Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 932K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 24K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 21K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 21K
11: R1 Cover Page HTML 68K
12: R2 Condensed Consolidated Balance Sheets HTML 137K
13: R3 Condensed Consolidated Balance Sheets HTML 22K
[Parenthetical]
14: R4 Condensed Consolidated Statements of Operations HTML 90K
(Unaudited)
15: R5 Condensed Statement of Changes in Members' Equity HTML 42K
Statement
16: R6 Condensed Consolidated Statements of Cash Flows HTML 89K
(Unaudited)
17: R7 Principal Activity and Significant Accounting HTML 38K
Policies
18: R8 Accounts Receivable HTML 38K
19: R9 Inventories HTML 28K
20: R10 Property and Equipment HTML 43K
21: R11 Note Payable - Seasonal Loan HTML 21K
22: R12 Long-Term Debt HTML 34K
23: R13 Operating Leases (Notes) HTML 95K
24: R14 Member Distribution HTML 21K
25: R15 Derivative Instruments and Hedging Activities HTML 55K
26: R16 Fair Value HTML 52K
27: R17 Related Party Transactions (Notes) HTML 23K
28: R18 Commitments and Contingencies HTML 22K
29: R19 Subsequent Event HTML 21K
30: R20 Principal Activity and Significant Accounting HTML 31K
Policies (Policies)
31: R21 Principal Activity and Significant Accounting HTML 32K
Policies (Tables)
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33: R23 Inventories (Tables) HTML 28K
34: R24 Property and Equipment (Tables) HTML 42K
35: R25 Long-Term Debt (Tables) HTML 34K
36: R26 Operating Leases (Tables) HTML 96K
37: R27 Derivative Instruments and Hedging Activities HTML 56K
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38: R28 Fair Value of Financial Instruments (Tables) HTML 47K
39: R29 Principal Activity and Significant Accounting HTML 37K
Policies - Additional Information (Details)
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Policies - Disaggregation of Revenue (Details)
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Receivables (Details)
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Accounts Receivable (Details)
43: R33 Accounts Receivable (Details Textual) HTML 20K
44: R34 Inventories (Details) HTML 28K
45: R35 Property and Equipment (Details) HTML 51K
46: R36 Property and Equipment (Details Textual) HTML 22K
47: R37 Note Payable - Seasonal Loan (Details Textual) HTML 36K
48: R38 Long-Term Debt (Details) HTML 43K
49: R39 Long-Term Debt (Details 1) HTML 34K
50: R40 Long-Term Debt (Details Textual) HTML 40K
51: R41 Operating Leases - Additional Information HTML 44K
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52: R42 Operating Leases - Schedule of Operating Leases HTML 62K
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Costs (Details)
54: R44 Operating Leases - Supplemental Cash Flow HTML 24K
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56: R46 Operating Leases - Maturity Analysis of HTML 49K
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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 August 11, 2022, the registrant had i30,411,500
capital units outstanding.
Charges
and credits to net income not affecting cash:
Depreciation and amortization
i2,767,194
i2,531,092
Net
(gain) loss recognized on derivative activities
(i7,273,072)
i12,730,534
Loss
on sale of property and equipment
i2,927
i5,129
Non-cash
patronage dividends
(i145,749)
(i75,411)
Forgiveness
of Paycheck Protection Program loan
i—
(i10,000)
Change
in current assets and liabilities
(i59,254,520)
(i72,261,779)
Net
cash provided by (used for) operating activities
(i22,841,282)
(i49,730,286)
Investing
activities
Retirement of patronage dividends
i—
i54,904
Proceeds
from sales of property and equipment
i5,900
i18,000
Increase
in other assets
(i96,250)
i—
Purchase
of property and equipment
(i3,293,497)
(i3,781,167)
Net
cash provided by (used for) investing activities
(i3,383,847)
(i3,708,263)
Financing
activities
Change in excess of outstanding checks over bank balances
(i4,015,768)
(i1,413,291)
Net
proceeds (payments) from seasonal borrowings
i48,666,976
i58,589,213
Distributions
to members
(i17,338,830)
(i9,429,890)
Proceeds
from long-term debt
i4,224,724
i11,839,877
Principal
payments on long-term debt
(i5,127,197)
(i9,343,167)
Net
cash provided by (used for) financing activities
i26,409,905
i50,242,742
Net
change in cash and cash equivalents
i184,776
(i3,195,807)
Cash
and cash equivalents, beginning of period
i833,738
i3,650,950
Cash
and cash equivalents, end of period
$
i1,018,514
$
i455,143
Supplemental
disclosures of cash flow information
Cash paid during the period for:
Interest
$
i819,584
$
i692,422
Income
taxes
$
i—
$
i—
The
accompanying notes are an integral part of these condensed financial statements.
