UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
COMMISSION FILE NO. 333-75804
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
(Exact Name of Registrant as Specified in its Charter)
South Dakota |
| 46-0462968 |
(State of Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation or Organization) |
| Identification No.) |
100 Caspian Avenue, Post Office Box 500, Volga, South Dakota 57071
(Address of Principal Executive Offices)
(605) 627-9240
(Registrant’s Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý
State the aggregate market value of the voting and non-voting common equity held by non affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: The aggregate market value of the common equity of the registrant and its predecessor held by non-affiliates as of June 30, 2005 was approximately $73,884,375 based on the latest sales price of its capital units in its offering ending June 30, 2005, which were the only public sales of its securities prior to June 30, 2005.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of the date of this filing, there were 30,445,500 Class A capital units of the registrant outstanding.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K of South Dakota Soybean Processors, LLC (the “Company”) for the year ended December 31, 2003, filed on March 30, 2004, is being filed solely for the purposes of replacing the independent auditor’s report and accompanying financial statements for such period for the reasons described in Item 9 below. The Company has made no other changes to the previously filed Form 10-K. Other than as set forth below, the items of the Form 10-K, as previously filed, continue to speak as of the date of the original filings thereof, and the disclosure relating to such items is not being updated.
Item 8. Financial Statements and Supplementary Data
Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located at page F-1 of this report on Form 10-K/A, and financial statements and schedules for the year ended December 31, 2003 referenced therein, which are hereby incorporated by reference. Such financial statements are marked to show all changes to the Company’s previously filed financial statements that were required as a result of the re-audit discussed in Item 9 below. Such changes do not constitute a restatement of the Company’s previously filed financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The independent audit covering the Company’s financial statements for the year ended December 31, 2003 was originally conducted by Eide Bailly, LLP, which later resigned from its engagement as the Company’s auditor in January 2005 due to an independence issue, as disclosed in the Company’s prior filings. Subsequently, in connection with its review of the Company’s Form 10-K for the year ended December 31, 2004, the Securities and Exchange Commission questioned whether the independence of Eide Bailly, LLP may have also been compromised with respect to its review of the financial statements for the quarter ended September 30, 2003, and its audit of the financial statements for the year ended December 31, 2003. Following communication with the Commission regarding the application of the independence rules in effect at the time, the Company agreed to comply with the Commission’s request to amend its SEC filings, including this annual report, to include re-audited and re-reviewed financial statements for the periods in question.
The Company’s new auditor, Gordon, Hughes & Banks, LLP, has completed its audit of the Company’s financial statements for the above period, and on November 9, 2005 delivered to the Company its signed audit report, dated as of September 30, 2005, which is being filed herewith. As stated above, no restatement of the Company’s previously filed financial statements for such periods was required as a result of such subsequent audit.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:
(a) Financial Statements and Schedules — Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located at page F-1 of this report for a list of the financial statements and schedules for the year ended December 31, 2003 included herein.
2
(b) Reports on Form 8-K – We did not file any reports on Form 8-K during the quarter ended December 31, 2003.
(c) Exhibits - See Exhibit Index following the Signature Page to this report.
3
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SOUTH DAKOTA SOYBEAN PROCESSORS, LLC | |
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Dated: November 10, 2005 |
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| By | /s/ Rodney G. Christianson |
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| Rodney G. Christianson |
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| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on November 10, 2005.
SIGNATURE |
| TITLE |
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/s/ Rodney G. Christianson |
| Chief Executive Officer |
Rodney G. Christianson |
| (Principal Executive Officer) |
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/s/ James A. Seurer |
| Chief Financial Officer |
James A. Seurer |
| (Principal Financial and Accounting Officer) |
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/s/ Paul Barthel* |
| Manager |
Paul Barthel |
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/s/ Robert E. Nelsen* |
| Manager |
Robert E. Nelsen |
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/s/ Ryan J. Hill* |
| Manager |
Ryan J. Hill |
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/s/ Peter Kontz* |
| Manager |
Peter Kontz |
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/s/ Bryce Loomis* |
| Manager |
Bryce Loomis |
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/s/ Dale F. Murphy* |
| Manager |
Dale F. Murphy |
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/s/ Daniel Potter* |
| Manager |
Daniel Potter |
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/s/ Corey Schnabel* |
| Manager |
Corey Schnabel |
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/s/ Rodney Skalbeck* |
| Manager |
Rodney Skalbeck |
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/s/ Delbert Tschakert* |
| Manager |
Delbert Tschakert |
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/s/ Anthony VanUden* |
| Manager |
Anthony VanUden |
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| Manager |
Ardon Wek |
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| Manager |
Kent Howell |
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| Manager |
Laron Krause |
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| Manager |
Ronald Gorder |
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| Manager |
Steven Preszler |
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| Manager |
Greg Schmieding |
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| Manager |
Dean Christopherson |
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| Manager |
Jerome Jerzak |
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| Manager |
Wayne Enger |
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| Manager |
David Driessen |
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* By | /s/ Rodney G. Christianson |
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| Rodney G. Christianson, Attorney-in-Fact |
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5
| Description |
| Filed |
| Incorporated Herein by Reference to | |
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24.1 |
| Power of Attorney |
| o |
| See Signature Page to this Annual Report on Form 10-K filed March 30, 2004 |
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31.1 |
| Rule 13a-14(a)/15d-14(a) Certifications |
| ý |
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32.1 |
| Section 1350 Certifications |
| ý |
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SOUTH DAKOTA SOYBEAN PROCESSORS,
LLC
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
Table of Contents
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FINANCIAL STATEMENTS |
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The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
We have audited the accompanying consolidated balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2003 and the related consolidated statements of operations, changes in members’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2003, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
