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, 2004
COMMISSION FILE NO. 000-50253
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. o
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, 2004, filed on April 15, 2005, is being filed solely for the purposes of replacing the independent auditor’s report and accompanying financial statements for the year ended December 31, 2003 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.
PART II
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, 2004 referenced therein, which are hereby incorporated by reference. Such financial statements were not changed in any respect from the Company’s previously filed financial statements as a result of the re-audit discussed in Item 9 below, other than revising the periods covered by the reports of independent auditors contained therein. 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 financial statements for the period in question.
The Company’s new auditor, Gordon, Hughes & Banks, LLP, has completed its audit of the Company’s 2003 financial statements, and delivered to the Company its signed audit report, dated as of September 30, 2005, which was filed with the Company’s recent amendment of its 2003 annual report, filed on Form 10-K/A, and is being filed herewith. No restatement of the Company’s previously filed financial statements for such periods was required as a result of such subsequent audit.
PART IV
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 years ended December 31, 2004, 2003 and 2002 included herein.
(b) Reports on Form 8-K – We did not file any reports on Form 8-K during the quarter ended December 31, 2004.
(c) Exhibits - See Exhibit Index following the Signature Page to this report.
2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SOUTH DAKOTA SOYBEAN PROCESSORS, | |
|
|
|
Dated: December 5, 2005 |
|
|
|
|
|
| By | /s/ Rodney G. Christianson |
|
| Rodney G. Christianson |
|
| 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 December 5, 2005.
SIGNATURE |
| TITLE |
|
|
|
/s/ Rodney G. Christianson |
| Chief Executive Officer |
Rodney G. Christianson |
| (Principal Executive Officer) |
|
|
|
/s/ James A. Seurer |
| Chief Financial Officer |
James A. Seurer |
| (Principal Financial and Accounting Officer) |
|
|
|
/s/ Paul Barthel* |
| Manager |
Paul Barthel |
|
|
|
|
|
|
| Manager |
Robert E. Nelsen |
|
|
|
|
|
/s/ Ryan J. Hill* |
| Manager |
Ryan J. Hill |
|
|
|
|
|
/s/ Peter Kontz* |
| Manager |
Peter Kontz |
|
|
|
|
|
/s/ Bryce Loomis* |
| Manager |
Bryce Loomis |
|
|
|
|
|
/s/ Dale F. Murphy* |
| Manager |
Dale F. Murphy |
|
|
|
|
|
/s/ Daniel Potter* |
| Manager |
Daniel Potter |
|
|
|
|
|
|
| Manager |
Corey Schnabel |
|
|
|
|
|
/s/ Rodney Skalbeck* |
| Manager |
Rodney Skalbeck |
|
|
|
|
|
/s/ Delbert Tschakert* |
| Manager |
Delbert Tschakert |
|
|
3
/s/ Anthony VanUden* |
| Manager | ||
Anthony VanUden |
|
| ||
|
|
| ||
/s/ Ardon Wek* |
| Manager | ||
Ardon Wek |
|
| ||
|
|
| ||
|
| Manager | ||
Kent Howell |
|
| ||
|
|
| ||
/s/ Laron Krause* |
| Manager | ||
Laron Krause |
|
| ||
|
|
| ||
|
| Manager | ||
Ronald Gorder |
|
| ||
|
|
| ||
/s/ Steven Preszler* |
| Manager | ||
Steven Preszler |
|
| ||
|
|
| ||
|
| Manager | ||
Greg Schmieding |
|
| ||
|
|
| ||
/s/ Dean Christopherson* |
| Manager | ||
Dean Christopherson |
|
| ||
|
|
| ||
|
| Manager | ||
Jerome Jerzak |
|
| ||
|
|
| ||
/s/ Wayne Enger* |
| Manager | ||
Wayne Enger |
|
| ||
|
|
| ||
|
| Manager | ||
David Driessen |
|
| ||
|
|
| ||
|
|
| ||
* By | /s/ Rodney G. Christianson |
|
| |
| Rodney G. Christianson, Attorney-in-Fact |
|
| |
4
EXHIBIT INDEX
Exhibit |
| Description |
| Filed |
| Incorporated Herein by Reference to |
|
|
|
|
|
|
|
24.1 |
| Power of Attorney |
| o |
| See Signature Page to this Annual Report on Form 10-K filed April 15, 2005 |
|
|
|
|
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certifications |
| ý |
|
|
|
|
|
|
|
|
|
32.1 |
| Section 1350 Certifications |
| ý |
|
|
5
SOUTH DAKOTA SOYBEAN PROCESSORS,
LLC
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
Table of Contents
| |
|
|
FINANCIAL STATEMENTS |
|
| |
| |
| |
| |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
