UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934 |
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| For the quarterly period ended December 31, 2017 | June 30, 2023 |
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| OR |
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o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.1934 |
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| For the transition period from to . |
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| COMMISSION FILE NUMBER Commission File Number: | 000-52033 |
RED TRAIL ENERGY, LLC
(Exact name of registrant as specified in its charter)
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North Dakota | | 76-0742311 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.) |
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3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652 |
(Address of principal executive offices) |
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(701) 974-3308 |
(Registrant's telephone number, including area code) |
3682 Highway 8 South, P.O. Box 11, Richardton, ND 58652
Indicate by check mark whether the registrant (1) has filed all reports required(Address of principal executive offices)
(701) 974-3308
(Registrant's telephone number, including area code)
Securities registered pursuant to be filed by Section 13 or 15(d)12(b) 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.Act:
x Yes o No | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
☒ | Yes | ☐ | No | |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No | | | | | | | | | | | | | | |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). |
☒ | Yes | ☐ | 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 or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act:
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Large Accelerated Filer | o | Accelerated Filer | o |
Non-Accelerated Filer | x | Smaller Reporting Company | ☐ |
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Large Accelerated Filer o
| Accelerated Filer o
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Non-Accelerated Filer x
| Smaller Reporting Company o
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| Emerging Growth Companyo |
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 ☐ |
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.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes xNo
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of FebruaryAugust 14, 2018,2023, there were 41,466,34040,148,160 Class A Membership Units issued and outstanding.
INDEX
PART II. FINANCIAL INFORMATION
Item 1. Financial Statements
RED TRAIL ENERGY, LLC
Condensed Balance Sheets
| | | | | | | | | | | | | | |
ASSETS | | June 30, 2023 | | September 30, 2022 |
| | (Unaudited) | | |
Current Assets | | | | |
Cash and equivalents | | $ | 6,022,687 | | | $ | 6,366,990 | |
Restricted cash - margin account | | 2,710,413 | | | 4,785,025 | |
Accounts receivable, net, primarily related party | | 7,657,890 | | | 4,879,011 | |
| | | | |
| | | | |
Inventory | | 15,030,571 | | | 12,544,033 | |
Prepaid expenses | | 774,624 | | | 512,770 | |
Total current assets | | 32,196,185 | | | 29,087,829 | |
| | | | |
Property, Plant and Equipment | | | | |
Land | | 1,333,681 | | | 1,333,681 | |
Land improvements | | 17,662,538 | | | 17,662,538 | |
Buildings | | 15,320,492 | | | 14,930,003 | |
Plant and equipment | | 121,464,181 | | | 121,465,514 | |
Construction in progress | | 2,460,066 | | | 1,191,290 | |
| | 158,240,958 | | | 156,583,026 | |
Less accumulated depreciation | | 81,633,867 | | | 77,104,977 | |
Net property, plant and equipment | | 76,607,091 | | | 79,478,049 | |
| | | | |
Other Assets | | | | |
Right of use operating lease assets, net | | 1,906,122 | | | 405,631 | |
Investment in RPMG | | 940,642 | | | 605,000 | |
Patronage equity | | 5,348,618 | | | 5,399,515 | |
Deposits | | 40,000 | | | 40,000 | |
Total other assets | | 8,235,382 | | | 6,450,146 | |
| | | | |
Total Assets | | $ | 117,038,658 | | | $ | 115,016,024 | |
|
| | | | | | | | |
ASSETS | | December 31, 2017 | | September 30, 2017 |
| | (Unaudited) | |
|
Current Assets | |
| |
|
Cash and equivalents | | $ | 11,293,024 |
| | $ | 3,223,342 |
|
Restricted cash - margin account | | 5,683,142 |
| | 5,906,666 |
|
Accounts receivable, primarily related party | | 3,039,006 |
| | 4,059,227 |
|
Other receivables | | 15,474 |
| | 8,764 |
|
Inventory | | 15,879,209 |
| | 16,413,742 |
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Prepaid expenses | | 279,968 |
| | 33,364 |
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Total current assets | | 36,189,823 |
| | 29,645,105 |
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| |
| |
|
Property, Plant and Equipment | |
| |
|
Land | | 1,342,381 |
| | 1,342,381 |
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Land improvements | | 4,266,953 |
| | 4,266,953 |
|
Buildings | | 8,036,031 |
| | 8,036,031 |
|
Plant and equipment | | 86,987,706 |
| | 86,460,902 |
|
Construction in progress | | 133,995 |
| | 628,454 |
|
| | 100,767,066 |
| | 100,734,721 |
|
Less accumulated depreciation | | 54,766,673 |
| | 53,592,985 |
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Net property, plant and equipment | | 46,000,393 |
| | 47,141,736 |
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| |
| |
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Other Assets | |
| |
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Investment in RPMG | | 605,000 |
| | 605,000 |
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Patronage equity | | 3,270,279 |
| | 3,270,279 |
|
Deposits | | 40,000 |
| | 40,000 |
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Total other assets | | 3,915,279 |
| | 3,915,279 |
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| |
| |
|
Total Assets | | $ | 86,105,495 |
| | $ | 80,702,120 |
|
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Balance Sheets
| | | | | | | | | | | | | | |
LIABILITIES AND MEMBERS' EQUITY | | June 30, 2023 | | September 30, 2022 |
| | (Unaudited) | | |
Current Liabilities | | | | |
| | | | |
Accounts payable | | 7,936,111 | | | 6,885,442 | |
Accrued expenses | | 2,799,582 | | | 1,531,123 | |
Distribution payable | | 2,007,408 | | | — | |
Commodities derivative instruments, at fair value (see note 3) | | 151,706 | | | 1,162,273 | |
Accrued loss on firm purchase commitments (see notes 4 and 8) | | 428,000 | | | 9,000 | |
Customer deposits | | 46,593 | | | 10,636 | |
Current maturities of notes payable | | 2,560,714 | | | 18,751,634 | |
Current portion of operating lease liabilities | | 342,538 | | | 271,968 | |
Total current liabilities | | 16,272,652 | | | 28,622,076 | |
| | | | |
Long-Term Liabilities | | | | |
Notes payable | | 20,189,931 | | | 419,150 | |
Long-term operating lease liabilities | | 1,563,583 | | | 133,663 | |
Total long-term liabilities | | 21,753,514 | | | 552,813 | |
Commitments and Contingencies (Notes 4, 5, 7 and 8) | | | | |
| | | | |
Members’ Equity 40,148,160 Class A Membership Units issued and outstanding | | 79,012,492 | | | 85,841,135 | |
| | | | |
Total Liabilities and Members’ Equity | | $ | 117,038,658 | | | $ | 115,016,024 | |
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LIABILITIES AND MEMBERS' EQUITY | | December 31, 2017 | | September 30, 2017 |
| | (Unaudited) | |
|
Current Liabilities | |
| |
|
Accounts payable | | $ | 3,585,115 |
| | $ | 2,409,171 |
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Accrued expenses | | 9,531,874 |
| | 3,670,338 |
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Commodities derivative instruments, at fair value (see note 2) | | 1,276,525 |
| | 933,312 |
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Accrued loss on firm purchase commitments (see note 7) | | 13,000 |
| | 5,000 |
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Current maturities of notes payable | | 2,622 |
| | 2,617 |
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Total current liabilities | | 14,409,136 |
| | 7,020,438 |
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Long-Term Liabilities | |
| |
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Notes payable | | 2,264 |
| | 2,921 |
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| |
| |
|
Members’ Equity (41,466,340 as of December 31, 2017 and September 30, 2017, respectively, of Class A Membership Units issued and outstanding) | | 71,694,095 |
| | 73,678,761 |
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| | | | |
Total Liabilities and Members’ Equity | | $ | 86,105,495 |
| | $ | 80,702,120 |
|
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Statements of Operations (Unaudited)
| | | | | | | | | | Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended |
| Three Months Ended | | Three Months Ended | | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| December 31, 2017 | | December 31, 2016 | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) |
Revenues, primarily related party | $ | 26,122,856 |
| | $ | 30,004,460 |
| Revenues, primarily related party | $ | 49,690,760 | | | $ | 55,720,460 | | | $ | 148,820,593 | | | $ | 168,225,436 | |
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| |
| |
Cost of Goods Sold |
| |
| Cost of Goods Sold | |
Cost of goods sold | 27,743,282 |
| | 27,127,930 |
| Cost of goods sold | 47,967,330 | | | 49,139,917 | | | 142,207,229 | | | 137,960,322 | |
Lower of cost or market inventory adjustment | 70,979 |
| | — |
| |
Lower of cost or net realizable value adjustment | | Lower of cost or net realizable value adjustment | — | | | 53,953 | | | 74,000 | | | 53,953 | |
Loss on firm purchase commitments | 8,000 |
| | — |
| Loss on firm purchase commitments | 71,000 | | | 89,000 | | | 535,000 | | | 885,000 | |
Total Cost of Goods Sold | 27,822,261 |
| | 27,127,930 |
| Total Cost of Goods Sold | 48,038,330 | | | 49,282,870 | | | 142,816,229 | | | 138,899,275 | |
|
| |
| |
Gross Profit (Loss) | (1,699,405 | ) | | 2,876,530 |
| |
Gross Profit | | Gross Profit | 1,652,430 | | | 6,437,590 | | | 6,004,364 | | | 29,326,161 | |
|
| |
| |
General and Administrative Expenses | 715,911 |
| | 690,934 |
| General and Administrative Expenses | 1,310,476 | | | 798,990 | | | 4,098,939 | | | 2,556,029 | |
|
| |
| | | | | | | | |
Operating Income (Loss) | (2,415,316 | ) | | 2,185,596 |
| |
Operating Income | | Operating Income | 341,954 | | | 5,638,600 | | | 1,905,425 | | | 26,770,132 | |
|
| |
| |
Other Income (Expense) |
| |
| Other Income (Expense) | |
Interest income | 23,427 |
| | 18,112 |
| Interest income | 14,953 | | | 21,154 | | | 44,978 | | | 57,684 | |
Other income | 407,233 |
| | 568,269 |
| |
Interest expense | (10 | ) | | (15 | ) | |
Other income (expense), net | | Other income (expense), net | 43,625 | | | 4,265,190 | | | 70,471 | | | 6,923,733 | |
Interest (expense) | | Interest (expense) | (264,282) | | | (3,872) | | | (818,859) | | | (19,927) | |
Total other income (expense), net | 430,650 |
| | 586,366 |
| Total other income (expense), net | (205,704) | | | 4,282,472 | | | (703,410) | | | 6,961,490 | |
|
| |
| | | | | | | | |
Net Income (Loss) | $ | (1,984,666 | ) | | $ | 2,771,962 |
| |
Net Income | | Net Income | $ | 136,250 | | | $ | 9,921,072 | | | $ | 1,202,015 | | | $ | 33,731,622 | |
|
| |
| | | | | | | | |
Weighted Average Units Outstanding | | | | Weighted Average Units Outstanding | |
Basic | 41,466,340 |
| | 41,406,697 |
| Basic | 40,148,160 | | | 40,148,160 | | | 40,148,160 | | | 40,148,160 | |
|
| |
| | | | | | | | |
Diluted | 41,466,340 |
| | 41,406,697 |
| Diluted | 40,148,160 | | | 40,148,160 | | | 40,148,160 | | | 40,148,160 | |
| | | | | | | | | | | |
Net Income (Loss) Per Unit |
| | | |
Net Income Per Unit | | Net Income Per Unit | |
Basic | $ | (0.05 | ) | | $ | 0.07 |
| Basic | $ | — | | | $ | 0.25 | | | $ | 0.03 | | | $ | 0.84 | |
|
| |
| | | | | | | | |
Diluted | $ | (0.05 | ) | | $ | 0.07 |
| Diluted | $ | — | | | $ | 0.25 | | | $ | 0.03 | | | $ | 0.84 | |
| | | | | | | | | | | |
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
Condensed Statements of Cash Flows(Unaudited)
| |
| Three Months Ended | | Three Months Ended | | Nine Months Ended | | Nine Months Ended |
| December 31, 2017 | | December 31, 2016 | | June 30, 2023 | | June 30, 2022 |
Cash Flows from Operating Activities |
| |