8
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
Note 1 - iPrincipal
Activity and Significant Accounting Policies
The unaudited condensed 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 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, 2021 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, 2021, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 18, 2022
and amended on Form 10-K/A filed with the SEC on April 27, 2022.
i
Use of estimates
The preparation of 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 of 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 sale of goods are accounted for as a fulfillment activity and are included in 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 balance sheets. These customer prepayments totaled $i2,093,342 and $i1,347,409 as of June 30, 2022 and December 31,
2021, respectively. Of the $i1,347,409 balance as of December 31, 2021, the Company recognized $i2,346
and $i1,342,478 as revenues for the three and six months ended June 30, 2022, respectively. Of the $i1,728,407
customer prepayments as of December 31, 2020, the Company recognized $i501,827 and $i894,811
of contract liabilities as revenues during the three and six months ended June 30, 2021, respectively.
/
9
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
i
The
following table presents a disaggregation of revenue from contracts with customers for the three and six month periods ended June 30, 2022 and 2021, 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 is generally 30 days from invoice date. Accounts considered uncollectible are written off. The Company’s estimate of the allowance for doubtful accounts 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.
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.
Depreciation
of property and equipment was $i1,379,259 and $i1,259,102 for the three months ended June 30, 2022 and 2021, respectively, and $i2,764,754
and $i2,528,652 for the six months ended June 30, 2022 and 2021, respectively.
Note 5 - iNote
Payable – Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires iDecember 1, 2022. 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 (i3.69%
at June 30, 2022). The Company pays a i0.20% annual commitment fee on any funds not borrowed. There were advances outstanding of $i48,666,976
and $i0 at June 30, 2022 and December 31, 2021, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement were $i36.3
million as of June 30, 2022.
Revolving term loan from CoBank, interest at variable rates (i3.99% and i2.56%
at June 30, 2022 and December 31, 2021, respectively), secured by substantially all property and equipment. Loan matures March 20, 2026.
$
i16,000,000
$
i16,902,473
Less
current maturities
(i4,000,000)
(i2,902,473)
Less
debt issuance costs, net of amortization of $i17,899 and $i15,458
as of June 30, 2022 and December 31, 2021, respectively
(i6,101)
(i8,542)
Total
long-term debt
$
i11,993,899
$
i13,991,458
/
The
Company entered into an agreement as of December 14, 2021 with CoBank to amend and restate its Credit Agreement, which includes both the revolving term and seasonal loans. Under the terms and conditions of the Credit Agreement, CoBank agreed to make advances to the Company for up to $i16,000,000 on the revolving term loan with a variable effective interest rate of i3.99%. The
amount available for borrowing on the revolving term loan will decrease by $i2,000,000 every isix months starting March
20, 2022 until the loan's maturity date of iMarch 20, 2026. 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 will be amortized over the term of loan. The principal balance outstanding on the revolving term loan was $i16,000,000
and $i16,902,473 as of June 30, 2022 and December 31, 2021, respectively. There were ino
remaining commitments available to borrow on the revolving term loan as of June 30, 2022.
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 June 30, 2022.
i
The
following are minimum principal payments on long-term debt obligations for the twelve-month periods ended June 30:
2023
$
i4,000,000
2024
i4,000,000
2025
i4,000,000
2026
i4,000,000
Total
$
i16,000,000
/
Note
7 - iOperating Leases
The Company has several operating leases for railcars. These leases have terms ranging from i3-i18
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 $i681,788
and $i783,006 for the three months ended June 30, 2022 and 2021, respectively, and $i1,346,276
and $i1,543,967 for the six months ended June 30, 2022 and 2021, respectively.
