Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 501K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 23K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
12: R1 Cover Page HTML 71K
13: R2 Condensed Consolidated Balance Sheets HTML 130K
14: R3 Condensed Consolidated Balance Sheets HTML 22K
[Parenthetical]
15: R4 Condensed Consolidated Statements of Operations HTML 93K
(Unaudited)
16: R5 Condensed Statement of Changes in Members' Equity HTML 38K
Statement
17: R6 Condensed Consolidated Statements of Cash Flows HTML 93K
(Unaudited)
18: R7 Principal Activity and Significant Accounting HTML 37K
Policies
19: R8 Accounts Receivable HTML 32K
20: R9 Inventories HTML 27K
21: R10 Property and Equipment HTML 43K
22: R11 Note Payable - Seasonal Loan HTML 21K
23: R12 Long-Term Debt HTML 36K
24: R13 Operating Leases (Notes) HTML 95K
25: R14 Member Distribution HTML 20K
26: R15 Derivative Instruments and Hedging Activities HTML 55K
27: R16 Fair Value HTML 52K
28: R17 Related Party Transactions (Notes) HTML 23K
29: R18 Commitments and Contingencies HTML 22K
30: R19 Subsequent Event HTML 21K
31: R20 Principal Activity and Significant Accounting HTML 30K
Policies (Policies)
32: R21 Principal Activity and Significant Accounting HTML 32K
Policies (Tables)
33: R22 Accounts Receivable (Tables) HTML 31K
34: R23 Inventories (Tables) HTML 28K
35: R24 Property and Equipment (Tables) HTML 42K
36: R25 Long-Term Debt (Tables) HTML 35K
37: R26 Operating Leases (Tables) HTML 85K
38: R27 Derivative Instruments and Hedging Activities HTML 56K
(Tables)
39: R28 Fair Value of Financial Instruments (Tables) HTML 46K
40: R29 Principal Activity and Significant Accounting HTML 37K
Policies - Additional Information (Details)
41: R30 Principal Activity and Significant Accounting HTML 29K
Policies - Disaggregation of Revenue (Details)
42: R31 Accounts Receivable (Details) HTML 35K
43: R32 Accounts Receivable (Details Textual) HTML 20K
44: R33 Inventories (Details) HTML 27K
45: R34 Property and Equipment (Details) HTML 51K
46: R35 Property and Equipment (Details Textual) HTML 21K
47: R36 Note Payable - Seasonal Loan (Details Textual) HTML 35K
48: R37 Long-Term Debt (Details) HTML 48K
49: R38 Long-Term Debt (Details 1) HTML 31K
50: R39 Long-Term Debt (Details Textual) HTML 51K
51: R40 Operating Leases - Additional Information HTML 41K
(Details)
52: R41 Operating Leases - Schedule of Operating Leases HTML 60K
(Details)
53: R42 Operating Leases - Components of Operating Lease HTML 29K
Costs (Details)
54: R43 Operating Leases - Supplemental Cash Flow HTML 24K
Information (Details)
55: R44 Operating Leases - Additional Lease Information HTML 23K
(Details)
56: R45 Operating Leases - Maturity Analysis of HTML 49K
Undiscounted Cash Flows of Operating Lease
Liabilities (Details)
57: R46 Member Distribution (Details Textual) HTML 27K
58: R47 Derivative Instruments and Hedging Activities HTML 24K
(Details Textual)
59: R48 Derivative Instruments and Hedging Activities HTML 34K
(Details)
60: R49 Derivative Instruments and Hedging Activities HTML 29K
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61: R50 Fair Value of Financial Instruments (Details) HTML 41K
62: R51 Related Party Transactions (Details) HTML 37K
63: R52 Commitments and Contingencies (Details) HTML 21K
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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.
Yes x 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). x Yes ¨ 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 Non-Accelerated Filer
¨ Smaller Reporting Company
¨ 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 an 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 x 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 13, 2021, the registrant had i30,419,000
capital units outstanding.