| Cash Flows from Operating Activities | | | |
Net income (loss) | $ | (1,984,666 | ) | | $ | 2,771,962 |
| |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
| |
| |
Net income | | Net income | $ | 1,202,015 | | | $ | 33,731,622 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | 1,173,688 |
| | 1,170,669 |
| Depreciation and amortization | 4,745,508 | | | 3,318,035 | |
Loss on disposal of fixed assets | | Loss on disposal of fixed assets | 9,759 | | | — | |
Change in fair value of derivative instruments | 343,213 |
| | (63,498 | ) | Change in fair value of derivative instruments | (1,010,567) | | | 963,925 | |
Lower of cost or market inventory adjustment | 70,979 |
| | — |
| |
Lower of cost of net realizable value adjustment | | Lower of cost of net realizable value adjustment | 74,000 | | | 53,953 | |
Loss on firm purchase commitments | 8,000 |
| | — |
| Loss on firm purchase commitments | 535,000 | | | 885,000 | |
Change in operating assets and liabilities: |
| |
| |
Restricted cash | 223,524 |
| | (247,525 | ) | |
Accounts receivable | 1,020,221 |
| | 125,591 |
| |
Other receivables | (6,710 | ) | | 64,887 |
| |
Noncash patronage equity | | Noncash patronage equity | 50,897 | | | — | |
Loan forgiveness | | Loan forgiveness | — | | | (2,650,773) | |
| Accounts receivable, net, primarily related party | | Accounts receivable, net, primarily related party | (2,778,879) | | | (2,324,801) | |
| Inventory | 455,553 |
| | (6,696,029 | ) | Inventory | (3,095,539) | | | (4,426,922) | |
Prepaid expenses | (246,604 | ) | | (167,756 | ) | Prepaid expenses | (261,853) | | | (144,305) | |
Customer deposits | | Customer deposits | 35,957 | | | 2,952 | |
Accounts payable | 1,175,944 |
| | 1,629,501 |
| Accounts payable | 1,050,669 | | | (299,821) | |
Accrued expenses | 5,861,537 |
| | 12,058,830 |
| Accrued expenses | 1,268,459 | | | (373,345) | |
Accrued purchase commitment losses | 8,000 |
| | (54,000 | ) | |
Accrued loss on firm purchase commitments | | Accrued loss on firm purchase commitments | 419,000 | | | 885,000 | |
Net cash provided by operating activities | 8,102,679 |
| | 10,592,632 |
| Net cash provided by operating activities | 2,244,426 | | | 29,620,520 | |
| | | | | | | |
Cash Flows from Investing Activities |
| |
| Cash Flows from Investing Activities | |
Investment in RPMG | | Investment in RPMG | (335,642) | | | — | |
Proceeds from disposal of fixed assets | | Proceeds from disposal of fixed assets | 33,000 | | | — | |
Capital expenditures | (32,345 | ) | | (174,001 | ) | Capital expenditures | (1,917,310) | | | (17,763,824) | |
Net cash (used in) investing activities | (32,345 | ) | | (174,001 | ) | |
Net cash used in investing activities | | Net cash used in investing activities | (2,219,952) | | | (17,763,824) | |
| | | | | | | |
Cash Flows from Financing Activities |
| |
| Cash Flows from Financing Activities | |
Unit repurchase | — |
| | (564,963 | ) | |
Distribution Paid | | Distribution Paid | (6,023,250) | | | (9,635,404) | |
Disbursements in excess of bank balances | | Disbursements in excess of bank balances | — | | | (1,343,608) | |
| Proceeds from notes payable | | Proceeds from notes payable | 7,000,000 | | | 18,000,000 | |
| Debt repayments | (652 | ) | | (648 | ) | Debt repayments | (3,420,139) | | | (591,268) | |
Net cash (used in) financing activities | (652 | ) | | (565,611 | ) | |
Net cash (used for) provided by financing activities | | Net cash (used for) provided by financing activities | (2,443,389) | | | 6,429,720 | |
|
| |
| | | | |
Net Increase in Cash and Equivalents | 8,069,682 |
| | 9,853,020 |
| |
Cash and Equivalents - Beginning of Period | 3,223,342 |
| | 10,274,166 |
| |
Cash and Equivalents - End of Period | $ | 11,293,024 |
| | $ | 20,127,186 |
| |
Net Change in Cash, Cash Equivalents and Restricted Cash | | Net Change in Cash, Cash Equivalents and Restricted Cash | (2,418,915) | | | 18,286,416 | |
Cash, Cash Equivalents and Restricted Cash - Beginning of Period | | Cash, Cash Equivalents and Restricted Cash - Beginning of Period | 11,152,015 | | | 5,215,244 | |
Cash, Cash Equivalents and Restricted Cash - End of Period | | Cash, Cash Equivalents and Restricted Cash - End of Period | $ | 8,733,100 | | | $ | 23,501,660 | |
| Reconciliation of Cash, Cash Equivalents and Restricted Cash | | Reconciliation of Cash, Cash Equivalents and Restricted Cash | |
Cash and cash equivalents | | Cash and cash equivalents | $ | 6,022,687 | | | $ | 19,122,569 | |
Restricted cash | | Restricted cash | 2,710,413 | | | 4,379,091 | |
Total Cash, Cash Equivalents and Restricted Cash | | Total Cash, Cash Equivalents and Restricted Cash | $ | 8,733,100 | | | $ | 23,501,660 | |
|
| |
| | |
Supplemental Disclosure of Cash Flow Information |
| |
| Supplemental Disclosure of Cash Flow Information | |
Interest paid | $ | 3,683 |
| | $ | 15 |
| Interest paid | $ | 437,438 | | | $ | 54,427 | |
Units issued in exchange for property | $ | — |
| | $ | 3,320,000 |
| |
Noncash Investing and Financing Activities | | Noncash Investing and Financing Activities | |
| Operating lease asset acquired | | Operating lease asset acquired | $ | 1,620,653 | | | $ | — | |
Distribution payable | | Distribution payable | $ | 2,007,408 | | | $ | — | |
Capital expenditures in accounts payable | | Capital expenditures in accounts payable | | | $ | 108,572 | |
Notes to Unaudited Condensed Financial Statements are an integral part of this Statement.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
The accompanying condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the fiscal year ended September 30, 2017,2022, contained in the Company's Annual Report on Form 10-K.
In the opinion of management, the interim condensed unaudited financial statements reflect all adjustments considered necessary for fair presentation. The adjustments made to these statements consist only of normal recurring adjustments. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2018.2023.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Red Trail Energy, LLC, a North Dakota limited liability company (the “Company”), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota (the “Plant”).
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Significant items subject to such estimates and assumptions include the useful lives of property, plant and equipment, inventory, and allowance for doubtful accounts. Actual results could differ from those estimates.
Net Income Per Unit
Net income per unit is calculated on a basic and fully diluted basis using the weighted average units outstanding during the period.
Recently Issued Accounting Pronouncements
2. REVENUE
Revenue Recognition
The Company recognizes revenue from Contracts with Customers
In May 2014,sales of ethanol and co-products at the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”point in time when the performance obligations in the contract are met, which supersedesis when the guidance in “Revenue Recognition (Topic 605)”customer obtains control of such products and requires entities to recognize revenue in a way that depictstypically occurs upon shipment (depending on the transferterms of promised goods or services to customers in anthe underlying contracts). Revenue is measured as the amount that reflects theof consideration to which the entity expectsexpected to be entitled toreceived in exchange for thosetransferring goods or providing services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods withinIn some instances, the Company enters into contracts with customers that reportingcontain multiple performance obligations to deliver specified volumes of co-products over a contractual period and isof less than 12 months. In such instances, the Company allocates the transaction price to be applied retrospectively, with early application not permitted. The Company has evaluated the new standard and anticipates a changeeach performance obligation identified in the reportingcontract based on relative standalone selling prices and recognizes the related revenue when control of revenue as enhanced disclosures will be required. The Company does not anticipate a significant impact on our financial statements dueeach individual product is transferred to the nature of our revenue streams and our revenue recognition policy.
Simplifying the Measurement of Inventory
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurements of Inventory" regarding inventory that is measured using the first-in, first-out or average cost method. The guidance does not apply to inventory measured using the last-in, first-out or the retail inventory method. The guidance requires inventory within its scope to be measured at the lower of cost or net realizable value, which is the estimated selling pricecustomer in the normal course of business less reasonable predictable costs of completion, disposal and transportation. These amendments more closely align GAAP with International Financial Reporting Standards (IFRS). ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and should be applied prospectively with early adoption permitted assatisfaction of the beginning of an interim or annual reporting period. corresponding performance obligation.
Revenue by Source
The Company has adoptedfollowing table disaggregates revenue by major source for the new standard during the quarterthree and there has been no significant impact to our financial statements.nine months ended June 30, 2023 and 2022.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | For the three months ended June 30, 2023 (unaudited) | | For the three months ended June 30, 2022 (unaudited) | | For the nine months ended June 30, 2023 (unaudited) | | For the nine months ended June 30, 2022 (unaudited) |
Ethanol, E85 and Industrial Alcohol | | $ | 38,727,252 | | | $ | 41,848,981 | | | $ | 111,546,165 | | | $ | 129,429,510 | |
Distillers Grains | | 8,572,529 | | | 10,210,240 | | | 28,780,739 | | | 28,377,801 | |
Syrup | | 140,032 | | | 412,504 | | | 512,350 | | | 1,335,627 | |
Corn Oil | | 2,208,059 | | | 3,215,625 | | | 7,831,189 | | | 8,940,871 | |
Other | | 42,888 | | | 33,110 | | | 150,149 | | | 141,627 | |
Total revenue from contracts with customers | | $ | 49,690,760 | | | $ | 55,720,460 | | | $ | 148,820,592 | | | $ | 168,225,436 | |
Lease Accounting StandardsShipping and Handling Costs
In February 2016,We account for shipping and handling activities related to contracts with customers as costs to fulfill our promises to transfer the FASB issued ASU No. 2016-02, "Leases (topic 842)" which requiresassociated products. Accordingly, we record customer payments associated with shipping and handling costs as a lessee to recognizecomponent of revenue and classify such costs as a right to use assetcomponent of cost of goods sold.
Customer Deposits
Customer deposits are contract liabilities for payments in excess of revenue recognized. Customer deposits are recognized when modified distillers grains customers make prepayments on their contracts. The ending balances for accounts receivable and a lease liability on its balance sheetcustomer deposits were as follows for all leases with terms of twelvethe nine months or greater. This guidance is effective for fiscal years beginning after December 15, 2018, included interim periods within those years with early adoption permitted. The Company has evaluated the new standardended June 30, 2023 and expects it will have a material impact on the financial statements as we will have to begin capitalizing leases on the balance sheet when the new standard is implemented. See note 6 for current operating lease commitments.June 30, 2022.
Statement of Cash Flows; Restricted Cash | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | October 1, 2022 | | October 1, 2021 | | For the period ended June 30, 2023 (unaudited) | | For the period ended June 30, 2022 (unaudited) |
Accounts receivable | | | | | | $ | 4,879,011 | | | $ | 1,468,521 | | | $ | 7,657,890 | | | $ | 3,793,322 | |
Customer deposits | | | | | | 10,636 | | | 11,008 | | | 46,593 | | | 13,960 | |
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for annal periods beginning after December 15, 2017, and interim periods within those annual periods. The Company has evaluated the new standard and anticipates a change in the presentation of restricted cash on the cash flow statement once the standard is adopted.