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 $i3,779.
Rental expense under these other operating leases was $i14,659 and $i9,577 for the three months ended June 30, 2022 and 2021,
respectively, and $i61,075 and $i19,318 for the six-month periods ended June 30, 2022 and 2021,
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 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. Rental expense under this agreement was $i58,938
and $i39,286 for the three months ended June 30, 2022 and 2021, respectively, and $i117,867
and $i39,286 for the six months ended June 30, 2022 and 2021, 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 six-month
periods ended June 30, 2022 and 2021 were as follows:
Cash paid for amounts included in measurement of lease liabilities
$
i530,658
$
i4,107,786
$
i1,280,591
$
i4,848,171
Supplemental
non-cash information:
Right-of-use assets obtained in exchange for lease liabilities
$
i1,542,649
$
i1,250,115
$
i4,929,172
$
i1,250,115
The
following summarizes the weighted-average remaining lease term and weighted-average discount rate as of June 30, 2022:
Weighted-average remaining lease-term - operating leases (in years)
i7.9
Weighted-average
discount rate - operating leases
i3.2
%
i
The
following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of June 30, 2022:
Railcars
Other
Total
Twelve-month
periods ended June 30:
2023
$
i2,445,653
$
i276,960
$
i2,722,613
2024
i1,930,193
i262,014
i2,192,207
2025
i1,684,523
i247,769
i1,932,292
2026
i1,683,543
i237,434
i1,920,977
2027
i1,246,683
i235,714
i1,482,397
Thereafter
i4,100,476
i1,846,430
i5,946,906
Total
lease payments
i13,091,071
i3,106,321
i16,197,392
Less
amount of lease payments representing interest
(i1,503,938)
(i4,531)
(i1,508,469)
Total
present value of lease payments
$
i11,587,133
$
i3,101,790
$
i14,688,923
/
Note
8 - iMember Distribution
On iFebruary 1, 2022, the
Company’s Board of Managers approved a cash distribution of approximately $i17.3 million, or i57.0¢
per capital unit. The distribution was paid in accordance with the Company’s operating agreement and distribution policy on iFebruary 3, 2022.
14
South Dakota Soybean
Processors, LLC
Notes to Condensed Financial Statements
Note 9 - 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, as hedging instruments. These contracts are recorded on the Company’s condensed balance
sheets at fair value as discussed in Note 10, Fair Value.
During
the three and six-month periods ended June 30, 2022 and 2021, 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 $i14,536,976 and $(i6,914,274)
during the three months ended June 30, 2022 and 2021, respectively, and $i7,273,072 and $(i12,730,534)
for the six-month periods ended June 30, 2022 and 2021, respectively.
15
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
Note 10 - iFair
Value
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a comprehensive framework for measuring fair value and expands disclosures which 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”).
•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 June 30, 2022 and December 31,
2021:
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 future 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,
16
South
Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
and it is impracticable to estimate the fair value of the Company’s investments. These investments are carried on the balance sheet at original cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
Note 11 - 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 $i4,393,396 and $i448,507
during the three months ended June 30, 2022 and 2021, respectively, and $i8,149,152 and $i1,951,334
during the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $i1,315,925 and $i776,767,
respectively.
Note 12 - Commitments and iContingencies
As of June 30, 2022, the Company had unpaid commitments of approximately $i3,384,000
for construction and acquisition of property and equipment, all of which is expected to be incurred by December 31, 2023.
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 dispute. The Company carries insurance that provides protection against general commercial liability claims, claims against our directors, officer and employees, business interruption, automobile liability, and workers' compensation. The Company is not currently involved
in any material legal proceedings and are not aware of any potential claims.
Note 13 - 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.
17
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 six-month period ended June 30, 2022, (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, 2021. 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, 2021.