Charges
and credits to net income not affecting cash:
Depreciation and amortization
i2,531,092
i2,433,310
Net
(gain) loss recognized on derivative activities
i12,730,534
(i6,851,092)
Gain
on sales of property and equipment
i5,129
i—
Non-cash
patronage dividends
(i75,411)
(i43,405)
Forgiveness
of Paycheck Protection Program loan
(i10,000)
i—
Change
in current assets and liabilities
(i72,261,779)
(i4,725,051)
Net
cash provided by (used for) operating activities
(i49,730,286)
(i3,476,541)
Investing
activities
Purchase of investments
i—
(i404,329)
Retirement
of patronage dividends
i54,904
i66,210
Proceeds
from sales of property and equipment
i18,000
i—
Purchase
of property and equipment
(i3,781,167)
(i2,956,848)
Net
cash provided by (used for) investing activities
(i3,708,263)
(i3,294,967)
Financing
activities
Change in excess of outstanding checks over bank balances
(i1,413,291)
(i3,360,244)
Net
proceeds (payments) from seasonal borrowings
i58,589,213
i11,411,765
Distributions
to members
(i9,429,890)
(i6,692,180)
Payments
for debt issue costs
i—
(i10,000)
Proceeds
from long-term debt
i11,839,877
i11,215,700
Principal
payments on long-term debt
(i9,343,167)
(i2,603,342)
Net
cash provided by (used for) financing activities
i50,242,742
i9,961,699
Net
change in cash and cash equivalents
(i3,195,807)
i3,190,191
Cash
and cash equivalents, beginning of period
i3,650,950
i624,681
Cash
and cash equivalents, end of period
$
i455,143
$
i3,814,872
Supplemental
disclosures of cash flow information
Cash paid during the period for:
Interest
$
i692,422
$
i647,447
Income
taxes
$
i—
$
i—
Noncash
investing activities:
Soybean meal contributed as investment in related party
$
i—
i53,647
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, 2020 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, 2020, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2021.
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 $i1,766,380 and $i1,728,407 as of iJune 30,
2021 and December 31, 2020, respectively. Of the $i1,728,407 balance as of December 31, 2020, contract liabilities recognized as revenues were $i501,827
and $i894,811 for the three and six months ended iJune 30, 2021, respectively. Of the $i313,347
customer prepayments as of December 31, 2019, the Company recognized $i88,692 and $i313,347
of contract liabilities as revenues during the three and six months ended June 30, 2020, 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 iJune 30, 2021 and 2020, 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 $i1,259,102 and $i1,243,780 for the three months ended iJune 30,
2021 and 2020, respectively, and $i2,528,652 and $i2,431,096 for the six months ended iJune 30,
2021 and 2020, respectively.
Note 5 - iNote Payable – Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires iDecember 1,
2021. The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company could borrow up to $i70 million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (i2.31%
at iJune 30, 2021). The Company pays a i0.20% annual commitment fee on any funds not borrowed.
There were advances outstanding of $i58,589,213 and $i0 at iJune 30,
2021 and December 31, 2020, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement were $i11.4 million as of iJune 30,
2021.
Revolving term loan from CoBank, interest at variable rates (i2.56% and i2.60%
at June 30, 2021 and December 31, 2020, respectively), secured by substantially all property and equipment. Loan matures September 20, 2023.
$
i20,000,000
$
i17,503,291
Note
payable to U.S. Small Business Authority, due in monthly principal and interest installments, interest rate at ii1.00/%,
unsecured. Note matures July 20, 2022.
i—
i10,000
Total
debt before debt issuance costs
i20,000,000
i17,513,291
Less
current maturities
(i4,000,000)
i—
Less
debt issuance costs, net of amortization of $i13,018 and $i10,577
as of June 30, 2021 and December 31, 2020, respectively
(i10,982)
(i13,423)
Total
long-term debt
$
i15,989,018
$
i17,499,868
/
11
South
Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
The Company entered into an agreement as of January 28, 2020 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 $i26,000,000
on the revolving term loan with a variable effective interest rate of i2.56%. The amount available for borrowing on the revolving term loan, however, will decrease by $i2,000,000
every six months beginning on March 20, 2020, with a scheduled balloon payment for the remaining balance on the loan's maturity date of iSeptember 20, 2023. 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 on this amendment will be amortized over the term of loan. The principal balance outstanding on the revolving term loan was $i20,000,000
and $i17,503,291 as of iJune 30, 2021 and December 31, 2020, respectively. There were ino
remaining commitments available to borrow on the revolving term loan as of iJune 30, 2021.
