Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                    
FORM 10-Q
                    
xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
For the fiscal quarter ended September 30, 20162017
 
oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Commission file number 000-50254
LAKE AREA CORN PROCESSORS, LLC
(Exact name of registrant as specified in its charter)
 
South Dakota 46-0460790
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer Identification No.)
 
46269 SD Highway 34
P.O. Box 100
Wentworth, South Dakota
 57075
(Address of principal executive offices) (Zip Code)
 
(605) 483-2676
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act: Membership Units

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.        x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
 
Smaller Reporting Company o
(Do not check if a smaller reporting company) 
Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No
 
As of November 14, 20162017, there are 29,620,000 membership units of the registrant outstanding.




INDEX
 Page No.
  
       Item 6. Exhibits
  

PART I.        FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LAKE AREA CORN PROCESSORS, LLC
Consolidated Balance Sheets
September 30, 2016 December 31, 2015*September 30, 2017 December 31, 2016*
ASSETS(unaudited)  (unaudited)  
      
CURRENT ASSETS      
Cash and cash equivalents$7,345,228
 $8,329,166
$10,923,233
 $9,993,335
Accounts receivable4,099,634
 1,503,956
1,559,495
 4,054,667
Other receivables20,015
 1,462,207
13,880
 25,216
Inventory4,856,892
 7,565,490
7,463,472
 6,212,619
Derivative financial instruments1,044,170
 676,991
707,585
 1,057,465
Prepaid expenses116,500
 281,555
78,645
 237,823
Total current assets17,482,439
 19,819,365
20,746,310
 21,581,125
      
PROPERTY AND EQUIPMENT      
Land874,473
 874,473
874,473
 874,473
Land improvements9,418,802
 4,099,149
8,639,219
 9,449,920
Buildings8,955,206
 8,955,206
8,955,206
 8,955,206
Equipment52,432,954
 52,041,058
53,037,611
 52,614,358
Construction in progress255,449
 1,979,945
1,862,994
 
71,936,884
 67,949,831
73,369,503
 71,893,957
Less accumulated depreciation(36,415,292) (33,765,772)(39,238,714) (37,069,755)
Net property and equipment35,521,592
 34,184,059
34,130,789
 34,824,202
      
OTHER ASSETS      
Goodwill10,395,766
 10,395,766
10,395,766
 10,395,766
Investments12,542,291
 15,224,992
19,709,685
 11,192,032
Other71,686
 122,332
54,304
 122,964
Total other assets23,009,743
 25,743,090
30,159,755
 21,710,762
      
TOTAL ASSETS$76,013,774
 $79,746,514
$85,036,854
 $78,116,089
      
      

* Derived from audited financial statements.

See Notes to Unaudited Consolidated Financial Statements.








LAKE AREA CORN PROCESSORS, LLC
Consolidated Balance Sheets


      

September 30, 2016
December 31, 2015*September 30, 2017
December 31, 2016*
LIABILITIES AND MEMBERS’ EQUITY(unaudited)  (unaudited)  

      
CURRENT LIABILITIES      
Outstanding checks in excess of bank balance$862,536
 $477,166
$1,376,741
 $1,035,671
Accounts payable4,812,444
 9,671,856
4,821,573
 7,670,550
Accrued liabilities442,376
 498,735
456,181
 592,749
Derivative financial instruments1,581,298
 607,571
689,178
 827,786
Current maturities of notes payable995,333
 
Other118,465
 120,465
91,323
 141,323
Total current liabilities7,817,119
 11,375,793
8,430,329
 10,268,079


 

 
LONG-TERM LIABILITIES
 

 
Notes payable, net of current maturities1,000
 1,000
Notes payable6,985,445
 1,000
Other55,475
 105,475
21,556
 25,556
Total long-term liabilities56,475
 106,475
7,007,001
 26,556


 

 
COMMITMENTS AND CONTINGENCIES
 

 


 

 
MEMBERS' EQUITY (29,620,000 units issued and outstanding)68,140,180
 68,264,246
69,599,524
 67,821,454


 

 
TOTAL LIABILITIES AND MEMBERS' EQUITY$76,013,774
 $79,746,514
$85,036,854
 $78,116,089


 

 

 

 

* Derived from audited financial statements.

See Notes to Unaudited Consolidated Financial Statements.

LAKE AREA CORN PROCESSORS, LLC
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, 2016 Three Months Ended September 30, 2015 Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
              
REVENUES$20,983,806
 $22,038,423
 $64,551,832
 $66,433,906
$19,479,798
 $20,983,806
 $63,806,023
 $64,551,832
              
COSTS OF REVENUES18,177,658
 19,817,321
 57,677,492
 60,642,843
17,511,118
 18,177,658
 57,594,260
 57,677,492
              
GROSS PROFIT2,806,148
 2,221,102
 6,874,340
 5,791,063
1,968,680
 2,806,148
 6,211,763
 6,874,340
              
OPERATING EXPENSES878,318
 772,964
 2,647,867
 1,894,522
834,459
 878,318
 2,711,909
 2,647,867
              
INCOME FROM OPERATIONS1,927,830
 1,448,138
 4,226,473
 3,896,541
1,134,221
 1,927,830
 3,499,854
 4,226,473
              
OTHER INCOME (EXPENSE)              
Interest and other income5,626
 12,014
 31,197
 94,284
12,944
 5,626
 52,575
 31,197
Business interruption claims recovery
 
 
 500,000
Equity in net income of investments678,201
 392,686
 1,546,049
 2,177,486
668,512
 678,201
 1,189,949
 1,546,049
Interest expense(1,262) (1,954) (3,785) (6,089)(330) (1,262) (2,308) (3,785)
Total other income682,565
 402,746
 1,573,461
 2,765,681
681,126
 682,565
 1,240,216
 1,573,461
              
NET INCOME$2,610,395
 $1,850,884
 $5,799,934
 $6,662,222
$1,815,347
 $2,610,395
 $4,740,070
 $5,799,934
              
BASIC AND DILUTED EARNINGS PER UNIT$0.09
 $0.06
 $0.20
 $0.22
$0.06
 $0.09
 $0.16
 $0.20
              
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR THE CALCULATION OF BASIC & DILUTED EARNINGS PER UNIT29,620,000
 29,620,000
 29,620,000
 29,620,000
29,620,000
 29,620,000
 29,620,000
 29,620,000
           
  
DISTRIBUTIONS DECLARED PER UNIT$0.10
 $0.10
 $0.20
 $0.20
$
 $0.10
 $0.10
 $0.20
              

See Notes to Unaudited Consolidated Financial Statements.

LAKE AREA CORN PROCESSORS, LLC
Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016


 

 
OPERATING ACTIVITIES
 

 
Net income$5,799,934
 $6,662,222
$4,740,070
 $5,799,934
Changes to net income affecting cash and cash equivalents
 

 
Depreciation and amortization2,700,166
 2,440,041
2,237,618
 2,700,166
Distributions in excess of earnings from investments2,682,701
 7,127,600
1,535,051
 2,682,701
Gain on involuntary conversion property and equipment
 (825,709)
(Increase) decrease in
 

 
Receivables(1,153,486) (560,796)2,506,509
 (2,472,441)
Inventory2,708,598
 2,003,035
(1,250,853) 2,708,598
Prepaid expenses165,055
 191,124
159,178
 165,055
Derivative financial instruments606,548
 (587,161)211,272
 606,548
Increase (decrease) in

 
(Decrease) in

 
Accounts payable(5,463,377) (4,494,851)(2,914,330) (5,463,377)
Accrued and other liabilities(52,884) 6,193
(190,569) (52,884)
NET CASH PROVIDED BY OPERATING ACTIVITIES7,993,255
 11,961,698
7,033,946
 6,674,300


 

 
INVESTING ACTIVITIES      
Insurance proceeds
 1,500,000
Insurance proceeds received for damage to equipment
 1,318,955
Purchase of property and equipment(3,383,088) (8,103,781)(1,410,191) (3,383,088)
Purchase of investments
 (15,000)(10,052,704) 
NET CASH USED IN INVESTING ACTIVITIES(3,383,088) (6,618,781)
NET CASH (USED IN) INVESTING ACTIVITIES(11,462,895) (2,064,133)


 

 
FINANCING ACTIVITIES
 

 
Increase in outstanding checks in excess of bank balance385,370
 4,163,241
341,069
 385,370
Notes payable issued7,979,778
 
Principal payments on long-term notes payable(55,475) (13,708)
 (55,475)
Distributions paid to members(5,924,000) (6,027,512)(2,962,000) (5,924,000)
NET CASH (USED FOR) FINANCING ACTIVITIES(5,594,105) (1,877,979)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES5,358,847
 (5,594,105)



 


 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(983,938) 3,464,938
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS929,898
 (983,938)


 

 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD8,329,166
 6,104,383
9,993,335
 8,329,166



 


 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$7,345,228
 $9,569,321
$10,923,233
 $7,345,228


 

 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 

 
Cash paid during the period for interest$3,783
 $6,790
Cash paid during the period for interest, net of capitalized interest of $52,704 in 2017 and $0 in 2016$2,306
 $3,783
Capital expenditures in accounts payable656,954
 624,780
135,003
 656,954

See Notes to Unaudited Consolidated Financial Statements

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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 2015


2016



NOTE 1    .    NATURE OF OPERATIONS

Principal Business Activity

Lake Area Corn Processors, LLC and subsidiary (the Company)"Company") is a South Dakota limited liability company.