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| /s/ Gordon, Hughes & Banks, LLP |
Gordon, Hughes & Banks, LLP
Greenwood Village, Colorado
September 30, 2005
F-1
INDEPENDENT AUDITOR'S REPORT
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
We have audited the accompanying balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2002 and the related statements of operations, changes in members’ equity, and cash flows for the year then ended. We have also audited the statements of operations, changes in members’ equity, and cash flows for the year ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2001 financial statements referred to above present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ Eide Bailly LLP |
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Sioux Falls, South Dakota |
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January 23, 2003 |
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F-2
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
DECEMBER 31, 2003 AND 2002
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| 2003 |
| 2002 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 529,697 |
| $ | 11,170 |
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Trade accounts receivable, less allowance for |
| 23,530,989 |
| 14,695,709 |
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Inventories |
| 10,776,402 |
| 13,113,098 |
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Margin deposits |
| — |
| 927,339 |
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Prepaid expenses |
| 516,419 |
| 482,977 |
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Assets held for sale - Building |
| 2,322,561 |
| 2,307,819 |
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Total current assets |
| 37,676,068 |
| 31,538,112 |
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PROPERTY AND EQUIPMENT |
| 50,250,024 |
| 49,172,714 |
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Less accumulated depreciation |
| (18,424,405 | ) | (15,411,529 | ) | ||||||||
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| 31,825,619 |
| 33,761,185 |
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OTHER ASSETS |
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Investments |
| 3,970,102 |
| 4,928,261 |
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Notes receivable - members |
| 481,710 |
| — |
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Patents, net |
| 7,647,844 |
| 36,836 |
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Other, net |
| 15,721 |
| 20,502 |
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| 12,115,377 |
| 4,985,599 |
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| $ | 81,617,064 |
| $ | 70,284,896 |
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See Accompanying Notes to Consolidated Financial Statements
F-3
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| 2003 |
| 2002 |
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LIABILITIES AND MEMBERS’ EQUITY |
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CURRENT LIABILITIES |
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Excess of outstanding checks over bank balance |
| $ | 2,388,936 |
| $ | 3,603,838 |
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Current maturities of long-term debt |
| 976,117 |
| 101,472 |
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Accounts payable |
| 1,883,200 |
| 639,587 |
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Accrued commodity purchases |
| 21,492,404 |
| 20,150,385 |
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Accrued expenses |
| 1,385,864 |
| 1,628,022 |
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Accrued interest |
| 50,316 |
| 51,476 |
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Total current liabilities |
| 28,176,837 |
| 26,174,780 |
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LONG-TERM LIABILITIES |
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Long-term debt, less current maturities |
| 17,543,141 |
| 10,143,459 |
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Deferred compensation |
| 121,301 |
| 91,064 |
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| 17,664,442 |
| 10,234,523 |
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MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY |
| 1,045,195 |
| — |
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COMMITMENTS |
| — |
| — |
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MEMBERS’ EQUITY |
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Class A Units, no par value |
| 34,730,590 |
| 33,875,593 |
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| $ | 81,617,064 |
| $ | 70,284,896 |
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See Accompanying Notes to Consolidated Financial Statements
F-4
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
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| 2003 |
| 2002 |
| 2001 |
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NET REVENUE |
| $ | 207,256,575 |
| $ | 159,497,284 |
| $ | 148,258,146 |
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COST OF REVENUE |
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Cost of product sold |
| 174,234,599 |
| 128,457,162 |
| 121,012,364 |
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Production |
| 14,046,771 |
| 11,707,538 |
| 10,686,189 |
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Freight and rail |
| 14,506,644 |
| 12,095,338 |
| 9,366,185 |
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Brokerage fees |
| 234,346 |
| 323,926 |
| 294,386 |
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Total cost of revenue |
| 203,022,360 |
| 152,583,964 |
| 141,359,124 |
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GROSS PROFIT |
| 4,234,215 |
| 6,913,320 |
| 6,899,022 |
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OPERATING EXPENSES |
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Administration |
| 3,639,442 |
| 2,679,633 |
| 2,234,248 |
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OPERATING PROFIT |
| 594,773 |
| 4,233,687 |
| 4,664,774 |
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OTHER INCOME (EXPENSE) |
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Interest expense |
| (802,178 | ) | (542,220 | ) | (483,223 | ) | |||
Other non-operating income |
| 2,915,160 |
| 3,404,458 |
| 2,093,316 |
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Patronage dividend income |
| 97,975 |
| 36,801 |
| 1,460,386 |
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Total other income (expense) |
| 2,210,957 |
| 2,899,039 |
| 3,070,479 |
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST OF SUBSIDIARY |
| 2,805,730 |
| 7,132,726 |
| 7,735,253 |
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MINORITY INTEREST IN LOSS OF SUBSIDIARY |
| 457,620 |
| — |
| — |
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INCOME BEFORE INCOME TAXES |
| 3,263,350 |
| 7,132,726 |
| 7,735,253 |
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INCOME TAX EXPENSE (BENEFIT) |
| (131,474 | ) | 520,000 |
| — |
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NET INCOME |
| $ | 3,394,824 |
| $ | 6,612,726 |
| $ | 7,735,253 |
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BASIC AND DILUTED EARNINGS PER CAPITAL UNIT |
| $ | 0.12 |
| $ | 0.23 |
| $ | 0.27 |
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WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS PER CAPITAL UNIT |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
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See Accompanying Notes to Consolidated Financial Statements
F-5
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
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| Capital Units |
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| Shares |
| Amount |
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BALANCE, JANUARY 1, 2001 |
| 28,258,500 |
| 30,771,474 |
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Net income |
| — |
| 7,735,253 |
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Proceeds from members’ equity |
| — |
| 4,200 |
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Distributions to members |
| — |
| (5,731,202 | ) | |
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BALANCE, DECEMBER 31, 2001 |
| 28,258,500 |
| 32,779,725 |
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Net income |