We have audited the accompanying consolidated balance sheets of South Dakota Soybean Processors, LLC as of December 31, 2004 and December 31, 2003 and the related consolidated statements of operations, changes in members’ equity and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits 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 audits provide 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, 2004 and December 31, 2003, and the results of its operations and its cash flows for each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
/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 statements of operations, changes in members’ equity, and cash flows of South Dakota Soybean Processors, LLC for the year ended December 31, 2002. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the results of its operations, changes in members’ equity and cash flows of South Dakota Soybean Processors, LLC for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
/s/ Eide Bailly LLP |
|
| |
Sioux Falls, South Dakota | |
January 23, 2003 |
F-2
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
DECEMBER 31, 2004 AND 2003
|
| 2004 |
| 2003 |
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT ASSETS |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 11,423 |
| $ | 529,697 |
|
Trade accounts receivable, less allowance for uncollectible accounts (2004 - $28,000; 2003 - $276,878) |
| 17,452,118 |
| 23,530,989 |
| ||
Inventories (Note 2) |
| 8,601,502 |
| 10,776,402 |
| ||
Margin deposits (Note 3) |
| 1,424,422 |
| — |
| ||
Prepaid expenses |
| 538,816 |
| 516,419 |
| ||
Building exchanged for interest in MnSP |
| — |
| 2,322,561 |
| ||
Total current assets |
| 28,028,281 |
| 37,676,068 |
| ||
|
|
|
|
|
| ||
PROPERTY AND EQUIPMENT (Note 6) |
| 51,398,225 |
| 50,250,024 |
| ||
Less accumulated depreciation |
| (21,268,006 | ) | (18,424,405 | ) | ||
Total property and equipment |
| 30,130,219 |
| 31,825,619 |
| ||
|
|
|
|
|
| ||
OTHER ASSETS |
|
|
|
|
| ||
Investments (Note 4) |
| 4,077,625 |
| 3,970,102 |
| ||
Equity investment in unconsolidated affiliate (Note 5) |
| 2,869,366 |
| — |
| ||
Notes receivable - members |
| 481,710 |
| 481,710 |
| ||
Patents, net (Note 7) |
| 6,900,047 |
| 7,647,844 |
| ||
Other, net |
| 12,640 |
| 15,721 |
| ||
Total other assets |
| 14,341,388 |
| 12,115,377 |
| ||
|
|
|
|
|
| ||
Total assets |
| $ | 72,499,888 |
| $ | 81,617,064 |
|
The accompanying notes are an integral part of these consolidated financial statements
F-3
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED BALANCE SHEETS (continued)
DECEMBER 31, 2004 AND 2003
|
| 2004 |
| 2003 |
| ||
LIABILITIES AND MEMBERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
Excess of outstanding checks over bank balance |
| $ | 3,411,975 |
| $ | 2,388,936 |
|
Current maturities of long-term debt (Note 9) |
| 1,216,438 |
| 976,117 |
| ||
Accounts payable |
| 928,858 |
| 1,883,200 |
| ||
Accrued commodity purchases |
| 23,640,446 |
| 21,492,404 |
| ||
Accrued expenses |
| 1,646,228 |
| 1,385,864 |
| ||
Accrued interest |
| 49,471 |
| 50,316 |
| ||
Total current liabilities |
| 30,893,416 |
| 28,176,837 |
| ||
|
|
|
|
|
| ||
LONG-TERM LIABILITIES |
|
|
|
|
| ||
Long-term debt, less current maturities (Note 9) |
| 8,986,151 |
| 17,543,141 |
| ||
Deferred compensation (Note 11) |
| 129,345 |
| 121,301 |
| ||
|
| 9,115,496 |
| 17,664,442 |
| ||
|
|
|
|
|
| ||
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY |
| 368,403 |
| 1,045,195 |
| ||
|
|
|
|
|
| ||
COMMITMENTS (Note 12) |
| — |
| — |
| ||
|
|
|
|
|
| ||
MEMBERS’ EQUITY |
|
|
|
|
| ||
Class A Units, no par value 28,228,500 and 28,258,500 units issued and outstanding at December 31, 2004 and 2003, respectively |
| 32,122,573 |
| 34,730,590 |
| ||
|
|
|
|
|
| ||
Total liabilities and members’ equity |
| $ | 72,499,888 |
| $ | 81,617,064 |
|
The accompanying notes are an integral part of these consolidated financial statements
F-4
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
|
| 2004 |
| 2003 |
| 2002 |
| |||
|
|
|
|
|
|
|
| |||
NET REVENUES |
| $ | 238,211,056 |
| $ | 207,256,575 |
| $ | 159,497,284 |
|
|
|
|
|
|
|
|
| |||
COST OF REVENUES |
|
|
|
|
|
|
| |||
Cost of product sold |
| 200,374,848 |
| 174,234,599 |
| 128,457,162 |
| |||
Production |
| 14,435,824 |
| 14,046,771 |
| 11,707,538 |
| |||
Freight and rail |
| 17,606,723 |
| 14,506,644 |
| 12,095,338 |
| |||
Brokerage fees |
| 286,471 |
| 234,346 |
| 323,926 |
| |||
Total cost of revenues |
| 232,703,866 |
| 203,022,360 |
| 152,583,964 |
| |||
|
|
|
|
|
|
|
| |||
GROSS PROFIT |
| 5,507,190 |
| 4,234,215 |
| 6,913,320 |
| |||
|
|
|
|
|