The Company owns and manages Dakota Ethanol, LLC (Dakota Ethanol)("Dakota Ethanol"), a 40 million-gallon (annual nameplate capacity) ethanol plant, located near Wentworth, South Dakota. Dakota Ethanol sells ethanol and related products to customers located in North America.

In addition, the Company has investment interests in fivesix companies in ethanol-related industries. See note 4 for further details.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America although the Company believes that the disclosures are adequate to make the information not misleading.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying financial statements. All adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 20162017 are not necessarily indicative of the results to be expected for a full year.

These financial statements should be read in conjunction with the financial statements and notes included in the Company’s audited financial statements for the year ended December 31, 2015,2016, contained in the annual report on Form 10-K for 2015.2016.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Dakota Ethanol. All significant inter-company transactions and balances have been eliminated in consolidation.

Revenue Recognition

Revenue from the production of ethanol and related products is recorded when title to the goods and the risks of ownership transfers to customers. Generally, ethanol and related products are shipped FOB shipping point, based on written contract terms between Dakota Ethanol and its customers. Collectability of revenue is reasonably assured based on historical evidence of collectability between Dakota Ethanol and its customers. Interest income is recognized as earned.

Shipping costs incurred by the Company in the sale of ethanol, dried distiller'sdistillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

Cost of Revenues

The primary components of cost of revenues from the production of ethanol and related co-product are corn expense, energy expense (natural gas and electricity), raw materials expense (chemicals and denaturant), and direct labor costs.

Shipping costs on modified and wet distiller’sdistillers grains are included in cost of revenues.

Inventory Valuation

Inventories are generally valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.


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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 2015


2016



Investment in commodities contracts, derivative instruments and hedging activities

The Company is exposed to certain risks related to our ongoing business operations.  The primary risks that the Company manages by using forward or derivative instruments are price riskrisks on anticipated purchases of corn and natural gas and the sale of ethanol, distillers grains and distillers corn oil.
 
The Company is subject to market risk with respect to the price and availability of corn, the principal raw material the Company uses to produce ethanol and ethanol by-products.  In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions.  This is especially true when market conditions do not allow us to pass along increased corn costs to our customers.  The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.

Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales.  Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.  Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.

The Company does not apply the normal purchase and sales exemption for forward corn purchase contracts. As of September 30, 2016,2017, the Company is committed to purchasing approximately 3.92.6 million bushels of corn on a forward contract basis with an average price of $3.43$3.32 per bushel. The total corn purchase contracts represent 20%14% of the annual projected plant corn usage.

The Company enters into firm-price purchase commitments with natural gas suppliers under which the Company agrees to buy natural gas at a price set in advance of the actual delivery of that natural gas.delivery.  Under these arrangements, the Company assumes the risk of a price decrease in the market price of natural gas between the time thisthe price is fixed and the time the natural gas is delivered.  At September 30, 2016,2017, the Company does not have any firm-price purchase commitments for natural gas.  The Company accounts for these transactions as normal purchases, and accordingly, does not mark these transactions to market.

The Company enters into firm-price sales commitments with distillers grains customers under which the Company agrees to sell distillers grains at a price set in advance of the actual delivery of the distillers grains.delivery.  Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers grain between the time thisthe price is fixed and the time the distillers grains are delivered.  At September 30, 2016,2017, the Company is committed to selling approximately 31,00050,000 dry equivalent tons of distillers grains with an average price of $115$99 per ton.  The Company accounts for these transactions as normal sales, and accordingly, does not mark these commitmentstransactions to market. The distillers grains sales represent approximately 20%35% of the projected annual plant production.

The Company enters into firm-price sales commitments with distillers corn oil customers under which the Company agrees to sell distillers corn oil at a price set in advance of the actual delivery of the distillers corn oil.delivery.  Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers corn oil between the time thisthe price is fixed and the time the distillers corn oil is delivered.  At September 30, 2016,2017, the Company is committed to selling approximately 1,970,0001,794,000 pounds of distillers corn oil with an average price of $0.28$0.29 per pound.  The Company accounts for these transactions as normal sales, and accordingly, does not mark these commitmentstransactions to market. The distillers corn oil sales represent approximately 17%16% of the projected annual plant production.

The Company does not have any firm-priced sales commitments for ethanol as of September 30, 2016.2017.
 

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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 2015


2016


The Company enters into short-term forward, option and futures contracts for ethanol, corn and natural gas as a means of managing exposure to changes in commodity and energy prices. The Company enters into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in energy prices. All of the Company's derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of our trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk of loss in the market value of inventories and purchase commitments. To reduce that risk, the Company generally takes positions using forward and futures contracts and options.

Derivatives not designated as hedging instruments at September 30, 20162017 and December 31, 20152016 were as follows:
 Balance Sheet Classification September 30, 2016 December 31, 2015* Balance Sheet Classification September 30, 2017 December 31, 2016*
        
Forward contracts in gain position $9,036
 $300
 $5,426
 $6,491
Futures contracts in gain position 897,138
 189,244
 170,463
 246,900
Futures contracts in loss position (16,250) 
 (6,525) (12,575)
Total forward and futures contracts 889,924
 189,544
 169,364
 240,816
Cash held by broker 154,246
 487,447
 538,221
 816,649
 Current Assets $1,044,170
 $676,991
 Current Assets $707,585
 $1,057,465
        
Forward contracts in loss position (Current Liabilities) $(1,581,298) $(607,571) (Current Liabilities) $(689,178) $(827,786)
*Derived from audited financial statements.

Futures contracts and cash held by broker are all with one party and the right of offset exists. Therefore, on the balance sheet, these items are netted in one balance regardless of position.

Forward contracts are with multiple parties and the right of offset does not exist. Therefore, these contracts are reported at the gross amounts on the balance sheet.

Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements.
   Statement of Operations Three Months Ended September 30,
  Classification 2016 2015
Net realized and unrealized gains (losses) related to purchase contracts:      
Futures contracts Cost of Revenues $1,128,300
 $1,067,934
Forward contracts Cost of Revenues (598,874) (826,316)

  Statement of Operations Nine Months Ended September 30,  Statement of Operations Three Months Ended September 30,
 Classification 2016 2015 Classification 2017 2016
Net realized and unrealized gains (losses) related to purchase contracts:        
Futures contracts Cost of Revenues $1,858,623
 $1,133,731
 Cost of Revenues $355,428
 $1,128,300
Forward contracts Cost of Revenues (1,765,789) (524,216) Cost of Revenues (736,938) (598,874)
    
  Statement of Operations Nine Months Ended September 30,
 Classification 2017 2016
Net realized and unrealized gains (losses) related to purchase contracts:    
Futures contracts Cost of Revenues $451,365
 $1,858,623
Forward contracts Cost of Revenues (962,864) (1,765,789)


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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 2015


2016


Investments

The Company has investment interests in fivesix companies in related industries. All of these interests are at ownership shares less than 20%. These investments are all flow-through entities andentities. Per ASC 323-30-S99-1, they are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of income and added to the investment account.  Distributions or dividends received from the investments are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from investments based on the most recent reliable data.
 
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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the fair value of derivative financial instruments, lower of cost or net realizable value accounting for inventory and forward purchase contracts and goodwill impairment evaluation.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles (GAAP) when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company in the first quarter of fiscal year 2018. The Company is currently evaluating the transition methods. The Company anticipates using the retrospective with cumulative effect transition method. The Company expects to have enhanced disclosures but does not expect this standard to have a material impact on the Company's consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02, "Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and for interim periods within that fiscal year. The Company does not expect this standard to have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), "Statement of Cash Flows (Topic 230)" (ASU 2016-15). ASU 2016-15 clarifies and provides guidance for specific cash flow issues. The guidance addresses classification for proceeds from insurance settlements and distributions received from equity method investees. ASU 2016-15 is effective for fiscal periods beginning after December 15, 2017. The Company has chosen to early adopt the standard. The Company has chosen the nature of distributions approach for equity method distributions. The Company has also adopted the insurance settlement guidance which includes retrospective application to the 2016 cash flow statement. As a result of this retrospective application, cash provided by operations decreased and cash provided by investing activities increased for the nine months ended September 30, 2016, by approximately $1,319,000 from amounts previously reported on the Company's Form 10-Q for the quarter ended September 30, 2016.



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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017 and 2016


NOTE 3.     INVENTORY

Inventory consisted of the following as of September 30, 20162017 and December 31, 2015:2016:

 September 30, 2016 December 31, 2015* September 30, 2017 December 31, 2016*
Raw materials $2,429,643
 $4,257,537
 $4,114,722
 $3,217,822
Finished goods 679,819
 1,642,684
 1,552,504
 1,124,660
Work in process 420,879
 570,510
 462,320
 593,197
Parts inventory 1,326,551
 1,094,759
 1,333,926
 1,276,940
 $4,856,892
 $7,565,490
 $7,463,472
 $6,212,619

*Derived from audited financial statements.

NOTE 4.    INVESTMENTS

Dakota Ethanol has a 7% investment interest in the company’sCompany’s ethanol marketer, Renewable Products Marketing Group, LLC (RPMG).  The net income which is reported in the Company’s income statement for RPMG is based on RPMG’s June 30, 20162017 unaudited interim results. The carrying amount of the Company’s investment was approximately $1,603,0001,366,000 and $2,141,0001,283,000 as of September 30, 20162017 and December 31, 2015,2016, respectively.