| — |
| 6,612,726 |
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Proceeds from members’ equity |
| — |
| 2,200 |
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Distributions to members |
| — |
| (5,519,058 | ) | |
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BALANCE, DECEMBER 31, 2002 |
| 28,258,500 |
| 33,875,593 |
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Net income |
| — |
| 3,394,824 |
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Distributions to members |
| — |
| (2,539,827 | ) | |
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BALANCE, DECEMBER 31, 2003 |
| 28,258,500 |
| $ | 34,730,590 |
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See Accompanying Notes to Consolidated Financial Statements
F-6
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
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| 2003 |
| 2002 |
| 2001 |
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OPERATING ACTIVITIES |
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Net income |
| $ | 3,394,824 |
| $ | 6,612,726 |
| $ | 7,735,253 |
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Charges and credits to net income not affecting cash: |
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Depreciation |
| 2,994,037 |
| 2,746,384 |
| 2,457,804 |
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Amortization |
| 18,378 |
| 4,764 |
| 4,059 |
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Minority interest in net loss of subsidiary |
| (457,620 | ) | — |
| — |
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Loss on sale of fixed assets |
| 1,325 |
| 30,288 |
| 118,920 |
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Non-cash patronage dividends |
| (97,976 | ) | (28,964 | ) | (1,460,386 | ) | |||
Change in assets and liabilities |
| (3,892,022 | ) | (530,981 | ) | 579,201 |
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NET CASH FROM OPERATING ACTIVITIES |
| 1,960,946 |
| 8,834,217 |
| 9,434,851 |
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INVESTING ACTIVITIES |
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Purchase of investments |
| (4,076,686 | ) | (250 | ) | — |
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Increase in member loans |
| (480,710 | ) | — |
| — |
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Cash assumed with Urethane Soy Systems Co. |
| 38,989 |
| — |
| — |
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Retirement of patronage dividends |
| 56,134 |
| 103,262 |
| 809,713 |
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Purchase of assets held for sale - Building |
| (14,742 | ) | (2,307,819 | ) | — |
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Patent costs |
| (53,000 | ) | (36,998 | ) | — |
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Proceeds from sales of property and equipment |
| 41,960 |
| — |
| 122,125 |
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Purchase of property and equipment |
| (1,016,849 | ) | (4,645,020 | ) | (2,718,740 | ) | |||
NET CASH USED FOR INVESTING ACTIVITIES |
| (5,504,904 | ) | (6,886,825 | ) | (1,786,902 | ) | |||
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FINANCING ACTIVITIES |
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Change in excess of outstanding checks over bank balance |
| (1,214,902 | ) | 2,026,870 |
| 24,150 |
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Proceeds from members’ equity transactions |
| — |
| 2,200 |
| 4,200 |
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Distributions to members |
| (2,539,827 | ) | (5,519,058 | ) | (5,731,202 | ) | |||
Payments for debt issue costs |
| — |
| (6,500 | ) | — |
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Proceeds from long-term debt |
| 9,489,103 |
| — |
| 1,053,948 |
| |||
Principal payments on long-term debt |
| (1,671,889 | ) | (454,991 | ) | (991,615 | ) | |||
NET CASH FROM (USED FOR) FINANCING ACTIVITIES |
| 4,062,485 |
| (3,951,479 | ) | (5,640,519 | ) | |||
|
|
|
|
|
|
|
| |||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
| 518,527 |
| (2,004,087 | ) | 2,007,430 |
| |||
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
| 11,170 |
| 2,015,257 |
| 7,827 |
| |||
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ | 529,697 |
| $ | 11,170 |
| $ | 2,015,257 |
|
|
|
|
|
|
|
|
| |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
| |||
Cash paid during the year for: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Interest |
| $ | 887,746 |
| $ | 530,421 |
| $ | 628,636 |
|
|
|
|
|
|
|
|
| |||
Income taxes |
| $ | — | $ | 520,000 |
| $ | — |
| |
See Accompanying Notes to Consolidated Financial Statements
F-7
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Organization
On October 12, 2001, Soybean Processors, LLC (the Company) was formed. The initial member of the LLC was the South Dakota Soybean Processors Cooperative (the Cooperative). The board of directors of the Cooperative unanimously approved a plan of reorganization related to an exchange whereby the LLC would acquire the assets and liabilities of the Cooperative. The reorganization required the approval of 75% of the members of the Cooperative who voted on the proposal. On June 20, 2002, the members of the South Dakota Soybean Processors Cooperative duly approved the reorganization of the Cooperative into a limited liability company, which became effective on July 1, 2002. Effective July 1, 2002, the LLC acquired the assets and liabilities of the Cooperative. The transaction was an exchange of interests whereby the assets and liabilities of the Cooperative were transferred for capital units of Soybean Processors, LLC. For financial statement purposes, no gain or loss was recorded as a result of the exchange transaction. For income tax purposes, the difference between the tax basis and the fair market value of the assets resulted in an income tax liability discussed in Note 10.
As a result of the exchange, the Cooperative was dissolved on July 1, 2002, and the LLC’s capital units were distributed to the members of the Cooperative at a rate of one capital unit of the LLC for each share of equity stock of the Cooperative. In connection with the reorganization, the LLC changed its name to South Dakota Soybean Processors, LLC.
A minimum of 2,500 capital units is required for ownership of the LLC. Such units will be subject to certain transfer restrictions. The LLC will also retain the right to redeem the units at $.20 per unit in the event a member attempts to dispose of the units in a manner not in conformity with the Operating Agreement, if a member becomes a holder of less than 2,500 units, becomes an owner (directly or indirectly) of more than 1.5% of the issued and outstanding capital units or becomes a bankrupt member. The Operating Agreement of the LLC also includes provisions whereby cash equal to a minimum of 30% of net income will be distributed to unit holders subject to certain limitations. These limitations include a minimum net income of $500,000, restrictions imposed by debt and credit instruments or as restricted by law in the event of insolvency.
In connection with the reorganization, the delivery of soybeans under the previous member delivery agreements is no longer required as an obligation of membership. Earnings, losses and cash distributions are allocated to members based on their percentage of ownership in the LLC.
The company owns approximately 58% of Urethane Soy Systems Company (USSC). USSC is the manufacturer and patent holder of SoyOyl®, a polyol made from soybean oil. A minority interest is presented in the consolidated balance sheet that represents the approximate 42% ownership of other investors in the 96,025 outstanding common shares of USSC.
South Dakota Soybean Processors is operated for the purpose of manufacturing products from soybeans, such as soybean oil, meal, and hulls.
Basis of presentation
As a result of the reorganization mentioned above, the financial statements of the prior periods have been restated to reflect the comparative basis of the Company versus the Cooperative. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary. The effects of all significant intercompany accounts and transactions have been eliminated.
(continued on next page)
F-8
Cash and cash equivalents
The Company considers all highly liquid debt instruments with maturity of three months or less to be cash equivalents.
