During July and August of this year, we faced a
shortage of soybean supply due to lower-than-average production in the state during the 2022 growing season. As a result, our soybean procurement costs were significantly higher than historical averages. The crop matured earlier than expected due to extreme heat in late August and early September. This resulted in an early harvest and allowed us to transition to more favorable new crop basis levels, which significantly improved processing margins. The tight supply of soybeans in the summer months also affected the meal markets during the third quarter, causing the meal basis to trade at high levels. However, as new crops of soybeans became available during the harvest and new processing capacities came online, the basis levels for meal weakened. Soybean oil markets experienced high volatility during the third quarter. While demand from renewable diesel producers was sporadic, we took advantage of profitable sales opportunities.
Looking
ahead, we believe that soybean production in South Dakota has returned to average levels historically, which should enable us to procure soybeans at historical average costs. Profit margins during the fourth quarter of 2023 should be a good, considering that most of our expected production has already been sold. However, profit margins in 2024 could decline compared to previous years, because new production capacity in the U.S. is expected be available. Additionally, soybean processing in Argentina is expected to rebound, which could further affect our margins.
Our new crush facility project, near Mitchell, South Dakota, continues to progress well. During the third quarter of 2023, we closed on the project's financing with our financial partners and lender, held a groundbreaking ceremony, and initiated construction activities at the site. The project is currently on track with its construction schedule with an estimated completion
date during the fourth quarter of 2025.
Net
income attributable to non-controlling interests in consolidated entities
321,031
0.2
—
—
Net income attributable to Company
$
18,441,559
10.4
$
10,435,182
5.6
Revenue
– Our revenue during the three-month period ending on September 30, 2023 decreased by $7.8 million, or 4.2%, as compared to the same period in 2022. Revenue declined primarily due to a decrease in the average sales price of soybean oil and meal. During the three months ended September 30, 2023, the average price of soybean oil decreased by 23%, compared to the same period in 2022. Oil prices were affected by reduced demand following a delay in start-up and production issues by several renewable diesel plants in 2023. Similarly, the average sales price of soybean meal decreased by 5% during the three months ended September 30, 2023, compared to the same period in 2022, largely in anticipation of increased soybean meal production caused by improved crop conditions and an early harvest. The decrease in revenue was offset,
in part, by a 17% increase in the sales volume of soybean oil based on our ability to leverage some sales opportunities.
Gross Profit/Loss – Gross profit increased $8.1 million, or 67.5%, for the three months ended September 30, 2023, compared to the same period in 2022. Gross profits improved primarily due to soybean shortages, an increase in board crush margins and improved growing conditions.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $270,000, or 21.6%, during the three-month period ended September 30, 2023, compared to the same period in 2022. The increase was primarily due to an increase in labor costs.
Interest
Expense – Interest expense increased $89,000, or 14.0%, during the three months ended September 30, 2023, compared to the same period in 2022. The increase in interest expense was due to an increase in interest rates on our senior debt with CoBank. As of September 30, 2023, the interest rate on our revolving long-term loan was 7.85%, compared to 5.54% as of September 30, 2022. Partially offsetting the increase in interest rates, the average debt level decreased from $58.0 million during the three-month period ended September 30, 2022 to $36.5 million for the same period in 2023, mainly due to decreased inventory levels.
Other Non-Operating Income – Other non-operating income (expense),
including patronage dividend income, increased $598,000 during the three-month period ended September 30, 2023, compared to the same period in 2022. The increase in other non-operating income was due to an $873,000 increase in interest income which we received from the deposit of proceeds received by a subsidiary in connection with its equity financing.
Net Income/Loss – During the three-month period ended September 30, 2023, we generated a net income of $18.4 million, compared to $10.4 million for the same period in 2022. The $8.0 million increase was primarily attributable to increases in gross profit and interest income.
Net
income attributable to non-controlling interests in consolidated entities
321,031
0.1
—
—
Net income attributable to Company
$
50,889,607
9.5
$
51,497,120
9.7
Revenue
– Revenue increased by $2.1 million, or 0.4%, for the nine-month period ended September 30, 2023, compared to the same period in 2022. The average sales price of soybean meal increased 5% during the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to drought conditions in Argentina and North America. Argentina, which accounts for nearly 30% of the world's soybean meal exports, experienced a severe drought which shifted demand for meal to the U.S. as a source. This shift allowed producers, like us, to benefit from increased export opportunities.
Gross Profit/Loss – Gross profit increased by $1.5 million, or 2.7%, for the nine months ended September 30, 2023, compared to the same period in 2022. The increase in gross
profit was mainly due to improved board crush margins and improved growing conditions.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $384,000, or 9.3%, during the nine-month period ended September 30, 2023, compared to the same period in 2022. The increase was primarily due to a decrease in the recovery of accounts receivable previously determined to be uncollectible and an increase in labor costs. During the nine months ended September 30, 2023, we received payments of $115,000 in connection with previously written-off accounts receivable, compared to $0 during the same period in 2023.