2.3. DERIVATIVE INSTRUMENTS
Commodity Contracts
As part of its hedging strategy, the Company may enter into ethanol, soybean, soybean oil, natural gas and corn commodity-based derivatives in order to protect cash flows from fluctuations caused by volatility in commodity prices in order to protect gross profit margins from potentially adverse effects of market and price volatility on ethanol sales, corn oil sales, and corn purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair market value is recorded through earnings in the period of change. Ethanol derivative fair market value gains or losses are included in the results of operations and are classified as revenue, and corn derivative changes in fair market value are included in cost of goods sold.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of: | | June 30, 2023 (unaudited) | | September 30, 2022 |
Contract Type | | # of Contracts | Notional Amount (Qty) | Fair Value | | # of Contracts | Notional Amount (Qty) | Fair Value |
| | | | | | | | | | |
Corn options | | 371 | | 1,855,000 | | bushels | $ | (151,706) | | | 1,080 | | 5,400,000 | | bushels | $ | (1,144,000) | |
Soybean oil options | | — | | — | | gal | $ | — | | | 48 | | 28,800 | | gal | $ | (18,273) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total fair value | | | | | $ | (151,706) | | | | | | $ | (1,162,273) | |
Amounts are combined on the balance sheet - negative numbers represent liabilities |
|
| | | | | | | | | | | | | | | | | | |
As of: | | December 31, 2017 (unaudited) | | September 30, 2017 |
Contract Type | | # of Contracts | Notional Amount (Qty) | Fair Value | | # of Contracts | Notional Amount (Qty) | Fair Value |
Corn futures | | 1,000 |
| 5,000,000 |
| bushels | $ | 12,850 |
| | 81 |
| 405,000 |
| bushels | $ | 16,688 |
|
Corn options | | 1,300 |
| 6,500,000 |
| bushels | $ | (1,289,375 | ) | | 1,800 |
| 9,000,000 |
| bushels | $ | (950,000 | ) |
Total fair value | | | | | $ | (1,276,525 | ) | | | | | $ | (933,312 | ) |
Amounts are combined on the balance sheet - negative numbers represent liabilities |
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
The following tables provide details regarding the Company's derivative financial instruments at December 31, 2017June 30, 2023 and September 30, 2017:2022:
| | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | |
| | | | |
Balance Sheet - as of June 30, 2023 (unaudited) | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | — | | | $ | 151,706 | |
Total derivatives not designated as hedging instruments for accounting purposes | | $ | — | | | $ | 151,706 | |
| | | | |
Balance Sheet - as of September 30, 2022 | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | — | | | $ | 1,162,273 | |
Total derivatives not designated as hedging instruments for accounting purposes | | $ | — | | | $ | 1,162,273 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Statement of Operations Income/(Expense) | | Location of gain (loss) in fair value recognized in income | | Amount of gain (loss) recognized in income during the three months ended June 30, 2023 (unaudited) | | Amount of gain (loss) recognized in income during the three months ended June 30, 2022 (unaudited) | | Amount of gain (loss) recognized in income during the nine months ended June 30, 2023 (unaudited) | | Amount of gain (loss) recognized in income during the nine months ended June 30, 2022 (unaudited) |
Corn derivative instruments | | Cost of Goods Sold | | $ | 675,471 | | | $ | 373,089 | | | $ | 987,956 | | | $ | 1,437,628 | |
Ethanol derivative instruments | | Revenue | | 570 | | | — | | | 21,999 | | | 424,770 | |
| | | | | | | | | | |
Natural gas derivative instruments | | Cost of Goods Sold | | 45,610 | | | — | | | 74,000 | | | (107,450) | |
Total | | | | $ | 721,651 | | | $ | 373,089 | | | $ | 1,083,955 | | | $ | 1,754,948 | |
|
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | |
| | | | |
Balance Sheet - as of December 31, 2017 (unaudited) | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | — |
| | $ | 1,276,525 |
|
Total derivatives not designated as hedging instruments for accounting purposes | | $ | — |
| | $ | 1,276,525 |
|
| | | | |
Balance Sheet - as of September 30, 2017 | | Asset | | Liability |
Commodity derivative instruments, at fair value | | $ | — |
| | $ | 933,312 |
|
Total derivatives not designated as hedging instruments for accounting purposes | | $ | — |
| | $ | 933,312 |
|
|
| | | | | | | | | | |
Statement of Operations Income/(Expense) | | Location of gain (loss) in fair value recognized in income | | Amount of gain(loss) recognized in income during the three months ended December 31, 2017 (unaudited) | | Amount of gain (loss) recognized in income during the three months ended December 31, 2016 (unaudited) |
Corn derivative instruments | | Cost of Goods Sold | | $ | (568,536 | ) | | $ | 218,357 |
|
Ethanol derivative instruments | | Revenue | | 1,800 |
| | 40,950 |
|
Soybean oil derivative instruments | | Revenue | | — |
| | 12,216 |
|
Natural gas derivative instruments | | Cost of Goods Sold | | — |
| | 10,500 |
|
Total | | | | $ | (566,736 | ) | | $ | 282,023 |
|
3.4. INVENTORY
Inventory is valued at the lower of cost or net realizable value. Inventory values as of December 31, 2017June 30, 2023 and September 30, 20172022 were as follows:
| | | | | | | | | | | | | | |
| | June 30, 2023 (unaudited) | | September 30, 2022 |
Raw materials, including corn, chemicals and supplies | | $ | 9,933,544 | | | $ | 6,887,201 | |
Work in process | | 1,657,313 | | | 1,340,059 | |
Finished goods, including ethanol and distillers grains | | 1,603,004 | | | 2,702,129 | |
Spare parts | | 1,836,710 | | | 1,614,644 | |
Total inventory | | $ | 15,030,571 | | | $ | 12,544,033 | |
| | | | |
|
| | | | | | | | |
As of | | December 31, 2017 (unaudited) | | September 30, 2017 |
Raw materials, including corn, chemicals and supplies | | $ | 12,385,830 |
| | $ | 11,952,560 |
|
Work in process | | 784,509 |
| | 773,786 |
|
Finished goods, including ethanol and distillers grains | | 794,415 |
| | 1,577,066 |
|
Spare parts | | 1,914,455 |
| | 2,110,330 |
|
Total inventory | | $ | 15,879,209 |
| | $ | 16,413,742 |
|
Lower of cost or net realizable value adjustments for the nine months ended June 30, 2023 and 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2023 (unaudited) | | For the three months ended June 30, 2022 (unaudited) | | For the nine months ended June 30, 2023 (unaudited) | | For the nine months ended June 30, 2022 (unaudited) |
Loss on firm purchase commitments | | $ | 71,000 | | | $ | 89,000 | | | $ | 535,000 | | | $ | 885,000 | |
Loss on lower of cost or net realizable value adjustment for inventory on hand | | $ | — | | | $ | 53,953 | | | $ | 74,000 | | | $ | 53,953 | |
Total loss on lower of cost or net realizable value adjustments | | $ | 71,000 | | | $ | 142,953 | | | $ | 609,000 | | | $ | 938,953 | |
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
Lower of cost or net realizable value adjustments for the three months ended December 31, 2017 and 2016 were as follows:
|
| | | | | | | | |
| | For the three months ended December 31, 2017 (unaudited) | | For the three months ended December 31, 2016 (unaudited) |
Loss on firm purchase commitments | | $ | 8,000 |
| | $ | — |
|
Loss on lower of cost or market adjustment for inventory on hand | | $ | 70,979 |
| | $ | — |
|
Total loss on lower of cost or market adjustments | | $ | 78,979 |
| | $ | — |
|
The Company has entered into forward corn purchase contracts under which it is required to take delivery at the contract price. At the time the contracts were created, the price of the contract approximated market price. Subsequent changes in market conditions could cause the contract prices to become higher or lower than market prices. As of December 31, 2017,June 30, 2023, the average price of corn purchased under certain fixed price contracts, that had not yet been delivered, was greater than the approximated market price. Based on this information, the Company has an $8,000estimated loss on firm purchase commitments of $71,000 and $89,000 for the three months ended June 30, 2023 and 2022, respectively. The Company has $535,000 estimated loss on firm purchase commitments for the threenine months ended December 31, 2017 and noJune 30, 2023 compared to $885,000 estimated loss on firm purchase commitments for the threenine months ended December 31, 2016.June 30, 2022. The loss is recorded in “Loss on firm purchase commitments” on the statement of operations.operations and "Accrued loss on firm purchase commitments" on the balance sheet. The amount of the potential loss was determined by applying a methodology similar to that used in the impairment valuation with respect to inventory. Given the uncertainty of future ethanol prices, furtherfuture losses on the outstanding purchase commitments could be recorded in future periods.
4.5. BANK FINANCING
|
| | | | | | | | |
As of | | December 31, 2017 (unaudited) | | September 30, 2017 |
Capital lease obligations (Note 6) | | $ | 4,886 |
| | $ | 5,538 |
|
Total Long-Term Debt | | 4,886 |
| | 5,538 |
|
Less amounts due within one year | | 2,622 |
| | 2,617 |
|
Total Long-Term Debt Less Amounts Due Within One Year | | $ | 2,264 |
| | $ | 2,921 |
|
Ethanol Recovery Program
The Company hadOn July 13, 2020, we received a $10$5.41 million operating line-of-credit with First Nationalloan through the Bank of Omaha that maturedNorth Dakota's Ethanol Recovery Program and Cornerstone Bank ("Cornerstone"). The Ethanol Recovery Program was developed by the North Dakota Ethanol Producers Association and the Bank of North Dakota to use the existing Biofuels Partnership in Assisting Community Expansion ("PACE") program and Value-added Guarantee Loan program to help ethanol production facilities weather the economic challenges caused by the COVID-19 pandemic. Ethanol producers could qualify for up to $15 million of a low interest loan of 1% based on March 20, 2017.the amount of such producers' annual corn grind. On December 3, 2021 we received forgiveness of $2.65 million of the loan. The forgiveness was recorded as other income. The outstanding balance as of June 30, 2023 was $524,000. The maturity date of the loan is July 13, 2025. The fixed interest rate on June 30, 2023 was 3.75% with an interest rate being bought down through the Bank of North Dakota to 1%.
Revolving Loan
On March 20, 2017,February 3, 2022 we entered into a newrenewed our $10 million revolving loan (the "Revolving Loan") with U.S. Bank National Association ("U.S. Bank"). TheCornerstone. On February 3, 2022 the maturity date was extended to March 31, 2022. On April 8, 2022 the Revolving Loan replacedwas renewed. The new maturity date was April 7, 2023. Subsequent to year end the revolving loanRevolving Loan was renewed and now has a maturity date of April 4, 2024 (see note 12). At June 30, 2023, we had $10 million available under the Revolving Loan. The variable interest rate on June 30, 2023 was 7.250%.
Construction Loans
On January 22, 2020, we entered into a $7 million construction loan (the "First Construction Loan") with Cornerstone. The original maturity date of the Construction Loan was June 1, 2021. On June 3, 2021 we extended the maturity date to February 1, 2022. On April 8, 2022 the Construction Loan was renewed and the maturity date was extended to October 8, 2022. On October 28, 2022, the First National Bank of Omaha.Construction Loan was consolidated and replaced with the Consolidated Loan (below).
On February 1, 2021 we entered into a $28 million construction loan (the "Second Construction Loan") with Cornerstone for the carbon capture and storage project. The maturity date of the RevolvingSecond Construction Loan was January 31, 2022. On February 17, 2022 the maturity date was extended to March 15, 2022. On April 8, 2022 we renewed the CCS Construction Loan and the maturity date was extended to October 8, 2022. On October 28, 2022, the Second Construction loan was consolidated and replaced with the Consolidated Loan (below).
On October 28, 2022, we entered into a $25 million loan to replace the First Construction Loan and Second Construction Loan (the "Consolidated Loan"). The maturity date of the Consolidated Loan is MayJanuary 31, 2018. Our ability to draw funds on the Revolving Loan2032. The fixed interest rate is subject to a borrowing base calculation as set forth in the Credit Agreement. At December 31, 2017, we had $10,000,000 available on the Revolving Loan, taking into account the borrowing base calculation. We had $0 drawn on the Revolving Loan4.65%. The outstanding balance as of December 31, 2017. The variable interest rate on December 31, 2017June 30, 2023, was 3.40%. Of$22.2 million.
Each of the $10 million revolving line-of-credit, the Company was not allowed to draw $687,597 which is reserved as a source of funds to support a guaranteed payment the Company agreed to related to its natural gas pipeline. While the Company does not expect that it will be required to make a direct payment for the natural gas pipeline, the Company's agreement requires it to have funds available in the event the Company is required to make the guaranteed payment. See note 6 for the Company's additional future minimum lease commitments.
The Company's loans are secured by a lien on substantially all of the assets of the Company. As of December 31, 2017, the Company was in compliance with all of its debt covenants.