Accounts receivable
Accounts receivable are carried at cost. Accounts receivable are considered past due when payments are not received within thirty days. Generally, these accounts receivable represent amounts due for sale of soybean meal, oil, hulls and refined oil.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management reviews all receivable balances that exceed 90 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.
Inventories
Finished goods (soybean meal, oil, refined oil, and hulls) and raw materials (soybeans) are valued at estimated market value, which approximates net realizable value. This accounting policy is in accordance with the guidelines described in AICPA Statement of Position No. 85-3, “Accounting by Agricultural Producers and Agricultural Cooperatives.” Supplies and other are stated at the lower of cost determined by the first-in, first-out method, or market.
Assets held for sale
Assets held for sale are carried at net book value.
Investments
Investments in cooperatives are carried at cost plus the amount of patronage earnings allocated or estimates of interim allocations to the Company, less any cash distributions received.
’
’
The investments in Cenex Harvest States (CHS) and CoBank include actual patronage allocations based upon written qualified notices of allocation received from CHS and CoBank. Patronage allocations represent the Company’s proportionate share of the patronage earnings of CHS and CoBank. Since the company is no longer a cooperative as of July 1, 2002, it will no longer receive patronage allocations.
(continued on next page)
F-9
Property and equipment
Property and equipment is stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense when incurred. When depreciable properties are sold or retired, the cost and accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in income.
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. The amount of the loss is determined by comparing the fair market value of the asset to the carrying amount of the asset.
Depreciation is provided for over the estimated useful lives of the individual assets using the straight-line method. The range of the estimated useful lives used in the computation of depreciation are as follows:
Buildings and improvements |
| 10-39 years |
|
Equipment and furnishings |
| 3-15 years |
|
Patents
The Company’s patents are intangible assets that are not considered to have an indefinite life and, under the rules of SFAS No. 142, are to be amortized over their estimated useful life. The patents are being amortized using the straight-line method over a period of 16 to 20 years, which is the shorter of the remaining estimated economic life of the patents acquired or 20 years from the date that the applications were originally filed with the U.S. Patent Office.
Other assets
Other assets are carried at cost. Loan fees are being amortized on an interest method of accounting over the term of the related loans.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized after the related products are shipped which is when title is transferred to the customer. Revenues are presented net of discounts and sales allowances.
Freight
The Company presents all amounts billed to the customer for freight as a component of net revenue. Costs incurred for freight are reported as a component of cost of revenue.
Advertising costs
Advertising and promotion costs are expensed as incurred.
Environmental remediation
It is management’s opinion that the amount of any potential environmental remediation costs will not be material to the Company’s financial condition, results of operations, or cash flow; therefore, no accrual has been recorded.
(continued on next page)
F-10
Recently issued accounting pronouncements
In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities that are subject to the provisions for the first fiscal period beginning after December 15, 2003. The Statement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The Company believes that the adoption of this standard will not have a material effect on the consolidated financial statements.
Accounting for derivative instruments and hedging activities
All of the Company’s derivatives are designated as non-hedge derivatives. The futures and options contracts used by the Company are discussed below. Although the contracts are effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
The Company, as part of its trading activity, uses futures and option contracts offered through regulated commodity exchanges to reduce risk. The Company is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes opposite and offsetting positions using future contracts or options.
Unrealized gains and losses on futures and options contracts used to hedge soybean, oil and meal inventories are recognized as a component of net proceeds for financial reporting. Inventories are recorded at estimated market value, which approximates net realizable value, so that gains and losses on the derivative contracts are offset by gains and losses on inventories and reflected in earnings currently.
Earnings per capital unit
The ownership structure of the Company is made up of Class A capital units. Earnings per capital unit are calculated based on the number of Class A capital units held. On June 17, 2003, the Board of Managers declared a 2-for-1 split of Class A capital units effective immediately. Prior to this transaction, there were 14,129,250 Class A capital units outstanding. The 2-for-1 stock split is reflected in the calculation of earnings per capital unit.
For purposes of calculating basic earnings per capital unit, capital units issued by the Company are considered outstanding on the effective date of issuance.
The Company has no other capital units or other member equity instruments that are dilutive for purposes of calculating earnings per capital unit.
Reclassifications
Reclassifications have been made to December 31, 2002 and December 31, 2001 financial information to make them conform to the current period presentation. The reclassification had no effect on previously reported net income or members’ equity.
(continued on next page)
F-11
NOTE 2 - INVENTORIES
|
| 2003 |
| 2002 |
| ||
Finished goods |
|
|
|
|
| ||
Soy processing |
| $ | (447,404 | ) | $ | 9,550,460 |
|
Refined Oil |
| 313,815 |
| 496,198 |
| ||
Other |
| 34,536 |
| 26,609 |
| ||
Total |
| (99,053 | ) | 10,073,267 |
| ||
|
|
|
|
|
| ||
Raw materials |
|
|
|
|
| ||
Soy Processing |
| 10,696,391 |
| 2,935,400 |
| ||
Refined Oil |
| 46,663 |
| 45,262 |
| ||
Other |
| 78,465 |
| 9,424 |
| ||
Total |
| 10,821,519 |
| 2,990,086 |
| ||
|
|
|
|
|
| ||
Supplies & Miscellaneous |
| 53,936 |
| 49,745 |
| ||
|
|
|
|
|
| ||
Totals |
| $ | 10,776,402 |
| $ | 13,113,098 |
|
Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. In addition, futures and option contracts are marked to market through cost of revenues, with unrealized gains and losses recorded in the above inventory amounts. This market adjustment caused the soy processing finished goods to have a credit balance as of December 31, 2003. Supplies and other inventories are stated at the lower of cost determined by the first-in, first-out method, or market.
NOTE 3 - MARGIN DEPOSITS
The Company maintains deposits with a brokerage firm. The deposits are used for risk management.
The Company uses futures and option contracts to manage the risk of commodity price volatility of soybeans, crude soybean oil and soybean meal. Consistent with its inventory accounting policy, these contracts are recorded at market value.
At December 31, 2003, the Company had contracts maturing through December 2004.