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 iJune 30,
2021.
On April 20, 2020, the Company entered into an unsecured promissory note for $i1,215,700 under the U.S. Small Business Administration's Paycheck Protection Program (“PPP Loan“), a loan program created under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act“). The PPP Loan is being made through First Bank & Trust, N.A. The PPP Loan was scheduled to
mature on July 20, 2022 and had a ii1/%
interest rate. The Company submitted to the SBA a loan forgiveness application on November 20, 2020, with the amount which may be forgiven equal to the sum of qualifying expenses such as payroll, rent obligations, and covered utility payments. The forgiveness application was approved by the SBA for $i1,205,700 on November 25, 2020 and $i10,000
on February 19, 2021.
i
The following are minimum principal payments on long-term debt obligations for the twelve-month periods ended June 30:
2022
$
i4,000,000
2023
i4,000,000
2024
i12,000,000
Total
$
i20,000,000
/
Note
7 - iOperating Leases
The Company has several operating leases for railcars. These leases have terms ranging from i3-i18
years and 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 $i783,006
and $i740,705 for the three months ended iJune 30, 2021 and 2020, respectively, and $i1,543,967
and $i1,523,915 for the six months ended iJune 30, 2021 and 2020, respectively.
i
The
following is a schedule of the Company's operating leases for railcars as of iJune 30, 2021:
Lessor
Quantity
of Railcars
Commencement Date
Maturity Date
Monthly Payment
American Railcar Leasing
i13
6/1/2021
5/31/2024
$
i7,150
Andersons
Railcar Leasing Co.
i10
7/1/2018
6/30/2023
i5,000
Andersons
Railcar Leasing Co.
i20
7/1/2019
6/30/2026
i11,300
Farm
Credit Leasing
i87
9/1/2020
8/31/2032
i34,929
Farm
Credit Leasing
i8
6/1/2021
5/31/2033
i5,966
GATX
Corporation
i14
7/1/2020
6/30/2024
i4,200
/
12
South
Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
Lessor
Quantity
of Railcars
Commencement Date
Maturity Date
Monthly Payment
Midwest Railcar Corporation
i64
1/1/2015
12/31/2021
i27,200
Trinity
Capital
i29
11/1/2020
10/31/2023
i17,255
Trinity
Capital
i20
11/1/2020
10/31/2023
i11,900
Trinity
Capital
i24
6/1/2021
5/31/2026
i10,440
Wells
Fargo Rail
i112
8/1/2017
7/31/2022
i52,557
Wells
Fargo Rail
i107
1/1/2018
12/31/2022
i35,845
Wells
Fargo Rail
i7
1/1/2004
12/31/2021
i2,926
Wells
Fargo Rail
i15
1/1/2004
12/31/2021
i5,850
Wells
Fargo Rail
i8
1/1/2015
12/31/2021
i3,600
i538
$
i236,118
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 $i48,863 and $i11,394 for the three months ended iJune 30,
2021 and 2020, respectively, and $i58,604 and $i19,075 for the six-month periods ended iJune 30,
2021 and 2020, 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,
which is included in current operating lease liabilities on the Company's balance sheet, 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 seven-year renewal period at the sole discretion of the Company.
Operating leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the 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-month and six-month periods ended iJune 30,
2021 and 2020 were as follows:/
Weighted-average
remaining lease-term - operating leases (in years)
i7.9
Weighted-average discount rate - operating leases
i3.0
%
i
The
following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of iJune 30, 2021:
Railcars
Other
Total
Twelve-month
periods ended June 30:
2022
$
i2,543,403
$
i278,062
$
i2,821,465
2023
i1,617,863
i276,960
i1,894,823
2024
i997,289
i262,014
i1,259,303
2025
i751,619
i247,769
i999,388
2026
i741,179
i237,434
i978,613
Thereafter
i3,079,916
i2,082,143
i5,162,059
Total
lease payments
i9,731,269
i3,384,382
i13,115,651
Less
amount of lease payments representing interest
(i1,305,258)
(i9,231)
(i1,314,489)
Total
present value of lease payments
$
i8,426,011
$
i3,375,151
$
i11,801,162
/
Note
8 - iMember Distribution
On iFebruary 2, 2021, the
Company’s Board of Managers approved a cash distribution of approximately $i9.4 million, or i31.0¢
per capital unit. The distribution was paid in accordance with the Company’s operating agreement and distribution policy on iFebruary 4, 2021.