Dakota Ethanol has a 6% investment interest in Prairie Gold Venture Partnership, LLC (PGVP), a venture capital fund investing in cellulosic ethanol production.  The net income which is reported in the Company’s income statement for PGVP is based on PGVP’s December 31, 20152016 unaudited interim results. The carrying amount of the Company’s investment was approximately $867,000308,000 as of September 30, 20162017 and December 31, 2015.2016.

Dakota Ethanol has a 10% investment interest in Lawrenceville Tanks, LLC (LT), a partnership which owns and operatesto operate an ethanol storage terminal in Georgia.  The net income which is reported in the Company’s income statement for LT is based on LT’s September 30, 20162017 unaudited interim results. The carrying amount of the Company’s investment was approximately $510,000$405,000 and $577,000460,000 as of September 30, 20162017 and December 31, 2015,2016, respectively.

Lake Area Corn Processors has a 10% investment interest in Guardian Hankinson, LLC (GH), a partnership to operate an ethanol plant in North Dakota.  The net income which is reported in the Company’s income statement for GH is based on GH’s September 30, 20162017 unaudited interim results. The carrying amount of the Company’s investment was approximately $9,526,0007,545,000 and $11,597,0009,108,000 as of September 30, 20162017 and December 31, 2015,2016, respectively.

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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2016 and 2015





Lake Area Corn Processors has a 17% investment interest in Guardian Energy Management, LLC (GEM), a partnership to provide management services to ethanol plants.  The net income which is reported in the Company’s income statement for GEM is based on GEM’s September 30, 20162017 unaudited interim results. The carrying amount of the Company’s investment was approximately $36,000 and $41,000$33,000 as of September 30, 20162017 and December 31, 2015.2016.

Condensed, combinedLake Area Corn Processors has an 11% investment interest in Ring-neck Energy and Feeds, LLC (REF), a partnership to operate an ethanol plant in South Dakota.  The net income which is reported in the Company’s income statement for REF is based on REF’s September 30, 2017 unaudited financial informationinterim results. The carrying amount of the Company’s investmentsinvestment was approximately $10,053,000 as of September 30, 2017. 2017 is the initial year for the investment in RPMG, PGVP, LT, GHREF and GEMit is as follows:currently under construction.
Balance Sheet September 30, 2016 December 31, 2015
Current Assets $192,860,985
 $160,690,612
Other Assets 156,593,153
 163,293,989
Current Liabilities 167,523,960
 117,783,636
Long-term Liabilities 38,238,186
 37,674,031
Members' Equity 143,691,991
 168,526,934
     
  Three Months Ended
Income Statement September 30, 2016 September 30, 2015
Revenue $61,531,795
 $57,924,872
Gross Profit 13,923,350
 10,058,230
Net Income 6,885,415
 4,118,713
     
  Nine Months Ended
Income Statement September 30, 2016 September 30, 2015
Revenue $181,299,712
 $192,106,193
Gross Profit 37,666,064
 40,502,166
Net Income 16,159,237
 22,989,997



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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 20152016



Condensed, combined unaudited financial information of the Company’s investments in RPMG, PGVP, LT, GH, GEM and REF is as follows:

Balance Sheet September 30, 2017 December 31, 2016
Current Assets $224,363,318
 $178,539,108
Other Assets 169,250,980
 151,378,628
Current Liabilities 130,572,608
 140,898,148
Long-term Liabilities 56,567,493
 49,924,355
Members' Equity 206,474,197
 139,095,233
     
  Three Months Ended
Income Statement September 30, 2017 September 30, 2016
Revenue $65,571,510
 $61,531,795
Gross Profit 9,661,047
 13,923,350
Net Income 5,992,656
 6,885,415
     
  Nine Months Ended
Income Statement September 30, 2017 September 30, 2016
Revenue $190,698,705
 $181,299,712
Gross Profit 20,668,677
 37,666,064
Net Income 11,491,803
 16,159,237

The following table shows the condensed financial information of GH,Guardian Hankinson, which represents greater than 10% of the Company's net income as offor the three and nine months ended September 30, 2016:2017:
Balance Sheet September 30, 2016 December 31, 2015 September 30, 2017 December 31, 2016
Current Assets $17,878,623
 $30,957,066
 $23,566,347
 $31,337,860
Other Assets 138,475,022
 144,336,737
 121,646,932
 133,415,881
Current Liabilities 22,856,118
 21,819,143
 13,893,874
 23,822,812
Long-term Liabilities 38,238,186
 37,502,031
 56,228,418
 49,856,355
Members' Equity 95,259,341
 115,972,629
 75,090,987
 91,074,574
        
 Three Months Ended Three Months Ended
Income Statement September 30, 2016 September 30, 2015 September 30, 2017 September 30, 2016
Revenue $58,019,407
 $54,012,760
 $62,471,512
 $58,019,407
Gross Profit 11,684,449
 7,230,931
 7,782,145
 11,684,449
Net Income 5,936,832
 2,847,066
 6,229,570
 5,936,832
        
 Nine Months Ended Nine Months Ended
Income Statement September 30, 2016 September 30, 2015 September 30, 2017 September 30, 2016
Revenue $169,833,142
 $180,069,527
 $180,821,741
 $169,833,142
Gross Profit 30,394,537
 31,794,870
 14,680,187
 30,394,537
Net Income 12,786,712
 18,193,991
 10,369,094
 12,786,712

The Company recorded equity in net income of approximately $623,000 and $1,037,000 from GH for the three and nine months ended September 30, 2017, respectively. The Company recorded equity in net income of approximately $593,000 and $1,278,000 from GH for the three and nine months ended September 30, 2016, respectively. The Company recorded equity in net income of approximately $285,000$45,000 and $1,819,000$153,000 from GHits other investments for the three and nine months ended September 30, 2015, 2017,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017 and 2016


respectively. The Company recorded equity in net income of approximately $85,000 and $268,000 from its other investments for the three and nine months ended September 30, 2016, respectively. The Company recorded equity in net income of approximately $108,000 and $358,000 from its other investments for the three and nine months ended September 30, 2015, respectively.

NOTE 5.    REVOLVING OPERATING NOTE

On November 11, 2014,1, 2016, Dakota Ethanol executed a revolving promissory note from Farm Credit Services of America (FCSA) forin the amount up to $10,000,000 or the amount available in accordance with the borrowing base calculation. Interest on the outstanding principal balancesbalance will accrue at 300 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 3.50%4.25% at September 30, 2016.2017. There is a non-use fee of 0.25% on the unused portion of the $10,000,000 availability. The note is collateralized by substantially all assets of the ethanol plant and equipment, its accounts receivable and inventory.Company. The note expires on November 1, 2016.2019. On September 30, 2016,2017, Dakota Ethanol had $0 outstanding and $2,274,0002,744,000 available to be drawn on the revolving promissory note under the borrowing base. The note was renewed in October 2016 with the same terms as the existing note. The renewal expires November 1, 2018.

NOTE 6.    LONG-TERM NOTES PAYABLE

Dakota Ethanol has a long-term note payable with FCSA. As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing financial reporting requirements, distribution and capital expenditure limits, debt service coverage ratios and minimum working capital requirements. The note is collateralized by the ethanol plant and equipment, its accounts receivable and inventory.

On November 11, 2014, Dakota Ethanol executed a reducing revolving promissory note from FCSA in the amount of $15,000,000. The amount Dakota Ethanol can borrow on the note decreases by $750,000 semi-annually starting on April 1, 2015 until the maximum balance reaches $7.5 million on October 1, 2019. The note matures on October 1, 2024. Interest on the outstanding principal balance will accrue at 325 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 3.75%4.30% at September 30, 2017. The note contains a non-use fee of 0.5% on the unused portion of the note. On September 30, 2017, Dakota Ethanol had $1,000 outstanding and $11,249,000 available to be drawn on the note.

As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing financial reporting requirements, distribution and capital expenditure limits, minimum debt service coverage ratios, net worth and working capital requirements. The note is collateralized by substantially all assets of the Company.

On August 1, 2017, Dakota Ethanol executed a term note from FCSA in the amount of $8,000,000. Dakota Ethanol agreed to make monthly interest payments starting September 1, 2017 and annual principal payments of $1,000,000 starting on August 1, 2018. The notes matures on August 1, 2025. Interest on the outstanding principal balance will accrue at 325 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 4.50% at September 30, 2017. On September 30, 2017, Dakota Ethanol had $8,000,000 outstanding on the note.

As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing financial reporting requirements, distribution and capital expenditure limits, minimum debt service coverage ratios, net worth and working capital requirements. The note is collateralized by substantially all assets of the Company.

The balances of the notes payable are as follows:

12
  September 30, 2017
 December 31, 2016*
     
Note Payable - FCSA $8,001,000
 $1,000
Less unamortized debt issuance costs (20,222) 
  7,980,778
 1,000
Less current portion (995,333) 
  $6,985,445
 $1,000
*Derived from audited financial statements    

Principal and debt issuance cost maturities for the next five years are estimated as follows:


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 2015


2016


September 30, 2016. The note contains a non-use fee of 0.5% on the unused portion of the note. On September 30, 2016, Dakota Ethanol had $1,000 outstanding and $12,749,000 available to be drawn on the note.
    Unamortized debt
Years Ending September 30, Principal Issuance costs
2018 $1,000,000
 $(4,667)
2019 1,000,000
 (4,083)
2020 1,000,000
 (3,500)
2021 1,000,000
 (2,917)
2022 1,000,000
 (2,333)
thereafter 3,001,000
 (2,722)

NOTE 7.    FAIR VALUE MEASUREMENTS

The Company complies with the fair value measurements and disclosures standard which defines fair value, establishes a framework for measuring fair value, and expands disclosure for those assets and liabilities carried on the balance sheet on a fair value basis.