NOTE 4 - ASSETS HELD FOR SALE
The Company has entered into a letter of understanding with Minnesota Soybean Processors (MnSP) regarding the terms and conditions of the Company’s investment in a soybean oil storage facility located in Brewster, MN. The Company will own and operate the facility until MnSP commences its planned principal operations. Upon commencement of MnSP’s operations, the Company will transfer the facility to MnSP for consideration equal to the original cost of construction plus the cost of any improvements to the facility.
In August 2004, the Company exchanged the storage facility with a net book value of $2,322,561 for 1,400,400 Class A shares in Minnesota Soybean Processors (MnSP), a Minnesota cooperative association. The shares approximate 6.95% of MnSP’s outstanding equity.
(continued on next page)
F-12
NOTE 5 - PROPERTY AND EQUIPMENT
|
| 2003 |
|
|
| ||||||||
|
| Cost |
| Accumulated |
| Net |
| 2002 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Land |
| $ | 237,643 |
| $ | — |
| $ | 237,643 |
| $ | 237,643 |
|
Land improvements |
| 18,572 |
| 17,711 |
| 861 |
| — |
| ||||
Buildings and improvements |
| 14,290,569 |
| 2,556,169 |
| 11,734,400 |
| 12,136,431 |
| ||||
Machinery and equipment |
| 34,325,434 |
| 15,069,361 |
| 19,256,073 |
| 21,116,733 |
| ||||
Company vehicles |
| 111,217 |
| 101,905 |
| 9,312 |
| 58,620 |
| ||||
Furniture and fixtures |
| 814,180 |
| 679,259 |
| 134,921 |
| 152,861 |
| ||||
Construction in progress |
| 452,409 |
| — |
| 452,409 |
| 58,897 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Totals |
| $ | 50,250,024 |
| $ | 18,424,405 |
| $ | 31,825,619 |
| $ | 33,761,185 |
|
NOTE 6 - OTHER INTANGIBLE ASSETS
On January 1, 2003, the Company acquired an additional 54% interest in the outstanding common stock of USSC to bring its total ownership interest to approximately 58%. The results of USSC’s operations have been consolidated in the Company’s financial statements since that date. The Company believes that the acquisition of a controlling interest in USSC will allow the Company to develop and market ’soy-based polyurethane products.
The aggregate purchase price for the 54% interest was $8,576,686. The Company had previously acquired a 4% interest for $1,000,000. In preparing consolidated financial statements, the Company assigned the total consideration paid for the USSC stock to USSC’s assets and liabilities. This allocation resulted in an assignment of $7,401,245 to patents. The costs of the patents are being amortized using the straight-line method over a period of 16 to 20 years, which is the shorter of the remaining estimated economic life of the patents acquired or 20 years from the date of filing the application with the U.S. Patent Office. None of these patent costs recognized for financial reporting purposes are expected to be deductible for tax purposes.
The following table summaries the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Current assets |
| $ | 85,742 |
|
Property and equipment |
| 255,894 |
| |
Patents |
| 7,401,245 |
| |
Total assets acquired |
| 7,742,881 |
| |
|
|
|
| |
Current liabilities |
| 1,054,906 |
| |
Long-term debt |
| 155,928 |
| |
Total liabilities assumed |
| 1,210,834 |
| |
Net assets acquired |
| $ | 6,532,047 |
|
The Company has a contractual obligation to pay former USSC shareholders $4,050,000. Three remaining installments of $891,000 are due on October 31, 2004, 2005 and 2006.
(continued on next page)
F-13
The following table provides information regarding the Company’s other intangible assets as of December 31, 2003 and 2002:
Intangible Assets |
| Life |
| Gross |
| Accumulated |
| Net |
| |||
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2003 |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 10 Yrs. |
| $ | 20,502 |
| $ | (4,781 | ) | $ | 15,721 |
|
Patents |
| 16-20 Yrs. |
| 7,661,394 |
| (13,550 | ) | 7,647,844 |
| |||
|
|
|
| $ | 7,681,896 |
| $ | (18,331 | ) | $ | 7,663,565 |
|
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2002 |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 16-20 Yrs. |
| $ | 23,291 |
| $ | (2,789 | ) | $ | 20,502 |
|
NOTE 7 - INVESTMENTS
|
| 2003 |
| 2002 |
| ||
Investments in associated companies: |
|
|
|
|
| ||
Cenex Harvest States |
| $ | 3,516,592 |
| $ | 3,543,333 |
|
CoBank |
| 453,260 |
| 384,678 |
| ||
|
| 3,969,852 |
| 3,928,011 |
| ||
Urethane Soy Systems Company, Inc. |
| — |
| 1,000,000 |
| ||
Minnesota Soybean Processors |
| 250 |
| 250 |
| ||
|
|
|
|
|
| ||
Totals |
| $ | 3,970,102 |
| $ | 4,928,261 |
|
NOTE 8 - NOTES PAYABLE – SEASONAL LOAN
The Company has entered into a revolving credit agreement with CoBank, which was to expire on April 1, 2005. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. The Company could borrow up to $6,000,000 between June 1 and September 30 and up to $10,000,000 between October 1 and May 31. Interest is at a variable rate (3.47% at December 31, 2003). There were no advances outstanding at December 31, 2003 and 2002.
Advances on the revolving credit agreement are limited based upon inventory, accounts receivable, net of soybean accounts payable.
On June 17, 2004, the Company entered into a new revolving credit agreement with CoBank, which expired on July 1, 2005. CoBank unilaterally extended the maturity date to September 1, 2006. The Company currently has borrowing availability of approximately $15,300,000.