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 iJune 30, 2021 and 2020, 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 $(i6,914,274) and $i1,712,342
during the three months ended iJune 30, 2021 and 2020, respectively, and $(i12,730,534)
and $i6,851,092 for the six-month periods ended iJune 30, 2021 and 2020,
respectively.
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
15
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
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 iJune 30,
2021 and December 31, 2020:
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, 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 $i448,507 and $i56,453
during the three months ended iJune 30, 2021 and 2020, respectively, and $i1,951,334 and $i59,259
during the six months ended iJune 30, 2021 and 2020, respectively. As of iJune 30, 2021 and December 31,
2020, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $i0 and $i339,967, respectively.
The
Company has entered into agreements with Prairie AquaTech Manufacturing, LLC to perform various management services and to serve as the owner's representative during the construction of its new manufacturing
16
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
facility adjacent to the Company's plant in Volga, South Dakota. The Company received a total of
$i1.72 million in compensation for those services, which was recorded in deferred liabilities on the Company's condensed balance sheet. The Company recognized revenues from management services of $i0
and $i35,278 during the three months ended iJune 30, 2021 and 2020, respectively, and $i0
and $i121,111 during the six months ended iJune 30, 2021 and 2020, respectively.
Note
12 - Commitments and iContingencies
As of iJune 30, 2021, the Company
had unpaid commitments of approximately $i1.0 million for construction and acquisition of property and equipment, all of which is expected to be incurred by December 31, 2021.
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 iJune 30,
2021, (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, 2020. 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, 2020.
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
For the six months ended June 30, 2021, we recorded a net income of $7.4 million, compared to $5.7 million during the same period in 2020. The $1.7 million increase in net profit is largely due to an improvement
in the quantity and quality of the local soybean crop along with increased demand for soybean oil. While adverse weather in the spring of 2019 significantly reduced the quantity and quality of soybeans in our procurement area, conditions during the 2020 crop year vastly improved, in turn yielding a large soybean crop with improved quality. In addition, oil demand surged significantly due to increased demand from the renewable diesel and food retail sectors that continue to recover following the COVID-19 pandemic. Demand for soybean meal improved as well following a rebound in the livestock market and prices. The improved margin structure, however, caused a $6.9 million net loss on derivative instruments, because we had to value our forward contracts at the current and improved market prices.
More recently during the second quarter ended
June 30, 2021, we have faced new challenges with respect to volatility of in the market and dramatic price swings in our top commodities.
Despite an excellent planting season this spring, this summer's extreme drought in our region has led to significant increases in soybean prices, market volatility, and strains on our margins. While the large rebound in demand from the renewable diesel and food sectors has been beneficial, we are concerned that the recent uptick in COVID cases could adversely affect and curtail demand from the food sector, as customers in the bar and restaurant industry may limit hours or even be forced to close again. These challenges continue unless their is relief from the drought and our customer markets are not disrupted from a return of COVID or government restrictions in handling COVID.
Revenue – Revenue increased $67.0 million, or 71.8%, for the three-month period ended June 30, 2021, compared to the same period in 2020. The increase in revenues was primarily due to increases in the average sales prices of all soybean products. Soybean prices soared due to a very strong demand in the soybean export sector, resulting in increased meal
and oil prices. Oil prices were further affected by surging demand for soybean oil from the renewable diesel and food sectors.