5. FAIR VALUE MEASUREMENTS
The following table provides information on those assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2017 and September 30, 2017, respectively.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
| | | | | | | | |
Schedule of debt maturities and finance lease liabilities for the twelve months ending June 30 | | Totals |
2023 | | $ | 2,560,714 | |
2024 | | 2,135,403 | |
2025 | | 2,229,314 | |
2026 | | 2,335,215 | |
2027 | | 2,446,147 | |
Thereafter | | 11,043,853 | |
Total | | $ | 22,750,646 | |
6. FAIR VALUE MEASUREMENTS
|
| | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of December 31, 2017 (unaudited) | | Fair Value as of December 31, 2017 (unaudited) | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | |
Commodities derivative instruments | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | — |
| | $ | — |
|
Total | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | 1,276,525 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of September 30, 2017 | | Fair Value as of September 30, 2017 | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | |
Commodities derivative instruments | $ | 933,312 |
| | $ | 933,312 |
| | $ | 933,312 |
| | $ | — |
| | $ | — |
|
Total | $ | 933,312 |
| | $ | 933,312 |
| | $ | 933,312 |
| | $ | — |
| | $ | — |
|
The following table provides information on those liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and September 30, 2022, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of June 30, 2023 (unaudited) | | Fair Value as of June 30, 2023 (unaudited) | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | |
Commodities derivative instruments | $ | 151,706 | | | $ | 151,706 | | | $ | 151,706 | | | $ | — | | | $ | — | |
Total | $ | 151,706 | | | $ | 151,706 | | | $ | 151,706 | | | $ | — | | | $ | — | |
| | | | | | | | | |
| | | | | Fair Value Measurement Using |
| Carrying Amount as of September 30, 2022 | | Fair Value as of September 30, 2022 | | Level 1 | | Level 2 | | Level 3 |
Liabilities | | | | | | | | | |
Commodities derivative instruments | $ | 1,162,273 | | | $ | 1,162,273 | | | $ | 1,162,273 | | | $ | — | | | $ | — | |
Total | $ | 1,162,273 | | | $ | 1,162,273 | | | $ | 1,162,273 | | | $ | — | | | $ | — | |
The fair value of the corn, ethanol, soybean oil and natural gas derivative instruments is based on quoted market prices in an active market.
6.7. LEASES
The Company leases equipment under operatingrailcar and capitalplant equipment. Operating lease right of use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate, unless an implicit rate is readily determinable, as the discount rate for each lease in determining the present value of lease payments. For the nine months ended June 30, 2023, the Company's estimated discount rate was 7.25%. Operating lease expense is recognized on a straight-line basis over the lease term.
The Company determines if an arrangement is a lease or contains a lease at inception. The Company's existing leases through January 2023. have remaining lease terms of approximately one year to seven years, which may include options to extend the leases when it is reasonably certain the Company will exercise those options. At June 30, 2023 the weighted average remaining lease term was six years. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms, or material restrictive covenants. The Company does not have any sublease agreements.
The Company is generally responsible for maintenance, taxes, and utilities for leased equipment. Equipment under operating lease includes a locomotive and rail cars. Rent expense for operating leases was approximately $154,000$747,000 and $93,000$767,000 for the threenine months ended December 31, 2017June 30, 2023 and 2016,2022, respectively. Equipment under capital leases consists of office equipment and plant equipment.
Equipment under capital leases is as follows at:
|
| | | | | | | | |
As of | | December 31, 2017 (unaudited) | | September 30, 2017 |
Equipment | | $ | 483,488 |
| | $ | 483,488 |
|
Less accumulated amortization | | (125,394 | ) | | (120,029 | ) |
Net equipment under capital lease | | $ | 358,094 |
| | $ | 363,459 |
|
At December 31, 2017, the Company had the following minimum commitments, which at inception had non-cancelable terms of more than one year. Amounts shown below are for the 12 months period ending December 31:
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
Equipment under financing leases consists of office equipment and plant equipment. At June 30, 2023 and September 30, 2022, equipment under financing leases was as follows:
| | | | | | | | | | | | | | |
| | June 30, 2023 | | September 30, 2022 |
Equipment | | $ | 493,414 | | | $ | 493,414 | |
Less accumulated amortization | | (237,416) | | | (219,833) | |
Net equipment under financing lease | | $ | 255,998 | | | $ | 273,581 | |
At June 30, 2023, the Company had the following minimum commitments, which at inception had non-cancellable terms of more than one year. Amounts shown below are for the 12 month periods ending June 30:
| | | | | | | | | | | | | | |
| | Operating Leases | | Financing Leases |
2023 | | $ | 342,538 | | | $ | 4,602 | |
2024 | | 315,817 | | | 1,836 | |
2025 | | 337,225 | | | |
2026 | | 334,921 | | | |
2027 | | 575,620 | | | |
Total minimum lease commitments | | $ | 1,906,121 | | | 6,438 | |
Less amount representing interest | | | | — | |
Present value of minimum lease commitments included in notes payable on the balance sheet | | | | $ | 6,438 | |
|
| | | | | | | | |
| | Operating Leases | | Capital Leases |
2018 | | $ | 375,553 |
| | $ | 2,622 |
|
2019 | | 326,608 |
| | 2,264 |
|
2020 | | 210,023 |
| | — |
|
2021 | | 167,111 |
| | — |
|
2022 | | 132,600 |
| | — |
|
Thereafter | | 11,050 |
| | — |
|
Total minimum lease commitments | | $ | 1,222,945 |
| | 4,886 |
|
Less amount representing interest | | | | — |
|
Present value of minimum lease commitments included in current maturities of long-term debt on the balance sheet | | | | $ | 4,886 |
|
7.8. COMMITMENTS AND CONTINGENCIES
Firm Purchase Commitments for Corn
To ensure an adequate supply of corn to operate the Plant, the Company enters into contracts to purchase corn from local farmers and elevators. At December 31, 2017,June 30, 2023, the Company had various fixed price contracts for the purchase of approximately 0.74.8 million bushels of corn. Using the stated contract price for the fixed price contracts, the Company had commitments of approximately $2.4$30.9 million related to the 0.74.8 million bushels under contract.
Water
On April 21, 2015, we entered into a ten-year contract to purchase raw water from Southwest Water Authority in order to meet the Plant's water requirements. Our contract requires us to purchase a minimum of 160 million gallons of water per year. The Company also has various unpriced basis contractsminimum estimated obligation for the purchase of approximately 2.59 million bushels of corn that have been delivered to the Plant. The purchase price of these bushels will be set at the time of pricing the contracts at the July 2018 index price less basis. The estimated accrued payable for these bushelsthis contract is $8.99 million. The deadline for pricing these 2.59 million bushels is June 29, 2018.$424,000 per year.
Profit and Cost Sharing Agreement
The Company has entered into a Profit and Cost Sharing Agreement with Bismarck Land Company, LLC, which became effective on November 1, 2016. The Profit and Cost Sharing Agreement provides that the Company will share 70% of the net revenue generated by the Company from business activities which are brought to the Company by Bismarck Land Company, LLC and conducted on the real estate purchased from the Bismarck Land Company, LLC. The real estate was initially purchased in exchange for 2 million membership units of the Company at $1.66 per unit. This obligation will terminate ten years after the real estate closing date of October 11, 2016 or after Bismarck Land Company, LLC receives $10 million in proceeds from the agreement. In addition, the Profit and Cost Sharing Agreement provides that the Company will pay Bismarck Land Company, LLC 70% of any net proceeds received by the Company from the sale of the subject real estate if a sale were to occur prior to termination of this obligation in the future, subject toaccordance with the $10 million cap andor the 10 year terminationten-year term of this obligation. No payments have been made to theThe Company has paid Bismarck Land Company, LLC at this time.$1,647,581 as of June 30, 2023.
8.
9. RELATED PARTY TRANSACTIONS
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023
The Company has balances and transactions in the normal course of business with various related parties for the purchase of corn, sale of distillers grains, and sale of ethanol. The related parties include unit holders, members of the board of governors of the Company, and RPMG, Inc. (“RPMG”). During the Company's first quarter of 2018, the Company received a capital account refund from RPMG which is included in other income (expense) in the Company's Statement of Operations. Significant related party activity affecting the financial statements is as follows:
| | | | | | | | | | | | | | |
| | June 30, 2023 (unaudited) | | September 30, 2022 |
Balance Sheet | | | | |
Accounts receivable | | $ | 6,964,686 | | | $ | 4,086,689 | |
Accounts payable | | 1,611,580 | | | 60,412 | |
Accrued expenses | | — | | | 7,645 | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2023 (unaudited) | | For the three months ended June 30, 2022 (unaudited) | | For the nine months ended June 30, 2023 (unaudited) | | For the nine months ended June 30, 2022 (unaudited) |
Statement of Operations | | | | | | | | |
Revenues | | $ | 47,556,566 | | | $ | 53,334,537 | | | $ | 137,492,078 | | | $ | 155,186,145 | |
| | | | | | | | |
Cost of goods sold | | 674,171 | | | 982,595 | | | 2,688,422 | | | 2,978,410 | |
General and administrative | | — | | | — | | | 39,889 | | | — | |
| | | | | | | | |
| | | | | | | | |
Inventory Purchases | | $ | 6,248,650 | | | $ | 5,672,336 | | | $ | 26,714,488 | | | $ | 30,069,765 | |
|
| | | | | | | | |
| | December 31, 2017 (unaudited) | | September 30, 2017 |
Balance Sheet | | | | |
Accounts receivable | | $ | 2,497,558 |
| | $ | 4,027,061 |
|
Accounts Payable | | 12,594 |
| | 1,569 |
|
Accrued Expenses | | 2,377,979 |
| | 925,503 |
|
| | | | |
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017
|
| | | | | | | | |
| | For the three months ended December 31, 2017 (unaudited) | | For the three months ended December 31, 2016 (unaudited) |
Statement of Operations | | | | |
Revenues | | $ | 24,798,144 |
| | $ | 28,998,771 |
|
Cost of goods sold | | 6,462 |
| | 9,730 |
|
General and administrative | | 19,067 |
| | 16,161 |
|
Other income/expense | | 140,539 |
| | 247,307 |
|
Inventory Purchases | | $ | 4,293,979 |
| | $ | 6,078,986 |
|
9.10. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS
TheDuring volatile market conditions, the Company hasexperiences certain risks and uncertainties, that it experiences during volatile market conditions, which cancould have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distillers grains to customers primarily located in the United States. Corn for the production process is supplied to the Plant primarily from local agricultural producers and from purchases on the open market. The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol and distillers grains and by the cost at which it is able to purchase corn for operations. The price of ethanol is influenced by factors such as prices, supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets, although since 2005 the prices of ethanol and gasoline began a divergence with ethanol, which has generally been selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, and government policiesprograms, global political or economic issues, including but not limited to the war in Ukraine and programs. The Company's risk management program is used to protect against the price volatility of these commodities.sanctions associated therewith, or global damaging growing conditions, such as plant disease or adverse weather, including drought, increased fertilizer costs as well as global conflicts.
The Company's financial performance is highly dependent on the Federal Renewable Fuels Standard ("RFS"), which requires that a certain amount of renewable fuels must be used each year in the United States. Corn based ethanol, such as the ethanol the Company produces, can be used to meet a portion of the RFS requirement. In November 2013, the EPA issued a proposed rule which would reduce the RFS for 2014, including the RFS requirement related to corn based ethanol. The EPA proposed rule was subject to a comment period which expired in January 2014. On November 30, 2015, the EPA released its final ethanol use requirements for 2014, 2015 and 2016, which were lower than the statutory requirements in the RFS. However, the final RFS for 2017 equaled the statutory requirement which was also the case for the 2018, 2019, 2020, 2021, and 2022 RFS final rule.rules. The final RFS for 2022 was significantly larger than 2021, with a final volume requirement of 20.63 billion gallons and a supplemental standard of .25 billion gallons.
The Company anticipates that the results of operations during the remainder of fiscal year 20182023 will continue to be affected by volatility in the commodity markets. The volatility is due to various factors, including uncertainty with respect to the availability and supply of corn, increased demand for grain from global and national markets, speculation in the commodity markets, and demand for corn from the ethanol industry.
10. MEMBER'S EQUITY
Unregistered Units Sales by the Company.
On October 10, 2016, the Company issued two million of the Company's membership units to Bismarck Land Company, LLC as part of the consideration for the acquisition of 338 acres of land adjacent to the ethanol plant that the Company will use to expand its rail yard. The membership units were issued pursuant to the exemption from registration set forth in Regulation D, Rule 506(b), as Bismarck Land Company, LLC is an accredited investor.