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
Strong crush margins from the first quarter of 2022 continued into the second quarter of 2022, helping us achieve record net incomes of $22.8 million in the second quarter and $41.1 million for the first six months of the year. Soybean oil continues to drive profitability, as strong demand for oil from the food, fuel and export sectors increased margins to record levels. Strong demand for oil is likely to continue in the near future as additional renewable diesel plants in Western U.S. are scheduled to begin production in 2022. Soybean meal demand, though not
as strong as soybean oil, remained solid during the first six months, being supported by a strong domestic demand and an active export program. Steady soybean supply and delivery to both our plants further contributed to a strong six months.
While our financial results were favorable, the second quarter was not without challenges. Transportation-related issues were common. Rail carriers struggled delivering our railcars to our customers and returning those cars in a timely manner, resulting in railcar shortages that led to reduced production at our Volga facility. A shortage of drivers in the trucking industry also caused delays and increased costs. Supply chain disruption issues provided additional challenges to our team. Spare parts and production chemicals were difficult to source and required much greater lead times when ordering. In the end, however, we responded well by navigating the obstacles through a great team of
employees.
Looking ahead, we anticipate above-average processing margins for the remainder of 2022 and into 2023. Although crush margins have recently decreased slightly, the market continues to provide opportunities to secure above average returns.
Long term, we continue to study the feasibility, engineering and planning of a new crushing plant near Mitchell, South Dakota. In July, we crossed a significant hurdle by securing a conditional use permit for the site from Davison County, South Dakota.
Revenue – Revenue increased $15.0 million, or 9.3%, for the three-month period ended June 30, 2022, compared to the same period in 2021. The increase in revenue was primarily due to an increase in the average sales price of refined soybean oil. The average sales price of soybean oil increased approximately 45% in the three months ended June 30,
2022 from the same period in 2021, resulting from surging demand from the renewable diesel and food sectors.
Gross Profit/Loss – Gross profit increased $21.4 million, or 680.9%, for the three months ended June 30, 2022, compared to the same period in 2021. The increase in gross profit was primarily due to increased demand for oil from the renewable diesel sector as more diesel plants were opened throughout the U.S.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $520,000, or 54.3%, during the three-month period ended June 30, 2022, compared to the same period in 2021. The increase was primarily due to increases in personnel costs.
Interest
Expense – Interest expense increased $55,000, or 11.1%, during the three months ended June 30, 2022, compared to the same period in 2021. The increase in interest expense was due to an increase in interest rates on our senior debt with CoBank and borrowings from our lines of credit. As of June 30, 2022, the interest rate on our revolving long-term loan was 3.99%, compared to 2.56% as of June 30, 2021.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, improved $350,000 during the three months ended June 30, 2022, compared to the same period in 2021. The increase in other non-operating income was due to a $350,000 improvement in gains
(losses) on our interest rate hedge instruments. During the three-month period ended June 30, 2022, gains on interest rate hedges totaled $215,000, compared to a $135,000 loss during the same period in 2021.
Net Income/Loss – During the three-month period ended June 30, 2022, we generated a net income of $22.8 million, compared to $1.6 million for the same period in 2021. The $21.2 million increase was primarily attributable to an increase in gross profit.
Revenue – Revenue increased $63.1 million, or 22.2%, for the six-month period ended June 30, 2022, compared to the same period in 2021. The increase in revenues was primarily due to an increase in the average sales price of refined soybean oil. The average sales price of soybean oil increased approximately 54% in the six months ended June 30,
2022 from the same period in 2021, resulting from surging demand from the renewable diesel and food sectors.
Gross Profit/Loss – Gross profit increased $33.6 million, or 343.8%, for the six months ended June 30, 2022, compared to the same period in 2021. The increase in gross profit was primarily due to increased demand for oil from the renewable diesel sector as more diesel plants were opened in the U.S.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $800,000, or 38.6%, during the six-month period ended June 30, 2022, compared to the same period in 2021. The increase was primarily due to increases in personnel costs.