(continued on next page)
F-14
NOTE 9 - LONG-TERM DEBT
|
| 2003 |
| 2002 |
| ||
|
|
|
|
|
| ||
Revolving term loan from CoBank, interest at variable rates (3.47% at December 31, 2003), secured by substantially all property and equipment. Loan matures 3/20/2011. |
| 15,281,832 |
| 9,874,620 |
| ||
|
|
|
|
|
| ||
Note payable to former USSC shareholders, due in annual principal payments of $891,000, interest at 0%, secured by USSC stock. Note matures on 10/31/2006. |
| 2,673,000 |
| — |
| ||
|
|
|
|
|
| ||
Note payable to Brookings County Railroad Authority, due in semi-annual principal and interest installments of $36,885 at 5% secured by railroad track assets. Note matures 9/1/2007. |
| 264,462 |
| 322,812 |
| ||
|
|
|
|
|
| ||
Note payable to Richard Kipphart, issued February 13, 2002, with quarterly interest payments at 15% which began on June 30, 2002, and are paid in quarterly installments thereafter. No prepayment of principal is allowed prior to maturity. Note matures 2/13/2005. |
| 250,000 |
| — |
| ||
|
|
|
|
|
| ||
Note payable to various companies at rates ranging from 0% to 7.5%. Notes mature on or before 4/15/2005. |
| 49,964 |
| 8,754 |
| ||
|
|
|
|
|
| ||
Contract payable to City of Volga, due in monthly installments of $3,229 at 0%. Contract matures 12/31/2003. |
| — |
| 38,745 |
| ||
|
|
|
|
|
| ||
|
| 18,519,258 |
| 10,244,931 |
| ||
Less current maturities |
| (976,117 | ) | (101,472 | ) | ||
|
|
|
|
|
| ||
Totals |
| $ | 17,543,141 |
| $ | 10,143,459 |
|
The Company entered into an agreement as of February 26, 2002 with CoBank to amend and restate its Master Loan Agreement (MLA). Under the terms and conditions of the MLA, CoBank agrees to make loans to the Company up to $18,200,000 from August 1, 2002 until April 30, 2003 and up to $21,000,000 from May 1, 2003 to September 19, 2003. Beginning September 2003, the available commitment decreases in scheduled periodic increments of $1,300,000 through March 2011.
The MLA contains financial covenants related to the maintenance of working capital and achieving debt service quotients among affirmative and negative covenants.
(continued on next page)
F-15
It is estimated that the minimum principal payments on long-term debt obligations will be as follows:
For the years ending December 31: |
|
|
| |
2004 |
| $ | 976,117 |
|
2005 |
| 2,265,682 |
| |
2006 |
| 2,264,407 |
| |
2007 |
| 2,267,668 |
| |
2008 |
| 2,271,083 |
| |
Thereafter |
| 8,474,301 |
| |
|
|
|
| |
Total |
| $ | 18,519,258 |
|
NOTE 10 - INCOME TAXES
The Company is taxed as a limited liability company under the Internal Revenue Code. The income of the company flows through to the members to be taxed at the individual level rather than the corporate level. Accordingly, the Company will have no tax liability.
On June 20, 2002, the members approved a plan of reorganization to convert the Cooperative’s structure from an exempt organization to a limited liability company. To the extent that the fair market value of the Cooperative’s net assets exceeded their adjusted tax basis, the Cooperative incurred a federal income tax liability. The excess of the fair market value of the Cooperative’s net assets over their adjusted tax basis was approximately $1,530,000. The Company’s effective tax rate is 34%. The State of South Dakota does not have a corporate income tax. This liability is estimated as follows:
|
| 2003 |
| 2002 |
| 2001 |
| |||
|
|
|
|
|
|
|
| |||
Federal income tax expense at statutory rates |
| $ | (131,474 | ) | $ | 520,000 |
| $ | — |
|
A reconciliation of income tax at the statutory rate to the Company’s effective rate is as follows:
|
| 2002 |
| 2001 |
|
|
|
|
|
|
|
Computed at the expected statutory rate |
| 34.0 | % | 34.0 | % |
Patronage exclusion (through June 30, 2002) |
| (34.0 | )% | (34.0 | )% |
|
|
|
|
|
|
Income tax expense - effective rate |
| 0.0 | % | 0.0 | % |
The net book value of the Company’s assets exceeds the tax basis of those assets by approximately $7,450,000 at December 31, 2003.
(continued on next page)
F-16
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan for employees who meet the eligibility requirements set forth in the plan documents. The Company matches a percentage of employees’ contributed earnings. The amounts charged to expense under this plan were approximately $63,000, $62,000, and $65,000 for the years ended December 31, 2003, 2002, and 2001, respectively.
The Company has a deferred compensation plan with key employees. The agreements have benefits, which vest during a three-year period. The Company shall make five equal annual installments upon retirement of the employees. The future payments have been discounted at 8%. The amount recognized as expense during the years ended December 31, 2003, 2002, and 2001 was $30,237, $21,064, and $34,000, respectively. The Company anticipates making payments of approximately $11,000 in 2004.
NOTE 12 - OPERATING LEASES
The Company leases 337 rail cars from GE Capital. The lease requires monthly payments of $124,958. The leases began in 1996 and have eighteen-year terms. The Company also leases 100 rail cars from Trinity Capital. The lease requires monthly payments of $38,300. Lease expense was $1,903,367, $1,703,279, and $1,472,435 for the years ended December 31, 2003, 2002, and 2001, respectively. The Company generates revenues from the use of 299 of these rail cars on other railroads. Such revenues were $1,648,666, $1,448,409, and $1,427,645 for the years ended December 31, 2003, 2002, and 2001, respectively.
The Company has entered into a sub-lease agreement with the Dakota, Minnesota & Eastern Railroad Corporation (DME) for the hopper rail cars that it leases from GE Capital. The Company recognizes revenue from this sub-lease as the hopper rail cars are used by the DME. The sub-lease is for a twelve-month period and is renewed annually. The Company is responsible for all maintenance of the rail cars.
The Company also has a number of other operating leases for machinery and equipment. Rental expense under these other operating leases was $321,490, $628,306, and $354,224 for the years ended December 31, 2003, 2002, and 2001, respectively.