The Company’s balance sheet contains derivative financial instruments that are recorded at fair value on a recurring basis. Fair value measurements and disclosures require that assets and liabilities carried at fair value be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Derivative financial instruments. Commodity futures and options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CBOT and NYMEX markets. Over-the-counter commodity options contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the over-the-counter markets. Forward purchase contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from local grain terminal bid values. The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based off the CBOT markets.


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LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2017 and 2016


The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 20162017 and December 31, 20152016 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2016 and 2015




  Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3
September 30, 2016        
September 30, 2017        
                
Assets:                
Derivative financial instruments,                
futures contracts $897,138
 $897,138
 $
 $
 $170,463
 $170,463
 $
 $
forward contracts 9,036
 
 9,036
 
 5,426
 
 5,426
 
                
Liabilities:                
Derivative financial instruments,                
futures contracts $(16,250) $(16,250) $
 $
 $(6,525) $(6,525) $
 $
forward contracts $(1,581,298) $
 $(1,581,298) $
 $(689,178) $
 $(689,178) $
                
December 31, 2015*        
December 31, 2016*        
                
Assets:                
Derivative financial instruments,                
futures contracts $189,244
 $189,244
 $
 $
 $246,900
 $246,900
 $
 $
forward contracts 300
 
 300
 
 6,491
 
 6,491
 
                
Liabilities:                
Derivative financial instruments,                
futures contracts $(12,575) $(12,575) $
 $
forward contracts $(607,571) $
 $(607,571) $
 $(827,786) $
 $(827,786) $
*Derived from audited financial statements.

During the three and nine months ended September 30, 2016,2017, the Company did not make any changes between Level 1 and Level 2 assets and liabilities. As of September 30, 20162017 and December 31, 2015,2016, the Company did not have any Level 3 assets or liabilities.

NOTE 8.    RELATED PARTY TRANSACTIONS

Dakota Ethanol has a 7%6% interest in RPMG, and Dakota Ethanol has entered into marketing agreements with RPMG for the exclusive rights to market, sell and distribute the entire ethanol, dried distiller'sdistillers grains and corn oil inventories produced by Dakota Ethanol.  The marketing fees are included in net revenues.
Sales and marketing fees related to the agreements are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20162017 and 2015


2016


Revenues and marketing fees related to the agreements are as follows:
Three Months Ended September 30 Nine Months Ended September 30Three Months Ended September 30 Nine Months Ended September 30
2016 2015 2016 20152017 2016 2017 2016
              
Revenues ethanol$16,064,019
 $17,023,820
 $49,529,339
 $50,642,929
$15,468,141
 $16,064,019
 $50,916,644
 $49,529,339
Revenues distiller's dried grains1,734,033
 2,056,363
 3,890,337
 4,763,630
Revenues distillers dried grains1,010,769
 1,734,033
 3,786,652
 3,890,337
Revenues corn oil761,191
 745,177
 2,058,908
 2,263,342
749,923
 761,191
 2,316,938
 2,058,908
Marketing fees ethanol42,057
 42,246
 126,171
 126,739
61,260
 42,057
 183,780
 126,171
Marketing fees distiller's dried grains10,200
 11,954
 23,366
 28,740
Marketing fees distillers dried grains6,642
 10,200
 28,986
 23,366
Marketing fees corn oil6,801
 8,023
 19,669
 23,442
5,621
 6,801
 17,661
 19,669
              
September 30, 2016 December 31, 2015*    September 30, 2017 December 31, 2016*    
Amounts due included in accounts receivable$3,655,760
 $939,705
    $1,182,457
 $3,695,561
    
*Derived from audited financial statements.
The Company purchased corn and services from members of its Board of Directors that farm and operate local businesses. The Company also purchased ingredients from RPMG. Purchases during the fiscal quartersthree and nine months ended September 30, 2017 totaled approximately $212,000 and $898,000, respectively. Purchases during the three and nine months ended September 30, 2016 and 2015 totaled approximately $1,616,000$306,000 and $730,000,$1,683,000, respectively. As of September 30, 20162017 and December 31, 2015,2016, the amount we owed to related parties was approximately $43,000$47,000 and $20,000,$40,000, respectively.
NOTE 9.    INSURANCE CLAIMSCOMMITMENTS

Dakota Ethanol experienced property damagehas committed to grain handling equipment in June 2014.a contract for the design and construction of a new regenerative thermal oxidizer (RTO) to replace its existing RTO. The damages were covered by property and business interruption insurance policies.value of the contract is approximately $4.6 million. There is approximately $2.9 million remaining as of September 30, 2017. The Company continuedproject is expected to use the equipment through May 2015, at which time the equipment was disposed of resulting in a loss of approximately $674,000. Insurance proceeds of $2,000,000, consisting of $1,500,000 from the property insurance claim and $500,000 from the business interruption claim, were receivedbe completed in the second quarter of 2015.2018. The loss on disposal of damaged assetsCompany will pay for the project with cash flows from operations and property insurance proceeds are both recordedthe long-term revolving debt currently in cost of revenues in the statements of income.place.

NOTE 10.            SUBSEQUENT EVENTS

During November 2016,2017, the Company declared and paid a distribution to its members of $5,924,000,$2,962,000, or $0.20$0.10 per capital unit, to unit holders of record as of October 1, 2016.2017.




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and nine month periods ended September 30, 20162017, compared to the same periods of the prior year. This discussion should be read in conjunction with the consolidated financial statements and the Management's Discussion and Analysis section for the fiscal year ended December 31, 20152016, included in the Company's Annual Report on Form 10-K for 2015.2016.

Disclosure Regarding Forward-Looking Statements

This report contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "future," "intend," "could," "hope," "predict," "target," "potential," "continue" or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties. Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report and our annual report on Form 10-K for the fiscal year ended December 31, 20152016.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect.  We qualify all of our forward-looking statements by these cautionary statements.
 
Overview
 
Lake Area Corn Processors, LLC is a South Dakota limited liability company that owns and manages its wholly-owned subsidiary, Dakota Ethanol, LLC. Dakota Ethanol, LLC owns and operates an ethanol plant located near Wentworth, South Dakota that has a nameplate production capacity of 40 million gallons of ethanol per year. Lake Area Corn Processors, LLC is referred to in this report as "LACP," the "company," "we," or "us." Dakota Ethanol, LLC is referred to in this report as "Dakota Ethanol" "we" "us" or the "ethanol plant."

Our revenue is derived from the sale and distribution of our ethanol, distillers grains and corn oil.  The ethanol plant currently operates in excess of its nameplate capacity, producing approximately 50 million gallons of ethanol per year.  Corn is supplied to us primarily from our members who are local agricultural producers and from purchases of corn on the open market. We have engaged Renewable Products Marketing Group, Inc. ("RPMG, Inc.") to market all of the ethanol and corn oil that we produce at the ethanol plant. Further, RPMG, Inc. markets all of the distillers grains that we produce that we do not market internally to local customers.

On July 11, 2017, we made a $10 million investment in Ring-neck Energy & Feed, LLC. Ring-neck Energy & Feed, LLC plans to construct an ethanol plant in Onida, South Dakota. We are inwill have the processright to appoint a member of expanding our railroad siding to accommodate shipping unit trains. The project reached substantial completion during the third quarterRing-neck Energy & Feed, LLC's board of 2016. We are using cash from our continuing operations and amounts we have available to borrow on our long-term revolving debt to finance this capital project which is expected to cost approximately $7 million.managers.

On September 23, 2016,August 1, 2017, we executed an amendment to our credit agreement with Farm Credit Services of America to create a new $8 million term loan which we used to finance a portion of our investment in Ring-neck Energy & Feed, LLC. We agreed to make annual principal payments of $1 million plus accrued interest starting on August 1, 2018 and annually thereafter until the Chinese government instituted a 33.8% anti-dumping dutymaturity date on all distillers grains producedAugust 1, 2025.

In recent years, the ethanol industry in the United States has increased exports of ethanol and exported to China.distillers grains. In January 2017, the Chinese issued final tariffs on U.S. distillers grains. The Chinese claimed that ethanol producers in the United States were unfairly benefiting from subsidies which artificially lowered the price of distillers grains. China is the world's top buyer of dried distillers grains anti-dumping tariffs range from 42.2% to 53.7% and nearly allthe anti-subsidy tariffs range from 11.2% to 12%. In addition, the Chinese government increased its ethanol import tariff from 5% to 30% as of the distillers grains China purchases come from the United States. This trade dispute has resulted in fewer exports of distillers grains to China which hasJanuary 1, 2017. These tariffs have had a negative impact on market ethanol and distillers grains prices received by ethanol producers in the United States. Further, the Chinese duty is preliminary and it is possible that the final duty could be higher, further impacting distillers grains demand and prices. Management believes that this trade dispute has negatively impacted our profitability which could continue.

Further, on August 23, 2017, Brazil imposed a twenty percent import tariff on ethanol imported from the United States.