|
|
| |||
OPERATING EXPENSES |
|
|
|
|
|
|
| |||
Administration |
| 4,476,511 |
| 3,639,442 |
| 2,679,633 |
| |||
OPERATING PROFIT |
| 1,030,679 |
| 594,773 |
| 4,233,687 |
| |||
|
|
|
|
|
|
|
| |||
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
| |||
Interest expense |
| (1,425,849 | ) | (802,178 | ) | (542,220 | ) | |||
Other non-operating income |
| 254,061 |
| 2,915,160 |
| 3,404,458 |
| |||
Patronage dividend income |
| 153,961 |
| 97,975 |
| 36,801 |
| |||
Total other income (expense) |
| (1,017,827 | ) | 2,210,957 |
| 2,899,039 |
| |||
|
|
|
|
|
|
|
| |||
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST OF SUBSIDIARY |
| 12,852 |
| 2,805,730 |
| 7,132,726 |
| |||
|
|
|
|
|
|
|
| |||
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY |
| 676,792 |
| 457,620 |
| — |
| |||
|
|
|
|
|
|
|
| |||
INCOME BEFORE INCOME TAXES |
| 689,644 |
| 3,263,350 |
| 7,132,726 |
| |||
|
|
|
|
|
|
|
| |||
INCOME TAX EXPENSE (BENEFIT) |
| 1,032 |
| (131,474 | ) | 520,000 |
| |||
|
|
|
|
|
|
|
| |||
NET INCOME |
| $ | 688,612 |
| $ | 3,394,824 |
| $ | 6,612,726 |
|
|
|
|
|
|
|
|
| |||
BASIC AND DILUTED EARNINGS PER CAPITAL UNIT |
| $ | 0.02 |
| $ | 0.12 |
| $ | 0.23 |
|
|
|
|
|
|
|
|
| |||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS PER CAPITAL UNIT |
| 28,250,139 |
| 28,258,500 |
| 28,258,500 |
|
The accompanying notes are an integral part of these consolidated financial statements
F-5
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
|
| Capital Units |
| |||
|
| Shares |
| Amount |
| |
|
|
|
|
|
| |
BALANCE, JANUARY 1, 2002 |
| 28,258,500 |
| 32,779,725 |
| |
|
|
|
|
|
| |
Net income |
| — |
| 6,612,726 |
| |
|
|
|
|
|
| |
Proceeds from members’ equity |
| — |
| 2,200 |
| |
|
|
|
|
|
| |
Distributions to members |
| — |
| (5,519,058 | ) | |
|
|
|
|
|
| |
BALANCE, DECEMBER 31, 2002 |
| 28,258,500 |
| 33,875,593 |
| |
|
|
|
|
|
| |
Net income |
| — |
| 3,394,824 |
| |
|
|
|
|
|
| |
Distributions to members |
| — |
| (2,539,827 | ) | |
|
|
|
|
|
| |
BALANCE, DECEMBER 31, 2003 |
| 28,258,500 |
| 34,730,590 |
| |
|
|
|
|
|
| |
Net income |
| — |
| 688,612 |
| |
|
|
|
|
|
| |
Liquidation of members’ equity |
| (30,000 | ) | (6,000 | ) | |
|
|
|
|
|
| |
Distributions to members |
| — |
| (3,290,629 | ) | |
|
|
|
|
|
| |
BALANCE, DECEMBER 31, 2004 |
| 28,228,500 |
| $ | 32,122,573 |
|
The accompanying notes are an integral part of these consolidated financial statements
F-6
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
|
| 2004 |
| 2003 |
| 2002 |
| |||
OPERATING ACTIVITIES |
|
|
|
|
|
|
| |||
Net income |
| $ | 688,612 |
| $ | 3,394,824 |
| $ | 6,612,726 |
|
Charges and credits to net income not affecting cash: |
|
|
|
|
|
|
| |||
Depreciation and amortization |
| 3,733,449 |
| 3,012,415 |
| 2,751,148 |
| |||
Minority interest in net loss of subsidiary |
| (676,792 | ) | (457,620 | ) | — |
| |||
Loss on sale of fixed assets |
| 5,136 |
| 1,325 |
| 30,288 |
| |||
Loss on equity method investment |
| 54,626 |
| — |
| — |
| |||
Non-cash patronage dividends |
| (107,773 | ) | (97,976 | ) | (28,964 | ) | |||
Change in current assets and liabilities (Note 13) |
| 8,266,518 |
| (3,892,022 | ) | (530,981 | ) | |||
NET CASH FROM OPERATING ACTIVITIES |
| 11,963,776 |
| 1,960,946 |
| 8,834,217 |
| |||
|
|
|
|
|
|
|
| |||
INVESTING ACTIVITIES |
|
|
|
|
|
|
| |||
Purchase of investments |
| (600,931 | ) | (4,076,686 | ) | (250 | ) | |||
Increase in member loans |
| — |
| (480,710 | ) | — |
| |||
Cash assumed with Urethane Soy Systems Co. |
| — |
| 38,989 |
| — |
| |||
Retirement of patronage dividends |
| — |
| 56,134 |
| 103,262 |
| |||
Purchase of assets held for sale - building |
| — |
| (14,742 | ) | (2,307,819 | ) | |||
Patent costs |
| (84,508 | ) | (53,000 | ) | (36,998 | ) | |||
Proceeds from sales of property and equipment |
| 3,500 |
| 41,960 |
| — |
| |||
Purchase of property and equipment |
| (1,209,852 | ) | (1,016,849 | ) | (4,645,020 | ) | |||
NET CASH USED FOR INVESTING ACTIVITIES |
| (1,891,791 | ) | (5,504,904 | ) | (6,886,825 | ) | |||
|
|
|
|
|
|
|
| |||
FINANCING ACTIVITIES |
|
|
|
|
|
|
| |||
Change in excess of outstanding checks over bank balances |
| 1,023,039 |
| (1,214,902 | ) | 2,026,870 |
| |||
Payments for liquidation of members’ equity |
| (6,000 | ) | — |
| 2,200 |
| |||
Distributions to members |
| (3,290,629 | ) | (2,539,827 | ) | (5,519,058 | ) | |||
Payments for debt issue costs |
| — |
| — |