RED TRAIL ENERGY, LLC
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED DECEMBER 31, 2017JUNE 30, 2023
11. MEMBER'S EQUITY
Unit Purchases By
Changes in member's equity for the Company.nine months ended June 30, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A Member Units | | Additional Paid in Capital | | Accumulated Deficit/Retained Earnings | | Treasury Units | | Total Member Equity |
Balances - September 30, 2022 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 46,880,539 | | | $ | (159,540) | | | $ | 85,841,135 | |
Net income | | — | | | — | | | 1,865,215 | | | — | | | 1,865,215 | |
Balances December 31, 2022 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 48,745,754 | | | $ | (159,540) | | | $ | 87,706,350 | |
Distribution | | — | | | — | | | (6,024,235) | | | — | | | (6,024,235) | |
Net (loss) | | — | | | — | | | (799,450) | | | — | | | (799,450) | |
Balances - March 31, 2023 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 41,922,069 | | | $ | (159,540) | | | $ | 80,882,665 | |
Distribution $0.10 per unit | | $ | — | | | $ | — | | | $ | (2,006,423) | | | $ | — | | | $ | (2,006,423) | |
Net income | | $ | — | | | $ | — | | | $ | 136,250 | | | $ | — | | | $ | 136,250 | |
Balances - June 30, 2023 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 40,051,896 | | | $ | (159,540) | | | $ | 79,012,492 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Class A Member Units | | Additional Paid in Capital | | Accumulated Deficit/Retained Earnings | | Treasury Units | | Total Member Equity |
Balances - September 30, 2021 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 31,034,079 | | | $ | (159,540) | | | $ | 69,994,675 | |
Net income | | — | | | — | | | 19,371,546 | | | — | | | 19,371,546 | |
Balances - December 31, 2021 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 50,405,625 | | | $ | (159,540) | | | $ | 89,366,221 | |
Distribution | | — | | | — | | | (9,624,072) | | | — | | | (9,624,072) | |
Net income | | — | | | — | | | 4,439,004 | | | — | | | 4,439,004 | |
Balances - March 31, 2022 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 45,220,557 | | | $ | (159,540) | | | $ | 84,181,153 | |
Distribution $0.10 per unit | | | | | | (4,026,149) | | | | | (4,026,149) | |
Net income | | — | | | — | | | 9,921,072 | | | — | | | 9,921,072 | |
Balances - June 30, 2022 | | $ | 39,044,595 | | | $ | 75,541 | | | $ | 51,115,480 | | | $ | (159,540) | | | $ | 90,076,076 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
12. SUBSEQUENT EVENTS
|
| | | | |
| (a) | (b) | (c) | (d) |
Period | Total Number of Units Purchased | Average Price Paid per Unit | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of the Units that May Yet Be Purchased Under the Plans or Programs |
October 2016 | None | None | None | None |
November 2016 | None | None | None | None |
December 2016 | 564,963 | $1.00 | None | None |
January 2017 | 116,857 | $1.00 | None | None |
February 2017 | None | None | None | None |
March 2017 | None | None | None | None |
April 2017 | None | None | None | None |
May 2017 | None | None | None | None |
June 2017 | None | None | None | None |
Total | 681,820 | $1.00 | None | None |
*681,820 Units were purchased other than through a publicly announced plan or program, pursuant to a Membership Unit Repurchase Agreement, a private transaction betweenOn July 7th 2023 the Company and a Member.
11. SUBSEQUENT EVENT
Management evaluated all other activity ofpaid the Company and concluded that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notesdistribution payable to the condensed financial statements.shareholders.
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 periodperiods ended December 31, 2017,June 30, 2023, compared to the same periodperiods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements, notes and information contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022. Unless otherwise stated, references in this report to particular years, quarters, months, or periods refer to our fiscal years ended in September and the associated quarters, months, or periods of those fiscal years.
Forward Looking Statements
This report contains forward-looking statements that involve future events, our future performance, and our future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions 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 following factors:
•Reductions in the corn-based ethanol use requirement in the Federal Renewable Fuels Standard;
•Increased inflation which can have an impact on the costs of our raw materials;
•Higher natural gas prices in the United States due to increased exports of natural gas to Europe;
•Market prices and availability of corn that we require to operate the ethanol plant;
•Continued economic impacts from the COVID-19 pandemic, including reduced gasoline demand;
•Continued economic impacts of the war in Ukraine, including increased commodities prices and effect of Sanctions;
•Lower oil prices which result in lower ethanol prices;
•Negative operating margins which result from lower ethanol prices;
•Lower distillers grains prices which result from the Chinese anti-dumping and countervailing duty tariffs;
•Lower ethanol prices due to the Chinese ethanol tariff and the Brazilian ethanol tariff;
•Logistics difficulties preventing us from delivering our products to our customers;
•Fluctuations in the price and market for ethanol, distillers grains and corn oil;
•Availability and costs of products and raw materials, particularly corn and natural gas;
•Changes in the environmental regulations that apply to our plant operations and our ability to comply with such regulations;
•Ethanol supply exceeding demand and corresponding ethanol price reductions impacting our ability to operate profitably and maintain a positive spread between the selling price of our products and our raw material costs;
•Our ability to generate and maintain sufficient liquidity to fund our operations and meet debt service requirements andour necessary capital expenditures;
•Our ability to continue to meet our loan covenants;
•Limitations and restrictions contained in the instruments and agreements governing our indebtedness;
•Results of our hedging transactions and other risk management strategies;
•Changes and advances in ethanol production technology; and
•Competition from alternative fuels and alternative fuel additives.
Overview
Red Trail Energy, LLC, a North Dakota limited liability company (the "Company," "Red Trail," or "we," "our," or "us"), owns and operates a 50 million gallon annual name-plate production ethanol plant near Richardton, North Dakota. Our revenues are derived from the sale and distribution of our ethanol, distillers grains and corn oil primarily in the continental United States. Corn is our largest cost component and our profitability is highly dependent on the spread between the price of corn and the price of ethanol.
On April 1, 2023, our board of governors voluntarily suspended trading of our membership units on the qualified matching service operated by FNC Ag Stock LLC. The ethanol industry is dependentboard of governors decided to suspend trading on several economic incentivesthe qualified matching service indefinitely while we conduct due diligence on a potential transaction in order to produce ethanol,protect the most significantinterests of which isour members. We recently ceased discussions regarding the Federal Renewable Fuels Standard (the "RFS"). The RFS requires that in each year, a certain amount of renewable fuels must be used in the United States. The RFS statutory volume requirement increases incrementally each year until the United States is required to use 36 billion gallons of renewable fuels by 2022. The United States Environmental Protection Agency (the "EPA") has the authority to waive the RFS statutory volume requirement, in whole or in part, provided one of the following two conditions have been met: (1) there is inadequate domestic renewable fuel supply; or (2) implementation of the requirement would severely harm the economy or environment of a state, region or the United States. Annually, the EPA is supposed to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligations. The RFS statutory Renewable Volume Obligation (RVO) for all renewable fuels for 2017 was 24 billion gallons, of which corn-based ethanol could meet 15 billion gallons of the RVO. On November 30, 2017, the final RVO for 2018 was set at 19.29 billion gallonsproposed transaction and the corn-based ethanol RVO was set at 15 billion gallons, lower than the statutory RVO.resumed membership unit trading.
In recent years, the ethanol industry in the United States has increased exports of ethanol and distillers grains. However, in 2017 China instituted tariffs on ethanol and distillers grains produced in the United States and Brazil instituted a tariff on ethanol
produced in the United States. Both China and Brazil have been major sources of import demand for United States ethanol and distillers grains. These trade actions may result in negative operating margins for U.S. ethanol producers.
In January 2017, the Chinese issued final tariffs on U.S. distillers grains. China announced a final ruling related to its anti-dumping and countervailing duty investigation imposing anti-dumping duties from a range of 42.2% to 53.7% and anti-subsidy duties from 11.2% to 12.0%. These tariffs have had a negative impact on market ethanol and distillers grains prices in the United States.
In August 2017, Brazil instituted an import quota for ethanol produced in the United States and exported to Brazil, along with a 20% tariff on ethanol imports in excess of the quota. This tariff and quota have reduced exports of ethanol to Brazil and may continue to negatively impact ethanol exports from the United States. Any reduction in ethanol exports could negatively impact market ethanol prices in the United States.
On March 20, 2017,April 7, 2023, we entered into a newrevolving promissory note for a $10 million revolving loan (the "Revolving Loan") with U.S. Bank National Association ("U.S. Bank"). As partour primary lender, Cornerstone Bank. The promissory note has a maturity date of this transaction, we signed a Credit Agreement dated March 17, 2017 (the "Credit Agreement"). The Revolving Loan replaces our credit facilities with First National Bank of Omaha.April 5, 2024. Interest accrues on any outstanding balance on the Revolving Loanpromissory note at a rate of 1.77% in excess1.0% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The revolving loan has a minimum interest rate of 5.0%.
On April 24, 2023, we named Jodi Johnson, Chief Executive Officer of the one-month London Interbank Offered Rate ("LIBOR"). The maturity dateCompany and Joni Entze Chief Financial Officer of the Revolving Loan is May 31, 2018. Our abilityCompany. Jodi Johnson was previously serving as the Company's Chief Financial Officer. Gerald Bachmeier who served as CEO until April 24, 2023 will continue to draw funds onserve as a consultant for the Revolving Loan is subject to a borrowing base calculation as set forth in the Credit Agreement. The Revolving Loan is subject to certain financial covenants as set forth in the Credit Agreement. The most significant financial covenants require us to maintain a fixed charge coverage ratio of no less than 1.25:1.00 and a current ratio of no less than 1.50:1.00. Our fixed charge coverage ratio measures our ability to pay our fixed expenses. Our current ratio measures our liquidity and ability to pay short-term and long-term obligations.Company until September 30, 2023.
Results of Operations for the Three Months Ended December 31, 2017June 30, 2023 and 20162022
The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our unaudited statements of operations for the three months ended December 31, 2017June 30, 2023 and 2016:2022:
| | | Three Months Ended December 31, 2017 (Unaudited) | | Three Months Ended December 31, 2016 (Unaudited) | | Three Months Ended June 30, 2023 (Unaudited) | | Three Months Ended June 30, 2022 (Unaudited) |
Statement of Operations Data | Amount | | % | | Amount | | % | Statement of Operations Data | Amount | | % | | Amount | | % |
Revenues | $ | 26,122,856 |
| | 100.00 |
| | $ | 30,004,460 |
| | 100.00 | Revenues | $ | 49,690,760 | | | 100.00 | | | $ | 55,720,460 | | | 100.00 | |
Cost of Goods Sold | 27,822,261 |
| | 106.51 |
| | 27,127,930 |
| | 90.41 | Cost of Goods Sold | 48,038,330 | | | 96.67 | | | 49,282,870 | | | 88.45 | |
Gross Profit (Loss) | (1,699,405 | ) | | (6.51 | ) | | 2,876,530 |
| | 9.59 | |
Gross Profit | | Gross Profit | 1,652,430 | | | 3.33 | | | 6,437,590 | | | 11.55 | |
General and Administrative Expenses | 715,911 |
| | 2.74 |
| | 690,934 |
| | 2.30 | General and Administrative Expenses | 1,310,476 | | | 2.64 | | | 798,990 | | | 1.43 | |
Operating Income (Loss) | (2,415,316 | ) | | (9.25 | ) | | 2,185,596 |
| | 7.28 | |
Other Income | 430,650 |
| | 1.65 |
| | 586,366 |
| | 1.95 | |
Net Income (Loss) | $ | (1,984,666 | ) | | (7.60 | ) | | $ | 2,771,962 |
| | 9.24 | |
Operating Income | | Operating Income | 341,954 | | | 0.69 | | | 5,638,600 | | | 10.12 | |
Other Income (Loss), net | | Other Income (Loss), net | (205,704) | | | (0.41) | | | 4,282,472 | | | 7.69 | |
Net Income | | Net Income | $ | 136,250 | | | 0.27 | | | $ | 9,921,072 | | | 17.81 | |
The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended December 31, 2017June 30, 2023 and 2016.2022.