Gross Profit/Loss – Gross profit decreased $3.5 million, or 52.9%, for the three months ended June 30, 2021, compared to the same period in 2020. The decrease in gross profit was primarily due to an $8.6 million decline in net gain (loss) on derivative instruments. During the three months ended June 30, 2021, we had a $6.9 million net loss on derivative instruments, compared to a $1.7 million gain in the same period in 2020. The net loss on derivative instruments was largely caused by valuing our forward contract positions at current market values which increased during the period. The decline
in net gain (loss) on derivative instruments was partially offset by an improvement in the quantity and quality of soybeans grown in the U.S., especially in our local procurement area. In addition, demand for oil surged from the renewable diesel sector as more diesel plants were opened.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $58,000, or 6.5%, during the three-month period ended June 30, 2021, compared to the same period in 2020. The increase was primarily due to an increase in professional fees.
Interest Expense – Interest expense increased $185,000, or 59.9%, during the three months ended June 30, 2021, compared to the same period in 2020. The increase
in interest expense was due primarily to an increase in borrowings from our lines of credit, as we borrowed more due to higher commodity prices and to pay for capital improvements. The average debt level during the three-month period ended June 30, 2021 was approximately $77.0 million, compared to $39.2 million for the same period in 2020. Partially offsetting the increase in borrowings was a decrease in interest rates on our senior debt with CoBank. As of June 30, 2021, the interest rate on our revolving long-term loan was 2.56%, compared to 2.63% as of June 30, 2020.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, decreased $151,000 during the three-month period ended June 30,
2021, compared to the same period in 2020. The decrease in other non-operating income was primarily due to a $96,000 increase in losses on our interest rate hedge instruments. During the three-month period ended June 30, 2021, losses on interest rate hedges totaled $135,000, compared to losses of $39,000 during the same period in 2020.
Net Income/Loss – During the three-month period ended June 30, 2021, we generated a net income of $1.6 million, compared to $5.5 million for the same period in 2020. The $3.9 million decrease was primarily attributable to a decrease in gross profit and other non-operating income, along with increases in interest and operating expenses.
Revenue – Revenue increased $91.9 million, or 47.9%, for the six-month period ended June 30, 2021, compared to the same period in 2020. The increase in revenues was primarily due to increases in the average sales prices of all soybean products. Soybean prices soared due to a very strong demand in the soybean export sector, resulting in increased meal and
oil prices. Oil prices were further affected by surging demand for soybean oil from the renewable diesel and food sectors.
Gross Profit/Loss – Gross profit increased $1.4 million for the six months ended June 30, 2021, compared to the same period in 2020. The increase in gross profit was primarily due to an improvement in the quantity and quality of soybeans grown in the U.S., especially in our local procurement area. In addition, demand for oil surged from the renewable diesel sector as more diesel plants were opened.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $151,000, or 7.9%, during the six-month period ended June 30, 2021, compared to the same period
in 2020. The increase was primarily due to an increase in personnel costs and professional fees.
Interest Expense – Interest expense increased $152,000, or 23.1%, during the six months ended June 30, 2021, compared to the same period in 2020. The increase in interest expense was due primarily to an increase in borrowings from our lines of credit, as we had to borrow more due to higher commodity prices and to pay for capital improvements. The average debt level during the six-month period ended June 30, 2021 was approximately $62.8 million, compared to $37.9 million for the same period in 2020. Partially offsetting the increase in debt levels was a decrease in interest rates on our senior debt with CoBank. As of June 30, 2021, the interest rate on our revolving
long-term loan was 2.56%, compared to 2.63% as of June 30, 2020.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, improved $566,000 during the six-month period ended June 30, 2021, compared to the same period in 2020. The increase in other non-operating income was due to a $531,000 improvement in gains (losses) on our interest rate hedge instruments. During the three-month period ended June 30, 2021, gains on interest rate hedges totaled $72,000, compared to losses of $459,000 during the same period in 2020.