| (6,500 | ) | |||
Proceeds from long-term debt |
| — |
| 9,489,103 |
| — |
| |||
Principal payments on long-term debt |
| (8,316,669 | ) | (1,671,889 | ) | (454,991 | ) | |||
NET CASH (USED FOR) FROM FINANCING ACTIVITIES |
| (10,590,259 | ) | 4,062,485 |
| (3,951,479 | ) | |||
|
|
|
|
|
|
|
| |||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
| (518,274 | ) | 518,527 |
| (2,004,087 | ) | |||
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
| 529,697 |
| 11,170 |
| 2,015,257 |
| |||
|
|
|
|
|
|
|
| |||
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ | 11,423 |
| $ | 529,697 |
| $ | 11,170 |
|
(continued on next page)
F-7
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
|
| 2004 |
| 2003 |
| 2002 |
| |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
| |||
Cash paid during the year for: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Interest |
| $ | 1,426,694 |
| 936,902 |
| $ | 628,636 |
| |
|
|
|
|
|
|
|
| |||
Income taxes |
| $ | 2,032 |
| $ | (131,474 | ) | $ | 520,000 |
|
|
|
|
|
|
|
|
| |||
Equity investment acquired from exchange of building |
| $ | 2,322,561 |
| $ | — |
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements
F-8
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Organization
On October 12, 2001, Soybean Processors, LLC (the “Company” or “LLC”) 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 an ownership interest in the LLC. Such units are subject to certain transfer restrictions. The LLC retains the right to redeem the units at the greater of $.20 per unit or the original purchase price less cumulative distributions through the date of redemption 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, or if a member becomes an owner (directly or indirectly) of more than 1.5% of the issued and outstanding capital units. The Operating Agreement of the LLC also includes provisions whereby cash equal to a minimum of 30% of available 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 was 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 Soyol®, 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 and principles of consolidation
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-9
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and cash equivalents
The Company considers all highly liquid debt instruments with maturity of three months or less at the time of acquisition to be cash equivalents.
Accounts receivable
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 inventories 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 from CHS.
The Company accounts for its 7% investment in Minnesota Soybean Processors using the equity method due to the related nature of operations and the Company’s ability to influence management decisions of MnSP. Under the equity method, the initial investment is recorded at cost and adjusted annually to recognize the Company’s share of earnings and losses of the entity.
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 expected discounted cash flows from the asset to the carrying amount of the asset.
(continued on next page)
F-10
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is 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 original file date.
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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when 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. The Company incurred $17,614, $7,885, and $10,275 of advertising costs in the years ended December 31, 2004, 2003, and 2002, respectively.
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 flows; therefore, no accrual has been recorded.
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 may be effective economic hedges of specified risks, they are not designated as, nor 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 futures contracts or options.
(continued on next page)
F-11
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 current earnings.
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 weighted average number of Class A capital units outstanding. 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 split is retroactively 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 the December 31, 2003 and December 31, 2002 financial information to conform to the current period presentation. These reclassifications have no effect on previously reported net income or members’ equity.