| | | | Three Months ended December 31, 2017 (unaudited) | | Three Months ended December 31, 2016 (unaudited) | | Three Months Ended June 30, 2023 (unaudited) | | Three Months Ended June 30, 2022 (unaudited) |
Production: | | | | | Production: | | | | |
Ethanol sold (gallons) | | 16,627,106 |
| | 16,202,835 |
| Ethanol sold (gallons) | | 15,896,285 | | | 15,899,612 | |
| Dried distillers grains sold (tons) | | 30,963 |
| | 29,625 |
| Dried distillers grains sold (tons) | | 27,670 | | | 28,122 | |
Modified distillers grains sold (tons) | | 27,506 |
| | 25,122 |
| Modified distillers grains sold (tons) | | 21,796 | | | 17,979 | |
Corn oil sold (pounds) | | 3,117,040 |
| | 4,413,620 |
| Corn oil sold (pounds) | | 4,263,660 | | | 4,336,920 | |
Revenues: | | | | | Revenues: | |
Ethanol average price per gallon (net of hedging) | | $ | 1.18 |
| | $ | 1.50 |
| |
Fuel grade ethanol average price per gallon (net of hedging) | | Fuel grade ethanol average price per gallon (net of hedging) | | $ | 2.44 | | | $ | 2.63 | |
| Dried distillers grains average price per ton | | 122.09 |
| | 104.50 |
| Dried distillers grains average price per ton | | 228.57 | | | 266.12 | |
Modified distillers grains average price per ton | | 63.63 |
| | 51.99 |
| Modified distillers grains average price per ton | | 103.14 | | | 151.64 | |
Corn oil average price per pound | | 0.28 |
| | 0.27 |
| Corn oil average price per pound | | 0.52 | | | 0.74 | |
Primary Inputs: | | | | | Primary Inputs: | |
Corn ground (bushels) | | 5,720,943 |
| | 5,687,614 |
| Corn ground (bushels) | | 5,388,791 | | | 5,535,187 | |
Natural gas (MMBtu) | | 431,963 |
| | 415,586 |
| Natural gas (MMBtu) | | 391,585 | | | 404,040 | |
Costs of Primary Inputs: | | | | | Costs of Primary Inputs: | |
Corn average price per bushel (net of hedging) | | $ | 3.26 |
| | $ | 3.54 |
| Corn average price per bushel (net of hedging) | | $ | 7.04 | | | $ | 7.43 | |
Natural gas average price per MMBtu (net of hedging) | | 2.67 |
| | 2.75 |
| Natural gas average price per MMBtu (net of hedging) | | 3.03 | | | 6.59 | |
Other Costs (per gallon of ethanol sold): | | | | | Other Costs (per gallon of ethanol sold): | |
Chemical and additive costs | | $ | 0.108 |
| | $ | 0.094 |
| Chemical and additive costs | | $ | 0.079 | | | $ | 0.085 | |
Denaturant cost | | 0.036 |
| | 0.032 |
| Denaturant cost | | 0.047 | | | 0.054 | |
Electricity cost | | 0.038 |
| | 0.043 |
| Electricity cost | | 0.091 | | | 0.057 | |
Direct labor cost | | 0.068 |
| | 0.065 |
| Direct labor cost | | 0.075 | | | 0.075 | |
Revenue
Our total revenue was lower forin the firstthird quarter of our 20182023 fiscal year compared to the same period of our 2017 fiscal year due to a decrease in the average sales prices we received for our ethanol during the firstthird quarter of our 20182022 fiscal year primarily due to decreased average prices for our products during the third quarter of our 2023 fiscal year. During the firstthird quarter of our 20182023 fiscal year, approximately 75.0%77.9% of our total revenue was derived from ethanol sales, approximately 21.2%17.3% was from distillers grains sales, approximately 0.4% was from syrup sales, and approximately 3.3%4.4% was from corn oil sales. During the firstthird quarter of our 20172022 fiscal year, approximately 81.1%75.1% of our total revenue was derived from ethanol and industrial alcohol sales, approximately 14.7%18.3% was from distillers grains sales, approximately 0.8% was from syrup sales and approximately 3.9%5.8% was from corn oil sales.
Ethanol
The average price we received for our ethanol, without taking into account our hedge positions, was approximately 21.3% lesslower during the firstthird quarter of our 20182023 fiscal year compared to the firstthird quarter of our 20172022 fiscal year. Management attributes this decrease in the price weaverage ethanol prices received for our ethanolto lower gasoline prices during the first2023 period which has an impact on ethanol prices. Following the end of the third quarter of our 20182023 fiscal year, to lower market corngasoline prices and increased ethanol supply in the market. Management anticipates thathave been higher which management believes will positively impact ethanol prices may continue lower during the fourth quarter of our 20182023 fiscal year due to a combination of factors, including anticipated increases in United States ethanol production along with lower export demand from Brazil and China. Many ethanol producers are expanding their production capacity, which, along with the Chinese and Brazilian ethanol tariffs, have increased the market supply of ethanol beyond demand which has negatively impacted ethanol prices. Management anticipates that this excess ethanol supply may continue unless new export markets for ethanol are developed or domestic demand for ethanol increases. The United States ethanol industry is continuing to work to open export markets for ethanol, including the Mexican market, which may positively impact domestic ethanol prices. Export markets are not as reliable as the domestic ethanol market which can lead to ethanol price volatility.year.
We sold moreslightly fewer gallons of ethanol during the firstthird quarter of our 20182023 fiscal year compared to the firstthird quarter of our 20172022 fiscal year due to increaseddecreased production from our increased operating capacity at the ethanol plant and improved operating efficiency induring the 20182023 period. Management anticipates that our ethanol production and sales willto be consistent during the rest of our 2023 fiscal year to 2022 fiscal year levels provided market conditions allow us to continue to be higher during our 2018 fiscal
year comparedoperate the ethanol plant at capacity. We anticipate continuing to our 2017 fiscal year due tofocus on operating the ethanol plant improvements we made which increased our total production capacity. In addition, the amount of ethanol we produced per bushel of corn we ground increased for the first quarter of our 2018 fiscal year compared to the first quarter of our 2017 fiscal year, which positively impacted our profitability. We continue to workas efficiently as possible in order to maximize the additional production capacity of our ethanol plant and improve our ethanol production efficiency.profitability.
From time to time we enter into forward sales contracts for our products. At December 31, 2017,June 30, 2023, we had no open ethanol futures contracts. EthanolAt June 30, 2022, we had no open ethanol futures contracts resulted incontracts. We realized a gain of approximately $1,800 during$570 on
ethanol derivative instruments for the firstthird quarter of our 20182023 fiscal year. Ethanol futures contractsyear which increased our revenue with no gain or loss for ethanol derivative instruments for the firstsame period of our 2022 fiscal year.
Distillers Grains
During the third quarter of our 20172023 fiscal year, resulted in a losswe sold more tons of approximately $41,000.
Distillers Grains
Previously, wedistillers grains compared to the same period of our 2022 fiscal year due to decreased syrup and corn oil sales during the 2023 period. We sold a majority of our distillersdistiller grains during the 2023 period in the dried form due to market conditionsdemand factors which favored thatthe dried product. However, due to the Chinese anti-dumping and countervailing duty tariffs which have decreased export demand for distillers grains, we increased the amount of modified distillers grains we produced and sold. Modified distillers grains are used in our local market and are less impacted by world distillers grains markets. The average pricesprice we received for both our dried and modified distillers grains were higherwas lower during the firstthird quarter of our 20182023 fiscal year compared to the firstthird quarter of our 20172022 fiscal year. Management attributes these increasesyear due to increased overall demand forlower market corn prices during the 2023 period. As distillers grains.grains are a feed product which competes with corn, when corn prices are lower it has a corresponding impact on distillers grains prices. Management anticipates distillers grains prices will remain at their current levels unless we experience a significant increase in export demand for distillers grains.
We produced and sold more total tons of distillers grains during the first quarterrest of our 20182023 fiscal year compared tobut they may change at the first quarterbeginning of our 20172024 fiscal year due to increased overall production atdepending on the ethanol plant during the first quarter of our 2018 fiscal year along with decreased corn oil production. When we produce more poundsamount of corn oil, it decreasesharvested in the volumefall of distillers grains we produce.2023. Management anticipates relatively stable distillers grains production going forward.will remain at its current mix during the rest of our 2023 fiscal year and into our 2024 fiscal year.
Corn Oil
The total pounds of corn oil we sold was lessslightly lower during the firstthird quarter of our 20182023 fiscal year compared to the firstthird quarter of our 20172022 fiscal year due to a change in the production process where lessdecreased corn oil is being extracted.production during the 2023 period compared to the 2022 period. Management anticipates that our corn oil production will continueremain at the current levellevels for the remaining quartersquarter of our 20182023 fiscal year.year provided market conditions allow us to continue to operate the ethanol plant at capacity and provided the market price of corn oil remains at current levels. The average price we received for our corn oil was slightly higher during the firstthird quarter of our 20182023 fiscal year was lower than the average price we received during the third quarter of our 2022 fiscal year. Corn oil is used for biodiesel and renewable diesel production which have increased recently, benefiting market corn oil prices. However additional oil supplies have also increased which have impacted the market price of corn oil.
Syrup
The total gallons of syrup we sold was lower during the third quarter of our 2023 fiscal year compared to the firstthird quarter of our 20172022 fiscal year due to decreased overall production. Management anticipates that our syrup production will remain at the current levels for the remaining quarter of our 2023 fiscal year provided that market conditions allow us to continue to operate the ethanol plant at capacity. The average price we received for our syrup during the third quarter of our 2023 fiscal year was lower compared to the average price we received during the third quarter of our 2022 fiscal year primarily due to discounted pricing to ensure product moves in a timely manner.
Cost of Goods Sold
Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was lower for the third quarter of our 2023 fiscal year as compared to the third quarter of our 2022 fiscal year due primarily to lower corn cost per bushel and lower natural gas costs per MMBtu along with decreased corn and natural gas consumption during the 2023 fiscal year.
Corn Costs
Our cost of goods sold related to corn was lower for the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to a decreased average cost per bushel of corn, without taking derivative instrument positions into account, along with decreased corn consumption. For the third quarter of our 2023 fiscal year, we used approximately 2.6% fewer bushels of corn compared to the third quarter of our 2022 fiscal year due to improved corn to ethanol conversion rates during the 2023 period along with decreased ethanol production. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 7.1% lower for the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to lower market corn prices during the third quarter of our 2023 fiscal year. In addition, during the third quarter of our 2023 fiscal year, we had a realized gain of approximately $675,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn. For the third quarter of our 2022 fiscal year, we had a realized gain of approximately $373,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn during that period. Management anticipates corn prices will remain lower during the rest of our 2023 fiscal year due to favorable weather which we anticipate will result in a larger corn crop to be harvested in the fall of 2023.
Natural Gas Costs
We used approximately 3.1% fewer MMBtu of natural gas during the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to decreased overall production at the ethanol plant. Our average cost per MMBtu of natural gas was approximately 54.0% lower during the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to lower energy prices compared to our 2022 fiscal year. We had a realized gain on our natural gas derivative instruments of approximately $46,000 for the third quarter of our 2023 fiscal year. We had no realized gain or loss on our natural gas derivative instruments during the third quarter of our 2022 fiscal year. Management anticipates relatively stable natural gas prices during the rest of our 2023 fiscal year and into our 2024 fiscal year.
General and Administrative Expenses
Our general and administrative expenses were higher for the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to additional consulting fees and CCS payments to pore space owners related to our carbon sequestration project.
Other Income/Expense
We had less interest income during the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to less cash on hand during our 2023 fiscal year. Our other income was lower during the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to the receipt of a biofuel producer relief program payment in our 2022 fiscal year. We had more interest expense during the third quarter of our 2023 fiscal year compared to the third quarter of our 2022 fiscal year due to increased borrowing on our loans.
