Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 489K
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
12: R1 Cover Page HTML 68K
13: R2 Condensed Consolidated Balance Sheets HTML 131K
14: R3 Condensed Consolidated Balance Sheets HTML 22K
[Parenthetical]
15: R4 Condensed Consolidated Statements of Operations HTML 95K
(Unaudited)
16: R5 Condensed Statement of Changes in Members' Equity HTML 38K
Statement
17: R6 Condensed Consolidated Statements of Cash Flows HTML 96K
(Unaudited)
18: R7 Principal Activity and Significant Accounting HTML 38K
Policies
19: R8 Accounts Receivable HTML 38K
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 35K
24: R13 Operating Leases (Notes) HTML 94K
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 21K
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)
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34: R23 Inventories (Tables) HTML 28K
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37: R26 Operating Leases (Tables) HTML 95K
38: R27 Derivative Instruments and Hedging Activities HTML 56K
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39: R28 Fair Value of Financial Instruments (Tables) HTML 46K
40: 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)
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45: R34 Inventories (Details) HTML 27K
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53: R42 Operating Leases - Schedule of Operating Leases HTML 60K
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54: R43 Operating Leases - Components of Operating Lease HTML 29K
Costs (Details)
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Information (Details)
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57: 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.
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 November 10, 2021, the registrant had i30,419,000
capital units outstanding.
Charges
and credits to net income not affecting cash:
Depreciation and amortization
i3,786,317
i3,669,109
Net
(gain) loss recognized on derivative activities
(i1,919,827)
(i34,076)
Gain
on sales of property and equipment
(i89,150)
(i40,356)
Non-cash
patronage dividends
(i75,411)
(i43,405)
Forgiveness
of Paycheck Protection Program loan
(i10,000)
i—
Change
in current assets and liabilities
(i63,409,164)
(i12,082,495)
Net
cash provided by (used for) operating activities
(i39,899,796)
(i1,428,797)
Investing
activities
Purchase of investments
i—
(i404,329)
Retirement
of patronage dividends
i54,904
i66,210
Proceeds
from sales of property and equipment
i126,060
i41,216
Purchase
of property and equipment
(i7,185,750)
(i4,158,360)
Net
cash provided by (used for) investing activities
(i7,004,786)
(i4,455,263)
Financing
activities
Change in excess of outstanding checks over bank balances
i3,932,394
i10,961,501
Net
proceeds (payments) from seasonal borrowings
i48,589,449
(i1,743,029)
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
i17,131,227
Principal
payments on long-term debt
(i11,343,167)
(i10,557,204)
Net
cash provided by (used for) financing activities
i43,588,663
i9,090,315
Net
change in cash and cash equivalents
(i3,315,919)
i3,206,255
Cash
and cash equivalents, beginning of period
i3,650,950
i624,681
Cash
and cash equivalents, end of period
$
i335,031
$
i3,830,936
Supplemental
disclosures of cash flow information
Cash paid during the period for:
Interest
$
i1,188,709
$
i908,220
Income
taxes
$
i—
$
i—
Noncash
investing activities:
Soybean meal contributed as investment in related party
$
i—
i335,124
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 $i1,463,601 and $i1,728,407 as of September 30, 2021 and December 31,
2020, respectively. Of the $i1,728,407 balance as of December 31, 2020, contract liabilities recognized as revenues were $i414,729
and $i1,309,540 for the three and nine months ended September 30, 2021, respectively. Of the $i313,347
customer prepayments as of December 31, 2019, the Company recognized $i0 and $i313,347
of contract liabilities as revenues during the three and nine months ended September 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 nine month periods ended September 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 $i1,254,004 and $i1,234,580 for the three months ended September 30, 2021 and 2020, respectively, and $i3,782,656
and $i3,665,676 for the nine months ended September 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 (i2.29%
at September 30, 2021). The Company pays a i0.20% annual commitment fee on any funds not borrowed. There were advances outstanding of $i48,589,449
and $i0 at September 30, 2021 and December 31, 2020, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement were $i21.4
million as of September 30, 2021.
Revolving term loan from CoBank, interest at variable rates (i2.54% and i2.60%
at September 30, 2021 and December 31, 2020, respectively), secured by substantially all property and equipment. Loan matures September 20, 2023.
$
i18,000,000
$
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.