Recent accounting pronouncements
In November 2004, the FASB issued FASB Statement No. 151, which revised ARB No.43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criterion specified in ARB 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
In December 2004, the FASB issued FASB Statement No. 152, which amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real-estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
(continued on next page)
F-12
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2004, the FASB issued FASB Statement No. 153. This Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
In December 2004, the FASB issued a revision to FASB Statement No. 123, Accounting for Stock Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans.
A nonpublic entity will measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of those instruments, except in certain circumstances.
A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. A nonpublic entity may elect to measure its liability awards at their intrinsic value through the date of settlement.
The grant-date fair value of employee share options and similar instruments will be estimated using the option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).
Excess tax benefits, as defined by this Statement, will be recognized as an addition to paid-in-capital. Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset.
The notes to the financial statements of both public and nonpublic entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements.
(continued on next page)
F-13
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effective date for public entities that do not file as small business issuers will be as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. For public entities that file as small business issuers and nonpublic entities the effective date will be as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Management intends to comply with this Statement at the scheduled effective date for the relevant financial statements of the Company.
NOTE 2 - INVENTORIES
|
| 2004 |
| 2003 |
| ||
Finished goods |
|
|
|
|
| ||
Soy processing |
| $ | 5,913,666 |
| $ | (447,404 | ) |
Refined oil |
| 602,466 |
| 313,815 |
| ||
Other |
| 46,762 |
| 34,536 |
| ||
Total finished goods |
| 6,562,894 |
| (99,053 | ) | ||
|
|
|
|
|
| ||
Raw materials |
|
|
|
|
| ||
Soy processing |
| 1,950,568 |
| 10,696,391 |
| ||
Refined oil |
| 18,909 |
| 46,663 |
| ||
Other |
| 17,167 |
| 78,465 |
| ||
Total raw materials |
| 1,986,644 |
| 10,821,519 |
| ||
|
|
|
|
|
| ||
Supplies & miscellaneous |
| 51,964 |
| 53,936 |
| ||
|
|
|
|
|
| ||
Totals |
| $ | 8,601,502 |
| $ | 10,776,402 |
|
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, 2004, the Company had contracts maturing through December 2005.
(continued on next page)
F-14
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENTS
|
| 2004 |
| 2003 |
| ||
Investments in associated companies: |
|
|
|
|
| ||
Cenex Harvest States |
| $ | 3,516,592 |
| $ | 3,516,592 |
|
CoBank |
| 561,033 |
| 453,260 |
| ||
|
| 4,077,625 |
| 3,969,852 |
| ||
Other |
| — |
| 250 |
| ||
|
|
|
|
|
| ||
Totals |
| $ | 4,077,625 |
| $ | 3,970,102 |
|
NOTE 5 - EQUITY INVESTMENT IN MINNESOTA SOYBEAN PROCESSORS
|
| 2004 |
| ||||||||||
|
| Acquired |
| Distributions |
| Net Income |
| Asset |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Minnesota Soybean Processors, 6.95% ownership, at equity |
| $ | 2,923,992 |
| $ | — |
| $ | (54,626 | ) | $ | 2,869,366 |
|
In August 2004, the Company exchanged a 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. The Company is accounting for the investment on the equity method due to the related nature of operations and the fact that through the management services provided, the Company exercises significant influence. In connection with the exchange and in recording its respective share of the equity of MnSP, the Company recognized a loss of $54,626 which is included with other non-operating income (expense).
The Company also subscribed for 287,500 Class B shares in MnSP. The shares are 8%, Non-Cumulative Convertible Class B Preferred Stock sold at $2.00 per share for a total purchase price of $575,000.
Summarized financial information of MnSP as of December 31, 2004 and for the year then ended is as follows:
|
| (Unaudited) |
| |
Revenues |
| $ | 264,129,424 |
|
Expenses |
| 268,405,313 |
| |
Other income (expense) |
| (198,636 | ) | |
Net income (loss) |
| $ | (4,474,525 | ) |
|
|
|
| |
Assets |
| $ | 82,962,604 |
|
Liabilities |
| 47,064,524 |
| |
Equity |
| 35,898,080 |
|
(continued on next page)
F-15
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - PROPERTY AND EQUIPMENT
|
| 2004 |
|
|
| ||||||||
|
| Cost |
| Accumulated |
| Net |
| 2003 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Land |
| $ | 237,643 |
| $ | — |
| $ | 237,643 |
| $ | 237,643 |
|
Land improvements |
| 18,572 |
| 17,782 |
| 790 |
| 861 |
| ||||
Buildings and improvements |
| 14,290,569 |
| 2,958,748 |
| 11,331,821 |
| 11,734,400 |
| ||||
Machinery and equipment |
| 34,684,574 |
| 17,478,356 |
| 17,206,218 |
| 19,256,073 |
| ||||
Company vehicles |
| 165,840 |
| 90,628 |
| 75,212 |
| 9,312 |
| ||||
Furniture and fixtures |
| 841,099 |
| 722,492 |
| 118,607 |
| 134,921 |
| ||||
Construction in progress |
| 1,159,928 |
| — |
| 1,159,928 |
| 452,409 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Totals |
| $ | 51,398,225 |
| $ | 21,268,006 |
| $ | 30,130,219 |
| $ | 31,825,619 |
|
NOTE 7 - 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. None of these patent costs recognized for financial reporting purposes is expected to be deductible for tax purposes. 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 original file date.