Results of Operations for the Nine Months Ended June 30, 2023 and 2022
The following table shows the results of our operations and the percentages of revenues, cost of goods sold, general and administrative expenses and other items to total revenues in our unaudited statements of operations for the nine months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, 2023 (Unaudited) | | Nine Months Ended June 30, 2022 (Unaudited) |
Statement of Operations Data | Amount | | % | | Amount | | % |
Revenues | $ | 148,820,593 | | | 100.00 | | | $ | 168,225,436 | | | 100.00 | |
Cost of Goods Sold | 142,816,229 | | | 95.97 | | | 138,899,275 | | | 82.57 | |
Gross Profit | 6,004,364 | | | 4.03 | | | 29,326,161 | | | 17.43 | |
General and Administrative Expenses | 4,098,939 | | | 2.75 | | | 2,556,029 | | | 1.52 | |
Operating Income | 1,905,425 | | | 1.28 | | | 26,770,132 | | | 15.91 | |
Other Income, net | (703,410) | | | (0.47) | | | 6,961,490 | | | 4.14 | |
Net Income | $ | 1,202,015 | | | 0.81 | | | $ | 33,731,622 | | | 20.05 | |
The following table shows additional data regarding production and price levels for our primary inputs and products for the nine months ended June 30, 2023 and 2022.
| | | | | | | | | | | | | | |
| | Nine Months Ended June 30, 2023 (unaudited) | | Nine Months Ended June 30, 2022 (unaudited) |
Production: | | | | |
Ethanol sold (gallons) | | 48,317,107 | | | 50,354,306 | |
| | | | |
Dried distillers grains sold (tons) | | 70,143 | | | 65,216 | |
Modified distillers grains sold (tons) | | 92,274 | | | 108,593 | |
Corn oil sold (pounds) | | 12,870,140 | | | 13,959,870 | |
Revenues: | | | | |
Fuel grade ethanol average price per gallon (net of hedging) | | $ | 2.31 | | | $ | 2.56 | |
| | | | |
Dried distillers grains average price per ton | | 243.00 | | | 237.55 | |
Modified distillers grains average price per ton | | 120.65 | | | 117.96 | |
Corn oil average price per pound | | 0.61 | | | 0.64 | |
Primary Inputs: | | | | |
Corn ground (bushels) | | 16,512,148 | | | 17,159,839 | |
Natural gas (MMBtu) | | 1,183,109 | | | 1,193,681 | |
Costs of Primary Inputs: | | | | |
Corn average price per bushel (net of hedging) | | $ | 6.66 | | | $ | 6.54 | |
Natural gas average price per MMBtu (net of hedging) | | 5.03 | | | 5.61 | |
Other Costs (per gallon of ethanol sold): | | | | |
Chemical and additive costs | | $ | 0.078 | | | $ | 0.087 | |
Denaturant cost | | 0.047 | | | 0.052 | |
Electricity cost | | 0.090 | | | 0.049 | |
Direct labor cost | | 0.075 | | | 0.067 | |
Revenue
Our total revenue was lower in the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 primarily due to lower production by the ethanol plant along with lower average prices for our ethanol during the nine months ended June 30, 2023. During the nine months ended June 30, 2023, approximately 75.0% of our total revenue was derived from ethanol sales, approximately 19.3% was from distillers grains sales, approximately 0.4% was from syrup sales, and approximately 5.3% was from corn oil sales. During the nine months ended June 30, 2022, approximately 76.9% of our total revenue was derived from ethanol and industrial alcohol sales, approximately 16.9% was from distillers grains sales, approximately 0.9% was from syrup sales and approximately 5.3% was from corn oil sales.
Ethanol
The average price we received for our ethanol was lower during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022. Management attributes the decrease in the price we received for our ethanol during the nine months ended June 30, 2023 to lower gasoline prices during the 2023 period. Management anticipates that energy prices will remain higher than in recent years but less than we experienced during the nine months ended June 30, 2022.
We sold fewer gallons of ethanol during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to decreased production at the ethanol plant during the 2023 period. Management attributes this decreased production to additional plant downtime due to rail disruptions caused by adverse weather. We anticipate continuing to focus on operating the ethanol plant as efficiently as possible in order to maximize our profitability.
From time to time we enter into forward sales contracts for our products. At June 30, 2023, we had no open ethanol futures contracts. At June 30, 2022, we had no open ethanol futures contracts. We realized a gain of approximately $22,000 on ethanol derivative instruments for the nine months ended June 30, 2023 which increased our revenue during our 2023 fiscal
year. We realized a gain of approximately $425,000 on ethanol derivative instruments for the nine months ended June 30, 2022 which increased our revenue during our 2022 fiscal year.
Distillers Grains
During the nine months ended June 30, 2023, we sold fewer tons of distillers grains compared to the same period of our nine months ended June 30, 2022 due to lower overall production at the ethanol plant. We sold a majority of our distiller grains during the 2023 period in the modified form due to local demand which favored this product. The average price we received for both our dried and modified distillers grains was higher during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to increased demand for distillers grains along with higher corn prices. Management believes prices for distillers grains have been strong due to higher corn prices and reduced worldwide corn supplies.
Corn Oil
The total pounds of corn oil we sold was lower during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to deceased overall production at the plant during the 2023 period. The average price we received for our corn oil during the nine months ended June 30, 2023 was lower compared to the average price we received during the nine months ended June 30, 2022 primarily due to increased corn oil demand fromsupply in the market. Corn oil is used for biodiesel industry.and renewable diesel production which have increased recently, benefiting market corn oil prices.
Syrup
The total gallons of syrup we sold was lower during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to decreased overall production. The average price we received for our syrup during the nine months ended June 30, 2023 was lower compared to the average price we received during the nine months ended June 30, 2022 primarily due to discounted pricing to ensure product moves in a timely manner.
Cost of Goods Sold
Our cost of goods sold is primarily made up of corn and natural gas expenses. Our cost of goods sold was higher for the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 as compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2022 due primarily to increasedthe net effect of higher corn consumption and increased natural gas usecosts per bushel partially offset by decreased corn usage during the first quarter of our 20182023 fiscal year as compared to the first quarter of our 2017 fiscal year. The increase in our cost of goods sold was greater than the increase in our revenue during the first quarter of our 2018 fiscal year as compared to the first quarter of our 2017 fiscal year, which decreased our profitability.
Corn Costs
Our cost of goods sold related to corn was lesslower for the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2022 due to the net effecthigher average prices we paid per bushel of increased corn, consumptionwithout taking derivative instrument positions into account, partially offset by decreased average corn costs per bushel, before taking into account our hedge positions.consumption during the nine months ended June 30, 2023. For the first quarter of our 2018 fiscal year,nine months ended June 30, 2023, we used approximately 0.6% more3.77% fewer bushels of corn compared to the first quarter of our 2017 fiscal year.nine months ended June 30, 2022 due to decreased ethanol production and increased corn to ethanol conversion efficiency. The average price we paid per bushel of corn, without taking into account our derivative instruments, was approximately 7.6% less2.75% higher for the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quarter of our 2017 fiscal year.nine months ended June 30, 2022 due to higher market corn prices during the nine months ended June 30, 2023. In addition, during the first quarter of our 2018 fiscal year, we had a realized loss of approximately $569,000 for our corn derivative instruments which increased our cost of goods sold. For the first quarter of our 2017 fiscal year,nine months ended June 30, 2023, we had a realized gain of approximately $218,000$988,000 for our corn derivative instruments, which decreased our cost of goods sold. Management anticipatessold related to corn. For the nine months ended June 30, 2022, we had a realized gain of approximately $1,438,000 for our corn derivative instruments, which decreased our cost of goods sold related to corn during that we will consume more corn in the future due to our natural gas conversion project which allows us to produce more of our products. Management anticipates that corn prices will remain relatively stable during our 2018 fiscal year due to ample corn supplies and relatively stable corn demand.period.
Natural Gas Costs
We consumedused approximately 3.9% more0.89% fewer MMBtu of natural gas during the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quarter of our 2017 fiscal year,nine months ended June 30, 2022 due to increaseddecreased overall production and colder weather during the 20182023 period. Our average
cost per MMBtu of natural gas was approximately 2.9%10.34% less during the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2022 due to ample locallower natural gas supply.prices and energy prices generally compared to our 2022 fiscal year.
General and Administrative Expenses
Our general and administrative expenses were higher for the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2022 due to additional consulting services needed duringfees and CCS payments to pore space owners related to our 2018 fiscal year.carbon sequestration project.
Other Income/Expense
We had less interest income during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to having less cash on hand during our 2023 fiscal year. Our other income was significantly lower during the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to the $3 million Ethanol Recovery Loan forgiveness we received during our 2022 fiscal year. We had more interest incomeexpense during the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quarter of our 2017 fiscal yearnine months ended June 30, 2022 due to having greater cash balances duringincreased borrowing on our 2017 fiscal year. We had less other income during the first quarter of our 2018 fiscal year compared to the first quarter of our 2017 fiscal year due to a decreased capital account refund we received from our marketer during the 2018 period.loans.
Changes in Financial Condition for the ThreeNine Months Ended December 31, 2017June 30, 2023
Current Assets.
We had less cash and cash equivalents at June 30, 2023 compared to September 30, 2022 primarily due to deferred corn payments we made early in January each year. We had less restricted cash in our margin account at June 30, 2023 compared to September 30, 2022 due to changing values of our derivative instrument positions. Due to the timing of shipments, the value of our accounts receivable was higher at June 30, 2023 compared to September 30, 2022. We had more cash and equivalentsinventory on hand at December 31, 2017June 30, 2023 compared to September 30, 20172022 due primarily to more raw material inventory on hand at June 30, 2023 compared to September 30, 2022. Our prepaid expenses were higher at June 30, 2023 compared to September 30, 2022 due to an increase in our accounts payable due to deferred corn payments owed to our corn suppliers in our 2018 fiscalinsurance premiums paid for the year. We had less restricted cash at December 31, 2017 compared to September 30, 2017 related to cash we deposit in our margin account for our hedging transactions. Due to the timing of payments from our marketers, we had fewer accounts receivable at December 31, 2017 compared to September 30, 2017. We had less inventory on hand at December 31, 2017 compared to September 30, 2017 due primarily to having less ethanol and finished goods inventory at December 31, 2017.
Property, Plant and Equipment.
The value of our property, plant and equipment was lowerless at December 31, 2017June 30, 2023 compared to September 30, 2017 primarily2022 due to the regular depreciation of our assets.assets during the first nine months of our 2023 fiscal year partially offset by capital projects which were completed and higher construction in progress at June 30, 2023 compared to September 30, 2022.
Other Assets
Our right of use operating lease assets at June 30, 2023 was higher compared to September 30, 2022 due to the renewal of DDG railcar leases partially offset by amortization of our leases during our 2023 fiscal year. Our investment in RPMG increased due to a capital call during our 2023 fiscal year.
Current Liabilities.
We had no disbursements in excess of our bank balances at June 30, 2023 which are checks we have issued which have not yet been presented for payment which exceed the cash we have in our bank accounts. These checks are paid from our revolving loans. Our accounts payable was higher at December 31, 2017June 30, 2023 compared to September 30, 20172022 due to having more corn payables and the distribution payable at December 31, 2017.June 30, 2023 compared to September 30, 2022. Our accrued expenses were higher at December 31, 2017June 30, 2023 compared to September 30, 2017 because we2022 due to higher accrued corn payables. We had more deferred corn payments owed toa smaller liability associated with our corn suppliersderivative instrument positions at December 31, 2017 compared to SeptemberJune 30, 2017.
Long-term Liabilities. Our long-term liabilities were less at December 31, 20172023 compared to September 30, 2017 because2022 due to changing market corn prices compared to our derivative instrument positions. We had a higher accrued loss on our firm corn purchase commitments due to the difference between the market value of capitalour firm corn purchases and the contract price of our corn purchases. We had a smaller current maturity associated with our notes payable due to renewals of our long-term debt as of June 30, 2023 compared to September 30, 2022. We had more current portion of operating lease payments we madeliabilities at June 30, 2023 compared to September 30, 2022 due to the renewal of DDG railcar leases partially offset by amortization of our leases during our 20182023 fiscal year.
Long-Term Liabilities
Our notes payable balance was significantly higher at June 30, 2023 compared to September 30, 2022 due to consolidating the two construction loans which also extended the maturity dates of our debt, moving it to long-term debt and additional borrowing on our loans during the first fiscal quarter of 2023. We had more long-term liabilities for our operating
leases at June 30, 2023 due additional equipment leases partially offset by amortization of our long-term leases during our 2023 fiscal year.
Liquidity and Capital Resources
Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months.months and beyond. Should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity sources for working capital or other purposes.