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 i2.54%. The
amount available for borrowing on the revolving term loan, however, will decrease by $i2,000,000 every isix 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 $i18,000,000
and $i17,503,291 as of September 30, 2021 and December 31, 2020, respectively. There were ino
remaining commitments available to borrow on the revolving term loan as of September 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 September 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 September 30:
2022
$
i4,000,000
2023
i14,000,000
Total
$
i18,000,000
/
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
12
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
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 $i765,469 and $i847,671 for the three months ended September 30,
2021 and 2020, respectively, and $i2,309,436 and $i2,371,586 for the nine months ended September 30,
2021 and 2020, 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 $i168,239 and $i11,013 for the three months ended September 30, 2021 and 2020,
respectively, and $i226,843 and $i30,088 for the nine-month periods ended September 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 iseven-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 nine-month periods ended September 30, 2021 and 2020 were as follows:
Weighted-average remaining lease-term - operating leases (in years)
i8.0
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 September 30, 2021:
Railcars
Other
Total
Twelve-month
periods ended September 30:
2022
$
i2,383,878
$
i278,062
$
i2,661,940
2023
i1,401,974
i275,355
i1,677,329
2024
i887,534
i258,597
i1,146,131
2025
i763,379
i242,722
i1,006,101
2026
i683,799
i236,918
i920,717
Thereafter
i2,957,231
i2,023,214
i4,980,445
Total
lease payments
i9,077,795
i3,314,868
i12,392,663
Less
amount of lease payments representing interest
(i1,269,761)
(i7,893)
(i1,277,654)
Total
present value of lease payments
$
i7,808,034
$
i3,306,975
$
i11,115,009
/
14
South
Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
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 nine-month periods ended September 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 $i14,650,361
and $(i6,817,016) during the three months ended September 30, 2021 and 2020, respectively, and $i1,919,827
and $i34,076 for the nine-month periods ended September 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 either comparable to actively traded securities or contracts, or priced with models using highly observable inputs, such as commodity prices using forward future prices.
•Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant
management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
i
The following tables set forth financial assets and liabilities measured at fair value in the condensed balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of September 30, 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
16
South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
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 $i1,885,669
and $i282,877 during the three months ended September 30, 2021 and 2020, respectively, and $i3,837,003
and $i342,136 during the nine months ended September 30, 2021 and 2020, respectively. As of September 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 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 $i0 during the three months ended September 30, 2021 and 2020, respectively, and $i0 and $i121,111
during the nine months ended September 30, 2021 and 2020, respectively.
Note 12 - Commitments and iContingencies
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 nine-month period ended September 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
We recorded a net income of $21.8 million for the nine-month period ended September 30, 2021, compared to $7.1 million during the same period in 2020. The $14.7 million increase in net income was largely due to
an increased demand for soybean oil along with an improvement in the quantity and quality of the local soybean crop. Demand for soybean oil increased significantly in 2021 due to increased consumption in the biofuel industry. In addition, soybean production in South Dakota rebounded in 2020 which resulted in a substantial fall harvest and improvement in soybean supply locally compared to 2019. The oil protein and moisture content of this crop also improved, further boosting profits during the year. Despite one of the largest on record soybean crops in 2020, concerns about the prospect of running out of soybeans to process prior to the 2021 harvest kept soybean meal values in line with previous years. These same concerns negatively impacted margins as local producers were reluctant to sell their soybeans during the months leading up to harvest.
Looking ahead, we anticipate above average processing margins for the remainder of
2021 and into 2022. A number of new renewable diesel plants in the Western U.S. are slated to begin production in 2022 which should keep soybean oil demand well above historical levels. Yet, we are concerned about the local soybean supply especially during the third quarter of 2022. Drought conditions this past summer have made it very difficult to accurately measure the quantity available for purchase until new crop supplies become available. Meal premiums are forecast to remain near average at least until the end of the first quarter 2022. South American supplies are anticipated to add pressure to the U.S. soybean meal export market during the second and third quarters in 2022 which may negatively affect our margins.
Revenue – Revenue increased $43.3 million, or 41.5%, for the three-month period ended September 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, especially refined soybean oil. Oil prices doubled in 2021 due to surging demand for soybean oil from
the renewable diesel and food sectors. In addition, soybean meal prices increased approximately 25% during the three-month period ended September 30, 2021, compared to the same period in 2020. The increase in meal prices was due to concerns about the prospect of a heavily diminished soybean supply prior to the 2021 harvest as a result of a very strong demand in the soybean export sector.
Gross Profit/Loss – Gross profit increased $13.6 million, or 565.0%, for the three months ended September 30, 2021, compared to the same period in 2020. The increase in gross profit was primarily due to surging demand for oil from the renewable diesel sector as more diesel plants opened. In addition, the quantity and quality of soybeans grown in the U.S., especially in our local procurement area, improved in 2020 from
2019 due to more favorable weather conditions.
Operating Expenses – Administrative expenses, including selling, general and administrative expenses, increased approximately $363,000, or 42.4%, during the three-month period ended September 30, 2021, compared to the same period in 2020. The increase was primarily due to an increase in personnel costs.
Interest Expense – Interest expense increased $232,000, or 96.9%, during the three months ended September 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 September 30, 2021 was approximately $71.6 million, compared to $31.9 million for the same period in 2020.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, increased $79,000 during the three-month period ended September 30, 2021, compared to the same period in 2020. The increase in other non-operating income was primarily due to a $54,000 increase in gains on sales of property and equipment. During the three-month period ended September 30, 2021, gains on sales of property and equipment totaled $94,000, compared to $40,000 during the same period in 2020.