Results of Operations

Comparison of the Fiscal Quarters Ended September 30, 20162017 and 20152016

The following table shows the results of our operations and the percentage of revenues, cost of revenues, operating expenses and other items to total revenues in our consolidated statements of income for the fiscal quarters ended September 30, 20162017 and 20152016:
 2016 2015 2017 2016
Income Statement Data Amount % Amount % Amount % Amount %
Revenues $20,983,806
 100.0
 $22,038,423
 100.0
 $19,479,798
 100.0
 $20,983,806
 100.0
                
Cost of Revenues 18,177,658
 86.6
 19,817,321
 89.9
 17,511,118
 89.9
 18,177,658
 86.6
                
Gross Profit 2,806,148
 13.4
 2,221,102
 10.1
 1,968,680
 10.1
 2,806,148
 13.4
                
Operating Expense 878,318
 4.2
 772,964
 3.5
 834,459
 4.3
 878,318
 4.2
                
Income from Operations 1,927,830
 9.2
 1,448,138
 6.6
 1,134,221
 5.8
 1,927,830
 9.2
                
Other Income 682,565
 3.3
 402,746
 1.8
 681,126
 3.5
 682,565
 3.3
                
Net Income $2,610,395
 12.4
 $1,850,884
 8.4
 $1,815,347
 9.3
 $2,610,395
 12.4

Revenues

Revenue from ethanol sales decreased by approximately 6%4% during our third quarter of 20162017 compared to the same period of 20152016. Revenue from distillers grains sales decreased by approximately 6%18% during our third quarter of 2017 compared to the same period of 2016. Revenue from corn oil sales decreased by approximately 1% during our third quarter of 20162017 compared to the same period of 2015. Revenue from corn oil sales increased by approximately 2% during our third quarter of 2016 compared to the same period of 2015.

Ethanol

Our ethanol revenue was approximately $960,000$615,000 less during our third quarter of 20162017 compared to our third quarter of 20152016, a decrease of approximately 6%4%. This decrease in ethanol revenue was due primarily to a decrease in the total gallonsvolume of ethanol we sold, during our third quarter of 2016 compared to our third quarter of 2015, along with a lowerpartially offset by an increase in the average ethanol price we received per gallon of ethanol sold during theour third quarter of 2017 compared to our third quarter of 2016 period.. We sold approximately 2%9% fewer gallons of ethanol during our third quarter of 20162017 compared to the same period of 20152016, a decrease of approximately 201,0001,050,000 gallons, due to decreased throughputproduction at the ethanol plant.plant and an increase in our inventory. Management anticipates relatively stableethanol production for the rest of our 2016 fiscal year.to return to levels comparable to 2016.
 
The average price we received for our ethanol was approximately $0.050.07 lessmore per gallon during our third quarter of 20162017 compared to our third quarter of 20152016, a decreasean increase of approximately 4%5%. Management attributes this decreaseincrease in ethanol prices with excess ethanol supply in the market and lower gasolinehigher corn prices which both impacted ethanol demand and prices during our third quarter of 2016. In addition, management believes the price of ethanol was negatively impacted by the United States Environmental Protection Agency's (EPA) renewable volume obligations under the Federal Renewable Fuels Standard (RFS) which were finalized in November 2015 along with the proposed reduction in the renewable volume obligations for 2017 which were released in May 2016. These renewable volume obligations were set by the EPA lower than the statutory requirements in the RFS.2017.

Distillers Grains

Our total distillers grains revenue was approximately 6%18% less during our third quarter of 20162017 compared to the same period of 20152016 due to decreased total tons ofproduction and decreased distillers grains we sold.prices during the 2017 period. For our third quarter of 2016,2017, we sold approximately 44%30% of our total distillers grains in the dried form and approximately 56%70% of our total distillers grains in the modified/wet form. By comparison, for our third quarter of 2015,2016, we sold approximately 47%44% of our total distillers grains in the dried form and approximately 53%56% of our total distillers grains in the modified/wet form. We determine the mix between dried distillers grains and modified/wet distillers grains we sell based on market conditions and the relative profitability of selling the different forms of distillers grains. Due to the lackWe sold approximately 2% fewer total tons of Chinese exports, prices in the modified/wet distillers grains market were betterduring our third quarter of 2017 compared to the dried distillers grains market. We consume additional natural gas when we produce dried distillers grains as compared tosame period of 2016.

modified/wet distillers grains which can impact the profit we generate from sales of dried distillers grains. Management anticipates that we will maintain the current mix between dried distillers grains and modified/wet distillers grains going forward unless market conditions change in a way that favors one product over the other.

The average price we received for our dried distillers grains was approximately 9%15% less during our third quarter of 20162017 compared to the same period of 2015,2016, a decrease of approximately $12$18 per ton. Management attributes the decrease in dried distillers grains prices during the 2016 periodthird quarter of 2017 with uncertainty in the exporta weaker distillers grain market for distillers grains due to the Chinese anti-dumping lack of exports to China

and countervailing duty investigation.Vietnam. The average price we received for our modified/wet distillers grains, on a dry-equivalent basis, was approximately 4%17% less for our third quarter of 20162017 compared to the same period of 2015,2016, a decrease of approximately $5$22 per ton. Management attributes this decrease in modified/wet distillers grains prices with ample corn supplies in our locala weaker market along with additional distillers grains supply due to the Chinese anti-dumpinglack of exports to China and countervailing duty investigation. However, the local market prices did not decrease as much as the export market which resulted in a smaller decrease in our modified/wetVietnam. Management anticipates that distillers grains prices. China instituted an anti-subsidy and countervailing duty investigation in January 2016 which essentially closed the Chinese market to United States produced distillers grains. Since that time, the Chinese have sporadically taken distillers grains exports but at aprices will remain lower level than in the past. On September 23, 2016, China instituted a 33.8% duty on distillers grains exported from the United States. Management believes this has resulted in decreasedunless worldwide demand for distillers grains which has negatively impacted domestic distillers grains prices. While we do not export a significant amount of distillers grains, the Chinese investigation has increased the domestic supply of distillers grains which has impacted local prices. In addition, there are ample corn supplies in the United States which has also impacted demand for distillers grains. Management expects distillers grains prices to remain lower in the near term, especially due to the strong corn crop which was harvested in the fall of 2016.rebounds.
    
Corn Oil

Our total pounds of corn oil sold decreasedincreased by approximately 9%2% during our third quarter of 20162017 compared to the same period of 20152016, a decreasean increase of approximately 258,00061,000 pounds, primarily due to increaseddecreased downtime for our corn oil extraction equipment and decreased corn oil yield per ton of distillers grains.equipment. Management anticipates that corn oil production will return to more normal levels inremain consistent for the future and will continue to be variable based on the total productionrest of ethanol at our plant and by operating efficiencies we achieve at the ethanol plant.2017 fiscal year. The average price per pound we received for our corn oil was approximately 12% greater4% less for our third quarter of 20162017 compared to the same period of 2015, an increase of approximately $0.03 per pound. Management believes this increase in market corn oil prices was primarily due to increased biodiesel demand which positively impacts corn oil prices along with increased soybean oil prices. Soybean oil is another feedstock which is used to produce biodiesel so when soybean oil prices increase, it typically benefits the market price of corn oil. The biodiesel blenders' tax credit was renewed at the end of December 2015 which management believes has positively impacted corn oil demand during 2016. However, the tax credit is scheduled to expire again at the end of December 2016. As a result, this increase in corn oil demand may not continue past our 2016 fiscal year.

Cost of Revenues

Our cost of revenues for our third quarter of 2016 was lower comparedThe primary raw materials we use to the same period of 2015 due primarily to decreasedproduce ethanol and distillers grains are corn and natural gas consumption along with lower corn and natural gas prices. The decrease in our corn consumption was due in part to decreased total production during the 2016 period along with greater efficiency in converting corn into ethanol during the 2016 period. We have also improved our energy efficiency in producing ethanol and have produced more modified/wet distillers grains which decreases the amount of natural gas we consume in our production facility.gas.

Corn

Our cost of revenues relating to corn was approximately 13%4% less for our third quarter of 20162017 compared to the same period of 20152016 due to lowerdecreased corn consumption and increased corn costs per bushel during the 20162017 period.

Our average cost per bushel of corn decreasedincreased by approximately 10%6% for our third quarter of 20162017 compared to our third quarter of 20152016. Management attributes the decreaseincrease in corn prices with anticipation regarding the size of theanticipated lower corn corp harvested in the fall of 2016 along with ample market supplies of corn.2017. Management anticipates that corn prices will remain relatively lower intobe steady for the foreseeable future as corn is plentiful with relatively stable corn demand.fourth quarter of our 2017 fiscal year.

We consumed approximately 3%9% fewer bushels of corn during our third quarter of 20162017 compared to the same period of 2015 due to decreased total production at the plant during 2016 and increased efficiency at the plant which increased the number of gallons of ethanol we produced per bushel of corn ground.2016. Management anticipates that our corn consumption will be relatively stable for the finalhigher during our fourth quarter of our 2016 fiscal year2017 compared to our 2015 fiscal year.third quarter of 2017.

Natural Gas

Our cost of revenues related to natural gas decreased by approximately $71,000189,000, a decrease of approximately 6%19%, for our third quarter of 20162017 compared to our third quarter of 20152016. This decrease was primarily due to a decrease in marketdecreased natural gas prices

volumes during our third quarter of 20162017 compared to the same period of 20152016 along with a decrease in our natural gas usage during the 2016 period. .

Our average cost per MMBtu of natural gas during our third quarter of 20162017 was approximately 6%1% lowergreater compared to the cost per MMbtu for our third quarter of 2015.2016. Management attributes this decreaseincrease in our average natural gas costs with generally lower energy pricessteady supply and ample suppliessteady demand in other industries during the third quarter of 2017.