Net Income/Loss – During the six-month period ended June 30, 2021, we generated
a net income of $7.4 million, compared to $5.7 million for the same period in 2020. The $1.6 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 lines of credit which are discussed below under “Indebtedness.” On June 30, 2021, we had working capital, defined as current assets less current liabilities, of approximately $26.8 million, compared to $25.1 million on June 30, 2020. Working capital increased $1.7 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
$
(49,730,286)
$
(3,476,541)
Net cash provided by (used for) investing activities
(3,708,263)
(3,294,967)
Net cash provided by (used for) financing activities
50,242,742
9,961,699
Cash
Flows Used For Operations
The $46.3 million increase in cash flows used for operating activities was due to a $23.1 million increase in inventories, a $12.9 million increase in accounts receivable, and a $4.6 million decrease in accrued commodity purchases. During the six-month period ended June 30, 2021, we increased inventories by $37.4 million, compared to $14.3 million during the same period in 2020. In addition, accounts receivable increased $9.7 million during the six months ended June 30, 2021, compared to a $3.2 million decrease during the same period in 2020. Accrued commodity purchases also decreased by $9.0 million during the six months ended June 30, 2021, compared to $4.4 million during the same period in 2020. The changes in inventories, accounts receivable, and accrued
commodity purchases were largely the result of increased commodity prices in our industry.
Cash Flows Used For Investing Activities
The $0.4 million increase in cash flows used for investing activities during the six-month period ended June 30, 2021, compared to the same period in 2020, was due to an $0.8 million increase in capital improvements. During the six months ended June 30, 2021, we spent $3.8 million on capital improvements, compared to $3.0 million during the same period in 2020. Partially offsetting the increase in capital improvements was a $0.4 million decrease in investment purchases. During the six months ended June 30, 2021, we made no new investments in Prairie AquaTech Manufacturing, LLC, compared to $0.4 million during
the same period in 2020.
Cash Flows Provided By (Used For) Financing Activities
The $40.3 million increase in cash flows provided by financing activities was principally due to a $41.1 million increase in net proceeds on borrowings. During the six months ended June 30, 2021, net proceeds on borrowings increased $61.1 million, compared to $20.0 million during the same period in 2020. Partially offsetting the increase in net borrowings was a $2.7 million increase in cash distributions to our members during the six-month period ended June 30, 2021, compared to the same period in 2020.
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 $26.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. On March 20, 2020, the available credit line decreased by $2.0 million, and decreases continually by the same amount every six months until the credit line’s maturity on September 20, 2023 at which time we will be required to make a balloon payment for the remaining balance. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan was $20.0 million and $17.5 million as of June 30, 2021 and December 31, 2020. Under this
loan, there were no additional funds available to borrow as of June 30, 2021.
The second credit line is a revolving working capital (seasonal) loan. The primary purpose of this loan, which matures on December 1, 2021, is to finance our operating needs. The maximum amount we can borrow under this credit line is $70.0 million. 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, 2021 and December 31, 2020, the principal balance outstanding on this credit line was $58.6 million and $0, respectively, allowing us to borrow an additional $11.4 million as of June 30,
2021.
Both the revolving and seasonal loans with CoBank are set up with a variable rate option. The variable rate is set by CoBank and changes weekly on the first business day of each week. 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
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interest rate on the revolving term loan was 2.56% and 2.60% as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021 and December 31, 2020, the interest rate on the seasonal
loan was 2.31% and 2.35%, respectively. We were in compliance with all covenants and conditions with CoBank as of June 30, 2021.
On April 20, 2020, we entered into an unsecured promissory note for $1,215,700 under the U.S. Small Business Administration's Paycheck Protection Program (“PPP Loan“), a loan program created under the Coronavirus Aid, Relief and Economic Security (the "CARES Act"). The PPP Loan was made through First Bank & Trust, N.A., Brookings, South Dakota. The PPP Loan was scheduled to mature on July 20, 2022 and had a 1.0% interest rate. The PPP Loan has been forgiven in full by the SBA, with $1,205,700 being forgiven on November 25, 2020 and $10,000 being forgiven in February 2021.
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)
$
21,145,000
$
4,495,000
$
16,650,000
$
—
$
—
Operating
Lease Obligations
13,116,000
2,821,000
3,154,000
1,978,000
5,163,000
Totals
$
34,261,000
$
7,316,000
$
19,804,000
$
1,978,000
$
5,163,000
(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, 2020.
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
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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.
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,
2021, we had $0 in fixed rate debt outstanding and $90.0 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 $900,000 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 iJune 30,
2021.
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 iJune 30, 2021, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2020 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.