The following is a schedule of future minimum rental payments required under these operating leases.
|
| Rail Cars |
| Other |
| Total |
| |||
Year ended December 31: |
|
|
|
|
|
|
| |||
2004 |
| $ | 1,959,096 |
| $ | 41,315 |
| $ | 2,000,411 |
|
2005 |
| 1,959,096 |
| 41,315 |
| 2,000,411 |
| |||
2006 |
| 1,911,846 |
| 30,616 |
| 1,942,462 |
| |||
2007 |
| 1,704,596 |
| 4,644 |
| 1,709,240 |
| |||
2008 |
| 1,436,496 |
| — |
| 1,436,496 |
| |||
Thereafter |
| 10,842,774 |
| — |
| 10,842,774 |
| |||
|
|
|
|
|
|
|
| |||
Totals |
| $ | 19,813,904 |
| $ | 117,890 |
| $ | 19,931,794 |
|
(continued on next page)
F-17
NOTE 13 - CASH FLOW INFORMATION
The following is a schedule of changes in assets and liabilities used to determine cash from operating activities:
|
| 2003 |
| 2002 |
| 2001 |
| |||||||||||
(Increase) decrease in assets: |
|
|
|
|
|
|
| |||||||||||
Trade accounts |
| $ | (8,786,716 | ) | $ | (3,465,073 | ) | $ | (1,064,418 | ) | ||||||||
Inventories |
| 2,363,170 |
| (5,965,921 | ) | 718,574 |
| |||||||||||
Margin account deposit |
| 1,114,848 |
| 187,654 |
| (573,983 | ) | |||||||||||
Prepaids |
| (33,442 | ) | (223,820 | ) | (56,886 | ) | |||||||||||
|
| (5,342,140 | ) | (9,467,160 | ) | (976,713 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Increase (decrease) in liabilities: |
|
|
|
|
|
|
| |||||||||||
Accounts payable |
| 275,240 |
| 171,112 |
| (212,572 | ) | |||||||||||
Accrued commodity purchases |
| 1,342,767 |
| 8,466,777 |
| 1,613,556 |
| |||||||||||
Accrued expenses |
| (198,126 | ) | 277,226 |
| 120,930 |
| |||||||||||
Deferred compensation |
| 30,237 |
| 21,064 |
| 34,000 |
| |||||||||||
|
| 1,450,118 |
| 8,936,179 |
| 1,555,914 |
| |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total |
| $ | (3,892,022 | ) | $ | (530,981 | ) | $ | 579,201 |
| ||||||||
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Company’s financial instruments (all of which are held for non-trading purposes) are as follows:
|
| 2003 |
| 2002 |
| ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 529,697 |
| $ | 529,697 |
| $ | 11,170 |
| $ | 11,170 |
|
|
|
|
|
|
|
|
|
|
| ||||
Margin deposits |
| — |
| — |
| 927,339 |
| 927,339 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt |
| 18,519,258 |
| 18,370,381 |
| 10,244,931 |
| 10,258,941 |
| ||||
The carrying amount approximates fair value of cash and margin deposits. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities.
The Company has a patronage investment in other cooperatives and common stock in a privately held entity. There is no market for their patronage credits or the entity’s common shares, and it was impracticable to estimate fair value of the Company’s investment. The investment is carried on the balance sheet at original cost.
(continued on next page)
F-18
NOTE 15 - COMMITMENTS
During August 2000, the Company entered into an agreement with Minnesota Soybean Processors Cooperative (MnSP) for certain services and management of a proposed soybean processing plant. The agreement provides the Company a fee of 10% of the equity raised by MnSP for the Company’s services related to business planning and construction management services. The Company has agreed to reinvest a minimum of 80% of the fees earned from MnSP in equity units of MnSP. Fees earned under this arrangement were $1,245,205, $1,241,591 and $301,754 the years ended December 31, 2003, 2002 and 2001, respectively.
In addition, the Company has agreed to provide management and marketing services to MnSP on a cost-sharing basis. The agreement is for automatically renewing five-year periods beginning sixty days before the plant is scheduled to begin operations. Operations of the MnSP plant began during 2003, and the Company earned fees of $226,985 under this arrangement for the year ended December 31, 2003.
In addition, the Company is making up to $1 million in interest free loans backed by retained local earnings available for members of the Company who invest in MnSP. As of December 31, 2003, the Company had made loans of $481,710. These will be repaid as the Board of Managers approves distributions of prior earnings.
NOTE 16 - BUSINESS CREDIT RISK
The Company maintains its cash balances with various financial institutions. At times during the year, the Company’s balances exceeded the $100,000 insurance limit of the Federal Deposit Insurance Corporation.
The Company also grants credit to customers throughout the United States and Canada. The Company evaluates each customer’s credit worthiness on a case-by-case basis. Accounts receivable are generally unsecured. These receivables were $23,804,867 and $14,969,040 at December 31, 2003 and 2002, respectively.
Soybean meal sales accounted for approximately sixty-six percent of total revenues for the year ended December 31, 2003, sixty-six percent of total revenues for the year ended December 31, 2002, and sixty-eight percent for the year ended December 31, 2001. Approximately thirty-seven percent, twenty-three percent, and twenty-one percent of these sales were made to one customer for the years ended December 31, 2003, 2002, and 2001, respectively. At December 31, 2003 and 2002, this customer owed the Company approximately $3,534,000 and $1,370,000, respectively. Soybean oil sales represented approximately nine percent of total revenues for the year ended December 31, 2003, twenty percent of sales for the years ended December 31, 2002, and twenty percent of sales for the years ended December 31, 2001. Approximately forty-six percent of these sales were made to one customer for the years ended December 31, 2003. These sales were primarily to one customer in 2002 and prior. This customer owed the Company approximately $352,000 and $121,000 at December 31, 2003 and 2002, respectively. Refined oil sales represented approximately thirty percent of total revenues for the year ended December 31, 2003, and eleven percent of total revenues for the year ended December 31, 2002. These sales were primarily to one customer. This customer owed the Company approximately $6,516,000 and $4,591,000 at December 31, 2003 and 2002.
Sales by geographic area for these years ended December 31, 2003, 2002 and 2001 are as follows:
|
| 2003 |
| 2002 |
| 2001 |
| |||
|
|
|
|
|
|
|
| |||
United States |
| $ | 189,556,575 |
| 140,597,284 |
| $ | 130,558,146 |
| |
Canada |
| 17,700,000 |
| 18,900,000 |
| 17,700,000 |
| |||
|
|
|
|
|
|
|
| |||
|
| $ | 207,256,575 |
| $ | 159,497,284 |
| $ | 148,258,146 |
|
(continued on next page)
F-19
NOTE 17 - SEGMENT REPORTING
The Company organizes its business units into three reportable segments: soybean-processing, crude oil refining, and polyurethane. Separate management of each segment is required because each segment is subject to different marketing, production, and technology strategies. The soybean-processing segment purchases soybeans and further processes them into primarily three products: soybean meal, crude soybean oil, and soybean hulls. The oil-refining segment further refines the crude soybean oil for sale in commercial applications. The polyurethane segment processes oil into a bio-based polyurethane product that is used in foam applications. The segments’ accounting policies are the same as those described in the summary of significant accounting polices. Market prices are used to report intersegment sales. All items not related to one of the three segments are included in the column titled “Other.”