The volume of natural gas in the market. Management anticipates that natural gas prices will remain relatively stable. However, if natural gas production problems occur, it could result in higher natural gas prices which could negatively impact our profitability.

Wewe used decreased by approximately 1% fewer MMBtus of natural gas20% during our third quarter of 20162017 compared to the same period of 20152016 due primarily to decreased total production, energy improvement projects we completed along with more production of modified/wetdried distillers grains which requires less natural gas to produce.and increased production of distillers grain in the modified/wet form. Management anticipates that our natural gas consumption will remain at current levelssteady for the final quarterrest of our 2016 fiscal year and into our 2017 fiscal year.

Operating Expenses

Our operating expenses were greaterless for our third quarter of 20162017 compared to the same period of 20152016 due primarily to increaseda decrease in our environmental costs.compliance expenses and other public relations expenses.

Other Income and Expense

Our interest income was lessgreater for our third quarter of 20162017 compared to the same period of 20152016 due to having lessmore cash on hand during the 20162017 period. Our income related to our investments was greaterlower during our third quarter of 20162017 compared to the same period of 20152016 primarily due to improved profitability in the ethanol industry which impactsdecreased income from our portion of the net income generated by our investments, including Guardian Hankinson, LLC and RPMG, because both are involved in the ethanol industry.investment. Our interest expense was lower during our third quarter of 20162017 compared to the same period of 20152016 due to having less borrowingsprincipal outstanding on our loansTIF bond guarantee and more interest capitalized during the 20162017 period.


Comparison of the Nine Months Ended September 30, 20162017 and 20152016

The following table shows the results of our operations and the percentage of revenues, cost of revenues, operating expenses and other items to total revenues in our consolidated statements of income for the nine months ended September 30, 20162017 and 2015:2016:
 2016 2015 2017 2016
Income Statement Data Amount % Amount % Amount % Amount %
Revenues $64,551,832
 100.0
 $66,433,906
 100.0
 $63,806,023
 100.0
 $64,551,832
 100.0
                
Cost of Revenues 57,677,492
 89.4
 60,642,843
 91.3
 57,594,260
 90.3
 57,677,492
 89.4
                
Gross Profit 6,874,340
 10.6
 5,791,063
 8.7
 6,211,763
 9.7
 6,874,340
 10.6
                
Operating Expense 2,647,867
 4.1
 1,894,522
 2.9
 2,711,909
 4.3
 2,647,867
 4.1
                
Income from Operations 4,226,473
 6.5
 3,896,541
 5.9
 3,499,854
 5.5
 4,226,473
 6.5
                
Other Income 1,573,461
 2.4
 2,765,681
 4.2
 1,240,216
 1.9
 1,573,461
 2.4
                
Net Income $5,799,934
 9.0
 $6,662,222
 10.0
 $4,740,070
 7.4
 $5,799,934
 9.0

Revenues

Revenue from ethanol sales wasincreased by approximately 2% less3% during our nine months ended September 30, 20162017 compared to the same period of 2015 due to the net effect of increased production and decreased average ethanol prices.2016. Revenue from distillers grains sales decreased by approximately 6%16% during our nine months ended September 30, 20162017 compared to the same period of 2015.2016. Revenue from corn oil sales decreasedincreased by approximately 9%13% during our nine months ended September 30, 20162017 compared to the same period of 2015.

2016.

Ethanol

Our ethanol revenue was approximately $1,113,000 less$1,330,000 greater during our nine months ended September 30, 20162017 compared to our nine months ended September 30, 2015, a decrease2016, an increase of approximately 2%3%. This decreaseincrease in ethanol revenue was due primarily to the net effect of an increase in the total gallons of ethanol we sold during our nine months ended September 30, 2016 compared to our nine months ended September 30, 2015, offset by a decrease in the average price we received per gallon of ethanol sold offset by a decrease in the volume of gallons of ethanol sold during the 2016 period.our nine months ended September 30, 2017 compared to our nine months ended September 30, 2016. We sold approximately 2% morefewer gallons of ethanol during our nine months ended September 30, 20162017 compared to the same period of 2015, an increase2016, a decrease of approximately 663,000624,000 gallons, due to increased production capacity at the ethanol plant due to various plant improvement projects which were completed duringdecreased sales volumes in combination with an increase in our 2015 fiscal year.inventory.
 
The average price we received for our ethanol was approximately $0.05 less$0.06 more per gallon during our nine months ended September 30, 20162017 compared to our nine months ended September 30, 2015, a decrease2016, an increase of approximately 4%5%. Management attributes this decreaseincrease in ethanol prices with excessstronger ethanol supplydemand in the market and lower gasoline prices which both impacted ethanol demand andhigher corn prices during our nine months ended September 30, 2016.2017.

Distillers Grains

Our total distillers grains revenue was approximately 6%16% less during our nine months ended September 30, 20162017 compared to the same period of 20152016 due to decreased averagedistillers grain demand during the 2017 period. For our nine months ended September 30, 2017, we sold approximately 38% of our total distillers grains prices, partially offset by an increase in the dried form and approximately 62% of our total tons of distillers grains we sold. Forin the modified/wet form. By comparison, for our nine months ended September 30, 2016, we sold approximately 32% of our total distillers grains in the dried form and approximately 68% of our total distillers grains in the modified/wet form. By comparison, forWe sold an increased number of total tons of distillers grains during our nine months ended September 30, 2015, we sold approximately 36%2017 compared to the same period of our total distillers grains in2016 due to increased production during the dried form and approximately 64% of our total distillers grains in the modified/wet form.2017 period.

The average price we received for our dried distillers grains was approximately 9%19% less during our nine months ended September 30, 20162017 compared to the same period of 2015,2016, a decrease of approximately $12$22 per ton. Management attributes the decrease in dried distillers grains prices during the 2016 period with decreased export demand for distillers grains. The average price we received for our modified/wet distillers grains, on a dry-equivalent basis, was approximately 6%15% less for our nine months ended September 30, 20162017 compared to the same period of 2015,2016, a decrease of approximately $8$20 per ton.
    

Corn Oil

Our total pounds of corn oil sold decreasedincreased by approximately 10%11% during our nine months ended September 30, 20162017 compared to the same period of 2015, a decrease2016, an increase of approximately 815,000845,000 pounds, primarily due to increaseddecreased downtime for our corn oil extraction equipment. The average price we received for our corn oil was comparable forin our nine months ended September 30, 2016 and2017 was comparable to the same period of 2015.2016.

Cost of Revenues

Corn

Our cost of revenues relating to corn for our nine months ended September 30, 20162017 was approximately 5% lower compared to4% less than the same period of 2015 due to decreased consumption and prices for our primary raw materials, corn and natural gas. The decreases in consumption were primarily due to improved yields and energy efficiency during the 2016 period.

Our cost of revenues relating to corn was approximately 6% less for our nine months ended September 30, 2016 compared to the same period of 2015 due to decreased corn consumption and average corn costs per bushel during the 2016 period.2016. Our average cost per bushel of corn decreased by approximately 4%2% for our nine months ended September 30, 20162017 compared to our nine months ended September 30, 2015. Management attributes the decrease in corn costs with a strong corn harvest in the fall of 2015 along with increased corn carryover and relatively stable corn demand. Management anticipates that corn prices will remain lower into the foreseeable future as corn is plentiful with relatively stable corn demand.2016. We consumed approximately 2% fewer bushels of corn during our nine months ended September 30, 20162017 compared to the same period of 2015 due to improved corn to ethanol yields during the 2016 period.2016.

Natural Gas

Our cost of revenues related to natural gas decreasedincreased by approximately $937,000, a decrease$294,000, an increase of approximately 25%10%, for our nine months ended September 30, 20162017 compared to the same period of 2015.our nine months ended September 30, 2016. This decreaseincrease was due to a decreasean increase in market natural gas prices during our nine months ended September 30, 20162017 compared to the same period of 20152016 along with a decrease in ourthe volume of natural gas usagewe used during the 2016 period. our nine months ended September 30, 2017 compared to our nine months ended September 30, 2016.

Our average cost per MMBtu of natural gas during our nine months ended September 30, 20162017 was approximately 24% lower18% greater compared to the pricecost per MMbtu for our nine months ended September 30, 2015. Management attributes this decrease in our average natural gas costs with generally lower energy prices and ample supplies of natural gas in the market. 2016.

We used approximately 1%6% fewer MMBtus of natural gas during our nine months ended September

30, 20162017 compared to the same period of 20152016 primarily due to energy efficiency improvementsdecreased production of dried distillers grains and an increase in distillers grains in the plant and we have produced more modified/wet distillers grainsform which decreases the amount ofrequires less natural gas we consume in our production facility.to produce.

Operating Expenses

Our operating expenses were moregreater for our nine months ended September 30, 20162017 compared to the same period of 20152016 due primarily to insurance claim proceeds we receivedincreased wages and benefits, engineering fees and costs related to advertising to fill employment vacancies, partially offset by a decrease in our environmental compliance expenses during 2015 that reduced the operating expenses for that2017 period.