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. Two remaining installments of $891,000 are due on October 31, 2005 and 2006 (see Note 9).
(continued on next page)
F-16
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information regarding the Company’s other intangible assets as of December 31, 2004 and 2003:
Intangible Assets |
| Life |
| Cost |
| Accumulated |
| Net |
| |||
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2004: |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 10 Yrs. |
| $ | 20,502 |
| $ | (7,862 | ) | $ | 12,640 |
|
Patents |
| 16 - 20 Yrs. |
| 7,745,947 |
| (845,900 | ) | 6,900,047 |
| |||
|
|
|
| $ | 7,766,449 |
| $ | (853,762 | ) | $ | 6,912,687 |
|
|
|
|
|
|
|
|
|
|
| |||
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 |
|
NOTE 8 - NOTES PAYABLE – SEASONAL LOAN
The Company has entered into a revolving credit agreement with CoBank, which expires April 1, 2005. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. The Company may borrow up to $15,200,000. Interest accrues at a variable rate (4.85% at December 31, 2004). There were no advances outstanding at December 31, 2004 and 2003.
Advances on the revolving credit agreement are limited based upon inventory and accounts receivable, net of soybean accounts payable.
(continued on next page)
F-17
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM DEBT
|
| 2004 |
| 2003 |
| ||
|
|
|
|
|
| ||
Revolving term loan from CoBank, interest at variable rates (4.85% and 3.47% at December 31, 2004 and 2003, respectively), secured by substantially all property and equipment. Loan matures March 20, 2011. |
| 7,940,777 |
| 15,281,832 |
| ||
|
|
|
|
|
| ||
Note payable to former USSC shareholders, due in annual principal payments of $891,000, interest at 0%, secured by USSC stock. Note matures on October 31, 2006. |
| 1,782,000 |
| 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 September 1, 2007. |
| 203,158 |
| 264,462 |
| ||
|
|
|
|
|
| ||
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 February 13, 2005. |
| 250,000 |
| 250,000 |
| ||
|
|
|
|
|
| ||
Note payable to various companies at rates ranging from 0% to 7.5%. Notes mature on or before March 16, 2009. |
| 26,654 |
| 49,964 |
| ||
|
| 10,202,589 |
| 18,519,258 |
| ||
Less current maturities |
| (1,216,438 | ) | (976,117 | ) | ||
|
|
|
|
|
| ||
Totals |
| $ | 8,986,151 |
| $ | 17,543,141 |
|
The Company entered into an agreement as of June 17, 2004 with CoBank to amend and restate its Master Loan Agreement (MLA), which includes both the revolving term loan and the seasonal loan discussed in Note 8. Under the terms and conditions of the MLA, CoBank agreed to make loans to the Company for up to $18,400,000. The available commitment decreases in scheduled periodic increments of $1,300,000. The available commitment as of December 31, 2004, was $17,100,000.
After the amendment to the loan agreement, the Company negotiated the minimum working capital level for future periods to be $6.0 million. In addition, its lender deferred the next two scheduled deductions to the available credit. The $1,300,000 reductions to the available credit will now begin in September 2005. As of December 31, 2004 the Company has working capital of greater than $6.0 million and is in compliance with its working capital covenant. Waivers for noncompliance were obtained at various interim periods during the year ended December 31, 2004.
(continued on next page)
F-18
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
It is estimated that the minimum principal payments on long-term debt obligations will be as follows:
For the years ending December 31: |
|
|
| |
2005 |
| $ | 1,216,438 |
|
2006 |
| 963,125 |
| |
2007 |
| 75,886 |
| |
2008 |
| 5,176 |
| |
2009 |
| 1,241,964 |
| |
Thereafter |
| 6,700,000 |
| |
|
|
|
| |
Total |
| $ | 10,202,589 |
|
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 income 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 was 34% prior to the reorganization. The State of South Dakota does not have a corporate income tax.
The provision (benefit) for income taxes were as follows:
|
| 2004 |
| 2003 |
| 2002 |
| |||
|
|
|
|
|
|
|
| |||
Federal income tax expense (benefit) at statutory rates |
| $ | 1,032 |
| $ | (131,474 | ) | $ | 520,000 |
|
A reconciliation of income tax at the statutory rate to the Company’s effective rate is as follows:
|
| 2002 |
|
|
|
|
|
Computed at the expected statutory rate |
| 34.0 | % |
Patronage exclusion (through June 30, 2002) |
| (34.0 | )% |
|
|
|
|
Income tax expense - effective rate |
| 0.0 | % |
The net book value of the Company’s assets exceeds the tax basis of those assets by approximately $12,330,000 at December 31, 2004.