Interest Expense – Interest expense increased by $1.1 million, or 71.9%,
during the nine months ended September 30, 2023, compared to the same period in 2022. The increase in interest expense was due to an increase in interest rates on our senior debt with CoBank. As of September 30, 2023, the interest rate on our revolving long-term loan was 7.85%, compared to 5.54% as of September 30, 2022. Partially offsetting the increase in interest rates was a $11.1 million decrease in borrowings from our lines of credit. The average debt level was $51.0 million during the nine months ended September 30, 2023, compared to $62.1 million during the same period in 2022. The decrease is mainly due to decreased inventory quantities and lower commodity prices.
Other Non-Operating Income – Other
non-operating income (expense), including patronage dividend income, decreased $279,000 during the nine-month period ended September 30, 2023, compared to the same period in 2022. The decrease in other non-operating income was due to a $1.3 million change in gains (losses) on our interest rate hedge instruments. During the nine-month period ended September 30, 2023, losses on interest rate hedges totaled $0.1 million, compared to a $1.1 million gain during the same period in 2022. Partially offsetting the decrease by interest rate hedges was a $0.9 million increase in interest income which we received from the deposit of investment proceeds received by a subsidiary in connection with its equity financing.
Net Income/Loss – During the nine-month period ended September 30,
2023, we generated a net income of $50.9 million, compared to $51.5 million for the same period in 2022. The $0.6 million decrease was primarily attributable to increased operating and interest costs and decrease in other non-operating income.
21
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations and borrowings under our two revolving lines of credit which are discussed below under “Indebtedness.” On September 30, 2023, we had working capital, defined as current assets less current liabilities, of approximately
$129.9 million, compared to $63.8 million on September 30, 2022. Working capital increased between periods primarily due to investment proceeds raised by one of our consolidated subsidiaries, High Plains Partners, LLC, in connection with its equity financing, the proceeds of which were contributed to our new crush facility project near Mitchell, South Dakota. We hold a majority interest in High Plains Partners, having agreed to contribute to High Plain Partners cash, property and various construction and development rights, which were subsequently contributed to and then through a holding company, HPP SD Holdings, LLC, to High Plains Processing, LLC, the owner and operator of the crush facility. High Plains Partners holds a majority interest in HPP SD Holdings, whose only asset is High Plains Processing.
Net cash provided by (used for) operating activities
$
69,255,641
$
(17,997,680)
Net
cash provided by (used for) investing activities
(52,921,721)
(3,383,847)
Net cash provided by (used for) financing activities
45,228,050
26,409,905
Cash Flows Provided By (Used For) Operations
The $87.3 million change in cash flows used for operating activities was largely due to a $93.0 million change in inventory and an $8.5 million change in margin deposits. During the nine-month period ended September 30, 2023,
our inventories decreased by $41.9 million, compared to a $51.1 million increase during the same period in 2022. During the nine months ended September 30, 2023, margin deposits decreased by $2.1 million, compared to a $6.4 million increase in 2022. Partially offsetting changes in inventory and margin deposits, was a $13.7 million change in accrued commodity purchases. Accrued commodity purchases decreased by $13.4 million during the nine-month period ended September 30, 2023, compared to $0.3 million increase during the same period in 2022.
Cash Flows Used For Investing Activities
The $49.5 million increase in cash flows used for investing activities during the nine-month period ended September 30, 2023, compared to the same period in
2022, was due to a $49.5 million increase in expenditures for purchases of various property and equipment that we made for the construction and development of the new crush facility near Mitchell, which were subsequently contributed to High Plains Partners and High Plains Processing. During the nine months ended September 30, 2023, we spent $52.8 million on our purchases of property and equipment, compared to $3.3 million during the same period in 2022.
Cash Flows Provided By Financing Activities
The $18.8 million increase in cash flows provided by financing activities was principally due to the receipt of $85.1 million in investment proceeds received by our subsidiaries, High Plains Partners and HPP SD Holdings, in connection with their equity
financing, which subsequently was contributed to High Plains Processing for the construction and development of the new crush facility. Partially offsetting the increase is a $44.6 million decrease in net proceeds on borrowings and a $19.2 million increase in cash distributions to our members during the nine-month period ended September 30, 2023, compared to the same period in 2022. During the nine months ended September 30, 2023, net proceeds on borrowings increased by $3.2 million, compared to $47.8 million during the same period in 2022.