Other Income and Expense

Our interest income was lessgreater for our nine months ended September 30, 20162017 compared to the same period of 20152016 due to having lessincreased cash on hand during the 2016 period. We received a business interruption insurance payment during the 2015 period which we included in our other income related to storm damage at the plant.hand. Our income related to our investments was less during our nine months ended September 30, 20162017 compared to the same period of 20152016 due to reduced profitability in the ethanol industry which impactsdecreased income from our portion of the net income generated by our investments, including Guardian Hankinson, LLC and RPMG, because both are involved in the ethanol industry.investment. Our interest expense was lower during our nine months ended September 30, 20162017 compared to the same period of 20152016 due to having less borrowingsprincipal outstanding on our loansTIF bond guarantee and more interest capitalized during the 20162017 period.

Changes in Financial Condition for the Nine Months Ended September 30, 20162017

Current Assets

We had lessOur cash on hand at September 30, 20162017 was greater compared to December 31, 2015 due to cash we used during the year for our capital expenditures and distributions to our members.2016. We had morefewer accounts receivable at September 30, 20162017 compared to December 31, 20152016 due to the timing of payments from our marketers at thequarter end and shipments of each period. We had less other receivables at September 30, 2016 compared to December 31, 2015 due to payment of insurance claim receivables received in the first quarter of 2016.our products. The value of our inventory was lowerhigher at September 30, 20162017 compared to December 31, 20152016 due to less corn inventory on hand. We also had less finished goods inventory as a result of the timing of our ethanol shipments in relation to the end of our fiscal quarter. Due to volatility in the corn market, we had a larger unrealized gain on our derivative instruments at September 30, 2016 compared to December 31, 2015 which increased our current assets.shipments.

Property and Equipment

The value of our property and equipment was greaterslightly less at September 30, 20162017 compared to December 31, 20152016 as a result of capital improvements we madedepreciation offset by construction on our RTO replacement during our 20162017 fiscal year, partially offset by regular depreciation of our equipment. We are in the process of completing railroad track improvements which have been placed into service.year.


Other Assets

The value of our investments were lowerwas higher at September 30, 20162017 compared to December 31, 20152016 primarily due to a reduction in the value of our investment in Guardian Hankinson, LLC, Renewable Products Marketing Group, LLC and Lawrenceville Tank, LLC as a result of distributions we received from these investments during our 2016 fiscal year, offset by income generated by our investments since that time.Ring-neck Energy & Feeds, LLC.

Current Liabilities

We had more outstanding checks in excess of bank balances at September 30, 20162017 compared to December 31, 20152016 due to the timing of transfers between our accounts and increased corn payments following the end of our 2015 fiscal year.accounts. We use our revolving loan to pay any checks which are presented for payment which exceed the cash we have available in our accounts. Our accounts payable was significantly lower at September 30, 20162017 compared to December 31, 20152016 because our corn suppliers typically seek to defer payments for corn that is delivered at the end of the year for tax purposes, which increases our accounts payable at that time. These deferred payments were made early in our first quarter of 2016.2017. We had a greatersmaller liability associated with our derivative financial instruments at September 30, 2016 compared to December 31, 2015 due to having more unrealized losses on our forward corn purchase contracts at September 30, 20162017 compared to December 31, 20152016 due to market volatility.increasing corn prices which impacted the value of our derivative instruments at September 30, 2017 compared to December 31, 2016. Current maturities of notes payable were greater at September 30, 2017 compared to December 31, 2016 as we increased our notes payable.

Long-Term Liabilities

Our long-term liabilities were lessgreater at September 30, 20162017 compared to December 31, 20152016 due to the other liabilityborrowing related to long-term pledges payable.our investment in Ring-neck Energy & Feed, LLC.

Liquidity and Capital Resources

Our main sources of liquidity are cash generated from our continuing operations and amounts we have available to draw on our revolving lines of credit. Management does not anticipate that we will need to raise additional debt or equity financing in the next twelve months and managementmonths. Management believes that our current sources of liquidity will be sufficient to continue our operations during that time period.

Currently, we have two revolving loans which allow us to borrow funds for working capital. In addition, on August 1, 2017, we entered into a new $8 million term loan to offset part of the cost of our investment in Ring-neck Energy & Feed, LLC. These two revolving loans are described in greater detail below in the section entitled "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Indebtedness." As of September 30, 2016,2017, we had $1,000 outstanding and $15,023,000$13,993,000 available to be drawn on theseour revolving loans, after taking into account the borrowing base calculation. Management anticipates that this is sufficient to maintain our liquidity and continue our operations.

The following table shows cash flows for the nine months ended September 30, 20162017 and 20152016:
 Nine Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2017 2016
Net cash provided by operating activities $7,993,255
 $11,961,698
 $7,033,946
 $6,674,300
Net cash (used in) investing activities (3,383,088) (6,618,781) (11,462,895) (2,064,133)
Net cash (used for) financing activities (5,594,105) (1,877,979)
Net cash provided by (used in) financing activities 5,358,847
 (5,594,105)

Cash Flow From Operations. Our operating activities provided lessmore cash during the nine months ended September 30, 20162017 compared to the same period of 2015,2016, due primarily due to decreased receivables offset by decreased net income and a decreasean increase in the distributions we received from our investments during the 2016 period.inventory.

Cash Flow From Investing Activities. Our investing activities used lessmore cash during the nine months ended September 30, 20162017 compared to the same period of 20152016 due to less capital expenditures during the 2016 period.our investment in Ring-neck Energy & Feed, LLC.

Cash Flow From Financing Activities. Our financing activities usedprovided more cash during the nine months ended September 30, 20162017 compared to the same period of 2015 because of a smaller increase in our checks issued in excess of bank balances partially offset by a smaller distribution2016 due primarily to funds we borrowed related to the Ring-neck Energy & Feed, LLC investment during the 20162017 period.


Indebtedness
 
Effective May 15, 2013, we entered into a comprehensive credit facility with Farm Credit Services of America, PCA and Farm Credit Services of America, FLCA (collectively "FCSA"). Our FCSA credit facility replaced our prior loans with First National Bank of Omaha. Our FCSA credit facility was originally comprised of a $10 million revolving operating line of credit (the "Operating Line") and a $5 million revolving term commitment (the "Term Revolver"). Our FCSA credit facility was amended in December 2013 to add an additional $10 million term loan (the "Term Loan"). We amended our FCSA loans on November 11, 2014, the primary purpose of which was to replace our $5 million Term Revolver and our $10 million Term Loan with a new $15 million reducing revolving loan (the "Reducing Revolving Loan"). On August 1, 2017, we executed the Fifth Amendment to Credit Agreement (the "Fifth Amendment to Credit Agreement") which created a new $8 million term loan (the "2017 Term Loan") which we used to fund a portion of our investment in Ring-neck Energy & Feed, LLC. All of our assets, including the ethanol plant and equipment, its accounts receivable and inventory, serve as collateral for our loans with FCSA.

Operating Line

The Operating Line's term was extended in our October 28, 2016 amendment to November 1, 2018. In the Fifth Amendment to Credit Agreement, this maturity date was extended to November 1, 2019. The total amount that we can draw on the Operating Line is restricted by a formula based on the amount of inventory, receivables and equity we have in certain CBOT futures positions. Interest on the Operating Line accrued at the one month London Interbank Offered Rate ("LIBOR") plus 300 basis points. There is a fee of 0.25% on the portion of the Operating Line that we are not using, which is billed quarterly. The interest rate for this loan at September 30, 20162017 was 3.50%4.25%. As of September 30, 2016,2017, we had $0 outstanding on the Operating Line and $2,274,000$2,744,000 available to be drawn, taking into account the borrowing base calculation.

Reducing Revolving Loan

On November 11, 2014, we executed a loan amendment with FCSA which eliminated our prior Term Loan and Term Revolver and replaced them with a new $15 million Reducing Revolving Loan. Interest accrues on the Reducing Revolving Loan at a rate of 325 basis points in excess of the one-month LIBOR and we agreed to pay a fee of 0.50% for any unused amount of

the Reducing Revolving Loan. The amount we can borrow on the Reducing Revolving Loan decreases by $750,000 semi-annually starting on April 1, 2015 until the maximum balance reaches $7.5 million on October 1, 2019. The Reducing Revolving Loan matures on October 1, 2024. The interest rate for this loan at September 30, 20162017 was 3.75%4.50%. As of September 30, 2016,2017, we had $1,000 outstanding on the Reducing Revolving Loan and $12,749,000$11,249,000 available to be drawn.

2017 Term Loan

On August 1, 2017, we executed the Fifth Amendment to Credit Agreement to create the 2017 Term Loan for $8 million. We agreed to make annual principal payments of $1 million plus accrued interest starting on August 1, 2018 and annually thereafter until the maturity date on August 1, 2025. Interest accrues on the 2017 Term Loan at a rate of 325 basis points in excess of the one-month LIBOR until July 28, 2022 and thereafter, interest will accrue at the Federal Farm Credit Banks Funding Corporation 30-day discount note cost plus 3.5%.

Covenants

Our credit facilities with FCSA are subject to various loan covenants. If we fail to comply with these loan covenants, FCSA can declare us to be in default of our loans. The material loan covenants applicable to our credit facilities are our working capital covenant, local net worth covenant and our debt service coverage ratio. We are required to maintain working capital (current assets minus current liabilities) of at least $6 million. We are required to maintain local net worth (total assets minus total liabilities minus the value of certain investments) of at least $18 million. We are required to maintain a debt service coverage ratio of at least 1.25:1.00.