(continued on next page)
F-19
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $58,000, $63,000, and $62,000 for the years ended December 31, 2004, 2003, and 2002, respectively.
The Company has a deferred compensation plan for key employees. The agreements have benefits, which vest over 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, 2004, 2003, and 2002 was $18,664, $30,237, and $21,064, respectively. The Company made payments of approximately $10,600 during 2004. Deferred compensation is recorded at $129,345 and $121,301 as of December 31, 2004 and 2003, respectively.
NOTE 12 - COMMITMENTS
The Company has operating leases for 337 rail cars from GE Capital. The leases require monthly payments of $137,316. The leases began in 1996 and have eighteen-year terms. The Company also leases 100 rail cars from Trinity Capital. This lease requires monthly payments of $38,300. Lease expense for all rail cars was $2,068,015, $1,903,367, and $1,703,279 for the years ended December 31, 2004, 2003, and 2002, respectively. The Company generates revenues from the use of 299 of these rail cars on other railroads. Such revenues were $1,794,012, $1,648,666, and $1,448,409 for the years ended December 31, 2004, 2003, and 2002, 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 $197,864, $328,079, and $628,306 for the years ended December 31, 2004, 2003, and 2002, respectively.
The following is a schedule of future minimum rental payments required under these operating leases.
|
| Rail Cars |
| Other |
| Total |
| |||
Year ended December 31: |
|
|
|
|
|
|
| |||
2005 |
| $ | 2,107,392 |
| $ | 41,315 |
| $ | 2,148,707 |
|
2006 |
| 2,107,392 |
| 30,616 |
| 2,138,008 |
| |||
2007 |
| 1,913,267 |
| 4,644 |
| 1,917,911 |
| |||
2008 |
| 1,616,292 |
| — |
| 1,616,292 |
| |||
2009 |
| 1,616,292 |
| — |
| 1,616,292 |
| |||
Thereafter |
| 11,010,294 |
| — |
| 11,010,294 |
| |||
|
|
|
|
|
|
|
| |||
Totals |
| $ | 20,370,929 |
| $ | 76,575 |
| $ | 20,447,504 |
|
(continued on next page)
F-20
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have an exclusive supply agreement with ACH Foods to provide its facilities with a consistent supply of refined and bleached oil on a general requirements basis. We have a fixed pricing established for the first five years, with the option to renegotiate the price thereafter. The oil is transported by rail from our plant to one of ACH Foods’ facilities, where it is further processed for the edible oil.
NOTE 13 - CASH FLOW INFORMATION
The following is a schedule of changes in assets and liabilities used to determine cash from operating activities:
|
| 2004 |
| 2003 |
| 2002 |
| |||
(Increase) decrease in assets: |
|
|
|
|
|
|
| |||
Trade accounts receivable |
| $ | 6,078,874 |
| $ | (8,786,716 | ) | $ | (3,465,073 | ) |
Inventories |
| 2,174,900 |
| 2,363,170 |
| (5,965,921 | ) | |||
Margin account deposit |
| (1,611,931 | ) | 1,114,848 |
| 187,654 |
| |||
Prepaid expenses |
| (24,097 | ) | (33,442 | ) | (223,820 | ) | |||
|
| 6,617,746 |
| (5,342,140 | ) | (9,467,160 | ) | |||
|
|
|
|
|
|
|
| |||
Increase (decrease) in liabilities: |
|
|
|
|
|
|
| |||
Accounts payable |
| (766,834 | ) | 275,240 |
| 171,112 |
| |||
Accrued commodity purchases |
| 2,148,041 |
| 1,342,767 |
| 8,466,777 |
| |||
Accrued expenses and interest |
| 259,521 |
| (198,126 | ) | 277,226 |
| |||
Deferred compensation |
| 8,044 |
| 30,237 |
| 21,064 |
| |||
|
| 1,648,772 |
| 1,450,118 |
| 8,936,179 |
| |||
|
|
|
|
|
|
|
| |||
Total |
| $ | 8,266,518 |
| $ | (3,892,022 | ) | $ | (530,981 | ) |
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:
|
| 2004 |
| 2003 |
| ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 11,423 |
| $ | 11,423 |
| $ | 529,697 |
| $ | 529,697 |
|
|
|
|
|
|
|
|
|
|
| ||||
Margin deposits |
| 1,424,422 |
| 1,424,422 |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt |
| 10,202,589 |
| 10,095,955 |
| 18,519,258 |
| 18,370,381 |
| ||||
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 carrying amount of accounts receivable, accounts payable, investments, and accrued commodity purchases approximates their fair value.