Indebtedness
We have three lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under this loan, we may borrow funds, as needed, up to the credit
line maximum, or $12.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. The available credit line decreases by $0.6 million every six months until the credit line’s maturity on March 20, 2028 at which time a balloon payment for the remaining balance is due. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal
22
balance outstanding on the revolving term loan was $11.4 million and $8.8 million as of September 30, 2023 and December 31, 2022, respectively. Under this loan, there were no additional funds available to
borrow as of September 30, 2023.
The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan is to finance our operating needs. The maximum we may borrow under this line is $85.0 million until the loan's maturity on October 1, 2024. We pay a 0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of September 30, 2023 and December 31, 2022, the principal balance outstanding on this credit line was $0.7 million and $0.1 million, respectively, allowing us to borrow an additional $84.3 million as of September 30,
2023.
The third line of credit is a multiple advance note payable. The primary purpose of this note is to finance our investment in High Plains Partners and other larger capital projects. We have an agreement with High Plains Partners to commit up to $111.3 million in cash, property and development rights to High Plains Partners to facilitate the construction and development of the new crush facility near Mitchell. The maximum we may borrow under this note is $90.0 million. Under this loan, principal payments of $4.5 million are made every six months which begin on October 20, 2024 and end on the date of maturity, March 20, 2024, at which time a balloon payment is due for the remaining balance. The principal balance outstanding on this note was $0 as of September 30, 2023 and
December 31, 2022. Under this note, there were $90.0 million of funds available to borrow as of September 30, 2023.
The revolving, seasonal and multiple advance loans with CoBank are set up with a variable rate option. The variable rate is set daily by CoBank. We also have a fixed rate option on all three loans, allowing us to fix rates for any period between one day and the entire commitment period. The annual interest rate on the revolving term and multiple advance loans was 7.85% and 6.85% as of September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023 and December 31, 2022, the interest rate on the seasonal
loan was 7.55% and 6.55%, respectively. We were in compliance with all covenants and conditions under the loans as of September 30, 2023.
OFF BALANCE SHEET FINANCING ARRANGEMENTS
We do not utilize variable interest entities or other off-balance sheet financial arrangements.
Contractual Obligations
The following table shows our contractual obligations for the periods presented:
Payment
due by period
CONTRACTUAL OBLIGATIONS
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
Long-Term Debt Obligations (1)
$
14,144,000
$
2,037,000
$
3,729,000
$
8,378,000
$
—
Operating
Lease Obligations
32,028,000
4,055,000
7,786,000
6,185,000
14,002,000
Totals
$
46,172,000
$
6,092,000
$
11,515,000
$
14,563,000
$
14,002,000
(1) Represents
principal and interest payments on our notes payable, which are included on our Balance Sheet.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of our Financial Statements under Part I, Item 1, for a discussion on the impact, if any, of the recently pronounced accounting standards.
23
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates from those
set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed-price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the Chicago Board of Trade. While hedging activities
reduce the risk of loss from changing market prices, such activities also limit the gain potential which otherwise could result from these significant fluctuations in market prices. Our policy is generally to maintain a hedged position within limits, but we can be long or short at any time. Our profitability is primarily derived from margins on soybeans processed, not from hedging transactions. Our management does not anticipate that hedging activities will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against the nonperformance of a cash contract.
At any one time, our inventory and purchase contracts for delivery to our facility may be substantial. We have risk management policies and procedures
that include net position limits. They are defined by commodity and include both trader and management limits. This policy and procedure trigger a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the board of managers. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Foreign Currency Risk. We conduct essentially all of our business in U.S. dollars and have minimal direct risk regarding foreign currency
fluctuations. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of and demand for U.S. agricultural products compared to the same products offered by foreign suppliers.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Interest Rate Risk. We manage exposure to interest rate changes by using variable-rate loan agreements with fixed-rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the
funds were fixed.
As of September 30, 2023, we had $0 in fixed-rate debt outstanding and $186.4 million of variable-rate lines of credit. Interest rate changes impact the amount of our interest payments and, therefore, our future earnings and cash flows. Assuming other variables remain constant, a 1.0% increase in interest rates on our variable-rate debt could have an estimated impact on profitability of approximately $1.9 million per year.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer
and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control Over Financial Reporting. There were no changes to our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended September 30, 2023.
24
PART
II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time in the ordinary course of our business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officer and employees, business interruption, automobile liability, and workers' compensation. We are not currently involved in any material legal proceedings and are not aware of any potential claims.
Item
1A. Risk Factors.
During the quarter ended September 30, 2023, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2022 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item
4. Mine Safety Disclosures.
None.
Item 5. Other Information.
Insider Adoption or Termination of Trading Arrangements
During the three months ended September 30, 2023, none of our managers or officers iiadopted/
or iiterminated/ a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408 of Regulation S-K..
(1) Incorporated
by reference from Appendix B to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-75804).
In
accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