As of September 30, 20162017, we were in compliance with all of our loan covenants. Management's current financial projections indicate that we will be in compliance with our financial covenants for the next 12 months and we expect to remain in compliance thereafter. Management does not believe that it is reasonably likely that we will fall out of compliance with our material loan covenants in the next 12 months. If we fail to comply with the terms of our credit agreements with FCSA, and FCSA refuses to waive the non-compliance, FCSA may require us to immediately repay all amounts outstanding on our loans.


Application of Critical Accounting Policies

Management uses estimates and assumptions in preparing our consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:

Derivative Instruments

We enter into short-term forward, grain, option and futures contracts as a means of securingfor ethanol, corn and natural gas for the ethanol plant andas a means of managing exposure to changes in commodity and energy prices. We enter into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in energy prices. All of our derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of our trading activity, we use futures and option contracts offered through regulated commodity exchanges to reduce our risk and we are exposed to risk of loss in the market value of inventories. To reduce that risk, we generally take positions using cash and futures contracts and options.

Unrealized gains and losses related to derivative contracts for corn and natural gas purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements. The fair values of derivative contracts are presented on the accompanying balance sheet as derivative financial instruments.

Goodwill

We record as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. Annually, as well as when an event triggering impairment may have occurred, the Company performs an impairment test on goodwill. The first step tests for impairment, while the second step, if necessary, measures the impairment. We perform our annual analysis on December 31 of each fiscal year.

Inventory Valuation

Inventories are generally valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.


Revenue Recognition

Revenue from the production of ethanol and related products is recorded when title transfers to customers. Generally, ethanol and related products are shipped FOB shipping point, based on written contract terms between Dakota Ethanol and its customers. Collectability of revenue is reasonably assured based on historical evidence of collectability between Dakota Ethanol and its customers. Interest income is recognized as earned.

Shipping costs incurred by the Company in the sale of ethanol, dried distiller'sdistillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below.  We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We have loans that are subject to variable interest rates. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding loans which bear variable interest rates. As of September 30, 20162017, we had $1,0008,001,000 outstanding on our variable interest rate loans with interest accruing at a rate of 3.75%4.50%. Our variable interest rates are calculated by adding a set basis to LIBOR. If we were to experience a 10% increase in LIBOR, the annual effect such change would have on our income statement, based on the amount we had outstanding on our variable interest rate loans as of September 30, 20162017, would be less than $1.approximately $36,000.

Commodity Price Risk
 
We are exposed to market risk from changes in commodity prices.  Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process.  We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments.  In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate.  Although we believe our hedge positions accomplish an economic hedge against our future purchases, they are not designated as such for hedge accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged.  We are marking to market our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of revenues.

The immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.  We recorded a combined increase to our cost of revenues of approximately $382,000 related to derivative instruments for the quarter ended September 30, 2017. We recorded a combined decrease to our cost of revenues of approximately $529,000 related to derivative instruments for the quarter ended September 30, 2016. We recorded a combined decrease to our cost of revenues of approximately $242,000 related to derivative instruments for the quarter ended September 30, 2015. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or natural gas.  However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

As of September 30, 2016, we were committed to purchasing approximately 3.9 million bushels of corn with an average price of $3.43 per bushel. These corn purchases represent approximately 20% of our expected corn usage for the next 12 months. As of September 30, 2016, we had no purchase commitments related to natural gas. As corn and natural gas prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects to our financial results, but are designed to produce long-term positive growth for us.
As of September 30, 2017, we were committed to purchasing approximately 2.6 million bushels of corn with an average price of $3.32 per bushel. These corn purchases represent approximately 14% of our expected corn usage for the next 12 months.

As of September 30, 2017, we had no purchase commitments related to natural gas.

As of September 30, 2017, we were committed to selling approximately 50,000 dry equivalent tons of distillers grains with an average price of $99 per ton. The distillers grains sales represent approximately 35% of the projected annual plant production.

As of September 30, 2017, we were committed to selling approximately 1,794,000 pounds of distillers corn oil with an average price of $0.29 per pound.  The distillers corn oil sales represent approximately 16% of the projected annual plant production.

A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol price as of September 30, 2016,2017, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from September 30, 2016.2017. The results of this analysis, which may differ from actual results, are as follows:
 
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) Unit of Measure Hypothetical Adverse Change in Price Approximate Adverse Change to IncomeEstimated Volume Requirements for the next 12 months (net of forward and futures contracts) Unit of Measure Hypothetical Adverse Change in Price Approximate Adverse Change to Income
Ethanol52,500,000
 Gallons 10% $7,297,500
52,500,000
 Gallons 10% $6,930,000
Corn15,924,000
 Bushels 10% $4,649,808
16,835,707
 Bushels 10% $4,865,519
Natural Gas1,181,250
 MMBTU 10% $331,931
1,181,250
 MMBTU 10% $335,475

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For comparison purposes, our sensitivity analysis for our third quarter of 20152016 is set forth below.
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) Unit of Measure Hypothetical Adverse Change in Price Approximate Adverse Change to IncomeEstimated Volume Requirements for the next 12 months (net of forward and futures contracts) Unit of Measure Hypothetical Adverse Change in Price Approximate Adverse Change to Income
Ethanol55,000,000
 Gallons 10% $7,700,000
52,500,000
 Gallons 10% $7,297,500
Corn18,107,080
 Bushels 10% $6,083,979
15,924,000
 Bushels 10% $4,649,808
Natural Gas1,177,500
 MMBTU 10% $315,570
1,181,250
 MMBTU 10% $331,931

ITEM 4. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer (the principal executive officer), Scott Mundt, along with our Chief Financial Officer (the principal financial officer), Rob Buchholtz, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 20162017. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended September 30, 20162017, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.    OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time in the ordinary course of business, Dakota Ethanol or Lake Area Corn Processors may be named as a defendant in legal proceedings related to various issues, including, worker's compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the managers that could result in the commencement of material legal proceedings.

ITEM 1A. RISK FACTORS.

The following risk factor isfactors are provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factorfactors set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended December 31, 2015,2016, included in our annual report on Form 10-K.

The Brazilian tariff on U.S. produced ethanol could negatively impact market ethanol prices. Brazil is currently the largest importer of ethanol produced in the United States. However, recently the Brazilian government implemented a tariff on ethanol produced in the United States and exported to Brazil. Due to current ethanol production levels in the United States, the market price of ethanol has been supported by exports of ethanol. Further, additional ethanol capacity is being constructed which may further increase the domestic supply of ethanol. The Brazilian tariff on U.S. ethanol could lead to an oversupply of ethanol in the United States which could negatively impact domestic ethanol prices. Ethanol prices may decrease to a level which does not allow us to operate the ethanol plant profitably.

Many ethanol producers are expanding their production capacity which could lead to an oversupply of ethanol in the United States. Recently, many ethanol producers have commenced projects to expand their ethanol production capacities. These expansions could result in a significant increase in the supply of ethanol in the United States. Currently, ethanol prices are supported by ethanol exports which may not continue at their current levels. While many in the ethanol industry are working to increase the amount of ethanol that is used domestically, specifically in the form of E15, which contains 15% ethanol as compared to the 10% ethanol which is used in most current blends, adoption of E15 has not been as rapid as most ethanol producers would like. Also, the additional ethanol capacity which is being constructed may exceed current domestic and export demand. If an oversupply of

ethanol were to occur, it could negatively impact domestic ethanol prices which could negatively impact our ability to profitably operate the ethanol plant.

Distillers grains demand and prices may be negatively impacted by the Chinese anti-dumping dutyand anti-subsidy duties. China iswas historically the world's largest importer of distillersdistiller grains produced in the United States. On January 12, 2016, the Chinese government announced that it would commence an anti-dumping and countervailing duty investigation related to distillersdistiller grains imported from the United

States. On September 23, 2016,In January 2017, the Chinese instituted a preliminaryfinalized the anti-dumping duty of 33.8% in responseand anti-subsidy duties. The anti-dumping duties range from 42.2% to this investigation.53.7%. The final anti-subsidy tariffs range from 11.2% to 12%. Both during the investigation and after the announcement of the duty,duties, distillers grains demand and prices have been negatively impacted. While we expect China to continue to import some distillers grains, we do not anticipate that the imports will be at the same level as previous years which could continue to negatively impact market distillers grains demand and prices. This potential reduction in demand along with lower domestic corn prices could negatively impact our ability to profitably operate the ethanol plant.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.     MINE SAFETY DISCLOSURES

None.

ITEM 5.     OTHER INFORMATION.

None.

ITEM 6.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES.


The following exhibits are filed as part of this report.
Exhibit No.Exhibit
10.1
Fourth Amendment to Credit Agreement dated October 28, 2016 between Farm Credit Services of America, PCA and Farm Credit Services of America, FLCA and Dakota Ethanol, L.L.C.*
31.1



101
The following financial information from Lake Area Corn Processors, LLC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2016,2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 20162017 and December 31, 2015,2016, (ii) Consolidated Statements of Income for the three and nine month periods ended September 30, 20162017 and 2015,2016, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 20162017 and 2015,2016, and (iv) the Notes to Unaudited Consolidated Financial Statements.**
* Filed herewith.
** Furnished herewith.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 LAKE AREA CORN PROCESSORS, LLC
  
Date:November 14, 20162017 /s/ Scott Mundt
 Scott Mundt
 
President and Chief Executive Officer
(Principal Executive Officer)
  
Date:November 14, 20162017 /s/ RobRobbi Buchholtz
 RobRobbi Buchholtz
 
Chief Financial Officer
(Principal Financial and Accounting Officer)



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