Net Income/Loss – During the three-month period ended September 30,
2021, we generated a net income of $14.5 million, compared to $1.4 million for the same period in 2020. The $13.1 million increase was primarily attributable to an increase in gross profit.
Revenue – Revenue increased $135.3 million, or 45.6%, for the nine-month period ended September 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, especially refined soybean oil. The average sales price of soybean oil increased approximately 70% in
the nine months ended September 30, 2021, compared to the same period in 2020, due to surging demand for soybean oil from the renewable diesel and food sectors. In addition, soybean meal prices increased approximately 30% during the nine-month period ended September 30, 2021, compared to the same period in 2020. The increased meal prices were due to concerns about the prospect of a heavily diminshed soybean supply prior to the 2021 harvest as a result of strong demand in the soybean export sector.
Gross Profit/Loss – Gross profit increased $15.0 million for the nine months ended September 30, 2021, compared to the same period in 2020. The increase in gross profit was primarily due to surging in demand for oil from the renewable diesel sector as more diesel
plants were opened. In addition, the quantity and quality of soybeans grown in the U.S., especially in our local procurement area, improved in 2020 from 2019 due to more favorable weather conditions.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, increased approximately $515,000, or 18.5%, during the nine-month period ended September 30, 2021, compared to the same period in 2020. The increase was primarily due to increases in personnel costs and professional fees.
Interest Expense – Interest expense increased $384,000, or 42.7%, during the nine months ended September 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 borrowed more due to higher commodity prices and to pay for capital improvements. The average debt level during the nine-month period ended September 30, 2021 was approximately $65.8 million, compared to $35.9 million for the same period in 2020.
Other Non-Operating Income – Other non-operating income (expense), including patronage dividend income, improved $644,000 during the nine-month period ended September 30, 2021, compared to the same period in 2020. The increase in other non-operating income was due to a $556,000 improvement in gains (losses) on our interest rate hedge instruments. During the nine-month period ended September 30, 2021, gains on interest rate hedges totaled $135,000, compared to losses of $421,000
during the same period in 2020.
Net Income/Loss – During the nine-month period ended September 30, 2021, we generated a net income of $21.8 million, compared to $7.1 million for the same period in 2020. The $14.7 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 lines of credit which are discussed below under “Indebtedness.” On September 30, 2021, we had working capital, defined as current assets less current liabilities,
of approximately $37.5 million, compared to $23.7 million on September 30, 2020. Working capital increased $13.8 million between periods primarily due to increases in net income during that period.
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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
$
(39,899,796)
$
(1,428,797)
Net cash provided by (used for) investing activities
(7,004,786)
(4,455,263)
Net cash provided by (used for) financing activities
43,588,663
9,090,315
Cash
Flows Used For Operations
The $38.5 million increase in cash flows used for operating activities was due to a $36.0 million increase in inventories which were largely the result of increased commodity prices in our industry. During the nine-month period ended September 30, 2021, we increased inventories by $59.1 million, compared to $23.1 million during the same period in 2020.
Cash Flows Used For Investing Activities
The $2.5 million increase in cash flows used for investing activities during the nine-month period ended September 30, 2021, compared to the same period in 2020, was due to an $3.0 million increase in capital improvements. During the nine months ended September 30, 2021, we spent
$7.2 million on capital improvements, compared to $4.2 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 nine months ended September 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 $34.5 million increase in cash flows provided by financing activities was principally due to a $44.3 million increase in net proceeds on borrowings. During the nine months ended September 30, 2021, net proceeds on borrowings increased $49.1 million, compared to $4.8 million during the same period in 2020. Partially offsetting the increase in net borrowings
was a $7.1 million decrease in outstanding checks over bank balance and a $2.7 million increase in cash distributions to our members during the nine-month period ended September 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 $18.0 million and $17.5 million as of September 30, 2021 and December 31, 2020. Under this loan, there were no additional funds available to borrow as of September 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 September 30, 2021 and December 31, 2020, the principal balance outstanding on this credit line was $48.6 million and $0, respectively, allowing us to borrow an additional $21.4 million as of September 30, 2021.
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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 interest rate on the revolving term loan was 2.54% and 2.60% as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, the interest rate on the seasonal loan was 2.29% and 2.35%, respectively. We were in compliance with all covenants and conditions with CoBank as of September 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, which was scheduled to mature on July 20, 2022 and had a 1.0% interest rate, was made through First Bank & Trust, N.A., Brookings, South Dakota. The PPP Loan has since 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)
$
18,668,000
$
4,441,000
$
14,227,000
$
—
$
—
Operating
Lease Obligations
12,393,000
2,662,000
2,823,000
1,927,000
4,981,000
Totals
$
31,061,000
$
7,103,000
$
17,050,000
$
1,927,000
$
4,981,000
(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.
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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.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Interest Rate Risk. We manage exposure to interest rate changes by using variable rate loan agreements with fixed rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the funds were fixed.
As of September 30, 2021,
we had $0 in fixed rate debt outstanding and $88.0 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 $880,000 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 September 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 September 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.