Segment information for the years ended December 31, 2003 and 2002 are as follows:
|
| Soybean |
| Oil |
| Polyurethane |
| Other |
| Total |
| |||||
FOR THE YEAR ENDED |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales to external customers |
| $ | 144,437,434 |
| $ | 62,500,006 |
| $ | 319,135 |
| $ | — |
| $ | 207,256,575 |
|
Interest expense |
| 279,638 |
| 317,853 |
| 204,687 |
| — |
| 802,178 |
| |||||
Depreciation and amortization |
| 2,577,739 |
| 357,605 |
| 77,071 |
| — |
| 3,012,415 |
| |||||
Income tax benefit |
| 131,474 |
| — |
| — |
| — |
| 131,474 |
| |||||
Segment profit (loss) |
| 3,597,665 |
| 183,411 |
| (1,088,940 | ) | 702,688 |
| 3,394,824 |
| |||||
Minority interest |
| — |
| — |
| 457,620 |
| — |
| 457,620 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment assets |
| 59,004,036 |
| 11,044,928 |
| 8,763,829 |
| 2,804,271 |
| 81,617,064 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for segment assets |
| 896,881 |
| — |
| 119,968 |
| — |
| 1,016,849 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
FOR THE YEAR ENDED |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales to external customers |
| $ | 141,942,209 |
| $ | 17,383,370 |
| $ | 163,066 |
| $ | — |
| $ | 159,488,645 |
|
Interest expense |
| 398,533 |
| 135,192 |
| 8,495 |
| — |
| 542,220 |
| |||||
Depreciation and amortization |
| 2,593,432 |
| 118,688 |
| 39,027 |
| — |
| 2,751,147 |
| |||||
Income tax expense |
| 520,000 |
| — |
| — |
| — |
| 520,000 |
| |||||
Segment profit (loss) |
| 6,237,559 |
| (381,815 | ) | (236,412 | ) | 993,394 |
| 6,612,726 |
| |||||
Minority interest |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment assets |
| 58,604,024 |
| 7,847,047 |
| 1,471,945 |
| 2,361,881 |
| 70,284,897 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for segment assets |
| 1,135,688 |
| 3,509,332 |
| — |
| — |
| 4,645,020 |
| |||||
(continued on next page)
F-20
NOTE 18 - LEGAL PROCEEDINGS
From time-to-time in the ordinary course of the Company’s business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. The Company carries insurance that provides protection against general commercial liability claims, claims against directors, officers and employees, business interruption, automobile liability, and workers’ compensation claims.
On January 28, 2003, the Company was served with notice that it had been named as a defendant in a breach of contract suit in the circuit court of Cook County, Illinois, along with a number of other individual defendants, including the Company’s Chief Executive Officer, Rodney Christianson. The plaintiff, James Jackson, was an employee of USSC whose services were terminated shortly after the Company became the majority owner in early January 2003. Mr. Jackson claimed that he was wrongfully terminated and that the defendants unjustly interfered with his employment contract and committed fraud in connection with the Company’s acquisition of a controlling interest in USSC. On April 24, 2005 the Company reached a mediated settlement that will include a payment of $300,000 to Mr. Jackson, of which USSC paid $60,000 and the insurance carrier assumed the remainder of the obligation.
In a related suit, USSC has reached a mediated settlement with Thomas Kurth, former President of USSC, in which Mr. Kurth will transfer his USSC shares and his interest in a developmental product company to USSC for no compensation. As a result of the foregoing, the Company has increased its proportionate share in USSC stock to 65.7%.
NOTE 19 - STOCK OFFERING
The Board of Managers approved a registration statement that was filed with the Securities and Exchange Commission on February 14, 2005 for the sale of additional capital units in a public offering. The maximum offering proceeds under the registration statement will be $11,250,000. As of September 30, 2005 the Company had sold 2,347,500 capital units for a total of $4,888,250.
# # # # # #
F-21
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
Under the date of September 30, 2005, we reported on the consolidated balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2003, and the related consolidated statements of operations, members’ equity and cash flows for the year then ended. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule listed in the accompanying index. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
|
| /s/ Gordon, Hughes & Banks, LLP |
Gordon, Hughes & Banks, LLP
Greenwood Village, Colorado
September 30, 2005
F-22
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
Under the date of January 23, 2003, we reported on the balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2002, and the related statements of operations, members’ equity and cash flows for each of the years in the two-year period ended December 31, 2002, as contained herein. In connection with our audits of the aforementioned financial statements, we also have audited the related financial statement schedule listed in the accompanying index. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Eide Bailly LLP |
|
|
|
| |
|
| |
Sioux Falls, South Dakota |
| |
January 23, 2003 |
| |
F-23
Index to Financial Statements
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
Description |
| Balance at |
| Charged |
| Deductions |
| Balance at |
| ||
|
|
|
| Additions |
|
|
|
|
| ||
COL. A |
| COL. B |
| COL. C |
| COL. D |
| COL. E |
| ||
|
|
|
|
|
|
|
|
|
| ||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
| ||
Year ended December 31, 2001: |
|
|
|
|
|
|
|
|
| ||
Allowance for doubtful accounts |
| $ | 168,871 |
| 60,000 |
| 2,358 |
| $ | 226,513 |
|
|
|
|
|
|
|
|
|
|
| ||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
| ||
Year ended December 31, 2002: |
|
|
|
|
|
|
|
|
| ||
Allowance for doubtful accounts |
| $ | 226,513 |
| 60,000 |
| 13,182 |
| $ | 273,331 |
|
|
|
|
|
|
|
|
|
|
| ||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
| ||
Year ended December 31, 2003: |
|
|
|
|
|
|
|
|
| ||
Allowance for doubtful accounts |
| $ | 273,331 |
| — |
| (547 | ) | $ | 273,878 |
|
F-24