(continued on next page)
F-21
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
NOTE 15 - RELATED PARTY TRANSACTIONS
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 provided 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. Fees earned under this arrangement were $126,250, $1,245,205, and $1,241,591 for the years ended December 31, 2004, 2003 and 2002, respectively. The Company agreed to reinvest a minimum of 80% of the fees earned from MnSP in equity units of MnSP. During 2004, the Company exchanged a storage facility with a net book value of $2,322,561 as its reinvestment and paid cash of $600,931.
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 in late 2003. The Company earned fees of $1,047,193 and $226,985 under this arrangement for the years ended December 31, 2004 and 2003. As of December 31, 2004 and 2003, MnSP owed the Company $74,338 and $3,635,318, respectively.
In addition, the Company is providing up to $1 million in interest free loans, backed by members’ equity, available for members of the Company who choose to invest in MnSP. As of December 31, 2004, the Company had outstanding notes receivable 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. Management believes the risk of loss to be low.
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 $17,480,118 and $23,804,867 at December 31, 2004 and 2003, respectively.
Soybean meal sales accounted for approximately 60% of total revenues for the year ended December 31, 2004, 58% of total revenues for the year ended December 31, 2003, and 66% of total revenues for the year ended December 31, 2002. Approximately 32%, 37%, and 23% of these sales were made to one customer for the years ended December 31, 2004, 2003, and 2002, respectively. At December 31, 2004 and 2003, this customer owed the Company approximately $1,024,000 and $3,534,000, respectively. Refined oil sales represented approximately 37% of total revenues for the year ended December 31, 2004, 30% of total revenues for the year ended December 31, 2003, and 11% of total revenues for the year ended December 31, 2002. These sales were primarily to one customer. This customer owed the Company approximately $6,791,000 and $6,516,000 at December 31, 2004 and 2003, respectively.
(continued on next page)
F-22
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net revenue by geographic area for the years ended December 31, 2004, 2003 and 2002 are as follows:
|
| 2004 |
| 2003 |
| 2002 |
| |||
|
|
|
|
|
|
|
| |||
United States |
| $ | 225,511,056 |
| $ | 189,556,575 |
| $ | 140,597,284 |
|
Canada |
| 12,700,000 |
| 17,700,000 |
| 18,900,000 |
| |||
|
|
|
|
|
|
|
| |||
|
| $ | 238,211,056 |
| $ | 207,256,575 |
| $ | 159,497,284 |
|
NOTE 17 - STOCK OFFERING
The Board of Directors approved a registration statement to be filed with the Securities and Exchange Commission for the sale of additional units in a public offering. The maximum offering under the statement will be $11,250,000. As of December 31, 2004 the Company was waiting to commence sales of the capital units until the Securities and Exchange Commission declares the registration statement effective and the offering is authorized or exempted by the regulatory authorities in the respective states where the offering is planned to occur.
NOTE 18 - LEGAL PROCEEDINGS
From time to time in the ordinary course of our business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officers and employees, business interruption, automobile liability, and workers’ compensation claims. Except as described below, we are not currently involved in any material legal proceedings and are not aware of any potential claims.
On January 28, 2003, we were served with notice that we 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 our Chief Executive Officer, Rodney Christianson. The plaintiff, James Jackson, was an employee of USSC whose services were terminated shortly after we became the majority owner in early January 2003. Mr. Jackson claims that he was wrongfully terminated and that the defendants unjustly interfered with his employment contract and committed fraud in connection with our acquisition of a controlling interest in USSC. He is claiming nearly $1 million in compensatory damages and $5 million in punitive damages. Based upon our investigation of the facts surrounding the case, we believe that Mr. Jackson’s employment contract was not properly authorized and that his claims are substantially without merit. We are vigorously defending the action; however, we cannot provide any assurance that we will be successful in disposing of the case or that any costs of settlement or damages would not be material if we are unable to get the case dismissed. We have entered into mediation negotiations with Mr. Jackson, but have not yet reached a settlement agreement. Under the terms of our stock purchase agreement with USSC, we believe that we would be entitled to indemnification from USSC for our costs to settle or defend the suit, although since we now own 58% of USSC we will not receive dollar-for-dollar indemnification from USSC.
F-23
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE
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 sheets of South Dakota Soybean Processors, LLC as of December 31, 2004 and December 31, 2003, and the related consolidated statements of operations, members’ equity and cash flows for the two years then ended. In connection with our audits 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-24
INDEPENDENT AUDITOR’S REPORT
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 the year ended December 31, 2002, as contained herein. In connection with our audit 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 audit.
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-25
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
FINANCIAL STATEMENT SCHEDULE
|
| Balance at |
| Charged |
|
|
| Balance at |
| ||||
Description |
| Period |
| Additions |
| Deductions |
| Period |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
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 |
| $ | — |
| $ | (3,547 | ) | $ | 276,878 |
|
|
|
|
|
|
|
|
|
|
| ||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
| ||||
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
| ||||
Allowance for doubtful accounts |
| $ | 276,878 |
| $ | (248,987 | ) | $ | (109 | ) | $ | 28,000 |
|
F-26