The following table shows cash flows for the threenine months ended December 31, 2017June 30, 2023 and 2016:2022:
| | | | | | | | | | | | | | |
| | June 30, 2023 (unaudited) | | June 30, 2022 (unaudited) |
Net cash provided by operating activities | | $ | 2,244,426 | | | $ | 29,620,520 | |
Net cash used in investing activities | | (2,219,952) | | | (17,763,824) | |
Net cash (used for) provided by financing activities | | (2,443,389) | | | 6,429,720 | |
Net increase (decrease) in cash | | $ | (2,418,915) | | | $ | 18,286,416 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 8,733,100 | | | $ | 23,501,660 | |
|
| | | | | | | | |
| | December 31, 2017 (unaudited) | | December 31, 2016 (unaudited) |
Net cash provided by operating activities | | $ | 8,102,679 |
| | $ | 10,592,632 |
|
Net cash (used in) investing activities | | (32,345 | ) | | (174,001 | ) |
Net cash (used in) financing activities | | (652 | ) | | (565,611 | ) |
Net increase in cash | | $ | 8,069,682 |
| | $ | 9,853,020 |
|
Cash and cash equivalents, end of period | | $ | 11,293,024 |
| | $ | 20,127,186 |
|
Cash Flow from Operations
Our operations provided less cash during the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the same period of our 20172022 fiscal year due primarily to decreased profitabilitynet income during the 20182023 period.
Cash Flow From Investing Activities
We used less cash for capital expenditures during the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the same period of our 20172022 fiscal year. During the 20182023 period, our primary capital expenditures were for finishing partsrenovations to retrofit the posidon tank for the hammer mill project that was started last fiscal year.additional water storage and work to finalize our CCS project.
Cash Flow from Financing Activities
We usedOur financing activities provided less cash for financing activities during the first quarter of our 2018 fiscal yearnine months ended June 30, 2023 compared to the first quartersame period of our 20172022 fiscal year becausedue to fewer proceeds we did not have any unit repurchasesreceived from our debt instruments during the 20182023 fiscal year. We had debt repayments and a distribution which was paid during the our 2023 fiscal year which used cash during that period.
Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent, we expect operations to generate adequate cash flows to maintain operations.operations for the next 12 months and beyond.
Plans for Cash in the Short Term and in the Long Term
In the next 12 months, the Company plans to reinvest its cash into current business operations and to use the cash for the implementation of the new carbon capture and storage project. In the long term, the Company plans to reinvest its cash into current business operations and may provide further distributions to its members.
Capital Expenditures
The Company had approximately $134,000$2.5 million in construction in progress as of December 31, 2017June 30, 2023 primarily relating to improvements being madeour carbon capture and storage project and renovations to retrofit the posidon tank for additional land and railroad track purchased last fiscal year.water storage. The Company plans to finance this construction in progress using cash from current business operations.
Capital Resources
Revolving Loan
On March 20, 2017,January 22, 2020, we entered into a new $10 million revolving loan (the "Revolving Loan") with U.S.Cornerstone Bank National Association ("U.S. Bank"Cornerstone"). The Revolving Loan replaced a similar revolving loan we had with First National Bank of Omaha. Interest accrues on any outstanding balance on the Revolving Loan at a rate of 1.77% in excess1.2% less than the prime rate as published by the Wall Street Journal, adjusted monthly. The Revolving Loan has a minimum interest rate of the one-month London Interbank Offered Rate ("LIBOR")3.0%. The maturity date of the Revolving Loan is Maywas January 31, 2018. Our ability to draw funds on2022. On February 3, 2022, the Revolving Loan was renewed, and the new maturity date was March 31, 2022. On April 8, 2022, the Revolving Loan maturity date was extended to April 7, 2023. On April 8, 2023 we renewed the Revolving Loan. The new maturity date is subject toApril 5, 2024. The Revolving Loan is secured by a borrowing base calculation as set forth in the Credit Agreement.lien on substantially all of our assets. At December 31, 2017,June 30, 2023, we had $10 million available on the Revolving Loan. We had $0 drawnThe variable interest rate on June 30, 2023 was 7.25%.
Construction Loans
On January 22, 2020, we entered into a new $7 million construction loan (the "First Construction Loan") with Cornerstone to finance our carbon capture and storage project. The original maturity date of the First Construction Loan was June 1, 2021. On June 3, 2021 the maturity date was extended to February 1, 2022. On April 8, 2022, the First Construction Loan was extended to October 8, 2022. On October 28, 2022, the First Construction Loan was consolidated with the Second Construction Loan (below).
On February 1, 2021, we entered into a $28 million construction loan (the "Second Construction Loan") with Cornerstone to finance our carbon capture and storage project. The maturity date of the Second Construction Loan was January 31, 2022. On February 17, 2022, the Second Construction Loan was extended to March 15, 2022. On April 8, 2022, the Second Construction Loan was again extended to October 8, 2022. On October 28, 2022, the Second Construction loan was consolidated and replaced (below).
On October 28, 2022, we entered into a $25 million loan to replace the First Construction Loan and Second Construction Loan (the "Consolidated Loan"). The maturity date of the Consolidated Loan is January 31, 2032. The fixed interest rate is 4.65%. The outstanding balance as of June 30, 2023 was $22.2 million.
Ethanol Recovery Program
On July 13, 2020, we entered into a $5.41 million loan through the Bank of North Dakota's Ethanol Recovery Program and Cornerstone. The Ethanol Recovery Program was developed by the North Dakota Ethanol Producers Association and the Bank of North Dakota to use the existing Biofuels Partnership in Assisting Community Expansion ("PACE") program and Value-added Guarantee Loan program to help ethanol production facilities weather the economic challenges caused by the COVID-19 pandemic. Ethanol producers could qualify for up to $15 million of a low interest loan of 1% based on the Revolving Loanamount of such producers' annual corn grind. The maturity date of the loan is July 13, 2025. The fixed interest rate as of June 30, 2023 was 3.75% with an interest rate buy down through the Bank of North Dakota to 1%. We typically make monthly payments of approximately $74,000 per month. On December 31, 2017. Interest accrued3, 2021 we received forgiveness of $2.65 million of the loan, and the balance outstanding on the Revolving Loan as of December 31, 2017 at a rate of 3.40%.June 30, 2023 was approximately $524,000.
Restrictive Covenants
The Revolving Loan is subject to certain financial covenants as set forth in the Credit Agreement. The most significant financial covenants require us to maintain a fixed charge coverage ratio of no less than 1.25:1.00 and a current ratio of no less than 1.50:1.00. Our fixed charge coverage ratio measures our ability to pay our fixed expenses. Our current ratio measures our liquidity and ability to pay short-term and long-term obligations.
As of December 31, 2017, we were in compliance with our loan covenants.
Significant Accounting Policies and Estimates
We describe our significant accounting policies in Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022. We discuss our critical accounting estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022. There has been no significant change in our significant accounting policies or critical accounting estimates since the end of our 20172022 fiscal year. Effective October 1, 2020 the Company adopted ASU2016-13 using the modified retrospective approach.
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 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 ethanol. 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 pursuant to the requirements of Generally Accepted Accounting Principles ("GAAP").
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 June 30, 2023, we had no amount outstanding on our variable interest rate loans, however we could have funds outstanding under our revolving loan which has a variable interest rate in the future. If we were to experience a 10% increase in the variable portion of our loans, 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 June 30, 2023, would be immaterial.
Commodity Price Risk
We expect to be 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 and the sale of ethanol. Our exposure to commodity price risk may be heightened due to the crisis in Ukraine.
We enter into fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter into these contracts, we will use various hedging instruments (puts, calls and futures) to maintain a near even market position. For example, if we have 1one million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company (RPMG)("RPMG") is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.
Although we believe our hedge positions will accomplish an economic hedge against our future purchases, they are not designated as hedges for accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We use fair value accounting for 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 sales. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter and year to year due to the timing of the change in value of derivative instruments relative to the cost of the commodity being hedged. 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 December 31, 2017, we had fixed corn purchase contracts for approximately 700,000 bushels of corn andJune 30, 2023 we had corn futures and option contracts for approximately 11.5 million1,855,000 bushels of corn. As of December 31, 2017June 30, 2023 we had an unrealized loss of approximately $569,000$152,000 related to our corn futures and optionoptions contracts.
It is the current position of our ethanol marketing company, RPMG, that under current market conditions, selling ethanol in the spot market will yield the best price for our ethanol. RPMG will, from time to time, contract a portion of the gallons they market with fixed price contracts. At June 30, 2023, we had no fixed ethanol sales contracts and ethanol futures and option contracts. As of June 30, 2023 we had no unrealized gain or loss related to ethanol futures and option contracts.
We estimate that our corn usage will be between 2118 million and 2320 million bushels per calendar year for the production of approximately 59 million to 64 million gallons of ethanol. As corn 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.
A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to our corn, natural gas and ethanol prices 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, and our average ethanol sales price as of December 31, 2017,June 30, 2023, net of the forward and future contracts used to hedge our market risk for corn, natural gas and ethanol. The volumes are based on our expected use and sale of these commodities for a one year period from December 31, 2017.June 30, 2023. 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 Income | | 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 Income |
Ethanol | 63,900,000 |
| | Gallons | | 10 | % | | $ | (7,029,000 | ) | Ethanol | 63,900,000 | | | Gallons | | 10 | % | | $ | (15,975,000) | |
Corn | 22,820,000 |
| | Bushels | | 10 | % | | $ | (3,490,000 | ) | Corn | 18,048,000 | | | Bushels | | 10 | % | | $ | (12,634,000) | |
Natural gas | 1,664,000 |
| | MMBtu | | 10 | % | | $ | (466,000 | ) | Natural gas | 1,384,000 | | | MMBtu | | 10 | % | | $ | (471,000) | |
For comparison purposes, our sensitivity analysis for our quarter ended June 30, 2022 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 Income |
Ethanol | 63,900,000 | | | Gallons | | 10 | % | | $ | (15,975,000) | |
Corn | 22,821,000 | | | Bushels | | 10 | % | | $ | (12,327,000) | |
Natural gas | 1,664,000 | | | MMBtu | | 10 | % | | $ | (1,431,000) | |
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 pursuant to 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 President and Chief Executive Officer (the principal executive officer), Gerald Bachmeier,Jodi Johnson, along with our Chief Financial Officer, (the principal financial officer), Jodi Johnson,Joni Entze, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017.June 30, 2023. Based on this review and evaluation, these officers believe that our disclosure controls and procedures arewere 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 December 31, 2017, we made the following changesJune 30, 2023, there has been no change in our internal control over financial reporting which havethat has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting:reporting.
A review and updating of month-end standard operating procedures.
An additional step was added for the CFO and CEO to review all unusual transactions prior to financial statement preparation.
We made these material changes in our internal control over financial reporting as a result of a material weakness we identified in our annual report on Form 10-K for the fiscal year ended September 30, 2017.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time in the ordinary course of business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers' compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings.
Item 1A. Risk Factors
There has nothave been anyno material changechanges to the risk factors which were previously disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2017.2022.
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.
(a)The following exhibits are filed as part of this report.
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(a) | The following exhibits are filed as part of this report. |
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Exhibit No. | | Exhibits | |
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101101.INS* |
| Inline XBRL Instance Document | |
101.SCH* | | Inline XBRL Schema Document | |
101.CAL* | | Inline XBRL Calculation Document | |
101.LAB* | | Inline XBRL Labels Linkbase Document | |
101.PRE* | | Inline XBRL Presentation Linkbase Document | |
101.DEF* | | Inline XBRL Definition Linkbase Document | |
104 | | | The following financial informationcover page from Red Trail Energy, LLC'sthis Quarterly Report on Form 10-Q for the quarter ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of December 31, 2017 and September 30, 2017, (ii) Statements of Operations for the three months ended December 31, 2017 and 2016, (iii) Statements of Cash Flows for the three months ended December 31, 2017 and 2016, and (iv) the Notes to Unaudited Condensed Financial Statements.**Inline XBRL. | |
(*) Filed herewith.
(**) Furnished herewith.
SIGNATURES
Pursuant to the requirements 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.
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| | | RED TRAIL ENERGY, LLC |
| | | |
Date: | August 14, 2023 | | RED TRAIL ENERGY, LLC/s/ Jodi Johnson |
| | | Jodi Johnson |
Date: | February 14, 2018 | | /s/ Gerald Bachmeier |
| | | Gerald Bachmeier |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: | FebruaryAugust 14, 20182023 | | /s/ Jodi JohnsonJoni Entze |
| | | Jodi JohnsonJoni Entze |
| | | Chief Financial Officer |
| | | (Principal Financial and Accounting Officer) |