Interest
Expense – Interest expense increased $125,000, or 15.4%, during the six months ended June 30, 2022, compared to the same period in 2021. The increase in interest expense was due to an increase in interest rates on our senior debt with CoBank. As of June 30, 2022, the interest rate on our revolving long-term loan was 3.99%, compared to 2.56% as of June 30, 2021.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $1,034,000 during the six-month period ended June 30, 2022, compared to the same period in 2021. The increase in other non-operating income was due to a $714,000 increase in gains on our interest rate hedge instruments
and a $335,000 increase in patronage dividend income. During the six-month period ended June 30, 2022, gains on interest rate hedges totaled $786,000, compared to $72,000 during the same period in 2021. We also received $700,000 in patronage distributions from CoBank, a cooperative lender of which we are a member, during the six months ended June 30, 2022, compared to $365,000 during the same period in 2021.
Net Income/Loss – During the six-month period ended June 30, 2022, we generated a net income of $41.1 million, compared to $7.4 million for the same period in 2021. The $33.7 million increase was primarily attributable to an increase in gross profit and other non-operating income.
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 June 30, 2022, we had working capital, defined as current assets less current liabilities, of approximately $58.3 million, compared to $26.8 million on June 30, 2021. Working capital increased $31.5 million between periods primarily due to increases in net income during that period. Based on current plans, we will continue funding our capital and operating needs from cash from operations and revolving lines of credit.
Net cash provided by (used for) operating activities
$
(22,841,282)
$
(49,730,286)
Net
cash provided by (used for) investing activities
(3,383,847)
(3,708,263)
Net cash provided by (used for) financing activities
26,409,905
50,242,742
Cash Flows Used For Operations
The $26.9 million decrease in cash flows used for operating activities was largely due to a $33.7 million increase in net income and a $9.3 million decrease in inventory. During the six-month period ended June 30, 2022, our inventories
increased by $28.1 million, compared to a $37.4 million increase during the same period in 2021. Partially offsetting the changes in net income and inventory was a $20.0 million change in net gains or losses on derivative activities. During the six months ended June 30, 2022, we recognized $7.4 million in gains on derivative activities, compared to $12.7 million in losses during the same period in 2021.
Cash Flows Used For Investing Activities
The $0.3 million decrease in cash flows used for investing activities during the six-month period ended June 30, 2022, compared to the same period in 2021, was due to a $0.5 million decrease in capital improvements. During the six months ended June 30, 2022, we spent $3.3 million on capital improvements,
compared to $3.8 million during the same period in 2021.
Cash Flows Provided By (Used For) Financing Activities
The $23.8 million decrease in cash flows provided by financing activities was principally due to a $13.3 million decrease in net proceeds on borrowings and a $7.9 million increase in cash distributions to our members during the six-month period ended June 30, 2022, compared to the same period in 2021. During the six months ended June 30, 2022, net proceeds on borrowings increased $47.8 million, compared to $61.1 million during the same period in 2021.
Indebtedness
We have two 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 $16.0 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 $2.0 million every six months until the credit line’s maturity on March 20, 2026. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $16.0 million and $16.9 million as of June 30, 2022 and December 31, 2021, respectively. Under this loan, there were no additional funds available to borrow as of June 30, 2022.
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 December 1, 2022. 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 June 30, 2022 and December 31, 2021, the principal balance outstanding on this credit line was $48.7 million and $0, respectively, allowing us to borrow an additional $36.3 million as of June 30, 2022.
Both the revolving and seasonal 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 both 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 loan was 3.99% and 2.56% as of June 30, 2022 and December 31, 2021, respectively. As of June 30, 2022 and December 31, 2021, the interest rate on the seasonal loan was 3.69% and 2.31%, respectively. We were in compliance with all covenants and conditions under the loans as of June 30, 2022.
21
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)
$
17,405,000
$
4,595,000
$
8,720,000
$
4,090,000
$
—
Operating
Lease Obligations
16,197,000
2,723,000
4,124,000
3,403,000
5,947,000
Totals
$
33,602,000
$
7,318,000
$
12,844,000
$
7,493,000
$
5,947,000
(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.
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, 2021.
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 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 triggers 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.
22
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 June 30, 2022, we had $0 in fixed rate debt outstanding and $101.0 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 $1.01 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 is reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended June 30, 2022.
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 dispute. 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 June 30, 2022, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2021
Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(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.
